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Archive for October 20th, 2009

Citi/MSFT … the “New” Mint?

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Citigroup, Microsoft Said to Plan Challenge to Intuit, Mint.com http://www.bloomberg.com/apps/news?pid=20601103&sid=ajESsHMx7eYU

Hmmm… I believe Brian found me from my Mint/Intuit note below. Hope I don’t come off as a radical. Citi must be successful.. US taxpayers are shareholders. Jeff is a great guy, and one of the most talented people I have ever worked with. I have no idea how Citi keeps hold of him. Perhaps it’s like joining the Army.

Citi/MSFT will obviously look to provide services to non customers and industry sources tell me that the account aggregation will be provided by Yodlee.  There is some amount of irony here, as Citi’s customer’s had access to Yodlee’s services until September 2005. During my time at Wachovia customers loved the Yodlee service, but we had to end it do to cost and risk issues. 

For Citi to build this service, a central challenge will be moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. Both MSFT, Mint.com and INTU had trouble with this. In the US, Mint had the fastest growth rate with a total of just over 400,000 customers. A figure not likely to strike fear in the heart of many banks, this combined with the Mint demographic seems to indicate that the customer base of “spenders” vs “savers”, hence the need for budgeting. This would seem to indicate a card focus for Citi.

Assuming a card focus, a short term need to generate revenue, offering customers a way to transact with Yodlee as a service provider.. I would see card based bill payment as a key service to be offered in this new Citi/MSFT venture. During my time at Wachovia we piloted the Yodlee biller direct service. The UI was fantastic… and that was 4 years ago. This service leveraged cards as the vehicle for bill payment through aggregation of the billers online payment interface. BAC also evaluated this service as a way to generate interchange revenue off of bill payment. http://www.yodlee.com/2008_06_04.shtml

Hence, I would assume that Citi’s business case for NewCo is based upon the following:

  1. Transacting. Both leveraging credit cards for a bill payment, and purchases. (interchange)
  2. Market customers based upon transactional data (marketing)
  3. Sales/Cross sales of Citi products 

There are several organizational, brand issues and customer support issses with Citi’s approach. Citi’s customer may get confused, is this a Citi service? How can Citi’s current card customers leverage it? How do they leverage it? For example, it is hard for me to remember the 3 separate log ins that I have today with Citi today: Card, banking, Obopay… now I need a forth? Who do I call when I have a problem?

Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which Citi acquired May 2007 for just over $1B.  If you sit down with Paul Gratton, Egg’s first CEO he will tell you that their success was driven by a complete focus on delivering value to the customer, both in product and online services. It is the coupling of product and service value that creates challenges for large companies to replicate, particularly with respect to cannibalization of existing products.

In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, customers select their bank based upon the proximity to their house. http://tomnoyes.wordpress.com/2009/09/17/citi-bank-of-the-future/. The business premise with Mint.com, Intuit and its competitors is that customers will start with budgeting, and then move to select financial products (no retention play as these are not necessarily Citi Customers) or transact. Egg was successful because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it. 

Fortunately for banks, customers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention. Banks hold enormous control over the success of any aggregator’s site. Yodlee possesses no contractual right to the data, and the collection of customer information by any third party can be managed.

http://tomnoyes.wordpress.com/2009/09/15/intuit-mint/

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Written by tomnoyes

October 20, 2009 at 1:20 pm

Posted in Analysis, Uncategorized

PaybySquirell and iPhone Payment

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Twitter founder Jack Dorsey. Card swipe on iPhone.

http://www.finextra.com/fullstory.asp?id=20618

http://www.engadget.com/2009/10/17/twitter-founder-jack-dorseys-squirrel-project-revealed-as-th/

Roberto Garavaglia was nice enough to share this finextra story on linkedin. Is this a consumer play.. or a “merchant play”? Will I see my local ticket scalpers taking credit cards on their iPhone? This start up was certainly “in the black”.  Data we know:

  • Squirrel has a “signature” line in the app
  • Have hardware on the phone
  • Alpha test in NYC
  • Receipt in engadget pic above shows consumer payment (you paid)
  • Mind behind it is Dorsey
  • Top VCs know about it, and seem to think it is a merchant play.
  • Very US centric.. no EMV (Chip and Pin)

