Mobile POS for Micro-merchants

I have been intrigued by the trend to accept mag stripe cards while on the go.  Mobile POS terminals have been used by large organizations for a while now (e.g., rental car drop-off).  However, acquirers did not find it cost-effective to offer similar services to micro-merchants (baby-sitter, handyman...) [US Market size/TAM of 26M].  The total transaction volume handled by these micro-merchants did not justify addressing this unmet need.  Payment received via cards by micro-merchants monthly can vary widely, starting from as little as nothing to thousands of dollars.  While most micro-merchants would like to keep their fixed costs to a minimum, those that wanted to have the facility to accept cards had very few service providers selling them this service [at a premium].

Note: This post evaluates the opportunities in the US market only.

Who cares about US mobile payments

The latest mobile payment announcement (Mercury NewCo) is note worthy.  AT&T and Verizon among them have over 170M subscribers, and would deploy 60M handsets annually (assuming an average of 3-year plans).  Assuming half of the handsets on offer support mobile payments, and a third of those subscribers activate their mobile payment service, we can expect about 10M new mobile payment cardholders each year.

It may not come as a surprise that nearly half a dozen banks offer MasterCard PayPass cards, and 10 issuers offer Visa PayWave cards. These banks have already deployed over 60+M contactless cards over the past 5 years.  There is a 1 in 3 chance that US readers of this blog have a contactless card in their wallet.

You might wonder why I jumped from mobile payments to contactless payments.  Elsewhere in the world, these two payments are synonymous.  I would tap my phone to pay for products/services.  Consequently, I am assuming that this latest announcement is going to be along similar lines.

King of grand vision and bold strokes

Reliance (RIL) led by Mr Mukesh Ambani re-enters the telecom market in India by acquiring Infotel (source) for about $1B.  Infotel, in the recently concluded auctions, won the pan-India Wireless Broadband license.  Why would a blog about payments and commerce care about this development?

Overview of RIL: As you might be aware, RIL is a major player in India's growing retail space.  RIL has been aggressive in experimenting with different formats of stores, business models, locations...  RIL, under the leadership of the older Ambani, has used a wide canvas and made bold and audacious strokes.  When RIL started Reliance Infocomm (since renamed to Reliance Communication), they were amongst the first telco to have Java on all their handsets.  RIL has been generating a lot of cash (cash surplus of $25B over the next 4 years [Source]) from its petrochemical business and needs new projects to deploy this cash.

RIL and Commerce: RIL's vision in communication is to make broadband-based TV, Internet and Phone affordable and ubiquitous (as they did with mobile phones/service in 2003 [Source]).  They plan on having

Higher transaction limit breathes life into a comatose market?

 Over the holidays, RBI (the Federal Regulator in India) raised mobile transaction limits to Rs50,000 per transaction (source).  A gripe by the mobile payments industry has been that the prevailing limit of Rs5000 per transaction was not sufficient, for e.g., to pay for an air ticket. What is the impact of RBI raising the limit for mobile payments in India?  I'll look at this question in the context of urban India.



A quick survey of the possible demographic segments that the new regulation would appeal to:
a. The 80% of urban India who carry cell phones were held back because of the low transaction limits
b. The upwardly mobile tech savvy Indian (early adopters) did not have access to mobile payments
c. Those who are already paying for their sundry expenses using their mobiles phones, but couldn't pay for their airline tickets though
d. None of the above

As you might have realized, this is a rhetorical question.  Mobile payments in India has been a big yawn.  Mobile payment service providers in India are struggling, or are re-inventing themselves to stay alive / relevant (related post).

In India, the dominant perception (Cash Culture) is that cash is a preferred way of living, leaving no trail behind, being anonymous and not attracting attention of the government.  This holds true for purchases related to both durable goods and consumables.  Let's look at the traditional factors driving mobile payments, cash handling costs / cash displacement) in such an Indian context.

• Merchant's perspective: Other than in exceptional cases, merchants prefer cash as they control / manipulate what is reported as sales, primarily for tax purposes (euphemism for tax avoidance)
• Consumer's perspective: Do not want to leave a trail of purchases [for tax authorities to follow]
• Significant part of India's retail economy lives in a parallel black market, some say as much as half of the economy!
  

