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Apple’s NEW NFC Patent

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10 April 2010 (updated 14 April)

I’m still reading through the 243 page patent application… but this is exciting… not just because Apple is taking such an aggressive, broad approach.. but because Visa, MasterCard, ATT, … are also about to “pull the trigger” on some very substantive efforts. As a consumer I know that where there is competition… I win!

From a “payments perspective” Apple looks to be expanding the “iTunes wallet” to support NFC: either as an aggregated payment account (apple as issuer), or an “unaggregated” iTunes Prepaid Card model. In the aggregated model, someone like JPMorgan Chase may be the underlying bank and could provide Apple with an average margin of up to 150bps of TPV. This assumes that the NFC interchange holds at 300-350bps as Merchants are not jumping for joy in current pilots (see BestBuy).

In the “iTunes wallet as prepaid card” model Apple’s NFC revenue would be equal to TPV of ACH payments times the average interchange between POS transactions and other (ex P2P) transactions. Given that iPhone customers are rather Savy, I believe they will quickly educate themselves on the stronger Reg Z consumer protections associated with bank cards (as well as the existing rewards programs) keeping Apple’s interchange revenue suppressed to less then 20-50bps of POS TPV. We should not compare Apple to a “PayPal” as the transaction economics will be much different, given PayPal’s role as both issuer and acquirer. Also note that NFC value proposition is focused at the physical POS.

This is not to say that this will be a marginal business for Apple, in fact my view is the opposite, the real revenue streams to apple will not be from “interchange” but from advertising as  iAD provides the “Yang” to the NFC’s “Ying”. Creating a new payment ecosystem means having incented partners. The timing on Apple’s iAD and NFC developments are not accidental, my belief is that they are part of a very solid mCommerce expansion strategy. (note that the iTunes wallet is clearly evident from patent diagram 5A above).

My guess is that JPMorgan Chase and/or BAC will be a launch partner here, specifically on the “googlization” of financial services (see previous blog). The banks have a tremendous amount of data which can be monetized if consumers give permission. Both BAC and JPM have very aggressive exec teams focused on driving new business models. My guess at a value proposition: Consumer accepts a bank disclosure allowing use of your card data for mobile marketing (x ads per month), in return consumer receives rewards/ discounts/ offers.

On the iAD side, Apple will coordinate  iAD mobile advertising, banks provide “propensity to buy” information (for registered consumers) to Apple’s marketing engine, Apple will manage campaigns and share click revenue with banks. The revenue stream for Apple is in mobile advertising, developing a new ecosystem which will create a “win-win” for: consumers, banks and merchants, and Apple’s application development community.

Beyond near term NFC payment at the POS, many questions will arise on the openness of Apple’s NFC API within the iPhone architecture. Will Apple try to lock the wallet? If it is open Apple may loose control of the ecosystem as other “channel masters” emerge. Beyond payment at the POS, NFC/RFID has many applications.. from opening a door at a college campus.. to a price check on the RFID tag of  a new HDTV. I can’t imagine the strategy discussions going on in the Valley this week “What do we build”….

My messages for the start up community:

  • Better to ride a wave then create your own. Find a way to add short term value in this new ecosystem. Visa/AT&T are far ahead in coordinating a launch of products.
  • Network effects: volume, intelligence, routing, expand nodes, …
  • The iAD revenue stream. Find a way to become part of it. Integrating existing marketing programs (ex. NFC on a subway billboard).
  • Beyond the POS to mCommerce/physical confluence. How can you drive sales or store traffic? (ex. will apple integrate an RFID reader?)
  • Supporting banks. Example. Look at page 4 of patent application, taking an image of a credit card/check. How will a bank use this to make an authorization decision?
  • International. Apple has a tendency to design for US markets… what will it take to localize?

Apple’s approach to controlling its ecosystem is not perfect, but is the right thing to do early stage as both technology and consumer behavior evolve (I remember my Apple IIe). Right now my bet on “mobile wallet” is with Apple precisely because of their ability to orchestrate such an extended ecosystem. This is going to be hot, within the US there are currently 3 major competitive teams:

  • Apple (likely with JPM/BAC)
  • ATT/Visa/First Data (possible that they are aligned w/ Apple)
  • Citi/MasterCard (NFC Stickers)

Comments appreciated

Written by tomnoyes

April 12, 2010 at 3:51 pm

Posted in US

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$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.


  • 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). 


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.

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Written by tomnoyes

March 11, 2010 at 5:38 pm

Posted in Analysis, US

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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

SquareUp – Take 4

with 3 comments

27 January 2010 (updated 4March)

Venture Beat – SquareUp

New note from VentureBeat yesterday. Jack has certainly assembled a who’s who of angels. Given that these investors are proven winners I’m trying to guess whether they have “bet on the right horse” or have a plan that I’m not privy to (ex PayPal buyout). If it is the later, my educated guess is that prospects will let this bake for a few years before getting serious. There are too many issues which must be addressed for serious acquisition money to chase a customer convenience play.  Some of which I attempt describe below.

