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Posts Tagged ‘NFC

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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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


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 ( 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

Apple Event – Jan 27

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In addition to the iSlate announcement, I wouldn’t be surprised if there are some significant details about the next iPhone and Payment Capability (NFC, Visa, Bank of America and AT&T). It could be just wishful thinking.. but there are just too many things lining up for me to think it is coincidence:

  • Rumored ATT/Visa announcement at end of Jan on NFC
  • First Data making heavy investment to act as TSM
  • Apple’s “complete silence”  on NFC to date
  • 3 mobile Start up vendors (2 tied to Apple) are in pre-launch prep for major announcement at end of month (?unrelated)

Perhaps I drank too much egg nog…. it seems impossible that 6 vendors could maintain radio silence for so long.

Written by tomnoyes

January 4, 2010 at 9:54 pm

Posted in mobile payment

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Investor’s Guide to Mobile/Money

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November 10, 2009

Breaking Down Mobile Money Opportunities – Part 1

Does anyone else feel challenged keeping up w/ vendors, regulations, alliances, pilots and investments in the mobile space? As I get older, my tendency is to categorize and sort for storage in my decaying gray matter. Upon encountering a new idea, I’m fortunate to have some very good friends to help me analyze it and assess it. I’ve certainly learned that my ability, to categorize and sort in isolation, has a very high error rate. The added benefit of conversation is to further the human network (as I can depend less on my decaying neural one).

I have never seen such global fragmentation of: ISVs, ASPs, FSIs, MNOs, regulators, TSMs (Trusted Service Managers), Merchants, Acquirers, Handset Manufacturers, Standards, and Customers (this may well be a 100 part series).  Two of my favorite attempts at market segmentation are below

 Mobile Market Breakdown

Jan Ondrus INFORGE – Ecole des HEC

Even these diagrams are not comprehensive as they fail to take into account such things as microfinance (unbanked/underbanked), regulatory issues (cross border, AML, KYC),  consumer protection, carrier dominance, credit bureaus, merchant POS infrastructure, customer education, broadband/3G availability,  …etc.

After speaking with over 50 start ups globally (and several VCs, FSIs and MNOs), my opinion is that mobile payments is likely to stay “regional” for the next 5-10 years. Success will be driven by well established, trusted companies with an existing mobile/financial network or with large payees/beneficiaries (government, transit, retailers, …) capable of creating a critical mass of consumers with a strong convenience play (ex. HK Oyster Card).

Within Tier 1 OECD countries, there is opportunity in chaos. From a banking perspective, NFC integration into mobile handsets is the top global opportunity, with a significant consumer convenience play. The ability to pull out your mobile phone to pay at a cash register, open a locked door, store coupons, receive marketing, send money across the globe, and store all of your other “digital keys” will combine with the unique capabilities of mobile (location, always on, …) and financial services (demographic, spending ability, spending habits, …) to provide a tremendous “wave” of innovation, investment and M&A activity.

Over the next 10 years, emerging markets will be riding an even greater wave as the absence of infrastructure is bridged by access to low cost mobile devices capable of providing both access to information and services. The developments here will likely take on a much different focus then developed countries, but with a much larger global impact on the quality of life of 80% of the world’s population. In the West we take for granted such basic infrastructure as: consumer protection, contracts, law and access to an unbiased judiciary.  Given these challenges, concepts such as: “Trust” external to one’s community, and “banking” are foreign. The bank opportunity, in the developing market, is to leverage mobile as a platform to serve 600M-800M new customers over the next 6-8 year.

There will likely be great differences in development of mobile payment between the developed and “developing” world, hence banks should strongly consider separating the responsibility for approaching them. Banks and payments, typically play an infrastructure role to commerce handling such things as authorization, clearing, settlement, reporting, … etc. Banks are uniquely chartered to serve this function and commerce is served by having a reliable, regulated entity responsible for the exchange values between parties.

Evaluating Mobile Opportunities

I would greatly appreciate your feedback on the following thoughts below (as I evolve my categorization process). Yesterday I was on the phone with one of my friends, payments head top US bank, over 30 years experience in structuring some very large M&A in both card and retail… a “realist” is an understatement. Prior to my call with Him, I had a well structured set of questions to assess mobile initiatives for investment:

