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Archive for February 2010

Moneygram settlement

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MoneyGram settles suit for $80 mln over subprime

The regulators and the exec team fell down on the job in this one. Lesson for MTO organizations: don’t put your settlement funds into instruments you don’t understand.


Written by tomnoyes

February 27, 2010 at 2:29 pm

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Mobile Payment: “Picture This”

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23 February 2010 (updated 4 March)

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For those that read my blog… I’ve been rather tough on mobile payment start ups run by execs that have no payment background (ex Obopay). Rather then continue to put vendors through the ringer (a penchant from my Gartner days), thought I would talk about something positive. Although I do disagree with most of SquareUp’s approach, I do agree that there is a market need for cash replacement and ease of use in a “Craigslist purchase”.  Banks and the cards networks are actively working to increase use of cards in this space, with the idea that everyone agrees with: enabling cell phones to be a cash register. Although banks and card networks love the idea of expanding card use, merchants have other options that are available today which present both substantially lower costs AND provide for improved fraud management.

USAA has such an application available today: Deposit@mobile and it is just fantastic.

In the background, USAA has integrated into the shared fraud database used by both Telechek and most of the banks (at the teller line). This provides the merchant with ability to see if check is valid, if drawn on a “good account” and assess fraud (among other things). This is what really impresses me… this is not JUST a slick application that was build by some non-bank. This application has solid risk management.  My only recommendation for USAA is to change the restaurant use case to a yard sale or Craigslist purchase. Other potential uses:

  • Any customer that receives any type of check in the mail… no more trips to the bank
  • Landlords
  • Small Merchants doing BIG sales (since it takes 90 seconds)
  • Yard sales/Flee markets/Craigslist purchase
  • People in remote locations (Farms, military bases, …)

Merchant benefits are substantial:

  • No transaction costs (savings of 150-350bps)
  • Simplified sign up
  • Same day availability of funds
  • Fits existing consumer behavior pattern (checks)
  • Instant verification, risk and fraud management
  • Leverages bank imaging systems and processes (regulatory and consumer receipt)
  • Notification/receipt to consumers

Other Vendors such as EasCorp’s Depozip provide similar functionality. Would love to hear from readers… As a buyer, which would you rather do? Let someone swipe your card or give them a check?

As a seller? Take a card (knowing that you bear fraud risk for 60 days) and bear costs of 150-350bps? Or take a check with instant availability of funds and a much more limited risk (no reg Z)?

Written by tomnoyes

February 23, 2010 at 4:31 pm

Western Union 4Q09 – Flat

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23 Feb 2010

From DJ News wire

Fourth-quarter earnings fell 6.6% as the company was pessimistic about business this year. Western Union posted a profit of $223.7 million, or 32 cents a share, down from $239.6 million, or 34 cents, a year earlier. Revenue increased 1.7% to $1.31 billion though it fell about 1% on a constant-currency basis.

Analystsestimates were for earnings of 32 cents on revenue of $1.31 billion.

Operating margin fell to 24.2% from 25.9% because of acquisition costs, reductions in pricing and promotions.

Revenue in the dominant consumer-to-consumer segment rose 1.7% but fell about 2% in constant currencies. Transactions increased 5%, while global-payments revenue grew 4% because of the acquisition of Custom House, a business-to-business payments provider

I would place a solid sell here. WU’s management team may see much opportunity in growing the electronic channel (remitter) from current 2%, however e-channel revenue growth will put them squarely in competition with the banks that serve them (Citi GTS).  This same competitive dynamic will hold for their new business payments group (currently 14% of rev), the core of which is the result of their recent Custom House acquisition.

As they morph their distribution strategy to e-channels and business why are they taking 30% of operating cash ($400MM) for stock repurchases? This does not speak well of internal investment opportunities and a company which  is certain of growth.. It feels like the start of an end game.  Additionally, WU’s current crown jewel (physical distribution) is being threatened in emerging markets by mobile operators leveraging their own agents for money transfer services. Perhaps this is why WU is looking  “up market” into higher margin business payments.