I understand that Jack’s vision for the company is to provide payment services to “craigslist” customers as the market place which will drive volume (an attempt to mimic the paypal/eBay synergy). His story is that everyone has a card in their pocket.. and merchants want to leverage this instrument without the burden of becoming a merchant in the network sense.

Of course Jack is competing with Cash and Checks in this pattern.. much different than the remote Card Not Present (CNP) world which PayPal attacked. I must say that many of my colleagues do not share my negative views on Square, and it has led to some very good conversations.  I certainly agree that issuers want SquareUp to succeed (read: interchange), and Square does have a very nice application, however my strong views are:

  1. There is no compelling consumer or merchant driver. Square will find that changing consumer payment behavior is much more challenging than social networking,
  2. Third party payment aggregation at POS is a moving out of favor with respect to network rules
  3. Fraud rates will be very high (see skimming video below) and bank issuers have ability to shut them down through authorization
  4. Volume will be low (merchant costs, competing methods of payment, charge back rules, …) and business will take at least 4 years to build (with sustained marketing).
  5. Competing bank/MNO sponsored “handset based” payments will overtake this approach in 2-3 years.

PayPal excelled because it addressed a clear gap in payments in a new marketplace where a 4 party system (merchant, consumer, merchant bank, issuing bank) could NOT adapt. This 4 party group, combined with the network and regulators, proved to be ineffective in responding to the “change” presented by online marketplaces.  PayPal did much heavy lifting, building “new rails” to manage merchants.  These eBay merchants were a well organized community which collaborated (generally speaking) and shared best practice. There was a REAL business problem in these pre-PayPal days..

Comparatively Square’s “Craigslist community” is not well organized, and the square payment method is competing with well entrenched behavior (check/cash, a 2 party system) in a person-person sale dominated by checks and cash. What is the problem that Square is attempting to address? My belief is that it is a convenience play, which will have  a much different adoption (and profitability model) then PayPal’s.

Top card issuers would love to see SquareUp succeed in order to drive cards (interchange revenue) further into cash replacement. However network rules (like PCI and merchant agreements) exist for a reason. Square’s approach to lowering the barrier for merchants (a valid market need) risks payment system integrity. In other words, the existing card merchant agreement process represents the rules by which the 4 party system has agreed to. If we take the SquareUp model to the extreme, what will stop every business from ditching their merchant agreement and start using square?  What benefits do acquirers/issuers and network have in supporting this model? Is the potential revenue upside for interchange (in cash replacement) vs. downside in fraud and lost revenue (merchant fees)?

SquareUp is acting as a third party payment aggregator (TPPA), a model which banks have adapted to since their experience with Paypal creating significant new rules and constraints (both ACH and Card). The network PCI rules (and certification process) for devices storing card information are also quite cumbersome, and require sponsor for certification. Perhaps this is why Square’s current customer agreement states:

You are responsible for all electronic communications sent to us or to any third party containing Account Data.

The acquirer that takes this on will likely have a few headaches when the first major craigslist merchant starts using the device to skim and resell card information (among other things). There is a reason for PCI compliance and for my “securing” my physical card and CVV. I can’t wait to see Square’s Payment Services Agreement (PSA). Operationally, the issuer’s have control over card authorization through systems like HNC’s Falcon or SAS Raptor. This means that if SquareUp is found to have contributed to a data loss, or has a high number of fraudulent transactions (see link) customer would see their card transaction declined, or the network (Visa/MC) would shut SquareUp down.

The great thing about the PayPal model is that the customer funded the account after agreeing to terms. In Square’s model, consumers are unregistered, Square is acting as an agent of the merchant. For Square’s investors, there is atypical risk which they will see through “unique” bonding/insurance requirements from the acquirer.  Just as with any company, Square will face unlimited liability associated with loss of consumer information (think TJX). To get an idea for potential mis-use see you tube video below.. crooks invest quite a bit in technology here… will SquareUp make it easier for every iPhone owner to become a skimmer?

The challenge any analyst has in assessing strategy is information. Given Square’s potential to drive electronic payments, either a card acquirer or PayPal interested … certainly a partner capable of managing the remote risk. If I were interested in acquiring, I would certainly let Square burn money gaining adoption,  changing consumer behavior, gaining approval from the networks, finding an acquirer and learning to manage the fraud issue… then if they are successful join in. At GartnerGroup we would call this approach  a  “late follower”. There is no revenue in this business for 3-5 years… my guess is that competing technologies like NFC will step all over this by that time… at least I HOPE SO!

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Written by tomnoyes

March 2, 2010 at 6:23 pm

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

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


with 2 comments

mPayy Launches Free iPhone Mobile Payment App

12 January 2010

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