The Big Questions in Payments

It's a while since my latest update.  For a while, I didn't think I was adding anything that you could not read on any other blog on payments, or technology in general.  I simply got too close to the speculation and gossip in the blogsphere about whether or not Apple were adding NFC to its iPhone 5 or what Google's payment solution would look like, etc.

It's not that these are not important issues.  Some of these product introductions could be important catalysts for mobile payments. 

Still, the vast majority of "innovation" in payments is not particularly innovative or transformational.  There is no question that there is a bubble in payment start-ups and that many average (or below-average) ideas are currently getting funding and being reported in the media and blogosphere.

Instead of continuing to write about all these over-reported issues, would therefore like to use this post to identify what i believe to be the key questions in payments for the next 5-10 years, and dedicate this blog to write about these issues.

So here goes:

• What technologies will be most influencial in the 21st Century commercial ecosystem (e.g. mobile, social media, geo-location, etc.)
• Where will payments fit in the 21st century commercial ecosystem?
• Who will own the customer relationship in this system?  
• What will be the role of tradition payments providers in this system?  What inherent advantages do these have that emerging payments providers will struggle to replicate?
• What infrastructure will the 21st century payment system run on?  Will new payments platforms continue to run on top of the existing rails or will they develop a new and simplified infrastructure?

That will do for now.  I will return in later posts with a more complete list of questions and then set out to form my views on these, more substantial issues.

Banksimple: a New Era of Banking?

This week, Banksimple, a US financial services platform, issued its first cards to its own employees as a first stage of their launch.  This is an exciting development as Banksimple has the potential to encourage a wave of innovation in banking.

Technically, Banksimple is not a bank, but rather a front-end money management platform, that works with FDIC chartered banks to store their customers' money in the back-end.  As a front-end platform, Banksimple is all about providing great customer service (think Zappos) through whatever channel is most convenient to their customers, from phone, mobile, chat, Skype, FaceTime or email, and eliminating all fees. 

In terms of product features, Banksimple is initially focused on making sure their customers get the best deal possible, without having to think about it.  In the background, customers will have checking accounts, savings accounts, loans, etc.  However, Banksimple is all about using predictive programming to optimise the management of these various accounts, so that the Banksimple customer always has sufficient funds for spending, while getting the best possible interest rates.

Beyond this, Banksimple eventually plans to open their platform to application developers.  This clearly necessitates a real focus on security and privacy, but could propel an exciting wave of innovation in money management and financial services.

At a time when banks are increasing their fees, and very possibly soon hike their interest charges, there might be an important place for Banksimple, as a commercial weapon for the consumer, in the financial services ecosystem.  However, having just begun the first stage of their launch, Banksimple has a lot of work a head of it yet.

Google to Pilot Discount/Loyalty Coupons for NFC

In an article from last Friday, Finextra reports that Google is teaming up with the French terminal manufacturer, Ingenico, to pilot a system whereby consumers can redeem discount/loyalty coupons that they have downloaded on their Android phone with NFC technology at POS.

Finextra, in fact, speculate that Google's much-talked-about NFC trials in NYC and San Francisco will be aimed at testing this system, and not the payments solution that has long been rumoured.  They back this up with recently published research from Oracle saying that using multiple NFC read/write apps on a mobile will slow down the process and negate the key benefit of the technology.

Personally, I would be very surprised if this is the case and that Google will not roll out a payments solution shortly.  Google has based its business model around organising the world's information and will definitely have recognised the power and value of transactions data.

The discounts and offers that they are working with Ingenico to execute might be what draws the customer to the merchant, but the transactions data is what will enable Google to target those offers.  I therefore believe that it is integral to Google's model to deliver both these elements. 

http://www.finextra.com/News/Fullstory.aspx?newsitemid=22523

E la Carte Digitizes Restaurant Service

A number of applications are now being developed to digitize service at restaurants.  E La Carte, a US based company, has developed its own tablet, that let's diners book tables, order their food, play games while waiting, make their payment and provide feedback.

If used correctly, these tablets should not be seen as a replacement of physical waiters, but as a tool to increase sales, improve service and receive immediate customer feedback.

The team behind E la Carte claims that restaurants could see increases in sales of up to 10% simply by including pictures of their food in on the digital menus.  They should also see improvements in customer satisfaction, as customers no longer need to wait for waiters to make their orders and to receive the check and make payment.


From a payments perspective, it is interesting, but not surprising, to see that the payments process has been integrated in the tool.  This is a fantastic opportunity for the E la Carte, and similar companies, to intermediate the networks and extract a healthy profit. 

If they are successful at building a network of restaurants, they should also be able to gather valuable information about their customers; which restaurants they visit, what they eat, how much they pay, etc.  This could be fantastically useful for restaurants to fine tune their offerings and in tailoring marketing programs for the customer.

Will Google Commit to their Moves in Mobile Payments?

In a fun feature, Business Insider logs Google's 10 weirdest investments.  These include wind farms for $40M, Shweeb, a $1M human-powered monorail and a prototype for a new solar panel technology.

With Larry Page back at the helm of the company, Google is likely to continue making these type of weird and wonderful investments.

"What does all this have to do with payments?", you may ask.  Nothing, really.  But, as we watch Google enabling NFC on Android and investing in payment pilots in New York and San Francisco, it is worth keeping in mind that the company has a history of making ambitious and visionary investments without executing.

http://www.businessinsider.com/google-weird-uses-of-money-2011-5#

Visa/MasterCard/Amex: Mobile Payment Bets

In a recent article, Gigaom draws out some of the most interesting moves that each of the big 3 payment networks are making in mobile payments. 

The most interesting overall observation is that many of these moves are unproven, high risk and somewhat scattered.  Visa is teaming up with Square, MasterCard is joining forces with Google and Amex has partnered with Payfone.  This goes to show that none of the big players have yet figured out where the industry is going and seem unwilling to place more than a few chips on any one technology.

It is also noticeable that Visa and MasterCard are considerably more active when it comes to partnering with technology players than Amex.  From a cultural perspective this may not be surprising, seeing as V/MC have based their entire business models on being open networks, whereas Amex has built a closed-loop, proprietary network.  Still, in a highly uncertain market, V/MC's model may prove more nimble and adaptable than Amex' and may provide a crucial head start.

Among all the partnerships that have been announced, the most interesting in my mind, would be MC's venture with Google.  I absolutely believe that Google will be a central player in the mobile space and in mobile commerce, in particular, and that this partnership has the potential to make MC the dominant mobile payments provider.

Read the whole article below.

http://gigaom.com/2011/04/27/credit-card-cos-whos-doing-what-in-mobile-payments/?utm_source=social&utm_medium=twitter&utm_campaign=gigaom

Tyfone: Plug-and-Play Mobile Banking

I have previously covered Monitise, a mobile banking and payments platform for banks that has been incredibly successful in tying up partnerships with UK and US banks, as well as partnering with Visa to deliver mobile payment solutions.

In a recent article, Pymnts covers Tyfone, a competing mobile banking a payments platform.  Tyfone was founded in 2004 in Portland, Oregon and is funded by Ojas Venture Partners, a Bangalore based early-stage tech fund.  They target banks and credit unions and initial traction appears to primarily be with credit unions.

In terms of product differentiation, Tyfone emphasize the folowing features:  

• Mobile banking for non-online bankers: enabling all bank customers, including those that are not currently signed up for internet banking to quickly sign up for mobile banking 
• Account aggregation: enabling the user to manage all their accounts from the same interface 
• Secure ID management: Multi Factor Authentication (MFA)  to ensure secure log-in 
• NFC Contactless Payments: a flexible mobile wallet

This is clearly a fast-growing market that will develop very quickly.  In my opinion the success of Tyfone will be less about the technical sophistication of their product and more about their ability to build a network of bank partners.  I.e. a player with 'good enough' technology and a broad customer network will have a great chance of success than a player with the most advanced technology, but a less developed partner network.

The market is definitely big enough for another couple of players, so it will be interesting to see if Tyfone will choose to focus their efforts on credit unions or if they will go with a broader approach to business development.