Who would use mpayments in India
- Consumers who have and use credit cards and bank accounts, and merchants who accept them
- Organized retail
- Those interested in reducing customer service costs via self service channels

When you look at mpayments from the above perspective, there is a significant overlap between payment card users and mpayments target market. While this insight is not a revelation, in the context of India which has very few active card users (20-30 million active card users), the increase in transaction limits will do very little to the mpayment industry in India.  The change in the transaction limits has not raised the mobile payments market size which continues to be 20-30 million card holders (not the 500 million mobile phone users).

The above undercurent does not bode well for the industry.  If mobile payments changed the market size from 20 million to 500 million you get people's attention.  If the pie is only going to grow marginally bigger, there is little incentive for the various ecosystem enablers to invest resources and do the heavy lifting to deploy mobile payment technology. 

Look forward to dissenting or concurring opinions.  Have a wonderful 2010.

When selling shovels is more lucrative - Another look at Trusted Services Managers

It has been a year since I last wrote about TSMs (Sep 14 '08). As you might be aware, TSM is a third-party Trusted Service Manager. This organization would secure manage the card data in a mobile wallet on behalf of a card issuer. In some markets, a TSM is also referred to as a TTP (Trusted Third Party). Since the last I posted about TSMs, some water has flowed under the bridge.

• No visible signs of progress in deployment of NFC in the US
• Subtle changes in the go-to-market strategies of TSMs
• Incumbents are showing their preferences for roles in the post-NFC world
  

I came across Carol Coye Benson's blog Getting the Garden Ready, in which she speaks with Barry McCarthy, President of Mobile Commerce Solutions for First Data. This conversation provides a glimpse of the changing landscape in the TSM space. When Carol talks about Getting the Garden Ready, I hope we are not talking about yet another walled garden. We seem to have enough of such gardens from telcos!

First Data's interest in being a TSM is understandable. They have been providing card issuing services to banks (to 1500 issuers), and would like to continue to have this business. Allowing a third party TSM (e.g., Venyon) to establish relationships with banks/issuers to provision credit cards to mobile wallets would limit the growth of First Data. For First Data, adding TSM capability provides them the ability to deliver cards thru' another channel. Finally, it does not make sense for First Data to contract out card management services on mobile wallets with a TSM (adds another layer of unsustainable overhead).

As you might already know, the industry has a role called Issuing Processor. First Data is an Issuing Processor. They provide issuing services on behalf of a Card Issuer (e.g., a small bank or Credit Union). Card Issuing services include embossing cards, shipping cards and PIN mailers to consumers, activating cards, being part of the [payment] transaction authorization chain... For these services, a Card Issuer (e.g., Credit Union) would pay a fee to the Issuing Processor (e.g, First Data).

The First Data case study provides a feel of where the TSM road is leading to. Each issuer [or issuing processor] (payment card, loyalty card, coupon) will try to provide TSM services themselves so that they protect the client relationships that they have. This implies that the mobile wallet would be managed by the telco/MNO [as a TSM]. There would be containers inside the mobile wallet which would be managed by issuers (payment, loyalty, transit, coupons...). Each of these issuers would be a TSM managing their containers / sub-wallets.

So, what happens to existing TSMs (e.g., Cassis, Venyon, Vivotech...) who have been participating in the many NFC field trials taking place around the world? These TSMs would try to morph themselves into software / platform vendors (the trend has started). Based on the TSM's relationships, they would sell their platform and professional services to the many issuers (telcos, banks, transit companies...) who need these TSM platforms.

This may actually be good news to existing TSMs. There may be more money in selling shovels than in prospecting for gold, i.e., there might be more money in selling TSM platforms than in being a TSM.

What are your thoughts?

Related Post: Does somebody have an edge?

P2P use cases will get NFC started in the US

I came across an interesting post by Celent on Mobile NFC. This report claims that cash displacement is the main motivation behind Mobile NFC deployment. The report claims that there will be an annual revenue increase of $1.83 per debit card for banks.

