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Vendor Review: hyperWALLET Systems

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18 May 2010

I’ve been fairly negative on a few vendors lately. In the long term, Capital is attracted to success and growth and it is time to look at a few “successful” start ups.

Criteria for “success”:

  • Consumer Metrics (Active Customer Growth, Revenue)
  • Dependencies (Behavior, infrastructure, technology, …)
  • Value Proposition
  • Market Opportunity
  • Financials (Invested Capital, Burn Rate)
  • Competition
  • Ability to Execute (Team/Partnerships/Regulatory Issues)
  • Intellectual Property

hyperWALLET Systems

The first step in assessing any company is to look at their customer base and legacy. hyperWALLET is a 10 yr old private Canadian company that delivers both a software platform and payment network to over 200 companies and government agencies. They have references in telecommunication (Enstream), banking (HSBC, Canadian Banks and credit unions), Government (paylution), Commercial B2P payments (Monavie), Card (FIS, First Data, ..), online/mobile wallet, and are themselves a licensed money services business (in Canada).

The focus of hyperWALLET is payments to an individual, supporting payments from: another individual (P2P), a corporation (B2P) or government (G2P). The key issue in supporting payments to individuals is addressing lack of homogeneity in banking relationships and preferences. For example, an unbanked consumer may have preference for a pre-paid card or distribution through an agent network. Similarly a banked consumer may have preference for funds deposited directly in their bank, or split between banks depending on whether the payment is for dividends, commission or pension.

hyperWALLET has 2 businesses that support this focus: Platform and Network. Their platform provides white label payment services in either a license or hosted model. Allowing customers to “brand” payments and integrate into the online customer experience. For example, Canadian credit unions which allow customers to move funds to other banks internationally would have the “transfer funds” service as another tab to their existing online banking service. In addition to supporting white label, the platform upports 12 languages and 15 currencies in multiple channels (online, VRU, CSR and mobile phone). As an ex Oracle and ex Citi exec I couldn’t help but be impressed by the product design and architecture. Certainly a credit to the MIT educated CEO Lisa Shields.

The platform can serve as either the system of record for multiple products (ex. Card, ACH, Wallet, Airtime) or aggregate this information from other sources. For example, as a certified ISO 8583 issuing platform hyperWALLET can issue pre-paid cards and serve as processor, or it can integrate to systems from FIS, First Data (…etc.) and act as a program manager.  Another example is where hyperWALLET acts as an agent of the bank to provide customers with an “integrated” account view of card, ACH and other (Airtime, wallet, ..etc.) balances IN MULTIPLE CURRENCIES. Customer’s have the capability to turn these functions on and off in order to restrict functions based upon customer segment and location (regulatory regime).

The key barrier for HW’s competition is their payment network. By establishing banking relationships in over 40 countries over the last 10 years, HW can process both domestic and international payments through local ACH networks. This allows HW to centrally manage Treasury, and FX (thereby cost) which provides them with the capability for disruptive pricing. For readers of my previous blogs, I consistently credit PayPal and Cashedge for their payment operations teams. I now put hyperWALLET into this group and place them in the leader category from an international perspective. The HW team manages card, ACH, MSB, SWIFT, Agent networks, MNOs, and Wire across their broad customer portfolio (consumers, banks, corporates and government) for 40 core markets and their associated regulatory regimes. They even have a call center that speaks 12 languages.  Truly a rarified group.

The only companies that come close to offering this level of functionality are within commercial banks (Citi GTS, Deutsche, JPMorgan, HSBC GTB, Barclays GPU). Unfortunately for the banks, few are adapt at making their transaction services functions consumer friendly. Thus these institutions largely focus on the top end needs of large corporations, leaving everyone else to companies like hyperWALLET. 

HyperWALLET is a payments company in the hot spot of payments to consumers. They sell their platform to MNOs like Enstream as they lead Canada into mobile payments, and deliver cost effective global transfers through their Global clearing network in a way that allows individual consumers to manage where and how they get their funds. The deep payment expertise, and diverse customer base, leads them to rock solid product design based on real world problems.

