Friday, March 19, 2010

Citi shows being roadkill is only natural

Citi has shut down its mobile P2P payments program (source).  Let us analyze the rationale behind their decision, and what this means to the rest of us in this and related spaces.

A lot of us in the 'payments innovation' space look down on the conservative bankers who are vary of payment innovations.  These bankers are even more vary of startups promising disruptive innovations that will change the landscape.  The data from the Citi P2P trials are both eye opening and stark.  We in the industry expect each passing year to be the break out year in mobile payments.  This year we are pinning our hopes on the iPhone.  But not much changes with each passing year, except mortality rates.

The numbers from the Citi trials paint a very sobering picture.  Less than 10% of the users used their phones for mobile banking (a pre-cursor to mobile payments), and a dismal 1% used their phone for P2P payments (source).

iPhone users will claim that the low numbers are because of the user experience.  If the users were given a intuitive user interface (and a vibrant market place built on iTunes Store), the adoption rate would be higher.  I don't doubt that claim.  However, would this change the outcome?

A startup would look at Citi's decision and conclude that a market of 3 million early adopters is very viable.  However, would such a market size/adoption rate be viable for other players (their partners) in the ecosystem (e.g., merchants)?

PayPal is an obvious success that each of us would like to reference to support our claim.  About 50% of online users have a PayPal account and about 50% of the top online retailers accept PayPal (US perspective).  PayPal is built on an ubiquitous platform (magstripe credit card platform).  In spite of such overwhelming numbers / market adoption, PayPal has under 10% of the online markets (based on Total Payment Volume).  The bottom line in payments is not the market share with issuers, merchants or consumers/cardholders.  It is the transaction volume, as it is this number that really brings in the revenues.

If you view the market stats released by Citi in this light, you will quickly realize why Citi arrived at the decision that it did, iPhone at best will only be niche offering, why bankers are conservative, why investors discount related business plans significantly.

The biggest banks and payment schemes have been rolling the dice and have been getting snake eyes.  I sometimes wonder whether those of us in the payments innovation space are just plain suckers for punishment.

I am sure you disagree with such a pessimistic post.  Would love to hear about your success stories and how you are doing things differently.

To conclude on a positive note, there are successes emerging in the payments space.  Social Networking, Gaming, Micropayments (around content licensing/consumption) is where you can find some of the green shoots.  These niches are worth hundreds of millions of users (target market), with a much smaller percentage being active users.  My Apple friends would see themselves in this category :-) (PayPal's iPhone app as an example)


  1. Manju...I think you make good points here. But you should probably take a look at the 1%/10% numbers you cite here...I believe those were from an unrelated IDC survey of consumer preference. I don't think these were usage figures from Obopay/Citi pilot.

  2. Jim,

    Thanks for reading the post and for the feedback. I got the 1% / 10% figures from the reference cited in the blog. However, I will review these stats in the context of Citi's pilot and the point the blog is attempting to make.

    btw, I love reading your blog posts.

    Best Regards,

  3. Personally I feel, that mobile P2P to succeed will depend on the marketing efforts of the all the Participants. All new things take time to succeed. The consumers have to be convinced that mobile payments are safe and cheap

  4. Prashant,

    In think in case of India, the complexities dramatically increase. Costs associated with meeting KYC norms to create P2P accounts and the cash culture that P2P goes up against, indicate that it would take more than marketing efforts for P2P to succeed. Nokia Money is gearing up to get started in India. Interesting times ahead.


  5. Manju
    Well once the Unique Identification Number(UIN) are in place, the KYC norms issue should not be there

    In India, TATA-Corporation Bank-Paymate have started this facility

    Unfortunately there are no statistics in the public domain, to indicate whether the above program was a success or not

  6. I somehow believe P2P payments model has to evolve much above banking models. i see wide range of applications in indian context given the person to person interaction we have. Most of the big banks maynt find it viable because they are risk averse and need to see big cash to adopt new technologies. Always fresh companies do disrupt the space.
    In india mcommerce is not doing as expected e.g mcheck or ngpay. the biggest problem is GPRS centricity and operator dominance.

  7. Murali / Alchemist: It is good to hear from you. Success stories in Indian P2P space will emerge by catering to both banks and MNOs. Current regulations provide space for innovation and for service providers to succeed. However, the mindset needs to be very pragmatic. Given the current environment, a business person has a greater chance of success than a technologist.