Visa & the Gap Roll Out Location-Based Mobile Offers

Fast Company recently did a piece about Visa the Gap teaming up to offer low-tech location-based deals.  The system does not require NFC-tags, check-ins or smartphones. 

The user simply registers with their card details and mobile number on the project home page, Mobile Gap 4 U, and every time he or she makes a purchase that meets certain pre-defined criteria, such as location, day, amount, etc., she is sent an offer via SMS to their mobile.  To redeem the deal, the user simply walks into any Gap store and shows the text to the staff, who will process the deal.

This trial is a good idea for both Visa and the Gap, as they are able to test certain features of location-based deals, without having to roll out a full-fledged NFC infrastructure that will initially probably mostly appeal to first-movers.  Instead, the Gap is able to appeal more broadly to their most loyal customers.  By engaging this audience with location-based deals, they are able to learn about their most important customers and paving the way for more advanced technology when the time is right. 

Amex LinkedIn Campaign

Every company is now using Facebook and Twitter for marketing.  Still, although they opened their APIs in 2009, few companies have successfully launched a campaign on LinkedIn. 

Amex is now trying to buck this trend with their 'For Everything You Do' campaign, with which people are able to nominate and vote for their favourite administrative staff.  The admin with the most votes at the end of the campaign will receive $2500 and 100 randomly selected nominees will receive $25. 

Amex is clearly using LinkedIn to connect with their more affluent and professional customer base.  However, the campaign is interesting in that it demonstrates the potential of LinkedIn for more subtle, less intrusive marketing campaigns.

Google firms up plans for NFC roll out in Austin

Google today announced that it will use Identive Group to produce the NFC-tags for its Places roll-out in Austin, Texas. 

Austin will be the second city in Google's NFC-powered Places roll-out, whereby it places NFC decals in participating merchants' windows.  Customers can hold their phones against the NFC tag and read reviews, offers and further information about the merchant. 

Based on the information it collects about its customers' preferences, Google will develop a powerful recommendation engine to steer customers through insightful recommendations and deals.  It is likely to combine this effort with its recent ventures into payments, which, if successful, will enable it have a hand in the entire purchasing process, from product search to payment.

Groupon Survey: How People Use the Daily Deals Giant

Business Insider recently completed a survey of Groupon users.  The survey uncovers some interesting insights about how people use the emerging daily deals giant.

Among the 86% of respondents who use Groupon, 50% have joined in the last 6 months and 80% have joined in the last year, highlighting the blistering pace at which the company has grown.

The relative youth of the company, is also reflected in users' redemption history to date.  55% of users have redeemed coupons 1-5 times, 25% have redeemed more than 5 and 20% say they have never redeemed.

However, Groupon may need to re-think their approach, as a full 35% of respondents say they almost never open their daily emails and 40% say they open fewer emails than they did at first.  Still, considering Groupon's growth rate and masses of users, if they are able to engage 25% of their user base on a regular basis, this might be more than enough to build a sustainable business.

Related, and perhaps even more clear than the above point, 70% of users say they are likely to redeem less Groupons in the future than they did in the past.  This may indicate that Groupon needs to continue to improve its offering to stay relevant.  Or, it could simply be that the majority of users respond to specific deals and have no intention of continuing to user the service, once they have used the initial deal.  Crucially, this still leaves Groupon with 30% of its massive user base that think they will use the site more in the future than in the past.

Perhaps even more indicative of how the deals space is all about the deals on offer and very little about loyalty to the deals intermediary, only about 25% say that they subscribe to Groupon only, while the remainding 75% subscribe to more than one service. 

Based on the survey findings, we can clearly see that the deals space is still a very young business.  Although Groupon is the clear market leader, it remains a very competitive space, with limited customer loyalty and little certainty about what business model will win the day.

UsingMiles: Feeding the Reward Junky Addiction

UsingMiles, an online service that helps frequent fliers better manage and redeem their reward points, today announced that it has raised $2.7M from iSherpa.

The startup, which emerged from the TechStars programme, has developed a nifty dashboard that organises the user's reward accounts and helps them search and book flights and hotel stays, using both their points and cash.

By helping users get a better view of their different programs and better utilising their points, this should be a real hit with reward junkies. 

Web3.0: All about Data, says Reid Hoffman

In recent interviews, Reid Hoffman, the founder and Chairman of LinkedIn, angel investor and partner at Greylock, the venture capital fund, has thrown his hat in the ring for defining web 3.0.  This term, which everyone and their dog has an opinion on, will be all about accessing, analysing and using the masses amounts of data that each and every one of us produce.

Ever since web 2.0, the collaborative net, defined by players such as blogs, Wikipedia, Facebook and Twitter, we all produce masses of data every day.  This is set to increase exponentially as the internet becomes closer and closer integrated in our everyday life, through devices such as smartphones, TV boxes, cars, fridges, etc.

At this point, Hoffman makes a useful distinction between explicit and implicit data.  Explicit data is the data we explicitly provide - e.g. I have provided information about my age, sex, job and friends on Facebook.  Up til now, much of the information we leave behind, falls in this category.

However, perhaps the most exciting opportunities originate from what Hoffman refers to as implicit data.  This is data that we do not explicitly provide, but implicitly leave behind from our actions, e.g. geo-locational data and payments information. 

As more and more of our lives become connected, this category is likely to explode in the next few years, and will create amazing business opportunities that we can already see companies positioning themselves towards, but also many opportunities that we can not yet predict.  Essentially the type of black swans that Facebook, Twitter and LinkedIn have been  over the last 5 years.

Of course there are also massive privacy issues associated with this data.  Over the last 5 years, we have all become accustomed to sharing more information that would have been conceivable before.  And, despite minor setbacks, we have generally been happy to make this trade off so long as online networks enabled us to better connect with the world around us, primarily used data that we explicitly provided and gave us a high degree of control over how the data would be used and shared.

However, with implicit data, this trade-off becomes far more complex.  Firms that are to succeed in this new paradigm must therefore develop entirely new and more powerful value to their users, while they ensure that the users' data is stored, used and shared in a responsible manner.

Amex Exec on Digital Payments and Key Criteria for Success

A couple of days after Amex launched Serve, David Messenger, head of the online and mobile business unit at Amex today spoke at the Web2.0 Expo about the emergence of digital payments and what Amex views as the key criteria to excel.  Below is a summary of his talk along with a link to his talk.

Driver for digital payments:

• Mobile penetration
• Internet speed
• Social networking and commerce
• New POS technologies, such as NFC

Lessons from other industries: changes come faster than expected and many incumbent don't survive.

Promise to merchants: whole new approach to marketing and promotions.  Can we enable the insights from rich data captured to drive intelligent and personalised promotions.

Developing countries may be at the forefront:

• Limited existing infrastructure to replace
• Governments push for phasing out of money

Criteria for success in shaping digital payments going forward:

• Scale: essential to keep costs low and get the data required to develop interesting analytics
• Platforms must bridge distinction between online and offline
• Need to be open (agnostic to payment method, technologies and form factors)
• Partnerships to drive scale in complex ecosystem
• Security: particularly as organisations will manage increasing amounts of sensitive data
• Real-world servicing: managing money and sensitive data, providers must be able to provide service to customers

Range of players that will compete:

• Data players (Google, Facebook,etc), that are primarily entering for access to data
• Banks and incumbent payments companies
• Startups that are offering a new approach

http://www.youtube.com/watch?v=CsMsKBfWcSg&feature=relmfu

American Express launches Serve, its PayPal competitor

On Monday, American Express announced Serve, a digital payments platform and electronic wallet that will enable users to pay online and offline merchants with a broad range of payments options, including Visa and MasterCard credit and debit cards.

Serve will be accepted at all online and offline merchants that currently accept American Express, in addition to enabling users to perform Person-2-Person transfers.  For offline transactions, users will initially be issued a prepaid Serve card that is directly linked to its electronic wallet.  As these cards are considered prepaid, merchants will be charged the lower transaction fee associated with prepaid cards.

Although Serve will undoubtedly introduce an NFC solution shortly, Amex appear to go out of their way to remain technology agnostic and not associate itself too closely with any particular technology.

