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Tyfone/First Data

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27 March 2010

When I evaluate companies, I look at the team first, business focus second and technology/platform third. Tyfone has one of the best technical teams in the NFC business led by Siva Narendra. Their product IP is just tremendous, resulting in a hardware platform that is in production and ready for market (a 5 year effort).

Tyfone’s micro-SD card is both NFC and MiFare (ISO 14443) compliant, meaning that in one device I “could” pay at every NFC POS reader AND go through every public transit (Oyster, Octopus, …) system. In other words, I buy this Micro-SD card, put it in my blackberry’s slot and now can wave my blackberry across POS terminals to pay a merchant and wave my blackberry on the UK Tube turnstile. “Could” is the operable word here as each payment network (including “closed loop” transit networks) holds the key to certification (and acceptance).

Tyfone’s partnership with First Data is key to addressing both Visa certification AND the 6 party fur ball which surrounds NFC. Why do I love these guys?

  • Team
  • IP
  • Hardware
  • Partnership
  • Flexible business model

Their competitors are: QCOM, handset manufacturers, bladox, …etc and perhaps (at the low end) NFC “sticker” providers like INSIDE. The “battle” in NFC is very complex as it extends into authentication, provisioning, device silicon, standards, certification, IP, POS … etc.  Obviously much heavy lifting remains to be done here, but my prediction is that the winner will be driven by a stellar team that is able to form the right alliances, with enough capital to ride through the storm. Their top challenge will be to stay focused on revenue generating opportunities and ignore (politely) the 100s of banks and transit teams looking to test their hardware.

The VISA/ATT NFC effort should kick start First Data in their role as Trusted Service Manager. I hope that my ATT store will be selling the Tyfone cards soon.. because I will certainly buy one.

Written by tomnoyes

March 26, 2010 at 1:21 pm

Posted in mobile payment

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Enstream’s Zoompass

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4 March 2010

See

Who said Canadians were only good at Hockey? This is a super service delivered by a consortium of Canada’s 3 largest MNOs. Zoompass has addressed both the distribution and bank connectivity problems that plague most global initiatives.  MNO collaboration provides customers with a consistent mobile application (embed on most phones) which can transfer funds in BOTH card and ACH networks.. both at POS and in a P2P model. Today’s announcement is around Zoompass, an NFC sticker that integrates with the existing Entream payment application shown below.  Canada now has a ubiquitous mobile payment client tied to either card or bank account on any phone … with NFC capability.

If I were to rate mobile payment solutions.. Canada gets the Silver (Japan keeps gold.. also a little bias given the recent US Olympic OT loss perhaps)… this solution is certainly in the top 3 globally with the only issue being the challenge in replicating to other countries. This may be the best kept secret of any mobile payment approach.

The software company behind this is hyperWALLET (www.hyperwallet.com) a Vancouver based payment provider with a comprehensive multi-lingual, multi-currency software platform that can deployed in either licensed or hosted model.  Beyond MNO applications, hyperWALLET also provides cross border solutions to both banks and corporations looking to distribute small value payments (commission, dividend, expense, payroll, … ) SAME DAY globally, across any multiple payment networks. To tell you the truth, I’ve not seen any other company come close to delivering same day cross border multi currency payments via ACH or Card.. their payment network resembles a “mini Citi GTS”.

Kudos to Enstream and the MNOs in their collaborative approach and in selecting a super platform for a starting point.  Man, I hate it when Canadians beat the US…

Written by tomnoyes

March 4, 2010 at 5:36 pm

China Mobile Buys Bank Stake

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3 March 2010

WSJ Article

Financial Times

Tremendous move by World’s largest MNO.

China Mobile Ltd. is in talks to buy a stake in Shanghai Pudong Development Bank Co., a deal that could help the wireless carrier push further into mobile e-commerce.

Expect to see more MNO/Bank tie ups globally (ex. Globe/BPI – Philippines). Banks realize that they cannot tackle the unbanked market without a partner that can profitably serve it (MNOs), MNOs realize that payment regulatory constraints mandate bank licesnses.

I expect to see more Bank-MNO “arrangements” in emerging markets as the entities that profitably serve the “unbanked” (MNOs) develop structures that provide access to non-traditional payment products which enhance the business models of both. The margins associated with the unbanked demographic are not attractive to banks (which is probably why the customers don’t have a bank account in the first place). In order for banks to support low margin payment products, they must be structurally compelled (either regulations or equity). 

In other words, few current retail or card line of business executives would take on an unbanked payment product (priced attractively to market).  There are simply better uses of capital within their existing business. For a bank to support (this low margin business), they must create a team that is structured (and compensated) to support. Given that most corporate investment processes entail selecting ideas that generate the most attractive returns, projects which would support outreach to the unbanked usually don’t make it. In the US legislators have addressed this structural planning issue with laws such as the Community Reinvestment Act (CRA).

However Emerging Markets face many challlenges in pursuing a “US Model” regulatory approach to expanding access: Banks/MNOs have a smaller “high margin” businesses which can support growth down market (20/80 vs. 80/20).  The equity/partnership approach taken by China Mobile and Globe addresses the bank structural issue and creates a common incentive for both organizations to excel in an investment area that has atypical financial performance.