This does not feel like a business plan for a “market outperform” stock to me.  As an investor I would be looking for opportunities that leverage (and enhance their distribution), partnering with other networks (banks, governments and MNOs) will be a key opportunity. Let us see if they the current team can grab it.

Written by tomnoyes

February 22, 2010 at 5:53 pm

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Monitise – Loss widens

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16 Feb 2010

MONI.L Global strategic alliances with Visa and over 1.75MM registered consumers in over 200 banks could not pull it out of a pre-tax loss of £6.67MM. Think of Monitise as a “Mobile ATM” kind of service.. much less dealing with payments and more about checking balances. MONI’s fee structure is a monthly  subscription (by the bank by customer/transaction) with a monthly minimum. My guess is that they are growing users.. but also suffering from bank’s efforts to delete “inactive” users.

Given Visa’s June 2009 $13MM investment, my bet is that Monitise will pull through with a new service and continue its growth as it evolves into new products.

Written by tomnoyes

February 16, 2010 at 8:50 pm

Citi Launches Bundle “Mini”

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15 Feb 2010


Previous Post:

In the Press: NetBanker, and American Banker

As a banker I can’t help but ask “how is Citi going to monitize this”? So you can read the rest knowing I’m an “old school” skeptic. Sure it offers some cute tools, but others in the market already do this for free (see www. It does have a cool iPhone App called Vice Tracker (iTunes link) … perhaps Citi will start a “gaming business”.

But seriously… Citi’s growth opportunities are in international retail, I can’t imagine Vikrum trying to defend this US only investment.  Let me take a shot at writing Vikrum’s analyst response

Vikrum: Citi has always been known as a technology leader for the last 100 years, we are focused in delivering value to consumers and helping people better budget their spending is crucial in these challenging times.

Analyst: So why isn’t this under Citi’s Brand?

Vikrum: … well the business heads don’t want to pay for it but we will certainly recommend Citi products to any consumer that uses this free service

Analyst: Did you know that Mint already provides this service free to consumers? How do you compete w/ Free?

Vikrum: Mint will not recommend Citi Products, bundle will…

Analyst:.. err Ok.. yeah customers will love that

Analyst: I hear that Bundles next version will be able to aggreagate your spending details across multiple FSIs, who will bear the risk of maintaining all of this confidential consumer information

Vikrum: Bundle is a seperate company…

Analyst: Got it

Looks like the beta doesn’t have the budgeting tools ready yet. Also curious that the beta does not work with either firefox or google chrome.. wonder if this was a condition for Microsoft’s investment.. 🙂

Written by tomnoyes

February 16, 2010 at 4:59 pm

Wanted: Payment Leaders

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16 February 2010

This blog will be rather short, but wanted to share a few thoughts. As background.. my related Blogs:

MNOs will Rule in Emerging Markets

Investors Guide to Mobile Money

Cash Replacement – Part 2

As an investor and banker attempting to connect capital to innovation I see great prospects for the mobile phone as a tool for commerce.. both physical and remote. The mobile phone has the unique “opportunity” to connect multiple networks (financial, telecommunication, social, commerce, ..) with a trusted handset that provides: convenience, security, identification and authorization. CEO’s know that much of the economic potential of mobile commerce is locked within a the complex web of business relationships in existing networks (See NFC example).   Small companies must take a “dynamic view” on strategy as significant investments are made by established companies in this field. For example, Visa/MA no longer view themselves as constrained “bank only” card networks, but as Payment Service Providers.

The trends of note (this week) are:

  1. Established companies are having a tough time structuring payment spin offs and acquisitions
  2. Strong business leadership at the top of any small company is the key for success.