Partnerships will be core to Serve's long-term vision, focusing on verticals such as social networks, online commerce, gaming and entertainment.  At launch, partners include Ticketmaster, Concur and Flipswap.  Although Amex is likely to quickly grow this network, the initial list does not appear particularly inspiring. 

It is beyond doubt, that Serve is a very core part of Amex long term strategy.  And, Amex certainly have considerable assets to bring to the table; merchant network, world class servicing customer organization, robust payments infrastructure and a highly respected brand. 

However, at present it is difficult to assess its likelihood of success.  Although Amex intend to launch new functionality on an ongoing basis, Serve currently does not appear to bring anything new to the industry. 

Moreover, it will be interesting to see if Amex, a company that has traditionally had its strengths in marketing and customer service, is able to compete in an increasingly technical and innovative industry.  This might require a far greater cultural shift.

Google teams up with MasterCard and Citi for Payments

News is now breaking that Google has partnered with MasterCard and Citi to demo their new NFC-enabled mobile payments solution. 

As has long been expected, the solution will initially launch on the Nexus S phone, with a number of other enabled phones being launched shortly, and the Verifone terminals that Google is rolling out in New York and San Francisco.

The most interesting aspect of this story comes from the recently published patent application that Google filed for the software behind their solution.  The application describes Google as a third-party broker who receives the customers' shopping cart and coordinates the payment and shipping details.

This contrasts Google with other payment solutions, such as PayPal, that simply receive the payment details between the customer and merchant, and do not have access to detailed, level 3 data.  Google have already positioned themselves as the masters of online data, and should they succeed with this venture, they will get access to the holy grail of offline data as well!

Great Article about Facebook Deals and Payments

The below article reports on the new Facebook Deals platform, which it reports will exclusively focus on social experiences, such as renting a karaoke room with friends or a tour of a haunted house, and may require customers to use Facebook Credits for payment.

The article goes on to suggest that Facebook's much talked about Payments subsidiary may be intended as the vehicle that manages the payments interface for Facebook's e-commerce ventures, of which Deals is the first.

Although Facebook Credits currently takes 30% of the total purchase amount, the article suggests that this may still be a reasonable deal for deal-sites that already spend a great deal on Google and Facebook ads to attract customers in the first place. 

Regardless, Facebook has already signed up Gilt City, HomeRun, OpenTable, PopSugar City, Tippr, KGB Deals, Plum District, ReachLocal and Zozi for Deals, so the proposition must be reasonable.

http://networkeffect.allthingsd.com/20110324/more-on-facebook-deals-will-only-include-social-experiences-may-use-credits/

Foursquare Explore: the Real World Google Adwords?

Yesterday, Foursquare announced that they will launch a new feature called Explore, which will recommend places, such as restaurants, bars and cafes, based on a user's check-in history and and the history of people like them.

This is exciting news as it demonstrates Foursquare's intent to influence the behaviour of their users.  If they are successful in doing so, the service will clearly be a fantastically valuable marketing features to merchants that want to attract traffic to their locations.

In this sense, it has the potential to become the real-world equivalent to Google, which influences online traffic.  And, in similar ways to how Google developed Adwords to buy advertising space connected to people's search terms, Explore could enable Foursquare to sell sponsored recommendations, alongside their natural recommendations.

Moreover, Explore could enable Foursquare to go one step further than Google has done.  By leveraging their partnership with Amex, or launching their own mobile payments solution, Foursquare will be able to track purchases that follow sponsored recommendations. 

Research has indicated that merchants on average are willing to pay 7-8% for marketing messages that specifically lead to purchases, 2-3 times more than the current merchant fee that credit card companies charge.  This type of solution may therefore be the next generation interchange fee and Foursquare Explore may be an important step on the way.

Tesco Exec: Security Concerns with NFC

The head of R&D for the online operations of Tesco's, one of the world's largest retailers, has expressed security concerns with NFC.  Nick Lansley has come out saying that "NFC is not as safe as people make it out to be".  Essentially he is concerned that outside parties are able to pick up (or eavesdrop) the signal that is transmitted between the retailer's terminal and the customer's phone.

Although Mr Lansley emphasised that he was speaking on his own, not Tesco's, behalf, these are the type of concerns that could stall NFC adoption.  Of course, this is not a new concern.  It has long been acknowledged that NFC is vulnerable to eavesdropping, but that a third party will only pick up a customer's account number and possibly their name, but not sufficient information to perform card fraud. 

Still it will be interesting to see if other prominent retailers will have similar concerns and to what extent it will impact retailer and consumer adoption.

Apple: the latest on NFC

The 'will they' / 'won't they' speculation about Apple enabling the iPhone 5 for NFC goes on.  For a long time, it was considered a certainty that the iPhone 5 would include NFC.  Then, last week, the Independent reported that the will not, due to a lack of technical standards. 

Forbes then quoted an unnamed source at Apple, saying that they would include NFC.  The New York Times now reports that Apple will include NFC and that Qualcomm will supply chip - but not necessarily for the upcoming iPhone 5 release.  Add to all these conflicting reports the amplification effect of the blogosphere and you have total confusion!

However, what we do know for sure is that Google is enabling Android for NFC and that most headset manufacturers are including a chip in their phones - considering the opportunities inherent in NFC, I am sure Apple won't be too far behind.

Visa Introduces Person-to-Person Payments

Yesterday, Visa announced that it will introduce a person-to-person payment feature.  Cardholders from participating banks, will be able to make direct transfers simply by entering an amount and the recipient's 16-digit cardnumber, phone number or email address in their online or mobile bank. 

Of course, this feature has been around for many years, and Fast Company reports that over 70 specialist providers already offer the capability.  While many of these have the clear advantage of many years experience and a much cooler interface, such as Bump for the iPhone, Visa is the premier payments brand and does have far broader reach than any of these competitors.

As such, this move may not only open up a new opportunity for Visa, but may also facilitate the development of this space for incumbents, such PayPal and Bump.

Most interesting though, is that Visa have had to 'tweak' its payments network and partner with CashEdge and Fiserv to offer a product that has already been in the market for 5 years +.  This only illustrates how far behind traditional payments players are with regards to digital money.  As mobile payments become increasingly commonplace, it will be interesting to see if they are able to step up their game or if they are outflanked on every front.

Interesting Article: Death of the Payments Terminal?

The article from Mobile Payments Today below, describes the limitations of the traditional terminal and how it will soon be replaced by more nimble devices, such as the smartphone. 

Essentially, the author argues that it is not hardware limitations that will kill off the terminal, but software limitations.  Entrepreneurs and merchants will want to write custom payment applications for niche uses.  This is not possible with the current terminal setup, but can easily be implemented with a simple smartphone.

So, what would be the broader implications for merchant acquirers and processors?  Clearly, as these devices become lower-cost and run on standard platforms, a number of the traditional barriers to entry will be lowered, and as innovation ramps up, competition within the industry will increase. 

http://www.mobilepaymentstoday.com/blog/5515/Prognosis-terminal-Will-mobile-payments-kill-the-credit-card-terminal?rc_id=400

Google, Facebook and Apple: Speculation about Payment Moves

Over the last couple of days, the blogosphere has been rife with speculation about the big three tech players' moves in the payment space.


Apple: yesterday a number of newspapers and blogs reported that Apple will not include NFC in the iPhone 5 and postpone its launch til 2012.  With Apple's history of popularising new technologies, this is clearly a blow for the NFC-afficionados.


Facebook: over the last few days there have been reports about Facebook Payments, a subsidiary that Facebook appears to have incorporated in Florida in December of last year.  According to Facebook itself, this subsidiary is simply intended to handle payments to developers related to its Credits program.  However, industry analysts and commentators have interpreted this subsidiary, along with related moves, as a clear indication that Facebook is moving deeper into payments, including offline payments.

Google: today there have been several reports that Google is preparing two NFC pilots; one is NYC and a second in San Francisco.  Most commentators agree that Google is likely to use its Nexus S phone, which is currently configured to read NFC tags, but would be 'unlocked' to write tags to facilitate payments. 

According to the sources, Google will pay for the installation of “thousands” of NFC-enabled terminals across retail locations in both cities. The report speculates that each user will have not only their purchasing information but coupons, gift-card balances, loyalty cards and other subscriptions loaded onto the phone.