Regulators in the Indian market appear to be advocating a similar approach. Banking and payment in Asia will evolve much differently than the western models. Imagine getting your paycheck, pension, social services payments all on your mobile…. instantly available… no longer will you have to take a 2 hour bus ride to your nearest agent…. and another 8 hour bus ride to go home and give your family money.

Thoughts appreciated

Written by tomnoyes

March 3, 2010 at 10:56 pm

Mobile Payment: “Picture This”

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23 February 2010 (updated 4 March)

Related Posts

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

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

Summary

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

NokiaMoney/Obopay – The Wallet

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January 19, 2010 

See previous posts

My quote of the day is from a good friend now running all financial services and mcommerce for one of the major telcos in India: “[reaching the unbanked is a] goldrush with not a spec of gold dust in sight yet”.

The question most asked by MNOs and start ups: “what on earth is Obopay doing w/ $126M?”. Obopay and Nokia (Obopay’s largest shareholder) seem to be putting much emphasis on an embedded wallet application which will be an essential part of Nokia’s larger services strategy (Ovi) and Nokia Money. Nokia’s approach is “directionally” sound given that Apple has yet to succeed in monetizing either the app store or the iPhone (as a payment vehicle). However Nokia may be best serve its “network” of handset customers by opening itself (and mobile applications) to many payment types and formats. Nokia’s emphasis on Obopay significantly alienates both banks and MNOs both of which will be in a much better position to incent an agent network to market (and educate) consumers.

The Nokia Money “wallet” strategy is highly suspect, particularly in India.  As a quick background for those of you in the US, although prepaid accounts for only about 20% of subscribers in the US, internationally it represents approx 70% of plans (74% in Asia, 68% EU, 90% India). This means consumers purchase unsubsidized handsets which are not tied (or locked) to an MNO.

Nokia’s has developed a low cost handset strategy for India which will add a broad services component in order to maintain its 55%-60% market share (of 10M new Customers per month). Last week Nokia’s EVP of Handsets Rick Simonson gave an interview with the Economic Times and provided insight into Nokia’s plans on  service growth.

Nokia has a large number of developers, but you are way behind competitors when it comes to the number of apps you offer?

… We will win because our size and scale enables us to have an active dialogue with over a billion customers who use our products. We describe an active user as a Nokia consumer who has used at least one of our services or any other service in the past six months at least once and we have reached out to him/her at least once during this period (with his/her permission).

For instance, we can ask them: ‘Hi, we realised that you have activated Nokia Messaging on your E72. Would you like us to activate your Music Store too?’ And then we do it very simply. Thus, this active dialogue also opens up a very cheap way of marketing our services too. We have 80 million active users now within months of launching this concept. By the first half of 2010, we target to have 115 million active users and 300 million by end of 2011. …

Within India, a Nokia wallet will likely succeed in digital content (Ovi) but face tremendous competition (and regulation) for use at POS or for remote payment. India’s regulators recognized Obopay’s plans earlier this year and specifically formulated the RBI regulation with them in mind. The challenge for Nokia is to deliver value on both the existing bank and MNO networks, either separately or in conjunction with both. A more effective payment strategy may be for Nokia to provide an open platform that supports multiple standards for payment and authentication. Ovi and NokiaMoney have the feeling of a proprietary closed system… Google Android will compete very effectively here if this is indeed the approach.

Written by tomnoyes

January 19, 2010 at 6:18 pm

MPAYY

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mPayy Launches Free iPhone Mobile Payment App

12 January 2010

https://content.mpayy.com/pdf/merchant_integration_overview.pdf

Interesting effort by USBank, the key investor and  supplier of: technology, infrastructure, operations and Reg E compliance. Think of this as “merchant focused” paypal lite.. Sell merchants first.. (0 liability fraud) then try to get customers… Agreement states payment limit of $500 per MONTH. Banks have been trying to get moving with a paypal competitor for quite some time. Historically USBank has spent significant (well intentioned) effort in trying to get other banks involved in its efforts through groups like BITS, Payment Round Table, FSTC, … Given USBank’s majority investment here (rumored $5-7M) MPAYY may be able to patiently build the business through merchant integration.. (a long tough road). Paypal is well established in the CNP space, and their momentum is increasing…. it is tough to start any new payment type without a significant market driving adoption. Even today roughly 50% of paypal’s TPV is on e-Bay. MPAYY will be competing against a very well established team at paypal.

The paypal team is not only ramping up its merchant integration, with partners like Chase PaymenTech, it is broadening both consumer and merchant accounts internationally. Given USBank’s history, my guess is that they are making a strong play with other large US institutions to collaborate on a “paypal competitor”.

With respect to a “bank driven” mobile play (non card).. Cashedge is the clear leader watch here. With penetration into 60% of US Deposit accounts as the transfer service for: BAC, Wachovia, Citi, PNC, … Cashedge’s new POPMoney service will not only compete on P2P and Mobile.. but beyond.

For a bank friendly mobile “Card” play.. when will someone partner with Apple in putting NFC on the iPhone? Expect something soon.. VERY soon.

Written by tomnoyes

January 12, 2010 at 12:54 pm