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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


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

Venture Capital Trends

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9 March 2010 

Background Information 

This note is to entrepreneurs in order to provide some perspective on the state of the Venture Capital Industry ( Venture firms are of tremendous importance to both the US and global economy. In the US alone VC-backed company revenues make up 18% of the U.S. GDP and account for over 10 million jobs. 

VCs are having challenges raising capital as they compete for risk adjusted return. Last year, 125 venture funds in the U.S. collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008 and down from 217 funds that raised $40.8 billion in 2007. As the data above shows, 10-year return fell to 8.4 percent from 14.3 percent in the previous quarter – and from 40.2 percent one year earlier. 

In the NVCA survey above, the majority of VCs see a substantial shake out in their industry with 90% of VCs predicting that the number of firms will shrink (NVCA chart). 

Plans to tax carried interest are further challenging VCs politically and financially. VCs take “active” roles and put personal capital into their investments. Further, GPs typically face hurdle rates

From Wilson Sonsini – Example Hurdle Rate Allocation


Net profits will be allocated: 

  • First, to all the Partners until each Partner has been allocated net profits sufficient to represent an 8% cumulative IRR on such Partner’s contributed (and unreturned) capital;
  •  Next, 100% to the General Partner until total allocations have been made: 80% to all the Partners in proportion to their respective capital commitments; and 20% to the General Partner; 

What does this mean for entrepreneurs? 


A: Times have never been tougher in raising capital, VCs are anxious as their RAROC is challenged by potential carried interest tax changes. Net is that the hurdles of getting your plan funded by a VC have gotten much higher (limited capital) and that valuations are tougher due to recent vintage trend data and carried interest tax implications on GP returns. 

Entrepreneurs don’t give up hope, there remains a bevy of options (some outlined here in Inc.): private placements, angels, angel networks, small business loans, existing customers, …etc. Most of these options start with a relationship or connection to your business. If you are having trouble raising capital, my top suggestion is to look at your board of directors. A successful CEO provided a tactless (but useful) approach to evaluating board performance in capital raising: “they either need to be able to give, get or get off”.

Written by tomnoyes

March 9, 2010 at 3:12 pm

Wanted: Payment Leaders

with one comment

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

BlingNation raises another $20M

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In the US, most mobile money start ups are far from establishing momentum. As a matter of coincidence I just receive notice today that Obopay and Citi  that they are terminating the “pilot” (As there were only 2000 users I can see why). BlingNation is an exception to this rule.. I really like this company and their CEOs, as I said in my blog last month… John Reed does not get involved in much since Citi. These guys have the vision, team, board, value prop … and now CAPITAL to run a long way.

Bling’s $33M in invested capital may be all they need to turn the corner. They currently have 10 community bank  pilots going very well, and are ramping up regional teams to lead sales, marketing and service  additional “on us” communities. Its great to see an experienced team with a solid BOD AND a solid business plan. I’m looking forward to the marketing promotions. I would also love to see some innovative partnerships which banks have been loathe to tackle.. perhaps PayPal integration….

Written by tomnoyes

October 30, 2009 at 11:23 pm