I agree that cash displacement is a major driver. For small-value transactions, e.g., at a fast-food restaurant or at a drug store, both the merchant and the consumer would like to get thru' the checkout lines quickly. Eliminating cash handling, doing away with signatures for payment card authorizations are definitely desirable.

If banks stand to make $1.83 per card per year from Mobile NFC, there is very little incentive for mobile operators to invest in NFC technology on handsets in the US. Payment cards, the purported killer app in mobile NFC, become marginal. Other apps on Mobile NFC, such as, Loyalty cards and coupons are stretch goals and would become difficult to fund.

Looking at Japan as a trendsetter, Lars (Mobikyo, Japan) had these insights to share:

• Cash replacement is a major use case across a variety of locations, including quick-serve restaurants (QSRs), convenience stores, transit (trains, buses and taxis) and vending machines
• Exchange of information is a major category: Smart posters providing coupons, receive and redeem coupons, tickets..., access information (to unlock a PC)...

These use cases have been the mantra of NFC practitioners the world over. What is daunting about these use cases is that the 'network' is a critical component, which makes NFC deployment a classic chicken-n-egg situation.

P2P (Peer-to-Peer) use cases may help break the NFC logjam in the US. For e.g., when I buy my fancy mobile phone with Bluetooth (obviously this is a 2005/6 scenario), all I need is my fancy Bluetooth headset to start using Bluetooth. I don't have to wait for the ecosystem to be enabled and up-n-running. This instant gratification is necessary for people to fork out their valuable money for new features/gizmos, and get the market going.

We need such P2P instant gratification use cases for Mobile NFC. Exchange of business cards is an example of P2P mobile NFC (if you recall, this use case was used during the early days of Bluetooth as well). However, these uses cases have to substantial (from a business model perspective, to justify OEMs/operators to invest in NFC).

What do you think will help get mobile NFC started in the US?

Impact of Nokia Money on India's mobile commerce landscape

In light of the announcement of Nokia Money, I would like to analyze this development in the context of mobile commerce in India.

Nokia Money is an attempt by the world's largest mobile phone vendor to deploy mobile commerce commercially. Before we dive deep into this post, let's have a quick background on this topic. Nokia invested $70 million in Obopay (analysis). Leveraging their investment in Obopay and the infrastructure that Obopay offers, Nokia brings Nokia Money to market. Also, you may recall that Obopay powers MasterCard Mobile MoneySend (link).

I suspect that Nokia Money will be available on every Nokia mobile phone. Considering that the mobile operator does not subsidize handsets (and consequently control mobile phone configuration) in India, Nokia will be able to take its mobile payment product to market directly.

Financial regulations are a critical piece of any mobile payments puzzle. It is no different in India. RBI, India's financial regulator, unvieled their policy on mobile payments (link). They allowed a fund transfer limit of INR5000 (approx $100) and a daily transaction limit (for goods and services) of INR 10,000 (approx $200). Considering that the biggest sector in India's ecommerce is Online Travel (over 2/3 of ecommerce market), the mobile commerce industry was up in arms claiming that these limits were too constraining [to buy air tickets?].

mChek is the leader in mobile payments in India. Airtel, India's largest mobile service provider, is mChek's first partner. mChek has been used for bill payments, charging airtime (mobile topup)... mChek crossed a million subscribers in January 2009 (link). Airtel SIM cards have mChek on its menu. Other Indian telcos are following this trend.

Obopay does not seem to have crossed the critical 1 Million subscriber mark (otherwise we would have heard about it, right?). By that measure, Obopay / Nokia Money is the challenger. Other service providers in this space include PayMate, ITZCash and NGPay.

A study (June '09) commissioned by Paymate and AC Nielsen estimates the mobile commerce market in India at 5 million users, and is primarily urban and male-centric.

Now that you are updated on history, let us look at the future. How does Nokia Money change the landscape of mobile payments in India? Is the entry of Nokia Money going to change the dynamics of mobile commerce and create a thriving marketplace for small payments (similar to what Nokia did for mobile phones in India)? Are operators better positioned to offer mobile payments?

Will this competition create confusion? For example, to an Airtel subscriber using a Nokia phone, there will be two mobile payment choices and the user can't differentiate the subtle differences between a phone offering and an operator offering. How will the message be packaged in such cases? Will Nokia Money choose to go rural and Aitel/mChek focuses on urban audience? For all the promise of mobile payments in emerging countries, 5 million users in a userbase of over 350 million is dismal.