HyperWALLET recently expanded its board of directors with the addition of Peter Burridge, former CEO of Travelex Global Business Payments and President of Seibel Asia Pacific and Japan. hyperWALLET’s CEO Lisa Shields is a leader in Canadian Payment community. In addition to her role as Co-Chair of the Canadian Payment Association meeting in June, and her 200+ customers, she is heavily involved in working to address the needs of the unbanked.

As you can tell, I’m quite high on this vendor. They are light on marketing and high on references, product, payment operations and thought leadership. The key market opportunities which will drive hyperWALLET are:

  • Pre-paid card
  • Mobile Money (from Enstream, Apple, Bharti, …)
  • Business payments to Consumers (dividends, commission, expense, …)
  • Government Payments to Consumers

Valuation

hyperWALLET is a private company with no published financials. As a payment network, they are classified within Payment Processors. Not withstanding the inflationary multiples from the Visa/CYBS transaction, companies within this group have average 2009 P/E multiples of 14.3, and 12.9 for 2010. Comparable acquisition transactions are listed below

Thus, I estimate hyperWALLETs current value between $70M and $120M

Written by tomnoyes

May 18, 2010 at 2:38 pm

$5B MNO Opportunity: KYC

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March 11, 2010 

If you had 30 seconds on the elevator with the CEO of any of the large MNOs, what would you say? I would tell them that they can uniquely address a substantial short term revenue opportunity with an authentication service (in existing customer base). How big? Addressable market is at least $5-10B with MNO revenue opportunity proportional to user/payment volume.

What drives this addressable market?  A: Fraud. Card fraud is big business (~$5.5B globally) for “bad guys” and so is stopping it.

Why MNOs? Unique capabilities with existing customers which can deliver short term revenue. Globally MNOs seem to be caught up in a brawl with banks and regulators in facilitating payments. For an MNO, why bother with the payment? If MNOs can manage risk (independent of payment type) then they have the potential to change the payments landscape and provide consumers (and merchants) with the ability to form new payment arrangements. If a consumer could be authenticated, then they no longer need to carry around any financial information with them…. account information could be managed separately. This is not a new concept (read virtual wallet). Past “wallet” failures were based upon a MNO model which attempted to “control access” AND “payment instruments”.  Alternatively, an “authentication” model would put MNOs into a role where they support existing processes and payment streams (rather then intermediate them) AND remove them from many of the regulatory hurdles which surround payments.

What are Key MNO Capabilities? Customer location, near real time customer communication, customer payment history, KYC, regular communication with customer, brand (trust greater then banks in most cases), handset (ex. Camera), merchant relationships, ability to incent customer, … etc.

Examples:

  • Globally, the most cost effective form of “authorization” my teams had ever rolled out was SMS based… A simple message to the customer providing a OTP. This model does not require MNO involvement, but could be substantially enhanced with additional MNO provided information (ex. Location, picture).
  • Verisign’s VIP and Arcot’s new OTP generator are great examples of the potential for the mobile phone to act as an authentication device… this kind of service has the potential to displace EMV/CAP (outside the US) and usher in changes in the US.
  • A non-card story comes to mind. CitiFin Japan had one of the coolest mobile applications I had ever seen: mobile account opening. The App took control of the handset camera so that the prospective customer could look into it and say “I accept the terms & conditions”. This would be a great generic service for MNOs.. for all types of “contracts”

Where to start?

In the US, the merchants are bearing the costs of card fraud and are highly incented to partner. The biggest merchant pain point is card not present (CNP) transactions. Getting the customer involved in authentication is a harder nut to crack, particularly when they bear no risk/costs (US Reg E/Z, and Fraud Liability Shift Whitepaper).

To get the ball rolling MNOs need to partner where the pain is (merchants) then incent consumers. Incentive costs should be borne by merchants through some combination of rewards, discounts or coupons. Another possible incentive is fear (identity theft.. don’t laugh have you seen Lifelock’s subscriber base?).  In my previous post (iPhone at POS? ) I touched on several elements which are critical.

Customer Experience? 