Bank Led Spin Offs

This is good news for entrepreneurs. For big banks and payment networks the top problems effecting “Payment innovation” are:

  1. Poor continuity in leadership (with the exception of Chase and Wells Fargo).
  2. “Payback”. Investment horizon for FSIs creating new products/alternative networks.
  3. Structural. Model for folding in or spinning out investments and incentive compensation for key executives
  4. Leadership/Talent. Established FSI stars with a $200MM+ may not be capable of transitioning to a “start up”
  5. Marketing expense in changing consumer behavior

The war stories here are too numerous, but a few should certainly elicit a chuckle.  “A top bank” has taken the approach of acting like a VC. The Bank is both making investments in existing ventures, as well as creating new ventures (50% or more of invested capital). The leaders of the new ventures are internal “innovation executives” with little to no operational experience (read strategy types) and no previous P&L experience. Internal HR (of the “top bank”) has determined that NewCo compensation and health plans should precisely mirror those within the bank, and executives within NewCo will receive NO Equity in the new business (but retain their bank incentive options). I refer to this as the “dingy” spin out (a reference to a small water craft lowered by a larger ship). The NewCo (aka Dingy) goes about building a product that was derived from the mother ship, looking for new business, … or even for business from its investors. Obtaining business from the sponsoring bank is problematic as they have only taken a “product” that already existed so the NewCo effort is mainly marketing releases concerning areas where their product is used (which they had nothing to do with). To further create “buzz” NewCo creates and iPhone app.. not that anyone will use it.. but it was relatively cheap and showed some progress.

Structurally, NewCo has difficulty selling products externally as they have no “sales skills” in the executive team and no other bank is interested in doing business with an entity owned by a competitor. Further the NewCo executives would like for NewCo to be successful, however they are much more cautious in aligning to their parent organization as all of their compensation remains tied there.

Lets extend this story to look at this NewCo from the perspective of the Bank’s head of payments (lets call him Paul). Paul has 50 initiatives that could drive 20% returns in current FY, but needs investment for each, his top 3 require only $10MM. He gets a call from NewCo’s CEO asking him to for assistance in implementing their product in one of his countries. The investment has no return and will cost him 20-30% of his discretionary IT budget to get in place (in reality no one has any discretionary IT this year). He further looks at the NewCo CEO and sees that NewCo received $20M in funding.. funding which he would have jumped through hoops to get. You get the picture…

What could the bank have done? Get some serious R&D types with international operations experience together to look at “sustaining” and “replicatable” innovation to gain internal credibility. Right now you have a completely discoupled Innovation team that only looks for the sexy customer facing “quick hits”.  The innovation team needs to fill itself with business experts and get out of the .com strategists and deal makers. Global banks need to realize that most innovation should be led within countries. A key example: at Citi Japan the team there built an application that takes control over the phones camera and provides an agent interface for remote acceptance of terms and conditions (contract) this video acceptance is stored in the banks KYC.

Acquisitions.. I’m cutting this short, but integrating any business is challenging. Bank/Network success in M&A takes strong business leadership AFTER the acquisition. The tendency of most companies after the acquisition tends to be product integration (capability) vs the value proposition. As a bank, you need in house leaders that can drive this value. Lets see how AMEX/Revolution Money turns out.

Business Leadership

This is my quickest litmus test for dealing with any new payment company: Get into detailed payment operations discussions with the CEO and look for a history in running a payments business. How do they deliver value today (in 30 seconds)? What markets do they operate and what are recent/impending regulations that will effect their business? What are their war stories? What is their knowledge of past events and failures?

Given that there is so much economic potential in mobile, where are the leaders that can unlock it and what are their skills? If we take a look historical look at any networked business we see that they start out as a private closed network that evolves and opens (either for regulatory or market reasons). We see this same trend today in MPESA, Octopus, payforit, GCash, … Closed networks start as a mechanism delivering focused value. Adding payment capabilities to existing non financial networks (read MNOs) enhances the value they can provide. Moving money on someone else’s network is easy.. getting permission from the networks/regulators and changing consumer behavior: “hard”.