With so much speculation and 'expert testimony', its critical to take all this with a pinch of salt.  What is for sure is that there are high expectations for non-tradition, technology players to enter, and revolutionise, the payments space. 

We also know that this is a highly complex area, that deals not only with technological and infrastructure complexity, but also with the human psyche, which is notoriously averse to risk and slow at adapting to change.  I would therefore not be surprised if mobile payments becomes more of an evolution than a revolution.

Apple Drops NFC for iPhone 5

According to a number of newspapers, Apple has revealed to several of the major UK mobile phone operators that it will not include NFC in its iPhone 5.

This is a big blow to mobile payments, as NFC is widely viewed as the most likely platform and Apple was seen as a company that would bring it to the mainstream.

Apple's apparent reason for not including NFC in iPhone 5 is the lack of clear standards.  They have therefore decided to postpone their NFC-launch until 2012, which will enable them to develop a set of proprietary standards in the meantime.

Google, along with a whole host of handset manufacturers and carriers, are are still committed to rolling out NFC in 2011, so it will be interesting to see how much headway they will make without Apple's unique ability to launch new technologies to the mainstream.

The Foursquare + Amex Link-Up Explained

Foursquare has linked up with Amex for a pilot at SXSW, the technology conference in Austin, Texas.  By providing their Amex card details, Foursquare users are able to collect specials and trigger donations with purchases at select Austin merchants.

The specials: participating merchants give a $5 credit to Foursquare users who check in at their store and make a purchase of more than $5.

The donations: the first time signed up users swipe their card at any Austin merchant during SXSW, Amex will donate $1 to Grounded in Music, a music-based non-profit.

I truly believe that this is a peak into the future of location-based deals and the path to profitability for Foursquare and its competitors.  However, once mobile payments becomes more mainstream, I'm uncertain if they will need Amex.  I would essentially expect Foursquare to build its own mobile wallet or PayPal integration that users can register to with the card of their choice.

This approach would open the Foursquare solution up to any user, regardless of whether they have an Amex card or not.  Moreover, it would enable Foursquare to leverage its customer relationship to get a foothold in the payments value chain and a piece of the associated revenues.

http://www.businessinsider.com/foursquare-amex-deal-2011-3#the-first-step-is-to-go-to-amexs-sxsw-site-and-sign-up-your-credit-card-1

Mobile Wallet: the Battle is Shaping Up

The attached article provides a very interesting perspective on the various players that are aiming to build your mobile wallet.

It assesses 3 different groups:

1. Mobile platform providers (Apple, Google, Microsoft, etc.)
2. Mobile carriers
3. Banks

In my view, mobile platform providers will be the clear winners of this battle.  The mobile wallet will essentially be a software solution and Apple, Google and Microsoft are clearly better at building software than carriers or banks.

They will also be better able to leverage platform/network effects than the other players, particularly by triggering innovation through app markets, etc.

This is not to say that carriers and banks will not play a part.  Particularly banks will still be a key provider of payments solutions, but probably through the platform providers' payment interface (i.e. Google Checkout or iTunes/iCash).  This way, Apple and Google will gain a foothold in the payments market, without having to take ownership of the complexity of the full payments value chain.

Read what the author of the article says.
http://snasm.com/article/nfc-2011-whos-building-your-mobile-wallet?utm_source=twitterfeed&utm_medium=twitter

Fascinating Article about the Emergence of eBook Bestsellers

Somewhat by chance I recently went to a debate about "New Technologies and its Implications on the Publishing Industry".  The discussion panel was made up of everything from social media experts to extreme skeptics - however, they all agreed that as consumers get increasingly accustomed with downloading content without paying, authors face an uncertain financial future.

Personally, I believe marketeers and their tools are becoming increasingly adept at monetizing content through alternative channels (e.g. ads, product placements and direct sales) and, in this type of mindshare economy, producers of content will be king.  And, authors will have a lucrative financial future ahead.

Interestingly, so far, it also seems that readers are happy to pay for their books.  In the below article (link), Business Insider covers Amanda Hocking, a 26-year old author, who sells her books directly on Amazon Kindle, and is making millions.  By cutting out the middle men and other costs associated with the traditional publishing industry, such as printing, Ms Hocking is able to sell her books for $3.  This in turn, enables her to sell a much higher volume - reportedly around 100,000 per month.

Clearly, people are still willing to pay for their books and authors who stay on top of new marketing trends will be able to profit very nicely.

http://www.businessinsider.com/amanda-hocking-2011-2

Interesting Interview about Mobile Payment with Dan Schulman at Amex

In this interview with Dan Schulman, President of Enterprise Growth, the emerging payments group at Amex.  He talks about the importance of smartphones and how they are set to transform payments and commerce. 

Particularly he is concerned with how smartphones will blur the lines between online and offline experiences and create an entirely new commercial ecosystem. 

In this new, commercial ecosystem, payments will not simply be a separate part of the purchasing process, but an integrated part of the shopping experience.  This experience will include marketing messages and offers, product information, loyalty & reward programs, payment and more.


http://www.pymnts.com/exclusive-interview-dan-schulman-of-american-express-talks-payments-innovation-and-regulation/?t

TfL to Accept Contactless Bankcards by 2012

Transport for London yesterday announced that it is preparing to accept contactless bankcards at its Oyster Card readers by next year's Olympics.

The payment option will be available for the tube, buses and the Docklands Light Railway.  TfL is also in discussions with National Rail to accept contactless bankcards for the railroad routes that already take Oyster. 

Will Judge, TfL's head of future ticketing said: "As more people use their bank-issued cards to pay for their travel directly, TfL's costs will reduce, delivering better value for money for London's fare and taxpayers". 

With 12 million contactless bankcards already in circulation, expected to grow to 20 million by 2012, there should certainly be demand for the option.  Still, the statement does not say if the system will accept payment with NFC-enabled mobile phones - the device that is most likely to accelerate NFC-adoption in the coming years.

Interesting article: how is mobile payments changing traditonal banking?

ComputerWeekly.com today published an interesting article by Jenny Williams on mobile payments and its implications on the traditional banking industry. 

Barclaycard, which is launching the UK's first mobile payments network, Everything Everywhere, with Orange later this year, certainly expect that mobile payments will have profound implications for the banking industry and that retail banks will need to lead this innovation to stay competitive. 

The most obvious threat comes from mobile carriers, such as O2, which is applying for an emoney license that will enable it to operate a payment network without partnering with a bank. 

Vodafone, on the other hand, is focusing on M-Pesa, its mobile payment network in Africa.  Having launched in 6 markets and achieved very impressive take-up, M-Pesa has provided large portions of the population, who were previously unbanked, access to basic banking services.

However, I do not personally believe that mobile carriers will have a disruptive impact on the banking industry unless they partner with other players for three reasons; (1) they have no experience in operating a payment network - a complex business, (2) they will offer only basic payment services, and will be unable to enter the savings or investment areas and (3) they are unlikely to introduce disruptive payment technologies.

However, disruption in the payment industry is likely to come from another area - Apple and Google.  A number of  manufacturers launched NFC enabled handsets for Android at the recent Mobile World Congress in Barcelona and Apple is expected to include NFC on the iPhone 5. 

The article quotes Rachel Hunt at IDC Financial Insight; "As Apple and Google are considering NFC as part of their offering, they might get a score of applications that leverage that. This is an area where the bank cannot compete as it cannot act quick enough. Start-ups will be quicker to create apps".

She argues that the biggest challenge for banks is to predict how mobile payments will be used to create value for customers.  While Hunt expects mobile payments to ride on the existing infrastructure and networks, she expects that online payment players such as PayPal can cause serious disruption.

http://www.computerweekly.com/Articles/2011/02/22/245531/Near-field-comms-How-are-mobile-payments-changing-traditional.htm

iPad 2: First Review

All payments enthusiasts are eagerly awaiting Apple's iPhone 5 and any indications if they are including NFC and entering the payments industry.

In the meantime, enjoy this iPad 2 review from Norway.  He could probably have done it in half the time, but pretty funny!