  • Having the mobile phone as part of the payment stream would result in the best (short term) customer experience, but would give the card networks new control (adding mobile number to card directory). I’m sure there are 100x permutations, but most would involve a customer interaction with the device to approve or verify.
  • ACH Push has plenty of examples where consumer presents mobile phone number to the merchant (as is done today in Nordics and PayBox) instead of your card.
  • In a “decoupled” authentication process, the merchant would ask to validate the consumer. Consumers are reluctant to give out their mobile numbers, so I would assume that the service may gain the most traction by making the party that stands to gain (merchants) do most of the work.  MNOs would develop an auth service where merchants would send a “validate” request to the MNO for a given payment type (many US merchants use an similar service for checks today: Telechek). Consumer would receive request and approve (prior to card authorization). The great thing here is that this request could also morph to take into account “context” of the validation request (ie. buyer/seller/new customer validation).

Example “future payment” process: Taking my cart full of groceries to the checkout counter of Tesco, the clerk gets my name and asks “would you  like to pay for this the same way you did last week”? I say sure.. and get a message on my phone with amount and store, validate with my PIN. Store recieves validation and processes order with my last payment instrument. I never had to open my wallet, and get a feeling that the store knows me… perhaps this is “back to the future” with the local corner grocery of 100 years ago (they knew their customers and cash was not always required). 

Summary

Authentication is a natural space for MNOs, and US merchants are screaming for help in managing $1.5+B in fraud. Unique MNO KYC capabilities could provide for many new revenue streams and accelerate an “mcommerce” world that expands beyond ring tones. In the US, we must find a way to leapfrog EMV, improve customer experience AND address the tremendous risks and fraud costs borne by merchants. Why should I carry around 8 cards and swipe for everything when 90% of merchants already have my payment information? MNOs have the opportunity to deliver compelling value and cement their position in customer interactions. Generating revenue from a “generic service” like authentication will likely require additional companies capable of consuming (and extending) it. Perhaps the mobile phone will be the “key” to trust portability (hey that rhymes) and link the virtual and physical world of commerce.

Related Links

Written by tomnoyes

March 11, 2010 at 5:38 pm

Posted in Analysis, US

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Comscore – US Mobile Market Share

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Comscore Report – March 8, 2010

Good report from a great company. The quality of Comscore’s data is just unbelievable. Though statistical sampling, they were able to predict my numbers at Citi to within 2%.. from balances, to users, to account openings. Its the best competitive information source I’ve ever dealt with.

– Tom

Written by tomnoyes

March 10, 2010 at 5:39 pm

Posted in Analysis

Monitise – Loss widens

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16 Feb 2010

http://www.guardian.co.uk/business/marketforceslive/2010/feb/16/2

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.

https://finventures.wordpress.com/2009/11/13/vendor-review-monitise/

Written by tomnoyes

February 16, 2010 at 8:50 pm

Bundle – Citi/Microsoft Venture

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Citi Rolls out Mint Competitor: Bundle

15 December 2009

First article on Bundle came out last week from Windows in Financial Services (above).  See my previous post here

“Americans know they are not saving enough for retirement. They know sometimes they buy things they cannot afford. They realize that as salaries go up, so does personal spending. And they know they are not alone. But these aren’t easy problems to fix. The popular personal finance magazines are all written for people already heading into retirement. The banks and investment companies all have products to sell”

The innovation guys at Citi are friends of mine. This team sat just 4 doors down the hall and I would love for them to be successful.  I like these guys… objective of this blog is to give feedback to this team (brutal honesty) and perspective to competitors. For those of you that don’t know Citi lets review some data on their US business and recent announcements in retail banking:

1)      Citi is largely a card bank in the US with only 12M retail banking accounts, and almost 100M cards in circulation (see 2009 10-Q for more info)

2)      Citigroup Will Pare Back To Six Major Metro Areas

“The bank has 1,001 U.S. branches, compared with more than 5,000 apiece at Bank of America Corp., J.P. Morgan Chase & Co. and Wells”..“Citi is trying to sell its roughly 120 branches in Texas and reconsidering whether it makes sense to maintain a big presence in Boston and Philadelphia”

3)      Citi’s internet and innovation teams have no (very limited) retail banking experience

4)      Citi’s Retial CEO Teri Dial is on her way out the door .