Who and where will the mobile commerce battles be fought in India? What are your thoughts?

Platform is the future. What is the platform, though?

Google recently announced that they would launch Chrome, the OS. Then followed analysis of whether this was the right thing for GOOG to do or not (related post from thecatalystcode). It might be helpful to take a step back to see the undercurrents behind GOOG's decision.

This post attempts to shed light on the strategies being pursued by Google, Apple, Nokia and Microsoft to subsume as much value for the ecosystem.

Thin is in: Google is focusing on getting the market to go thin, use the cloud and cloud-based resources. In so doing, it can use its ad-support freemium business model to skew the advantage in its favor. It gets the end-users hooked on free and thin, by being the purveyor of thick. The thickest client that exists on most of our machines is the browser. Therefore, Chrome, the Browser.

These days, browsers have subsumed so much of the value of the software layer, it is getting easier to commoditize the OS. However, for the browser to be in charge of its own destiny, having control of the OS is desirable. So we have Android and Chrome the OS.

Google in charge of the browser and OS, in an ad-supported freemium world, takes in most of the value and chokes off oxygen (aka revenues) from most everybody else. In such a world, it is a slow bleed to lower ASPs and commoditization. Ask anybody in the value chain who sits below or above Google, and they will attest to this.

App Store is the platform / Thick is it: Apple's strategy is to enable the app developers to leverage investments in cutting-edge hardware, design and usability. Innovation by the third-party developers / value-added service providers helps increase the relevance of iPhone to the end-users. In so doing, Apple can command a larger ASP, have a direct channel with end-users and commoditize the MNO (e.g., AT&T). Additionally, thick client is part of Apple's platform strategy as iPhone native apps help keep the iPhone differentiation front and center in the minds of end users. A corollary to the above strategy of Apple: Hardware is not a commodity. Use the platform to extract premium for the hardware. Apple's vertical integration of the stack comes in handy, as well.

Nokia: They have as good a vertical story as any in the mobile space. They control the hardware (Nokia the OEM), the OS (Symbian), Browser (based on open source WebKit)... They have an App store as well (Ovi). In many parts of the world, Nokia has a direct market presence (unlike the US, where the telco offers the phones to consumers). However, they find themselves in unfamiliar territory. Downloadable apps and value-added services was the domain of their partner, the MNO. Though Nokia has a vibrant 3rd party developer community (Forum Nokia), consumers getting to a mobile app was largely dictated by the MNO's on-deck decision. Though it was possible for side-loading an app and folks like Handango have been active in the 3rd party mobile apps marketplace, loading mobile apps after you got the phone was an exception. Please note that this behavior has very little to do with SMS, 2G, 3G..., or with the purchasing capacity.

Why is the App download problem important to Nokia? Up until the iPhone came along, all of us were happy with our phones the way they were. In a post-iPhone world, the local relevance and the global connection seems diminished if the phone does not have an easy way to get apps and utilities, however trivial they may be.

What is Microsoft's strategy?. As they do not have hardware, the Apple App strategy has limited value for MSFT. As App stores have become a business imperative, MSFT has its version. The ad-supported freemium model is one which they have been trying to crack for a while now. They have the cash flow to ensure they have runway space while they attempt to take off. For sure they are the incumbent, even in a Google's Thin is In strategy. Will Bing get them down this path is a billion dollar question. MSFT's strategy on mobile devices seem to be weak and their PC story is flailing. Only time will tell, whether MSFT's irons in the fire will result in anything meaningful to change their trajectory and destiny.

Do you think that hardware can be commoditized, and that platform is the key to migrating value?

Inserted 26th July 2009: I took a related survey recently (please let me know the name of the site as I do not recall the name) which complements this post:

What is the future of mobile?
Google is right Web apps will win against native 22%
Google is wrong App Stores will still be big 39%
Apple will win Native apps will trump web apps 20%
I dont care : 17%

Total Votes: 4213

Influencer or the King

It is a paradigm change. It's hype with little relevance. It's the future. It's US-centric obsolete technology that the rest of the world has gone past...