Facebook and Mobile Payments

Interesting article from Giselle Tsirulnik, senior editor at Mobile Commerce Daily.  It asks if Facebook will be able to marry its social network and Facebook Credits currency to become a major presence in
online and offline payments.

http://www.mobilecommercedaily.com/2011/02/17/does-facebook-hold-the-future-of-mobile-payments-in-its-hands?goback=.gde_3214637_member_44065124

Google Launches One Pass

One day after Apple opened iTunes for subscriptions, Google yesterday launched One Pass, a payment service for publishers.  These services are widely viewed as important tools to enable publishers to monetize its content going forward.

In addition to offering publishers more flexibility in terms of pricing models, One Pass is significantly cheaper than iTunes, charging publishers only 10%, compared to Apple's 30%.

Although One Pass, is initially intended as a payment service for media publishers, there is speculation that Apple will use iTunes as an electronic wallet for mobile payments, and Google could easily follow a similar path.

Gemalto Integrates Facebook on the SIM

Gemalto announced today that it has developed a SIM card with built-in Facebook capabilities.  The main implications of this is that users of old-style, 'feature' phones, are able to use Facebook on their phone, opening up a whole new market for Facebook.  Suddenly 2 billion people who currently don't have convenient access to an internet connection, are able to use Facebook on their profile.

Last week I wrote about the upcoming Facebook mobile and its potential as a powerful marketing platform.  Particularly if Facebook managed to integrate on its platform all the behavioral data that will shortly be captured on smartphones (location, purchases, ticketing), it would have an unprecedented ability to map our lives and target marketing messages.

Although, Gamalto's SIM-card development does not enable any of these features, it does demonstrate the increasing integration of social platforms and Facebook on our mobile phones.

The Future of the Internet: a Presentation by Mary Meeker

Mary Meeker, formerly with Morgan Stanley, now with Kleiner Perkins, has long been the most influential analyst in the tech industry and is famous for her insightful presentation.

Although, it is not directly payments related, I wanted to add a link to her most recent presentation, delivered last week, and give an overview of her main points.

Current trends:

• The rise of mobile computing: becoming ubiquitous, affordable and faster
• Increasing personalization: location / preferences / behavior / social relationships all available from information we provide ourselves
• Fun to use: social / casual / rewards-driven / 'gamification' of real life
• Measurable real-world activation: driving foot-traffic to physical stores
• Explosion of apps and monetization: more apps, generating more money
• Rewards influence behavior in real-time: for exactly the right people

On the horizon for 2011 and beyond:

• HTML5 vs. downloadable apps
• NFC: payment / offers / loyalty / ticketing / etc.
• Consumer-led mobile health: monitoring / diagnosis / wellness
• Enterprise adoption of tablets
• Smartphone tipping point > 50% adoption
• "So-Lo-Mo": Social - Local - Mobile convergence
• "Gamification": ultimate way to engage a new audience
• Empowerment: impact of empowering billions of people around the world with powerful, mobile devices has just begun

Meeker finishes the presentation with a quote from John Doerr, partner at Kleiner Perins: We're at the beginning of a new era for social internet innovators re-inventing a web of people and places, looking beyond documents and websites.
  
Go to Business Insight for the full presentation; http://www.businessinsider.com/mary-meeker-matt-murphy-2011-2#-1

Orange Launches its First NFC Mobile with Samsung

Orange launched its first NFC enabled Samsung Wave 578 at the Mobile World Congress in Barcelona today.  This is Orange first step into NFC, which is slated to be its big theme for the 2011. 

In coming months, Orange is set to launch similar phones from LG, Nokia and other manufacturers, in order for half its phones to be enabled by year-end.

This positions Orange to partner with other players and enter areas that could become important revenue sources in years to come, such as payments, ticketing and transport.

Seamless Receipts: $1.5M to Growth its e-Receipts & Marketing Platform

Seamless Receipts, a New York-based electronic receipts company, announced on Friday that it has received $1.5M funding from various venture capital investors.  The company delivers technology that enables merchants to replace paper with electronic receipts and deliver customized marketing messages.

The objective of SR’s solution is to drive offline customers online, improve engagement and increase sales.  To enable this, they offer basic components, such as email marketing, promotions and social sharing functionalities to more advanced solutions, such as group buying and reviews.

In additionally, SR has partnered with Fitzgerald Analytics to deliver simple but powerful analytics plug-ins.  With these components and with proper POS integration, SR can deliver:

·      Analysis of “shopping basket mix” (“What products do customers buy at the same time? How can they encourage larger purchases?)

·      Optimization of the timing, targeting, and content of messages to customers

·      Measurement of customer loyalty, return-visit incentives, and other data-driven tactics to improve marketing results

This is information that is generally not available to smaller merchants, unless they invest heavily in costly POS systems.

To support distribution of the system, Seamless Receipts announced a partnership with Canadian Retail Solutions (CRS) last year.  CRS provides POS solutions to small and mid-sized Canadian merchants and will integrate Seamless Receipts with its Retail Pro POS solution.  To support further growth, we would expect Seamless Receipts to announce more such partnerships in the time to come.

However, Seamless Receipts is of course not the first company to provide such services.  Apple has long used their email receipts as a marketing platform with customers and Square builds much of its business around the improved analyses it provides smaller merchants and opportunities to use receipts as a communication platform.

Still, not many stand-alone companies offer similar services, and Seamless Receipts’ independence and ability to freely partner with POS providers should provide a great platform for accelerated growth. 

PayPal Opens Up its MicroPayment Solution

Two days after Visa announced its acquisition of PlaySpan, PayPal today opened up its micropayment solution to publishers, game developers or anyone else who wants to monitize their online content.

The benefits of PayPal's micropayment solution, compared to traditional payment options, is its two-click, 'frictionless' convenience and tailored pricing structure. 


For publishers  that are looking to monetize their content, the main challenge of converting sales lie in getting customers to go through the full payment process, particularly as this requires them to interrupt their online experience to make a payment.  PayPal's micropayment solution, is frictionless, in that it enables the customer to complete the payment without leaving the content with which they are engaged.  Autosport.com, the online magazine, was part of PayPal's early release and saw a 75% increase in sales after implementing the micropayment system.

A second challenge in making a micropayment system work, lies in getting the pricing structure right.  Due to the fixed price element that most payment networks apply to small transactions, these have proven prohibitively expensive to merchants.  PayPal therefore implemented a micropayment-specific pricing structure - for transactions of less than $12, PayPal charges a flat 5 cents plus 5% of the transaction amount.

Thanks to PayPal and other micropayment solutions of this kind, we should therefore expect our favourite online newspapers and entertainment sites to increasingly look to charge for premium content.

Vivienne Tam Helps Square Re-Design Payments

So, Square appears to have taken a leaf out of H&M's book and brought in Vivienne Tam as a guest-designer for a special range of its terminals.  This is a great example of Jack Dorsey's approach to the payments industry. 

This is a complex industry, he says, where people have focused on functionality and reliability and no one have properly designed the user experience.  Merchants might have invested much time and money in designing their retail space - still the payment equipment is a clunky piece of machinery that sticks out like a sore thumb.

Changing this thinking and making payments a more user friendly, well designed process, it seems, is Square's core mission.  And the Vivienne Tam partnership is just one of many steps in that direction.

The Facebook Mobile: Why It Could Become the World's Most Powerful Marketing Platform

In October of last year, Bloomberg wrote that Facebook is launching a phone.   According to reports, Facebook is teaming up with INQ, a London based mobile phone manufacturer that got its start with a Skype phone, and is aiming to launch in Europe during the first half of 2011 and US towards the end of the year.  The phone is also rumored to come with Spotify built in.

Of course, using Facebook on our mobiles is nothing new.  Facebook has long been one of the most downloaded apps for both the iPhone and Android.  However, Facebook’s objective with this launch would likely be to re-define how we use our phones around social media and Facebook.

For starters, our Facebook profiles replaces phone numbers as our primary identity on the phone.  All our communications, from calls, to texts, to IM, to emails would be consolidated on our profile, significantly improving Facebook’s ability to map our social graph.