5)      Citi is largely an “affluent bank”. Although they rank 9th in branches, they are a solid 4th in deposits (see FDIC tables here ). Their average account balances are 3-5 times that of most competitors (2006 comscore data below)

6) Citi’s internal business heads don’t know what to do with this innovation team that has money to invest and  limited “connection” (read accountability) to the lines of business. This one may get me in trouble … so I need to expand here a little. Creating an innovation team presents a structural challenge for the CEO in any company. If they are too tightly tied to the LOBs, then nothing will happen. If they are too loosely coupled then their innovation will not be consumed. The issue with Citi is not the innovation team, but the structure of the constraints and incentives.

Analysis

As I stated previously, a central challenge will be moving customers away from their bank to engage in activities such as budgeting and paying bills… and then transacting. In the US, MSFT, Mint.com and INTU had trouble getting customers engaged separate from their Banks.   Mint has over 400,000 customers and VERY high customer satisfaction, yet this does not translate into revenue (below $5M).  This dynamic is why Microsoft has exited financial planning software (MS Money) and has very limited use of its own financial budgeting tools on MSN Money.

INTU certainly overpaid for Mint, at over $400+/per non transacting customer. Mint’s customer base was  “spenders” vs “savers” (hence the need for budgeting)..  they may need retirement planning, but Mint did not prove ability to get a customer into any product (even a cheaper card). Why would Citi want into this business? Investment hypothesis must fit into one of the following “buckets”:

A)    Customer feeder to core products, or

B)     Revenue generating service(s) for existing customers (think marketing, or card based payment)

C)    Revenue generating service(s) for new customers (think advisory), or

D)    Innovation team needs to invest money with a big name partner in the hope that something will work out

My guess is A and D. There are several organizational, brand issues and customer support issues with Citi’s approach. Why would Citi want to encourage existing customers to do budgeting external to Citi’s brand? Fortunately for banks, customer data shows that consumers prefer to go to their bank directly to perform financial services. This “Trust Pattern” is something banks should want to reinforce and was a key reason why banks invested in online infrastructure. WFC exemplifies the alternate approach within its online banking services, with integrated budgeting tools, which is a great service and provides solid customer retention.

With regard to aggregation and budgeting, they are great tools to build closer relationships to consumers. As a consumer, why would you want to go to bundle when the only products it recommends are those of Citi? Lets assume the Bundle signs up all of the major banks to also offer their “retirement services” products. This form of competition aligns with Citi’s new retail distribution strategy (reduced branches), but DOES NOT align with any of it’s product pricing competencies. Are Citi’s products capable of competing on price? How does this align with Citi’s current Affluent customer base and product mix? Citi has a tremendous brand, and in 2006/2007 Citi’s brand proved it was capable of competing online with a price driven product in Citi Direct growing $8B in deposits in 6months. However what Citi’s management team (at the time) also learned was that “most” of this growth in liabilities came from existing customers (read cannibalization). Outside of brokerage, few online channels have proven an ability to acquire (or cross sell) affluent customers.  So is Bundle a mass market acquisition play? What products will they offer and at what price point?

In the UK, customers select their bank savings account through leading comparison sites like www.moneysupermarket.com. In the US, mass market retail customers select their bank based upon the proximity to their house. 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. The UK online bank Egg was successful in online acquisition because is first started with the most competitive product, establishing trust, and then moved to deliver the best services to surround it.

Globally, the only success model for aggregation and comparison that I am aware of is Egg.com, which my team at 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. In other words, aggregation was part of a larger product value proposition. 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. For Bankers.. this is why the Egg model is so difficult to replicate (or acquire), it takes alignment of a value proposition across product, services and channels. A challenge which is even greater for an innovation team, hence Citi’s attempt to decouple the “idea” from the “business”.

If Microsoft had challenges running financial planning as a business, you can be certain that Citi will too.  Bundle’s seperate brand may not insulate it from the trends impacting its parent as Citi’s consumer brand has “lost luster” with furor over bank bail outs, bonuses and credit card rates.