The above are some of the comments associated with the iPhone. Which of the above are true? All of them? None of them?

Does the iPhone represent a minority viewpoint (US / IT press) or is it a trend of things to come?

iPhone has been a game-changer with innovations including:

• Native applications that are custom built to take advantage of the platform capabilities (Gartenberg's comments, analyst with Interpret)
• Smartphone platform (App store and iPhone SDK) being an integral enabler of the smartphone value
• Device that lends itself into app download and mobile browsing. Though iPhone has about 10% of the smartphone marketshare, it commands a disproportionate 32% of mobile internet market share (Source: Admob). Nokia has 40% market share of mobile devices and a similar share of the mobile internet market.
  
• Did Apple open the pandora's box with their App Store. Though we've had 1.5 billion downloads to-date, Juniper predicts that the industry would reach an annual 20 billion app downloads per year by 2014! (Source: Juniper Research and Mobile Innovation)
  

On the other hand, iPhone is a footnote in many international markets for some of these reasons:

• Would an audience used to cutting-edge hardware, such as, 12 Megapixel camera, settle for the 3 Megapixels that iPhone offers?
• Would the global market place used to variety of smart phones to select from settle for a model-of-the-year offering from iPhone?
• Can the tail wag the dog? Can US consumers with only 8% of smart phone market share or iPhone with 10% global market share challenge the market leader Nokia
  

Apple and iPhone are today's shiny toys. The question is whether they will continue to change the nature of the smart phone market place while lingering in the back, or will they mount an attack and displace the leader Nokia?

What are your thoughts?

US Proximity mobile payments round the corner

The standard refrain around mobile commerce commercial deployments [in the US] is:

• Far East (Japan, Korea, Hong Kong) has been doing this for years. The rest of the world can use this roadmap
  
• Western Europe and US are more competitive/freer markets (as opposed to a handful of dominant players in Japan/Korea), and therefore, have to chart their own course (implying Far East's success is not readily transferable)
  

Business model (the 800# gorilla in the room) aside, I take a whack at understanding what Japan has done and what the 'western' world can learn from it:

Japan 2008-09 (tipping point?): 25% of POS terminals support contactless (400K out of 2.1 million); 40 million of the 90 million mobile phones have contactless / proximity payment capabilities; 780 Million payment cards, 80 million contactless cards, 10 million mobile electronic wallets enabled for contactless payments. Additionally, keep in mind, transit is an intrinsic part of life in Japan where majority of the urban population uses contactless technology.

US retail market: 8 million POS terminals deployed out of which less than 800K have contactless readers; 900 million payment cards in circulation, 400 million cards active, 80 million contactless cards. Needless to say, no phones, mobile wallets... (for proximity payments).

When will the US reach tipping point: Contactless cards getting into wallets of consumers seems to underway. As part of the card replacement cycle, by 2011-12, US might have 300 million cards deployed. At which time consumer education around contactless cards [in our wallets] will start. By 2012, we might have 3 million contactless readers, deployed primarily at cash replacement verticals and industries/stores with higher fraud rates. Given this picture, MNOs (e.g., AT&T, Sprint) will offer proximity payments in their handsets starting in 2012.

What else needs to change: Payment/Debit networks rules around PIN and contactless have to change to enable, for e.g., PIN debit via contactless [for amounts greater than $25] (Thanks to Scott for pointing out the nuance around Debit & PIN).

As deployment of contactless cards and readers takes place, MNOs will work out business models and place orders for phones. We have more than a couple of years to get there.

Do you agree with the above assessment. If this true, would startups serving this market survive till then? If so, how? What can the industry do between now and then to prepare?

Thanks to Steve, Japan for leading me to some of the stats used here.

Disclaimers: Figures mentioned are ball-park numbers, and are at different points in time. The figures are meant to provide a context to the discussion and to the point being made.

1 - K used above indicate thousands of units

CTST2009 - Conspicuous by their absence

I am at New Orleans attending CTST Americas 2009, the annual conference of the Smart Card Alliance. The Smart Card Alliance is an industry consortium of participants in the smart card industry, such as, smart card vendors, personalization equipment vendors, personalization bureaus, banks, processors, payment brands, standards bodies... The industries active in this alliance are Payments and Identity.

