Revolution Money getting acquired by American Express is closing of an interesting chapter (18 Nov 2009). When this venture started, there was a lot of hope (or hype on hindsight) around the disruptive innovation Revolution Money was bringing to the staid and conservative world of payment schemes.
Over the past 10 years, many have attempted to challenge the market dominance of Visa and MasterCard (with a smaller role being played by AmEx and Discover). The only notable success has been PayPal. This speaks to the challenges of creating a new payment scheme, and the credit PayPal deserves for being the lone [recent] success. While PayPal established its business using online payments as their beach-head, Revolution Money took the battle to the stronghold of the incumbent payment schemes, the brick-n-mortar retailer.
Revolution Money with its investors and management team seemed to have the right pedigree required for such a challenge. They raised a war chest of $112 Million. It turned out that building relationships with acquirers and merchants was the easier task. They had relationships with Fifth Third and Cardinal Commerce. Leveraging these key ecosystem players, Revolution Money was able to sign up nearly a million merchants. This was the target they set themselves early on, and reached it. The challenge came in the form of signing up new customers. They had signed up 300k customers, which included signing up some with a $25 bounty. They had a target of 1 million customers as well.
With the 0.5% merchant discount rate that Revolution Money was charging, retailers had an incentive to accept Revolution Card. In verticals such as gas stations, consumers got the benefit of using their Revolution Card, lower prices at the pump. However, such instant gratification was frequent and sufficient enough to change their behavior and adopt their Revolution Card as top of wallet. Consequently, customer acquisition and transaction volumes (or lack thereof) brought down the company. In some ways, the challenging economy in the US over the past 12 months was a double-edged sword which the company could not effective wield to their advantage.
Let us look forward. Revolution Money's investor came out OK. A 2-3 times return in today's investment climate is not bad. From an AmEx perspective, they are getting a lower-cost data center which might be of marginal value. A lower-end mass market product to complement AmEx's existing product line might be the real prize. The AmEx brand would help consumers sign up for and use the Revolution card. Revolution Money might also make AmEx more relevant in the online payments space.
Having said that, like any other startup, Revolution Money had multiple product lines, including Revolution Card, Revolution Money Exchange. They were also waging battles on multiple fronts (online, money transfer, physical retailers). In the near term, there might be sharper focus to increase chances of success. Given AmEx strengths, I suspect that the focus would be physical retailers, and try to grow the customer base and transaction volume.
Where do you think Revolution Money is heading as an AmEx product?
PS: Given Revolution Money's focus on the US, this writeup has an US perspective
Tuesday, November 24, 2009
Tuesday, November 17, 2009
Notes from Cartes 2009 kick-off sesssion
Notes from Cartes 2009 kick-off session held on Tuesday Nov 17, 2009 (lacks editorial polishing as this was captured as the session was in progress)
Session participants included senior executives from Gemalto, Oberthur, Sagem Orga, G&D, Infineon, NXP, Hypercom, Ingenico, Visa Inc. and MasterCard
Market macro trends
Credit is down, and will stay down
- Debit and prepaid is still growing
- Electronic payments will grow even though overall economic growth slows
- Price pressure is converting volume growth to reduced top-line (near-term)
- Reduced innovation dollars available
- Customers are downgrading the card capabilities (e.g., 64kb to 32kb)
- South Africa & Latin America showing growth
Government e-ID initiatives:
Growth areas in the smart card industry:
Session participants included senior executives from Gemalto, Oberthur, Sagem Orga, G&D, Infineon, NXP, Hypercom, Ingenico, Visa Inc. and MasterCard
Market macro trends
Credit is down, and will stay down
- Debit and prepaid is still growing
- Electronic payments will grow even though overall economic growth slows
- Price pressure is converting volume growth to reduced top-line (near-term)
- Reduced innovation dollars available
- Customers are downgrading the card capabilities (e.g., 64kb to 32kb)
- South Africa & Latin America showing growth
Government e-ID initiatives:
- An important distributor of cards
- Competition among government to be a 'model govt', thereby helping create frameworks around privacy, data protn, post-issuance downloads
- Govt is helping smart card industry as they engender high-level of trust among citizens/consumers. They are also helping educate consumers to bring about behavioral change
- In some cases, they are also loading other apps (for their own services) after the cards have been issued
- Early adopters are countries which have about 20-50 million citizens, which include Estonia, Singapore, Taiwan, Columbia, countries in the Middle-East...