As a side note, Egg’s troubles began when it lost its focus on customer and prioritized product based upon  meeting short term investor demands. The relative simplicity of the liabilities business gave way to more complex (and higher margin) asset products. As Egg developed a portfolio of card and PILs (to improve interest income) it started to resemble a card business much more than a retail bank (approx $14B in Deposits). The customers that “saved” with Egg were much different than the customers that borrowed.  Poor credit risk management and underwriting led to substantial write downs, under performance with Prudential PLC and eventual sale to Citi in May 2007. For Citi,  neither of the Egg customer segments fit well within Citi’s affluent focus, the acquisition was driven by Chuck who wanted to show “internet distribution” progress to the BOD.

Written by tomnoyes

December 15, 2009 at 1:39 pm

Amex Revolution (update 4)

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Amex Acquires Revolution Money – $300MM (Update 4)

18 November 2009

QUICK Take Analysis

Company Website

Investor Webcast – Amex Acquisition

News

Customers
Card Holders: 300,000
Merchants: TBD
TPV (FY 2009 Estimate): $200M-$400M

Revenue (2009 Estimate)
Interchange:   $1.0M (Est 50bps)
Fees:                 $0.30M *Est
NRFF:               $0.60M *Est
Other:               $0.20M *Est
Total 2009 Rev:  $2.1M (Estimated)

Invested Capital
Series A – $10 (Estimate)
Series B – $50M 9/07 Deutsche Bank, Morgan Stanley, Ted Leonsis
Series C – $42M 4/09 Goldman Sachs, Steve Case, Ted Leonsis, David Pottruck, David Golden, Citigroup, Morgan Stanley.

Total Invested Capital: $112MM (Estimate)

Post Money Valuation – Series C $200M (April 09) *Est
Purchase Price: $300M (11/18/09 Press Release)

Deal Analysis
• 142.8 times Forward Revenue
• 2.68 times Invested Capital
• Profitability. Assuming ACH funding costs of 42bps, gross margin on TPV is less than 8bps. If consumer fees remain consistent,  and merchants bear marketing costs, break even is TPV of $1.9-2.5B (12x+  current TPV). Note PayPal TPV is $60B.

Bank License: First Bank & Trust
Partnerships: Chase Paymenttech, 5th 3rd

Business Overview

The most telling data on this business is from the conference call above. CEO said “I don’t know what the numbers are, and if I did I probably wouldn’t tell you”. Revolution efforts to date, and their value proposition, are heavily merchant focused.  Early vision was to own the rails and act as both issuer and acquirer. Realizing that this was too much to bite off for a small company they chose to focus on a platform and partner w/ acquirer, selecting the most cost effective network (PIN Debit) as “rails to ride”.

Revolution has “tested” the platform, a platform which provides unique cards that resemble US Bank’s existing PIN Debit (ATM) card plus some additional security features.  Given the break in their acquisition strategy, Revolution’s margins are extremely compressed, with merchants provided a flat 50bps MDR. All accounts are funded by ACH transfer and no interest is paid to customer on funds held.  Payments funded though ACH typically carry a flat processing fee, usually less than 25c (this represents cost of less than 40 bps on an average PayPal transaction of $62). By comparison, PayPal’s funding mix includes option for credit which carries funding cost of 200-250bps.

Under existing US regulations (Reg E/ Reg Z) merchants suffer heavily in losses on Card Not Present (CNP) fraudulent transactions.  Visa and MC networks have had challenges implementing improved CNP risk controls as 4 parties (issuer, acquirer, merchant, network) have very different incentives. Revolution’s enhanced security controls attempt to address merchant liability in CNP fraud , and could lower costs for merchant, and issuer (Revolution).