Notable topics discussed today, the first day of the conference, included government regulations, identity theft/fraud and privacy. As can be expected, mobile phones are impacting this group, especially in the payments space.

Throughout the conference, a track of sessions has been dedicated to mobile payments. The mobile payments sessions discuss usage scenarios, security, privacy, business models, results from pilot deployments, steps necessary to go commercial by learning from pilots, how the smart card and payments industry will work with the Mobile Network Operators (MNO), primarily from a business model perspective (sharing revenues)...

However, conspicuous by their absence were the MNOs themselves. MNOs were not speaking at any session. Other than one MNO, they were not even attending the conference. From their perspective, this forum does not even exist!

Correction: GSMA participated in one session on Day 2, which by proxy, implies all operators were present?

A few of the mobile handset vendors were present, only in the margins.

Does this mean that the MNOs are going to dictate terms? Are there other forums/fora where these public discussions are taking place. What does this say about the Smart Card Alliance and the CTST Americas conference? Would Cartes Americas replacing CTST help?

What are your thoughts? If you have any feedback, I'll try to get you answers while I am at the conference.

Cinco de Mayo greetings to all!

Freemium: What would consumers pay for

Freemium business model seems an appropriate way to attract people to a service, while trying to make the business sustainable/profitable. However, what aspect of the service would somebody pay for?

From a service provider perspective, getting your audience to become subscriber is preferred. Event-based premium content (akin to pay-per-view) is a good bridge to get from the free world to the subscription world.

What kind of events would somebody pay for? One of my friends has been working on trying these models for a couple of years now. He said live data is the key. As a consumer I can relate to it. Live data can be multi-faceted:

• Get access to information/event before others. Data services for businesses have been doing this for a while now.
  
• Experience an event while on the run/road. Popularity of smart phones is driving this category. A significant portion of the billion Appstore downloads are of this segment.
  

There might be related information for which folks would pay for:

• Inform when a friend/contact is in the vicinity
• Event of interest taking place in the vicinity
  

The above is a pull-push model. Based on personal filter settings (static data) and location details (dynamic data), the consumer 'pulls' events of interest (primarily in the personal/social space).

Prima facie, a service that can take advantage of the above triggers would require:

• Support for mobile devices, as the above use cases involve user mobility
• Sophisticated push engine: The success of BlackBerry service was based on their push model. If the guy pulls something, chances are that he wouldn't pay for it!
  
• Micro-payments: Each of these events are atomic, and paid for prior to consumption
  
• 1-click / Integrated payments: Make it easy for the consumer to get to what they want
  

The Apple Appstore is turning out to be a platform where interesting experiments are being tried as folks figure out a way for consumers to pay for services (more about this in another blog).

While on the topic of what consumers would pay for, would they pay for:

• Identity: Would a parent pay to ensure that adults don't participate in kids conversations (for e.g., at a chat room)?
• Security: The site must be secure, and that the information you share with the service is secure. To most people, this sounds like hygiene and should be covered by the service provider
  

What are your thoughts? Love to hear from you.

PS: Advertising revenues from businesses targeting the audience of the service is assumed to be a source of revenue.

End of independent mobile payment players?

It is difficult to have missed the news (here, here, here) about Obopay receiving $70 million from Nokia. This is on top of the earlier round (Series D) of $20 million in April 2008.

What does this investment indicate:

• Obopay's CEO is skilled in raising money (you'll find this interview interesting)
  
• Mobile payments industry is at an inflection point, and on the verge of take-off
• Nokia sees Obopay as best suited to take advantage of the opportunity.
  
• Nokia is seeing Obopay as its next billion dollar baby?
  

One of the signs of an emerging industry crossing the chasm is investments from the large players. This happened in the email space (Microsoft buying Hotmail...), Online Advertising (Yahoo/Blue Lithium; Microsoft/aQuantive)... Startups many a times do not have the ability to scale quickly to address the available market efficiently. Alternatively, the economics of the space do not justify a startup building out the sales, delivery and service infrastructure. In such cases, an existing player buys a startup to either move up the value chain or to increase the breadth of their offering.