All other activities that we currently do on our phone could also be organized around our Facebook profile.  E.g. our camera could be synced, so that all photos automatically upload to our profile.

Building Spotify into the phone could also be a transformational move.  Spotify already enable its users to connect through Facebook, making music a truly social experience.  By integrating Spotify in the mobile, Facebook could alter how we listen to music on the fly and directly challenge Apple’s iPod.  If this model was to succeed for music, there is no reason why it could not be extended to other media, such as TV shows, movies and magazines.

Moreover, payment companies have long attempted to leverage the data it captures from their customers’ purchases to develop marketing solutions for its merchants.  Cardlytics has perhaps developed the most advanced solution for this yet.

We are also seeing the emergence of companies, such as Foursquare and Gowalla, that track our movements and target marketing messages accordingly.  Groupon and Living Social have also announced that they are adding this feature to their offers, and Facebook, of course, already has Places.

As we use our mobile phones to conduct more and more of our real life activities, from payments, to ticketing, to key solutions, our phones will capture an unprecedented amount of data about our lives and enable us to map behaviors and preferences with incredible precision.  Ownership of or access to this data will clearly be hugely valuable.

It is therefore no wonder that Facebook is keen to get more deeply involved with mobile phones and attempt to re-define how we use phones around social media and Facebook.

Visa Acquires PlaySpan and Takes a Bite of the Digital Goods Market

Visa yesterday announced its acquisition of Silicon Valley based PlaySpan, a payment processor in the digital goods space.  Visa will pay $190 million cash, plus an additional performance based element.

So what are digital good; these are products or services that are purchased, delivered and consumed in its digital form.  Most common examples are software, music files, online movies and e-books.

Although these categories are experiencing rapid growth, the most exciting category are purchases made on social networks or within online games.  This has become an incredibly attractive space where PayPal has taken an early lead.

PayPal launched micropayment solution last year, with a number of high-profile partners onboard, such as Facebook, the FT, Autosport and Justin.tv.  What sets PayPal’s solution apart is its frictionless, two-click convenience and open APIs that enable merchants to customize the solution to their needs and easily integrate with their systems.

Importantly, micropayments also require a different pricing structure, as the traditional structure is not economical for smaller payments.  PayPal has therefore introduces a different structure that reduces the fees from a $1.00 transaction from $0.33 to $0.10.

And it is exactly this that PlaySpan provides to Visa.  Like PayPal, PlaySpan has developed a frictionless e-wallet that enables consumers to complete transactions across social networks and online games without interrupting their online experience.  It also operates with open APIs, so that merchants can easily integrate the PlaySpan with their application. 

Within four years to launch, PlaySpan is already the number two company in this space, with 28 million users, only after PayPal with its 80 million users.

As TV producers, online game developers and mobile operators increasingly seek to monetize their content through digital goods and micropayments, PlaySpan’s market potential is rapidly expanding.  This acquisition could consequently provide Visa access to entire new markets.  Let’s see how other networks such as MasterCard, American Express and Discover respond!

SNAP: Linking Social Media and Loyalty

With so many entrepreneurs trying to enhance the offline shopping experience by integrating online features through the mobile phone, it was inevitable that a company would link loyalty rewards and social media at the point of sale.  SNAP does that, and after a year-long pilot, it officially launches today. 

Customers receive a rewards card that they link to their Facebook, Twitter and Foursquare accounts on the SNAP website.  Once a customer uses their reward card at a SNAP partner, the purchase is automatically updated on their social media accounts.  In return, the merchant rewards the user with additional loyalty points, Facebook Credits or Foursquare-like badges.

Based on all this activity, merchants receive reports on customers’ visits and profiles.  This allows them to adjust their customer proposition and loyalty program to better target customers.

Although this is all interesting, what makes SNAP really exciting is its open APIs.  Not only does this enable merchants to integrate SNAP with existing reward programs, it also allows them to introduce their own innovations on the SNAP platform.

One could imagine merchants partnering with each other to offer combined promotions; bars could partner with restaurants to offer customers bonus rewards if they go to both in one night or bookshops could partner with coffee shops.  

Another opportunity would be for merchants to base their reward programs not only on a customer’s individual purchases, but also on their friends’ purchases.  E.g. customers would receive incrementally higher rewards according to how many of their Facebook Friends have visited a merchant.

Clearly, SNAP is a young startup and its product is still a work in progress.  However, the opportunities in this area are undoubtedly very exciting and SNAP seems to be going about it in the right way by sharing its API and enabling merchants to develop innovative twists on their platform.

Assa Abloy: NFC Enabled Keys

Last week, I posted a video that showed BMW's NFC key solution.  Below I have included an animated demonstration of Assa Abloy, the key manufacturer, vision for NFC enabled keys - very cool!

Below, I also included a demonstration of a pilot that Assa Abloy ran at Clarion Hotel in Stockholm towards the end of last year.

Mobile Banking: Who's Driving the Innovation?

According to a Forrester study, 12% of the US online population, or 10 million Americans, currently use online banking.  Usage has more than doubled since 2007 and is expected to reach 50 million people by 2015.

The numbers illustrate that mobile banking is still very much in its infancy.  Most banks offer only standard features, such as check balances, transfer funds and pay bills, and 37% of respondents say they don't see any value in mobile banking.

To move the needle, the industry must figure out how they use the features of mobility to make mobile banking a unique experience.  This could come from mobile payments, location-based offers and coupons, peer-to-peer transfers, etc.  However, there is a lot of value in delivering these services, and we see new companies enter the space on a daily basis - posing the question of what role banks will play.

Increasingly we see banks put the faith of their mobile banking solutions in the hands of specialist providers.  Monitise is the most prominent example and has shored up much of the UK market, is growing fast in North America and expanding in Asia and Africa.

Although Monitise and similar companies have developed impressive solutions, it is clear that  innovation in mobile banking is unlikely to come from the banks, which may be ceding control of this very important customer service channel.

Square: Great Interview !

Square's great-looking POS device and simple sign-up process is attracting 50-60,000 new merchants every month and recently helped raise $27.5 million in fresh capital.

However, it is their vision of re-imagining the payment processes and providing merchants with analysis and marketing programs that makes Square one of the most exciting companies around.

Read the great All Things D interview with founder Jack Dorsey in the below link.

http://emoney.allthingsd.com/20110207/squares-jack-dorsey-wants-to-replace-everything-from-the-receipt-to-the-register/?mod=twitter&utm_source=twitterfeed&utm_medium=twitter

TSYS & CASSIS Partner to Provide Mobile Solutions

TSYS, the world's second largest credit card processor, and CASSIS, a mobile payment and NFC technology provider, has announced a partnership to provide secure mobile payment, loyalty and commerce functionality.

This will enable TSYS to provide its bank and merchant customers a full range of mobile solutions, from NFC payments to loyalty programs to coupons.

http://www.thestreet.com/story/10998316/1/tsys-and-cassis-international-enter-into-mobile-nfc-partnership.html

Shopkick: Re-Inventing Retail and Rewards?

As I described in Friday’s entry, the online deals business has taken off and will transform a number of industries, from retail to marketing to payments.  Groupon has achieved nearly 50 million subscribers and a $15 billion valuation in just over two years and is being joined by Google, Facebook and Amazon (Living Social investor), which are all entering the market.

My prediction would be that the next big opportunity would be to overlay traditional offers with location-based services – this would make offers more immediate and relevant.  Imagine walking out of the gym and receiving an offer for a freshly squeezed orange juice from the café next door or leaving the cinema and being offered a 2-for-1 deal at the restaurant across the street.

Still, the most prominent location-based service providers, Foursquare, Facebook Places, Gowalla and Scwngr, have mostly focused on social and gaming features. 

Shopkick, on the other hand, is taking a far more retail-focused approach – it aims to be “the Foursquare of shopping”.  However, what makes Shopkick so interesting is not only its commercial focus, but its approach to rewards and shopping.  Unlike traditional reward programs, it does not only reward the actual purchase, but every step the customer takes towards the cash register, from entering the store, to checking out merchandise to trying clothes on. 

Shopkick addresses the challenges of the retailer in a far more fundamental way than traditional reward programs, by enabling them to engage with the customer at every step of the purchase process and could be the beginning of a re-invention of retail and rewards.

