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.

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.

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!

History of Visa in 6 mins - great ad !

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.

Monitise: Growth Through Partnerships

Earlier this month, Monitise, the UK-based mobile banking provider, announced that its European business has now reached month-to-month brake even.  In less than 10 years, Monitise has struck up partnerships with with most UK banks, including HSBC, Lloyds TSB, RBS and NatWest, signed up more than 3 million customers and is processing more than 10 million transactions per month. 

Key to Monitise’s success has been its flexible banking platform that allows it to work with all types of banks and carriers.  Moreover, it has a range of technical platforms that enable users to perform a range of banking services, such as check balances, view statements, pay bills and receive alerts, on mobile phones of all types, from SMS to iPhone apps.

However, what makes Monitise one of the most exciting companies in the mobile banking space is the partnerships it has struck up around the world.  Through these partnerships, Monitise is becoming the leading player globally and is entering the payments space. 

In 2009, Monitise announced a strategic alliance to develop mobile banking solutions for Visa, which would take a minority stake in Monitise.  This partnership has proven to be very powerful in positioning Monitise as an industry leader and facilitate global expansion.

In the US, Monitise partnered with FIS and entered as the first multi-bank, multi-carrier mobile banking platform.  The venture has proven successful and has now signed partner agreements with nearly 250 banks.

In Asia Pacific, Monitise announced a joint venture with First Eastern and will launch in Hong Kong as the first market.  Beyond Hong Kong, the Monitise has its sights on China, Japan, ASEAN and the Middle East.

Recently, Monitise has also announced launches in India and several African markets, such as Uganda and Nigeria.  In India, it will work with Visa and is interestingly integrating mass transport ticketing with its standard banking platform.

In addition to its geographic expansion, Monitise is also making very interesting moves in the payment space.  In February 2010, it announced that it would integrate Device Fidelity’s NFC capabilities in its global platform.

Furthermore, in November 2010, Monitise formed a join venture with Best Buy and Carphone Warehouse founder, Charles Dunstone, to develop an NFC network in the UK.  This network would initially leverage Monitise’s broad banking partnerships in the UK, Best Buy’s retail presence and Dunstone’s retail experience, to develop the network.

In December 2010, Monitise announced a partnership with ViVOtech, a leading near field communication (NFC) software developer, to deliver mobile phone payments services to banks across the United States.  With Monitise’s already broad base of bank partnerships, this deal could make it a major player in contactless payments when NFC enabled handsets are launched later this year.

In less than 10 years, Monitise has become a leading, global player in mobile banking and payments.  With its open mindset and platform, it has successfully forged powerful partnerships that have enabled it to build an emerging global presence and expand its product capabilities to contactless payments, mass transport ticketing and couponing.  Undoubtedly, Monitise will continue to strike up new partnerships and expand in new business areas, and is definitely “one to watch”.  

Social Commerce: Leading the Future of Online Shopping & Payments

Until recently, e-commerce was the domain of online shopping sites and payments was a fenced-off part of a now-familiar ‘check-out’ process.   With the emergence of social and geo-location-based services, e-commerce will change fundamentally.  This will disrupt the current online payments process and require more flexible and customisable solutions.  This blog entry looks at the emergence of social commerce, early market leaders and possible implications for online payments.

Although online social networks have been around since the late 90s (sixdegrees.com launched in 1997), the tipping point can be traced to 2003 when PC penetration, the emergence of broadband technologies and the rise of software platforms fuelled the growth of these networks.

Today, these networks have fundamentally changed the online experience from a passive, read-only mode, to an active, read-write experience.  The corporate world has thrown itself on the bandwagon and nearly all companies now have a presence on social networks.  Still, very few have cracked how to transform this presence to dollars on the bottom line. 