Does Nokia's interest in Obopay suggest this?

Obopay has alliances with scheme operators (MasterCard), banks (Citi, Yes), carriers (Verizon) and device vendors (Qualcomm, Blackberry, Nokia).

Any of the above partners could have made a large investment. Qualcomm in an existing investor in Obopay. Does Nokia's investment indicate that the device vendors have an inside track to leverage the mobile payments market. Would a payment scheme operator or a telecom operator have been able to grow the mobile payments market better than a mobile device vendor?

In terms of registered users and money flowing thru the system, PayPal mobile seems to be the front-runner in mobile P2P payments in the US. mChek seems to be the front-runner in India.

Does Obopay have strategic alliances or IP that can block these early leaders? Can Nokia help Obopay move ahead. Has there been any development in the recent past to indicate the slumbering mobile payments industry is getting ready to sprint?

Are mChek and PayMate next in line for a bear hug?

What are your thoughts?

Paypal Mobile: Is it a non-starter?

I was reading Carol Coye Benson's blog about cash going away. Such posts catch my attention and got me thinking. Why are we not using P2P (peer-to-peer) mobile payments when friends/colleagues have to pay each other (splitting a meal tab...)? A related question is why has Paypal not been able to make mobile payments more successful/ubiquitous? This question is topical, in light of Ebay's recent focus on Paypal and its mobile offering (2009 Analyst Day presentation).

First, a background of the offering. Paypal mobile has been around for over 2 years now. Paypal has over 70 million active users. The cost for individuals to make payments to each other is free (other than the cost of the SMS charged by the telco, if you are using SMS/text). Paypal does not charge individuals any fee to load their wallet from a DDA/bank account. They do not charge individuals any fee to withdraw the money back to their DDA/bank account. In summary, Paypal's mobile payment service is free to individuals to pay each other. It is reasonable to assume that most of Paypal's active users in the US have a mobile phone (see Tomi T Ahonen's post). However, I would assume that only single digit percentage of active users have registered for mobile payments.

I suspect we, as consumers, do not use Paypal mobile as we have not made the necessary shift in our lifestyle. There has been no incentive or education for us to incorporate Paypal Mobile into our lives. No major ecosystem player has encouraged the use of Paypal Mobile.

Why is Paypal not pushing their mobile offering? Paypal mobile is an opportunity for Paypal to move from the online payments space to the physical world. Peer-to-peer payments seems to be a low hanging fruit in Paypal's retail payments strategy. Or is it?

Let's look at why physical merchants (the kind Carol visited in Oregon) have not embraced Paypal mobile. The cost of acceptance seems to be the first place to look. For most small vendors, Paypal fees work out to about 3.5%. This is a pretty high cost.

Acquirer/ISO recruit merchants and help them in accepting [new forms of] electronic payments. Is the absence of such a partner in the Paypal Mobile ecosystem affecting adoption?

Are mobile payments still an oxymoron? Is Paypal not interested in physical retail payments (aka Paypal Mobile), as it sees lots more growth in the online world? Would love to hear your thoughts?

Role of FeliCa cards in mobile commerce

With ABI Research reporting that commercial NFC deployments expected by 2013, the question is what technologies would people use for mobile commerce until then?

If mobile in mobile commerce implies mobility and not necessarily a mobile phone, then the lowly card form factor comes to mind as a possible option. Coincidentally, I came across a news article about Sony releasing a new version of PaSoRi, their PC/VAIO smart card reader/writer.

PaSoRi, in conjunction with both phones and cards, are being used for online commerce, topping transit tickets, gaming... Having said that, FeliCa cards are still the dominant form factor while mobile FeliCa (phones) is gaining traction and momentum. FeliCa cards and mobile FeliCa have been doing very well in both brick and click commerce.

What are your thoughts of the dominant mobile commerce technology over the next 5 years? What interim role can FeliCa cards play in mobile commerce? On a related note, is PaSoRi and FeliCa cards helping Sony sell more VAIOs and differentiate themselves from the competition?

ITSO mobile phones

It was heartening to read about the field trials of ITSO compliant phones (Consult Hyperion) in UK. ITSO is an industry organization to promote interoperability between UK Passenger Transport Authorities / Operators and related organizations.