The enabling factor behind Shopkicks approach is the precision of its tracking technology.  Traditional GPS tracking has a relatively large error margin and does not give the precision required.  Shopkick’s tracking technology relies on small boxes that it installs in retail locations.  These boxes emit an audio signal that is inaudible to humans, but is picked up by mobile phones on which the Shopkick app is installed.  Using this technology, Shopkick is able to determine if someone has entered a certain store or changing room.

This technology saves the customer from having to check in, as they do with other location-based services, and automatically rewards them with loyalty points, or Kickbucks.  Kickbucks can then be redeemed across all partner stores for gift card rewards or for Facebook Credits.  Retailers can also install several Shopkick trackers within their stores and reward shoppers for browsing, while they provide promotions and information about products along the way.

Since launching in August 2010, it has made some very impressive progress.  It has entered partnerships with national retailers, such as Macy’s, Best Buy, Target and Simon Malls.  It’s installed at 1,100 stores and 100 malls across 18 US markets and has reached 750,000 customers, doing more than 1 million check-ins per day.

Still, the most encouraging metric relates to walk-in promotions.  By boosting the rewards that users get when they walk into the stores, Shopkick has been able to increase walk-in by 50-100%.  This is particularly encouraging as tripling Kickbucks awards only costs the retailer 50 cents to $1.  With single transactions in specialty retail being worth $10 – 15, this could be a very good investment.

So, Shopkick can continue on this trajectory? To a great extent, this will depend on its ability to develop its product to engage customers during the shopping process.  Can it introduce features that make products come alive, suggest additional products based on the customer’s taste and connect them with friends while shopping?  Will it make shopping a more exciting experience and help us make better decisions along the way?  If so, Shopkick will surely be a transformational force across retail, marketing and rewards.

History of Visa in 6 mins - great ad !

Buyster: Doomed from the Start ?

Three French telecoms, Orange, Bouygues and SFR, yesterday announced that they are launching Buyster, a mobile payment solution, to compete with PayPal, Google, Apple and others in the French market. 

While I believe there to be enormous scope for innovation in mobile payments and opportunities for new entrants to take a leadership role in the industry, I am quite dubious to this effort.  The basis of this venture is clearly that these telecom giants want to leverage their combined market position to take a cut of the payments market.  But, Buyster does not seem to offer anything in terms of innovative or improved features.

Although they have signed a few big-brand online retailers and may see some initial traction, I would be surprised if this partnership is around 3 years from now !

http://www.ft.com/cms/s/0/29fe9788-2fec-11e0-a7c6-00144feabdc0.html#axzz1D62AI4yo

Starbucks' Payments App and how it could Disrupt the Industry (SAI)

Business Insider has written an interesting piece about the Starbucks payments app and its disruptive potential for a number of payments players. 

Although, I don't agree with much of what they write, I like the idea of a relatively small change/innovation having widereaching implications for an entire industry (and beyond), illustrating the level of uncertainty and number of moving parts in the payments industry right now.

First of all, I should point out that Starbucks' solution is not NFC - it relies on barcode scanning, a much more basic technology, not dissimilar to what FaceCash has introduced.  Whatever form of mobile payments that eventually wins out, I don't think it will be this, and that Starbucks will soon need to upgrade the technology.

I also think Business Insider over-exaggerates the impact that Starbucks will have on the payment industry overall.

Still, if we were to take the article to be about the emergence of mobile payments, rather than simply about Starbucks, it is absolutely worth the read!


http://www.businessinsider.com/starbucks-mobile-payments-2011-1#first-heres-how-starbucks-mobile-payments-work-its-really-straightforward-1

Offers: How Groupon, Facebook and Google could Disintermediate the Payments Industry

In my post about Cardlytics earlier this week, I laid out the reasons for why the transaction-based marketing approach could displace, or at least severely weaken, the interchange model, which the major payments companies rely on today.

Previously, I have also covered other deal intermediaries, such as Groupon and Google, and highlighted the similar threat they pose to the interchange model.  As offers are increasingly delivered on mobile devices, it will be a small matter for deal intermediaries to add a payments solution to the backend of their service, and effectively disintermediate the traditional payments networks.

As the deal intermediary business develops at lightening speed and new players surface on a daily basis, we are starting to see different business models emerge. 

Below I will try to lay out five main categories that I have seen so far and try to make some sense of where the industry might be going.

Group-Based Buying

The group-based model pursued by Groupon and Living Social has seen the most traction so far.  Groupon is often referred to as the fastest growing company of all time, having received a $9B buy-out offer from Google within two years of launch.  It mainly offers deeply discounted deals from local service providers, such as hair dressers, restaurants and masseurs, and has proven a highly effective marketing channel for these business to attract new customers.

On the downside, their deals are not targeted or customized to potential customers beyond being in the same city.  This undoubtedly leads to low conversion rates and potential Groupon fatigue, in that people don’t even read their ads.  By exclusively focusing on deeply discounted deals, they also limit their offers to one-off services.

Social Group-Buying

Last week, Facebook announced a new feature called “Buy with Friends”.  The feature enables users to share their purchases and “unlock” deals for other friends.  Facebook has found that more than 50% of test users chose to share a purchase they made on the social network with their friends and a number of other studies show demonstrate the power of recommendations from friends to impact our purchasing behavior. 

Initially, the feature is focused on purchases within the network (e.g. games and apps) and only one purchase is enough to unlock deals.  However, over time, one could imagine how this feature could extend across the internet and require more than one purchase to unlock deals.  For example, I could imagine going to any online store and being told that the ordinary price for a product is X, but if I buy with 5 friends, we get a 15% discount, if I buy with 10 friends, we get a 25% discount, etc. 

This feature clearly has the potential to rival Groupon and could potentially transform pricing models across a range of industries.

Transaction-Based Marketing

Transaction-based marketing has been seen as Eldorado for card companies for years.  However, intermediating deals is far from the core business of a credit card company, and we have not seen a successful implementation until third-party players recently entered the market. 

The benefit with this model is that it provides retailers unique insight into their customers’ and prospects’ purchasing behavior and enables them to target their offers very effectively.  Seeing as the reward or discount is automatically redeemed when the customers use their registered cards, they also avoid the hassle of coupons, promotion codes, etc.

A key challenge associated with transaction-based marketing is the complexity of integrating the system with banks’ technologies and implement the program.  Cardlytics and similar providers also need to develop tools that effectively leverage the treasure chest of data to which they have access and enable merchants to easily and effectively target customers.  Finally, they must move away from delivering offers through online bank statements, and develop more timely and convenient delivery channels.

Location-Based Marketing

Location-based services, such as Foursquare, Gowalla, Facebook Places and Scvngr, are receiving a lot of attention and seeing explosive growth.  So far they have mainly encouraged ‘check-ins’ with social updates on online badges, and only sporadically offered deals. 

However, the potential to for these services to offer deals is undoubtedly huge.  Imagine leaving the cinema and being offered a dinner deal at a local restaurant or bar.  Seeing as location-based services, by definition, are mobile, it is also easy for them to integrate with a payment interface.  The benefit of doing this would be that they would have access transaction data and be able to overlay transaction-based marketing on their location-based services – powerful!

Preference Based Marketing

Earlier this week, a Seattle-based startup named Thoughtful, launched a new service that generates gift recommendations based on the recipient’s taste as indicated on their Facebook profile. 

The beauty of Thoughtful’s business is that it offers uniquely customized gifts for which its customers don’t expect deep discounts.  This makes it possible for a broader range of retailers to participate, in comparison with Groupon, which is primarily limited to smaller service providers that are willing to offer 50%+ discounts to get people in the door.  Still, by focusing on gifts, Thoughtful’s potential in terms of total volume is of course more limited that Groupon’s.

Although a gifts-business faces some limitations, there is clearly plenty of potential to leverage the preference-based model for other opportunities – e.g. Groupon or Google could perhaps benefit from adopting this approach to better target their offer.

Final thoughts

Having reviewed five emerging models, it is clear that none of the current players have total cracked the code, and despite their staggering success, there is plenty of potential to improve even further.  In addition to developing new approaches to the industry, the most obvious potential comes from developing hybrids from the already existing models.