- Brings about efficiency in the delivery of services by the government, as well as, increase in convenience and productivity for the citizens.
- Examples including US government issuing Visa prepaid cards in 38 states to distribute subsidies, Pakistan and Dominican Republic using prepaid cards to get subsidies to their citizens
- Adds another demographics group as smart card users: the Unbanked
- Nearly 30% of Kenya and Uganda are smart card users
- Meeting needs of the unbanked is adding nearly 1% to the GDPs of the above countries
Growth areas in the smart card industry:
- Government initiatives
- Move to EMV
- Unbanked initiatives in Africa, LatAm...
- Authentication
- Contactless deployments
- Migration away from mag-stripe cards (4 billion market opportunity)
Tuesday, October 13, 2009
Indian Payments Card market analysis
In recent times, mention of the Indian economy evokes images of growth, opportunities and a new gold rush. However, when it comes to electronic payments systems, India is yet to break out. Payment card volume in India is a fraction of that of Singapore (KPMG Report). Let's take a look at the 2008-09 (April 08 - March 09) statistics
A few observations on the above stats:
With regard to payment card fraud, I do not have data on fraud rates at brick-n-mortar stores (contribution of relevant data is appreciated). According to Al Cameron, Payments Fraud/Loss Prevention Specialist, online payment fraud rates (Card-Not-Present / CNP fraud) is around 3oo bps (US is at 140 bps, and UK at 100 bps).
Even though the Indian ecommerce market is in its infancy, security concerns during online payments are cited as among the top-5 barriers to faster growth. Regulatory authorities in India (RBI) mandated 2FA (Two factor authentication) for online payments from Aug 1, 2009. Going by UK's experience (where CNP fraud dropped for the first time during the first half of 2009) of CNP fraud reducing due to deployment of 2FA, India might also experience a similar benefit. This could help bring more users to the world of online commerce (grow the pie), as well as, increase the bottom line of online merchants and card issuers.
I have not been able to get any data on the benefits expected by the Indian regulators after the implementation of their mandate. If any of you have access to this data, please do share it. I shall post it here and acknowledge your contribution.
A few observations on the above stats:
- Though debit cards have higher circulation (as they double as ATM cards as well), their usage is significantly lower (even by India's standards) [less than 1 transaction per card per year!]
- Credit card transaction volumes are low ($52 per year per card). Coming out of the 2008 market downturn, credit card companies are flying to quality. They are trimming credit limits, canceling cards with minimal usage... Nothing new to the western world, but a new trend in the wild swinging Indian market.
- Though the above numbers are small, the market is growing at a CAGR of over 30%. In 2020 the market size will be ... ;-)
With regard to payment card fraud, I do not have data on fraud rates at brick-n-mortar stores (contribution of relevant data is appreciated). According to Al Cameron, Payments Fraud/Loss Prevention Specialist, online payment fraud rates (Card-Not-Present / CNP fraud) is around 3oo bps (US is at 140 bps, and UK at 100 bps).
Even though the Indian ecommerce market is in its infancy, security concerns during online payments are cited as among the top-5 barriers to faster growth. Regulatory authorities in India (RBI) mandated 2FA (Two factor authentication) for online payments from Aug 1, 2009. Going by UK's experience (where CNP fraud dropped for the first time during the first half of 2009) of CNP fraud reducing due to deployment of 2FA, India might also experience a similar benefit. This could help bring more users to the world of online commerce (grow the pie), as well as, increase the bottom line of online merchants and card issuers.
I have not been able to get any data on the benefits expected by the Indian regulators after the implementation of their mandate. If any of you have access to this data, please do share it. I shall post it here and acknowledge your contribution.