ITSO was formed to build and maintain a specification for secure 'end to end' inter-operable ticketing transactions, utilising relevant ISO and emerging CEN standards.
[From ITSO - About Us ]

In the contactless space, UK seems to be speeding ahead of the traditional smart card leader, France. The payments cards deployment and now a standardized inter-operable transit solution, UK is putting in place the basic building blocks

It is interesting to note that both the payments space and ITSO provide support for loyalty. However, there is no standard, that I am aware of, for loyalty on smart cards (at least for applet interaction between 'card' and 'reader'). Support for loyalty by both standards recognizes the valuable grease for the wheel. However, lack of standards in the loyalty space might indicate a choke point for commercial scalability.

O2 is the operator who is the common thread for both the payments field trials in London, and the ITSO trials with the NoWcard. It would be interesting if Venyon, the OTA service provider for the London payments field trials, is also involved in the ITSO field trials (though not mentioned in the CHYP website). Finally, it would not be surprising to find out that the O2 SWP phones (SIM as a secure element) used in the payments field trials is being used in the ITSO trials as well.

Could banks take the lead in ushering in NFC phones?

Innovative and aggressive banks are trying different approaches in the marketplace to break the deadlock that has stalled NFC mobile devices getting to market. Banks with strong acquiring/merchant and card issuing business have an incentive to deploy NFC mobile devices, while not waiting for the MNOs to show up. These approaches include:

1. Bank sets up MVNO. e.g., Rabo Mobiel
2. Bank issues / distributes NFC phones, might start off this journey by distributing NFC tags. E.g., Garanti Bank, Turkey. The user retains their MNO
   
3. Bank subsidizes phones with separate secure element
   

Bank sets up MVNO and offers cutting edge financial services, including NFC phones. Example: Rabo Mobiel. Rabo Bank is a Dutch-based bank. Rabo Mobiel is a MVNO which offers value-added retail and financial products and services, in addition, to traditional telco services

Advantages:

• Bank can offer subsidized phone with optimized features (e.g., SIM but no separate secure element)
  

Disadvantages:

• To keep costs down, the phones offered by the MVNO would be basic no-frill devices. This may not appeal to early adopters or to niche audience
• Bank may not have core competence in being a MVNO
  

Where could this work: Europe

Why:

• MVNOs have been more successful in Europe
• Smaller markets with reasonably homogeneous demographics
• Aggressive banks could use this tactic to challenge incumbents
  
• MVNOs have had a tough record in the US, as it is difficult to appeal to a broad enough range of audience to reach critical mass. After the events of this week, I do not see any US bank having an appetite for such risk
  

Bank offers bank-branded NFC phone (separate secure element), with the user retaining their existing MNO/service provider. An early variation of such an offering could be Garanti Bank, Turkey providing NFC tags to its customers

Advantages:

• Bank has access to secure element on phone to provision cards...
• Bank does not have to get into a MVNO business, which typically is not the bank's core competency
• Bank can optimize the mobile device to suit its requirements
  

Disadvantages:

• Phones offered by the bank could be basic no-frill devices, which may be rejected by the larger audience
• Users not anxious to give up their existing phone as this is a personal device /statement
• Bank issued phone may not be a good enough phone (neither fish nor fowl)
  

Where could this work: Asia

Why:

• Users in Asia typically buy their own phones. This offering might appeal to the burgeoning value-conscious middle-class in China and India
  
• A weak MNO in the US could work with a strong Bank and an open phone (did somebody say Android) to help MNO's sales and perception in the marketplace.
  

Bank works with device vendor (e.g., Nokia) to offer co-branded phone: Bank partners with device vendor to subsidize NFC phones (with separate secure element)

Advantages:

• Consumers get choice of phone. No compromise in device features
  
• Cost of separate secure element not passed on to the consumer

Disadvantages:

• Would not work where consumers typically get their phones from their MNO (tied to a contract) as the MNO controls the BOM/configuration of the phone. E.g., US
  

Where could this work: Asia

Why

• Consumers buy their own phones.
  
• Device vendor has better brand presence and distribution channels