Particularly the location-based model could be overlayed with any of the other models.  Being able to deliver deals based on a customers’ location adds immediacy and should increase conversion rates.  It is therefore no surprise that most of the big players, such as Facebook and Google are positioning themselves in this space.

Another interesting observation is that Facebook plays an important role in most of the models, perhaps with the exception of transaction-based marketing.  As social commerce matures and is likely to make up an increasingly important piece of Facebook’s revenue stream, they are sure to be a front-runner in this space.

Still, other players such as Google, Groupon and e-Bay will undoubtedly give them fierce competition and make this industry one of the most exciting to watch over the next few years.

Starbucks Interactive Storefront - very cool !

Great Article about NFC Deployment by Non-Payment Players (Fast Co.)

In the below article, Fast Company lays out plans for NFC deployment by a range of non-payment players.

• BMW: introducing NFC technology in their keys, enabling the owner to open doors with NFC, store train and flight tickets on the car key and receive a multitude of data about the car, such as; is it locked?, how much fuel does it have?, where is it parked?, etc
• LG: developing both NFC enabled phones and point of sale terminals.  By getting involved with POS terminals, it is involved with the whole ecosystem and may better carve out a meaningful role
• Google, Apple and Nokia: as we I have previously covered, these guys are all developing NFC devices

Beyond payments, Fast Company also make some interesting suggestions for the potential use of NFC in retail and advertising.

http://www.fastcompany.com/1723276/companies-battling-to-make-your-nfc-wireless-credit-card-dreams-come-true

Cardlytics: Merchant Funded Rewards for Debit and Prepaid

Red Herring, the business and innovation magazine, yesterday named Cardlytics among its 2010 Global Awards Winners.  Previous winners include Google, Skype, Netscape, Salesforce.com, YouTube and eBay.

Cardlytics is a deals intermediary that connects retailers and potential customers through their online bank.  Cardlytics leverages its proprietary technology to target offers according to customers’ actual card transaction data, enabling a more targeted marketing approach – a “market-of-one” approach, as Cardlytics refers to it.  The retailer is charged only when a customer actually acts on an offer and purchases the goods.

Cardlytics partners with banks and integrates its technology with the online banking platform. Cardlytics analyses customers’ transaction history and displays offers on their bank statements.  For interesting offers, customers simply click a button on the statement to activate the offer.  Once they complete the transaction, the discount is automatically transferred to their account, rather than the customer having to worry about coupons or promotion codes.  According to Cardlytics their campaigns consistently generate activation and conversion rates that are 20 – 50 times higher than other marketing channels.

So far, Cardlytics has implemented its programme with more than 100 banks, through which it reaches more than 30 million customers with offers from more than 100 merchants.  Unlike, other deal intermediaries, such as Groupon and Living Social, Cardlytics’ merchant partners are primarily national retailers, rather than local service providers.

However, the transformational aspect of Cardlytics is its impact on banks’ debit card programs.  Through Cardlytics, bank customers get a reward program for their debit cards.  Retailers attract new customers with a transaction-based marketing program with a pure pay-for-performance model.  Banks generate additional revenue from debit, an already low-revenue product, which has recently come under even more pressure from the Durban regulation.

Transaction-based marketing could have a fundamental impact on the revenue model of the payments market, which has historically relied heavily on discount revenue funded by merchants.  American Express is the primary example of a company that has pursued a premium discount rate strategy.  They justify this premium by giving merchants access to affluent cardholders who are more likely to spend with merchants that accept the card. 

However, under the discount rate model, merchants are asked to blindly trust that they will see incremental revenues and are generally not offered data to track the impact.  Transaction-based marketing turns this on its head, as merchants pay a much lower discount fee and a fully performance based marketing fee for incremental transactions. 

As Cardlytics and similar providers expand their networks of bank partners and extend their services to other parts of the payments industry, such as prepaid and credit, one could imagine that merchants would increasingly favour this model and shy away from traditional discount rates.  It is therefore no surprise that the payments networks have long tried to implement their own transaction-based marketing services and that industry observers and investors view the emerging market leaders with much interest.

Apple: Taking NFC to the Mainstream?

The hottest area of speculation at the moment is around Apple’s entry in the payments market.  Already early last year, it was being reported that Apple was putting together a payments team, while patent applications revealed that they would likely introduce NFC the iPhone 5, which will probably launch in June 2011. 

Now, considering that NFC has been around for a long time and that a flurry of prominent companies, from Visa to the major phone carriers to Google, already have NFC enabled products or trials – why is Apple able to generate so much excitement? 

Simply put, Apple has a remarkable track record of popularizing new technologies with a user experience that seamlessly bridges the hardware and software.  Like they have previously applied their midas touch to the personal computer, the music player, the mobile phone and most recently the tablet, people are eagerly awaiting what they will do to payments.

Most interestingly, people are asking how they will enter the market?  What role will they play in the payments value chain?  Consensus says that they will probably use a version of iTunes as a mobile wallet.  However, it will be interesting to see if they simply have their customers pay with their credit cards through iTunes or if they attempt to link directly to customers’ bank accounts, and essentially do their own clearing and settlement.

Moreover, what features will they offer their customers?  Will they start their own offers and rewards program, similar to what Google is developing?  will they do anything cool with the data they collect?  How will they extend NFC outside payments – e.g. identification and ticketing?

Also, will they enter the merchant side of the industry?  Will they enable the iPhone or iPad as payment terminals by developing NFC readers that plug directly in to the devices?  Will they offer data services?

Another interesting perspective is if they will open up their payments platform (iTunes) for external developers to develop application, similar to what Apple has done for the iPhone and iPad and PayPal has done in payments.  We are starting to see some interesting developments coming out of PayPal X and cannot even begin to imagine where Apple could take this market.

Still, with all this excitement, we should still remind ourselves that not all Apple launches are a success.  Apple TV is a classic example.  The payments industry is probably also more complex than industries Apple has previously taken on.  It is the quintessential network business, which might not be a good match for Apple’s notoriously proprietary and closed approach. 

It would take time for the iPhone 5 to build a user base that is sufficiently attractive for merchants to justify new point of sale investments.  If acceptance is not wide from day one, all the excitement that surrounds the launch could whittle away and slow application innovation, etc.

Despite all the excitement and endless opportunities, we should therefore remember that Apple faces big challenges and stiff competition in this field.  Still, the buzz generated by an Apple launch, along with all the other launches upcoming launches, could mean that 2011 is finally the breakout year for NFC.

Boku & Zong: what does the future hold?

Having previously written about emerging payments companies, such as Square, Klarna and FaceCash, I wanted to look at two similar mobile phone players; Zong and Boku.

Zong and Boku are similar in that they target online purchases, using the mobile phone as payment method, rather than a credit card.  The user simply selects Zong or Boku as payment option at the online merchant and enters their phone number.  Both companies then perform a verification process with the customer’s mobile phone – the process differs somewhat between the two companies, but is quick and easy – and the transaction is charged directly to the phone bill – no credit cards involved.  To enable this, both Zong and Boku have entered extensive partnership agreements with phone carriers across the world.

Zong and Boku have both been very successful in capturing micropayments on Facebook and online games.  By making their APIs available to the merchants, their models are highly flexible and integrate seamlessly into the broader online experience.  They also aim to expand into other digital goods, but have yet to proven this model.

The issue is that the carriers take a big cut of the transactions, which makes the method of payment expensive compared to credit cards.  This clearly limits its attractiveness to merchants, who are likely to only accept Zong and Boku if a considerable proportion of their customers don’t have credit cards or are uncomfortable using them online. 

To get around this issue, Zong has added a credit card option, where instead of being charged directly to their phone bill, the customer is charged to their credit card.  This is a very similar model to PayPal and seems like the right approach to capture larger-ticket purchases outside Facebook and online games in the short term.

However, in the longer term, one has to question whether either of these players offer anything unique in terms of technology or business model to expand beyond the social networks and evolve as independent companies.  My bet would be that they are either bought by a larger payments player or pushed out of the market by better a technology.