Thursday, October 1, 2009
If the US does not go down the EMV road...
The debate over whether US should deploy EMV infrastructure or not has been intensifying of late. Some estimate the cost of deploying EMV in the US at $30B. Ms Baxley, retail payments management consultant, observed that Javelin Strategy estimates US EMV transition at a lower $5.5B. She also noted that, in lieu of EMV, leveraging contactless cards and readers [presently being deployed in the US] would adequately meet the payment card security needs while costing significantly less (even lesser than Javelin's estimates). As you might recall, contactless infrastructure being deployed in the US is based on Mag Stripe Data (MSD) fortified with dynamic CVx (in effect making a payment card number a one-time use card number). Please note that in this post, when I refer to US contactless cards/readers, I am referring to MSD with dynamic CVx (dCVx)
Debating card security aspects between EMV and US Contactless is an enticing topic, which can be set aside for another day and another blog.
Assuming that the US heads down the Contactlesspath (a significant leap of faith) as a means to enhance security of payment cards, let us look at the implications to the card payment infrastructure by fast forwarding to 2015 when US has transitioned to the brave new world.
One of the lessons emerging from EMV deployments in Europe is that legacy support features (mag stripe on EMV cards) opens a large back door for fraudsters to take advantage of. As EMV cards reduced mail non-receipt, lost/stolen card, and counterfeit card fraud, online fraud and fraud abroad ballooned up. Card Issuers migrating to EMV were hoping for for 30% annual reduction in fraud, but realized only 10% reductions (APACS data), thereby significantly reducing ROI.
There are no silver bullets. However these are things that keep us awake at night.
As we look at the emerging economies of the world, payments card security is not a bottom-line issue (reducing fraud) but a top-line issue which communicates trust and security thereby bringing in large sections of population into the non-cash payments world, thereby growing the pie for all.
Where do you think that the payment card industry needs to be in the G-20 countries by 2015?
Debating card security aspects between EMV and US Contactless is an enticing topic, which can be set aside for another day and another blog.
Assuming that the US heads down the Contactlesspath (a significant leap of faith) as a means to enhance security of payment cards, let us look at the implications to the card payment infrastructure by fast forwarding to 2015 when US has transitioned to the brave new world.
- Cards: Cards would have to support both EMV applet and Contactless applets. Obviously, the cards would have to support both contact and contactless interfaces. Would we still need support for mag stripe on cards, for those still in the 20th century?
- POS infrastructure: Contactless readers supporting both US implementation and the EMV implementation would be necessary. Would US merchants need to offer support for EMV contact feature? Would ROW (Rest of the World) merchants need to support US contactless feature?
- Who is going to pay for retrofitting the global POS infrastructure to support both EMV and US Contactless.
- User Education: ROW consumers will have been educated (hundreds of millions of dollars of expense) of how and where to use contact EMV contact and contactless cards. It would be a very interesting consumer education experience and an expensive customer support issue of educating consumers, when they travel, about when and where contact cards are acceptable.
One of the lessons emerging from EMV deployments in Europe is that legacy support features (mag stripe on EMV cards) opens a large back door for fraudsters to take advantage of. As EMV cards reduced mail non-receipt, lost/stolen card, and counterfeit card fraud, online fraud and fraud abroad ballooned up. Card Issuers migrating to EMV were hoping for for 30% annual reduction in fraud, but realized only 10% reductions (APACS data), thereby significantly reducing ROI.
There are no silver bullets. However these are things that keep us awake at night.
As we look at the emerging economies of the world, payments card security is not a bottom-line issue (reducing fraud) but a top-line issue which communicates trust and security thereby bringing in large sections of population into the non-cash payments world, thereby growing the pie for all.
Where do you think that the payment card industry needs to be in the G-20 countries by 2015?
Sunday, September 6, 2009
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.
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?
- 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
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?
Tuesday, September 1, 2009
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)...
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?
Monday, August 31, 2009
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?
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?
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