In a recent edition of the Lydian Journal, Karen Webster identified 4 forces that will trigger a tipping point for social commerce:

The explosive growth of social networks

·  75% of worldwide online users now visit social networks or blogs, a 24% increase from 2009 

·  Although younger users are more likely to visit social networks, half of Internet users aged 50 – 64 and one in four of users aged 65 or older now use social networks

·   Among the different networks, Facebook is the largest with close to 600 million users, followed by Twitter (190M), MySpace (122M) and LinkedIn (70M)

Social networks become the dominant destinations online

·  Time spent on social networks Facebook and Twitter accounts for nearly one-quarter of the time spent online for Americans, up nearly 50 percent from a year ago

·  One explanation is that social platforms allow their users to do everything from online gaming to messaging with friends to exploring their interests and favourite brands, and thus economise on their time spent online

·  Mobile phones are also increasing the time we spend on social networks; 150 million people connect to Facebook via their mobile and 37% of Twitter users connect via their mobile

Social networks are high-trust sources of information

·  People join social networks to be part of a connected community

·  Communities of peers are high-trust networks where users are more willing to disclose personal information and even make purchases

·  Peer-to-peer word-of-mouth has always been a source of valued, dependable information – social networks have the potential to systematise this and become a hub for purchasing decisions

Merchant begin to see the value and growing importance of social networks

·  Based on the above factors, merchants are beginning to view social networks as a sales channel with which to turn fans into customers

·  Nearly all major retailers have a fan page on Facebook as traffic to their own websites is being cannibalized by traffic on Facebook, where fans are more willing to buy and advocate on behalf of the brand

·  Analysts estimate the value of an average Facebook fan to be $136.38, suggesting that fans are likely to spend an extra $71.84 they would not otherwise have spent

·  More than half of Twitter-users recommend companies or products in their Tweets, with just about that same percentage actually following through to buy that product

Although social networks clearly represent a fantastic prospective sales channel, very few companies have yet managed to generate revenues on these platforms.  Attempts to tap into this opportunity can be grouped in three categories:

·  Shopping cart technology that facilitates check-outs on Facebook (e.g. Payvment)

·  Deal-sites off social networks that drive sales at discounts (e.g. Groupon or Living Spaces)

·  Promotional activities aimed at driving traffic to online or offline stores off social networks (e.g. JetBlue’s Twitter promotions)

However, the next years will no doubt see tremendous innovation and social networks will transform our current experience of online shopping.  New forms of online shopping are likely to tap into social dynamics in new ways and will require more flexible and customisable shopping and payment interfaces. 

It is therefore essential that payment providers develop technologies that can support this development. PayPal and IP Commerce have approached this challenge by opening up their platforms to external developers.  However, the other major players, such as Visa, MasterCard and American Express will undoubtedly have their own responses.

Open Platforms: A New Era of Innovation

The payments industry is entering an exciting, new era of innovation.  The reason lies in how several established industry players are opening up their platforms to third party developers. 

Some have likened this to the situation in the computer industry in 1979 when the development of the PC and emergence of a shared operating system allowed software providers to develop programmes for a shared platform.  The PC revolution led to a massive number of developers around the world producing innovative software packages that spawned entire new industries.

Three payments providers that are enabling this development are Visa, IP Commerce and PayPal.

Visa is selectively entering partnerships and opening its platform for development.  It is partnering with Monitise to develop a suite of mobile services, collaborating with DeviceFidelity for contactless payments and integrating it’s mobile solutions with ClairMail’s mobile banking platform.  These partnerships enable Visa to tap into external technical expertise and significantly increase speed to market of its services in these areas.

IP Commerce has developed a platform that sits on top of the traditional payments infrastructure.  The system are reminiscent of Windows in that it enables developers to write applications for the platform without having to worry about the complicated plumbing that supports it.  They claim that this reduces time to market and development costs by a factor 3.5.  

Moreover, through Commerce Marketplace they offer an online solution catalogue on which developers can publish applications.  Potential customers can search and acquire applications from this catalogue that all leverage the IP Commerce architecture.

Similarly PayPal has opened its platform with PayPal X and Adaptive Payments.  Developers can access X.com's development toolkits, technical documents and programming interfaces to produce integrated checkout solutions.  Examples of pre-existing products using the Adaptive Payments API include:

·      The Javastore's new drag-and-drop installation and frictionless payment system

·      Instant storefronts for Facebook via Payvment's social network shopping cart system

·      Cut-and-paste shopping solutions embedded in mobile applications, including instant purchases via ShopSavvy's barcode-enabled comparative shopping application for Android

There is little doubt that these developments will completely change the face of the payments industry.  And, if experiences from elsewhere are anything to go, innovation will be rapid and the industry will soon converge on one platform.