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.