Consumer Fees

Analysis

  • 140x revenue represents a significant premium for a business model that has not proven itself, only “tested” its platform, requires substantial changes to consumer behavior, and leverages bank networks without providing bank incentives. It will take a 500%+ annual growth rate for this transaction to be accretive in a 5 year view with current pricing structure. American Express acquisition may be able to accelerate merchant growth, but marketing costs remain a challenge.
  • Current MDR and Consumer fee structure will likely remain until a TPV of $2-$3B to drive merchant adoption and offset merchant costs associated with integrating (and marketing) a new payment instrument.
  • Merchants may distrust AMEX intentions here as AMEX’s MDRs are among the highest of any payment type. Internally, AMEX will be challenged to allocate resources to Revolution’s given cannibalization issues surrounding fee structure. It may however, align with AMEX recent activity to form a deposit business.
  • Amex merchant connectivity may be able to provide the low cost rails that were initially envisioned in Revolution’s early business model. Internal incentives will prove challenging.
  • Price driven product. As the head of payments at a top 4 bank told me last week, what about this can I not do? The margins in this model have not driven earnings, and pricing will likely increase to support a sustainable business. A key element to pricing (and adoption) will be the degree to which merchants take ownership of marketing, loyalty and consumer adoption.
  • Companies like LifeLock have demonstrated that there are profitable consumer segments that care deeply about security. Uptake of Revolution money may be influence heavily by customer awareness. Under Reg E and Reg Z, maximum consumer liability for a fraudulent Credit Card transaction is $50. The liability for a PIN Debit is much different (note below). If consumers realize that their existing card liability is superior (then this instrument), it may impact adoption.
  • As with any new payment instrument, consumer adoption often proceeds much more gradually than predicted. PayPal solved a critical problem for an emerging market. Paypal’s ability to manage fraud and losses may justify their higher take rate (300-350bps), as the PIN debit model does not address merchant liability (see Chicago Fed Overview).
  • It is Critical that Chase Paymenttech stay engaged in merchant acquisition, as they are the leading acquirer for online merchants (addressing CNP issues).
  • (Aug 2010) learned that Revolution paid acquirers $1-$2M to integrate product.
  • Message to banks and issuers: set aside $10-$30M to invest in solutions to address CNP fraud.

Issues
Banks have invested enormous capital in building the ACH and PIN Debit (ATM) network, Revolution money leverages ACH to to fund their accounts, and then leverages the ATM PIN Debit network to conduct transactions. This flow of funds completely eliminates Debit card interchange revenue for “originating” banks (~150bps). Banks have not acted to date as current TPV is not of concern. In the event that TPV expands significantly, expect Bank involvement in restricting both the funding of accounts and use of PIN debit network. NACHA members have been very active in enforcing limits on clearing of non-bank payments, particularly if total transaction volume exceeds bank’s assets.

Non-bank money transfer services are typically a regulated activity. In addition to regulatory challenges, the unique regulatory environment (Reg E, 3rd party sender to ODFI) in the US may prohibit international expansion of this model. Another unique aspect to the US market is the card issuing business is typically separate from the merchant acquisition side (exceptions are American Express and Discover). Internationally, banks with both issuing and acquisition businesses are in a much better competitive position.

American Express will likely look to supplant role of Chase Paymenttech in merchant acquisition. Chase Paymenttech has several unique capabilities that will be challenging for AMEX to match. Look for AMEX to provide incentives for continued Chase Paymenttech involvement.

Value proposition is heavily merchant focused. Merchants may bear marketing costs to drive consumer adoption given the enormous cost benefits, however an integrated (merchant funded) marketing campaign will be challenged. Branding payments will eventually provoke a bank reaction. Paypal supported bank profitability through some interchange (50% funding mix w/ ACH). This model completely disintermediates banks (all while leveraging network in which they have influence/ownership).

Fraud does not typically attack a new payment system until it reaches critical mass, as fraud perpetrators must invest time to explore weaknesses and develop new tools. PayPal suffered losses of 7.4% of Revenue (over $300M gross fraud last year). This would obviously impact a business model with a margin of less then 10bps. The funding of the initial account is certainly a key weakness in this arrangement, as witnessed by both “direct banks” and transfer agents like Cashedge. Cashedge has a dedicated team of 30 risk analysts that have developed tools over 5 years to address fraud. See Mule Accounts.

Is the merchant value proposition strong enough that merchants will invest in building business teams that are capable of creating marketing and loyalty plans that can drive consumer adoption?

Written by tomnoyes

November 18, 2009 at 9:19 pm

Firethorn is Dead

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Updated 4 Nov (reference to 2Q09 10-Q Unit earnings)

Ok not yet.. but this is the obituary precursor.