There are certainly some conflicting data points. If a consumer play.. this signature will not be valid… and transaction will be treated as a CNP (so why the signature?). If this is a merchant play who would possibly want to act as acquirer (fraud loss)? The merchant use would make most fraud heads loose a little sleep, for they would have a whole new threat vector. Can you imagine the buyers of the merchant use?.. The bank and I will have to worry about every kid in a fast food window and every waitress holding my card swiping on their iPhone (in addition to paying for my dinner). My guess is that squirrel has the technology working.. but haven’t figured out the “banking side”.

Fraud attacks the “weakest link” in payments quickly. Would love to hear from others on the community, but my view is:

  • Interesting as a merchant play…. but acquirers will shy away from originating transaction in either network without solid fraud controls. The merchant owns the loss here by rules of network in a “CNP transaction”. Signature capability will be debated…
  • Squirrel biz model.. questionable as anything but a hardware business. The fraud numbers of leading merchant selling digital goods is astounding. All top merchants have had to develop their own internal specialist teams to handle.  If Apple and PayPal have trouble with teams of 300+ (after 10 years) this will be a challenge for any new “merchant”. As a payment method, squirrel will have to take this on. Having access to the physical card may allow them to try something disruptive like MagTek which reads the randomness (noise) in the card stripe to establish a “unique” card… which has the downside of card registration. Something like this would push squirrel further into a “US centric” model as it appears that they do not support EMV (aka Chip and PIN).  
  • “No go” as a consumer play. Why not just keep my card at the Apple app store? or at PayPal? What is the incremental value that this provides me? Why not just key in my card data.. why add a reader to my sexy iPhone .. .in its sexy case.

Innovation in payments is tough…  if I were going to add something the Steve Job’s product plan for the iPhone what would it be?

  • Global
  • Ubiquitous
  • Unique to every person
  • Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
  • Low error rate
  • Impossible to clone
  • Difficult to crack

The answer is… (   ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Apple has a payment patent around a semacode displayed on the screen and “scanned” at the POS (Starbucks in trial).

Apple has been VERY non-committal with respect to NFC, as it develops strategies to get a cut of the transaction revenue … merchants would be insane to put yet another vendor in the mix at the POS (apple Semacode reader)… I don’t see it on HP/Verifones product plan either.  We may be left w/ putting NFC stickers on the back of our beautiful iPhone.. . of course that is better then a card reader.. or a semacode… but not as nice as NFC embedded w/ chipset with software providing OTA capability.

Apple’s instance in getting “control” in payment, combined with same tendencies at carriers, is leaving the door wide open to Android and competitors. There are some super start ups with plans to enable all kinds of services through NFC. Imagine using your iPhone to open doors, store coupons, vending machines, college campuses.. a whole new ecosystem all locked up because Apple wants to control the payment channel (and refuses to embed NFC).

Regarding this Apple payment patent: What is starbuck’s business case? is it driving traffic? How many more stops will the average iPhone user make because of this app? My guess is that this was funded out of Starbuck’s marketing budget.. and payback will be minimal. But it is cool. (I wish I could make a living out of being cool.. of course I would first have to be cool… not currently the case)

https://www.starbucks.com/mobile-apps/#num=01&id=coffee_home
https://www.starbucks.com/mobile-apps/StarbucksCardMobile/default.asp
http://www.genoco.com/link/interactive_iphone+starbucks.html
http://www.forbes.com/2007/12/26/apple-patents-iphone-tech-wire-bc_1227appatent.html

Perhaps a more ubiquitous form of payment is something coupled with authentication. Perhaps IRIS scanning, which is now being miniaturized to fit on a chip the size of your thumbnail (below).

Iris Reconition Built into Phones

Iris Reconition Built into Phones

http://www.nydailynews.com/archives/news/2002/01/07/2002-01-07_credit_card_cloners___1b_sca.html

http://4g-wirelessevolution.tmcnet.com/news/2009/08/19/4331395.htm

Written by tomnoyes

October 20, 2009 at 1:14 pm