In previous entries, I have written about new players in the payment space that threaten to disintermediate the established players. FaceCash was developed by Aaron Greenspan, one of the several former Harvard students who sued Mark Zuckerberg over ownership of the idea for Facebook. It provides a really interesting example of new entrants that use mobile phones to innovate in the payment space.
Its technology links a barcode on your mobile phone directly to your bank account. Merchants scan the barcode using a regular barcode scanner, which prompts your ID picture on their computer terminal, and enables them to verify the transaction. On the backend, FaceCash instructs your bank to transfer the funds by ACH, which enables it to bypass the credit card networks entirely.
By bypassing the traditional credit card infrastructure, FaceCash is able to charge considerably lower merchant fees than its competitors. FaceCash charges a flat 1.5% for all transactions, which could easily save merchants as much as 50% in credit card fees.
On the flipside, many merchants will need to upgrade their POS to accept FaceCash – FaceCash provide scanners for $30 and computer terminals for $150. Although, merchants can make this back from lower transaction fees, they are unlikely to install new POS infrastructure unless they see real customer demand. It is this ‘chicken and egg’ challenge that face all new payment schemes and could derail FaceCash even before it gets off the ground.
While working with merchants to improve their acceptance, the real challenge for FaceCash will be to generate customer demand. However, when they initially launched in April 2010, the customer value proposition was unconvincing. While, FaceCash does not add much in terms of convenience, it should be more secure than other payment solutions, as users must both have access to their FaceCash account and match the photo ID. However, these benefits, combined with the service being a pure debit solution, with no access to credit, are unlikely to be enough to win over customers.
It is therefore encouraging to see that FaceCash has launched a digital coupon system through which merchants can communicate offers to potential customers. FaceCash charges the merchant on a a cost-per-action basis only if the customer uses the offer through FaceCash. At 30 - 50% of the transaction value, this is relatively expensive marketing tool for the merchant though.
Although such offers make FaceCash a better proposition to customers, a proprietary system is unlikely to offer sufficient scale to overcome the ‘chicken and egg’ dilemma. Instead, it would be interesting to see FaceCash strike up partnerships with already established deal sites, such as Groupon, Google or even Foursquare.
Regardless of whether FaceCash manages to achieve scale, it is a great example of new entrants to the payment space that aim to shake up the existing payment system.
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