Key Skills

  1. Define and evolve a core value proposition
  2. Ability to define regulatory risks and operational approaches to address
  3. Attract and retain start talent
  4. Ability to manage a P&L
  5. GLOBAL Payment Operations experience (the regulators are shutting us down)
  6. Sales skills (direct to consumer and/or business sales)
  7. Network within the Industry (what is everyone else doing)
  8. Manage a BOD
  9. Ability to listen to the customer and adapt
  10. Historical knowledge of payment initiatives
  11. Ability to drive complex technical initiatives
  12. Understanding of competing networks and value propositions
  13. Comfortable in the details and the strategy
  14. Can coach a people and build a team


As an ex Gartner guy (don’t hold it against me) the hype cycle in mobile payment is in full swing. There are significant challenges to raising money in this environment with the exception of the big banks. The number of mobile payment transactions in the US is almost non existent… and VCs do know the truth.  If I had a dime for every time a CEO was telling me of their new iPhone application… I’m much more impressed with initiatives driven outside of SiliconValley …

Within mobile money, there are a handful of successes (MPESA, Octopus, payforit, GCash, ..).. In NorthAmerica my top “small” payments companies are: CashEdge, BlingNation and HyperWallet… each have CEOs with over 20 years of payments background.

For entrepreneurs in mobile money my message is: focus outside of North America and add value to someone else’s network.. creating your own is a 20 year project.

Written by tomnoyes

February 16, 2010 at 4:29 pm

Safecorp Financial

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Americas Next Direct Bank?

2 February 2010

Perhaps it is a sign of aging that I see events unfold in “waves”. The wave phenomena is probably my brains feeble attempt to connect new information to prior personal experiences… reinforcing some neural networks and restructuring others. Along side this gray matter re-wiring are events that ARE actually connected as ideas are discussed and lessons learned among leaders and investors leveraging new market insight to build new products and businesses.

This week’s “Wave” was related to direct banking. The country direct bank leaders I had a Citi were just fantastic, each one a local crucible of business and technology innovation. I viewed the principal challenge for Citi as finding a way to learn our lessons once (as opposed to 47 times). While I had international, Steve Kietz grew Citi’s US Direct Bank to be the fastest growing bank in the history of US ($6B in deposits in first 8 months).  Internationally UK, Australia, Singapore, Japan, Columbia, India (NRI) and HK stood out as excellent examples.  Our key lesson is that there are opportunities for a “direct bank” model globally and established banks have challenges attacking it because of margins (Innovator’s Dilemma).

This week I learned of the latest DirectBank “Black” initiative by Bill Harris and Rob  Foregger: Safecorp.  From Rob’s Linkedin:

Co-Founder, Chief Strategy Officer at SafeCorp Financial. Envisioning the future of financial services and building it today. SafeCorp Financial is building America’s next-generation electronic finance company, focused on reshaping the retail financial services industry for the 21st century. SafeCorp Financial will offer a full suite of customer-centric retail banking, payments and investment services for the mass affluent market. SafeCorp Financial will operate as a branchless financial services organization, efficiently servicing customers in all 50 states.

Given Rob’s background at Fidelity and Bill’s background from (pre paypal) I would make the following assumptions on their business model:

  • Focus on Affluent, Fed chartered FSI
  • Aggressive push for Customer Acquisition with Direct Deposit (Salary Domiciliation)
  • Yodlee Aggregation and advance financial tools (think of this as quicken lite) for both planning and investing. Bill has excellent relationship with Yodlee.
  • Open Payments architecture for pay anyone.. a key feature missing with most major banks. Perhaps a bill pay driven by Yodlee’s bill direct (driving card transaction fees).
  • Highly competitive rate driving product play. Example interest checking bearing 1.5% and no fee.
  • Investment Products (perhaps later in cycle),  through partnerships
  • Integrated rewards for balances, and use of debit card with tiering in investment products

Thoughts appreciated

See Previous post on Citi’s challenges in Direct Banking

Fidelity Bank…

Written by tomnoyes

February 2, 2010 at 4:52 pm