Firethorne Quick View

  • Acquired by Qualcomm for $210 in Nov 2007.
  • Estimated Revenue of $4-7M through MNO fees and bank licenses ($500k-$1M). Qualcomm does not seperate revenue from this unit, nor is it mentioned in filings (http://www.qualcomm.com/investor/index.html)
  • Current customers: Wachovia, Regions, SunTrust, Citi Card and now US Bank
  • Wachovia is pulling out of $1M arrangement
  • Expect firethorn to be “reinvented” as NFC mobile payment solution within QCOM portfolio. Consistent w/ 3Q09 Analyst presentation.
  • 2Q09 10-Q:  “The decrease in QWI’s earnings before taxes and operating margin percentage was primarily attributable to an increase in the operating loss of Firethorn and the effect of…” Expect another decrease in 3Q (investor call 4 November 09)

When I was at Gartner Group, I sat down with an “anonymous” analyst and he said let’s think of some catchy titles for a new analyst brief. I asked “what is the subject”? He said “let’s decide that after we define the title that everyone wants to read”. It was then that I decided to leave Gartner, realizing it kept more to its journalism roots (as a prior division of McGraw Hill) then I cared to be associated with.

But alas I regress, growing ever more frustrated by MNO and bank attempts to “mobilize” financial services. Firethorn was a mess from the start. Having been at Wachovia (but never party to Firethorn selection) I can tell you that Firethorn’s banks “wanted to do something in mobile”, without much of a business plan behind it. The lack of a business plan is something that not only challenges the Twitters of the world, it also challenges big organizations. In either case a business plan must be addressed or the initiative will atrophy.. such are the vagaries of life… with perhaps the exception of centralized state planning (thank God for capitalism). The cards were stacked against Firethorn:

  1. Firethorn Banks had no “mobile” business plan.. when there is no plan, there is no executive support (because there is no revenue)
  2. Active customers are less then 10k per bank, Firethorn’s $1M/yr price tag is hard to justify
  3. Fat clients on mobile phones are a failure (more below).
  4. Telecos stopped blocking access to http traffic (bank mobile sites)
  5. Consumers don’t perceive value (browser based access is faster).

BAC, JPM and WFC have solid strategies for mobile in support of their business. Distribution is a key facit of any business and it is never acceptable to create a new channel for sales/service without understanding of how it impacts products, customers and costs to serve. From a Bank CEO perspective, business leadership is required in distribution… don’t let the techies or “internet teams” make distribution decisions absent of business involvement. Firethorn’s current bank customers should have been more thoughtful in their decisions. Giving an MNO “control” over your content is not acceptable. Banks must push strategies that support their ownership of data, control over consumer (including authentication), brand and service experience/cost (quality).

My sources tell me that Wachovia has stopped new enrollments and is sunsetting the app immediately. Existing clients will be notified in next few months. The application never took off w/ Citi Card customers. (Poor US Bank.. they just went live with Firethorn last month).

Firethorn was acquired by Qualcomm for $210 in Nov 2007. Current customers: Wachovia, Regions, SunTrust and now US Bank (blind following the blind). I project Firethorn revenue as $8M from both direct sales to banks and MNO service fees. Revenue growth is challenged by issues above. Expect to see Qualcomm refocus Firethorn in NFC payments space, and align with companies like Vivotech. This is consistent w/ 3Q09 guidance in QCOM investor call

http://www.marketwatch.com/story/firethorn-provides-mobile-banking-application-to-metropcs-2009-10-08

http://www.redherring.com/Home/23154

http://www.netbanker.com/2007/03/wachovia_suntrust_regions_mobile_banking_with_firethorn_cingular.html

Citi Card 

(side note) Globally mobile banking fat client apps have been a resounding failure. In my previous life at Citi 6 of 6 fat client initiatives have failed. Take a look at the Citi iPhone app.. guess how many people use it? What do I recommend? Low cost…. with no change in consumer “behavior” or support requirements. In the USA.. Create a slimmed down style sheet(s) that fit the mobile browsers. BAC, Wachovia, and Wells to a terrific job here. Most other markets SMS is the way to go. Simplicity is the key to mobile…. My favorite “mobile banking” vendor outside of US is Monitise .. just reuse your ATM transactions and tie to a service (Overview here)

Written by tomnoyes

October 28, 2009 at 4:47 pm

Posted in Analysis, Mobile

Tagged with , ,