1. Who is the customer?
     a. Geography(s)
     b. Profitability
     c. Existing Bank Relationships/Products
    d. Access to mobile
    e. Access to broadband
2. What is the consumer value proposition?
    a. Why is it so urgent that the consumer cannot wait until they get home or office access to their computer?
    b. Speed
    c. Convenience
    d. Cost
    e. Loyalty
    f. Alignment to trends
    g. Distribution: Customer acquisition costs
    h. Other
3. What is the merchant value proposition?
    a. Pricing/MDR
    b. Loyalty
    c. Risk
    d. Technology/Cost
    e. Regulatory
    f. Speed
    g. Refund/Dispute
4. Banking/Payment Network Value Proposition
    a. Competes or aligns with existing products?
    b. What current products target this consumer?
    c. What is transaction volume and growth?
    d. What is their primary market (ex PayPal – eBay) and are they expanding?
    e. Does it connect to an existing payment network? Who manages switch risk?
5. What are the Dependencies
    a. What change is required?
    b. Consumer Behavior? (Who bears marketing expense)
    c. Merchant POS?
    d. Regulatory (US/EU/ Other)
    e. IP/IP Access
6. Is it a separate network? If so,
    a. Who makes the rules?
    b. What is compliance burden?
    c. Who is responsible for compliance?
    d. Have regulators reviewed?
    e. Servicing: Who owns customer dispute/resolution?
    f. How are rates/fees set? Who negotiates them?
    g. How long has it existed? Fraud/weaknesses?
    h. Has it been tested at volume (ex. Paypal has 300+ person team in risk)
    i. …etc (additions appreciated)
7. Financials
    a. Invested capital, valuation, BOD experience?
    b. How does it support Parent’s business model?
    c. Pricing: Sensitivity, sustainability
    d. Revenue, Burn rate, Cost Structure, Debt
    e. Market share.
    f. Distribution: costs
    g. Sales Pipeline (realism) or Direct to Consumer (marketing plans)
    h. Capital raising plans
8. Exec team
    a. Knowledge of Customer, Market, Competition, Value Prop
    b. Customer Reference (consistency)
    c. B2B vs. B2C
    d. Experience in payments
    e. Experience in financial services
    f. Global/US
    g. Network
9. Partnerships

(As you can tell.. I am a list person). As I spoke of some new opportunities, my “bank” friend put the new companies through his much simplified filter:

  1. What service does it provide that I can’t do today?
  2. Why do I care?

The shocking result is that there were very differences in the results of our decision frameworks. The purposes of this Blog are: engage community in defining categories, increase investment (where appropriate) by assisting those with capital in their assessment, identify new opportunities in payments. 

The first 2 opportunities seem to be universally agreed to as an opportunity for mobile money (“new payment” mechanism), as they are not services that banks provide today:

  1. CASH REPLACEMENT – Developed Countries
  2. UNBANKED – Emerging Markets (multiple subcategories)

Categorization of payment schemes that do not fall into the categories above are challenging. Which attributes should drive the categorization? My tendency, in process of categorization, is to always segment based upon customer or customer usage. This approach leads to market quantification and I will proceed in this vein until it stops working for me. Separating the unbanked (above emerging markets), the draft category list is below.


Yes this is too complex. Since I’m not writing a novel here I will focus on the ones which I’ve had some interaction, or which are exhibiting exciting growth trends. The complexity and potential for mCommerce is precipitating some very curious investment decisions, some of which can only be categorized as a “bet” that a team will “figure it out” sometime in the future (See Nokia-Obopay). Companies which are able to deliver a focused value proposition, build core competencies, partner, and adapt their plans will be best positioned to ride the storm. I’m attempting to take on the role of a weather forecaster, while investing in the areas that are likely to have the best harvest.

“Mobile Money” Assumptions

Prior to reading any of further, perhaps I should state my “payment” assumptions that predicate many of the views to follow. Of course good people will disagree, and I appreciate the dialog.

             I.      Banks compete where there is profit incentive, and there are very few “new” payment types where a bank cannot compete with an existing product. Retail Banks have 2 competing internal organizations: Banking and Card. Retail Bank earnings are tightly tied to the products that surround payment. 

          II.      Banks and MNOs are notoriously hard to partner with. There seems to be (at least) 4 communities that don’t collaborate frequently: Banks, MNOs, Start Ups/VCs, NGOs, … Each of these has their own (competing) objectives.

       III.      The US payment market is much different than the rest of the world (not better). Add another dimension to the parties listed above.

       IV.      Developing ecosystems will display much chaos before clear trends emerge. Chaos in payments is anathema to trust. Trust is necessary for mainstream customer adoption.

          V.      The most successful non bank which has emerged in payments is PayPal, their success is due to their ability to focus. Initially on eBay, then leveraging its success and focusing on 2 unique “weakness” in card transactions: Card Not Present (risk management) and the inability of the existing Card network to adapt (complexity).

       VI.      Silicon Valley hype machine surrounding mobile is in full gear. There are some gems, but hard to separate from the dirt. Most private valuations and M&A transactions to date have very little connection to reality.

    VII.      Europe’s “success” in mobile payments adoption provides insight into profitability of the service(s). In almost every case, the margin opportunities exist separate from the transaction. This “evolved” ecosystem seems to model cash, particularly in the Nordics where Mobile Payments are becoming “ubiquitous”.

 VIII.      Emerging market dynamics are completely unique, and there will be many unexpected “leap frog” developments as business, technology, financial services and regulations adapt to serve the world’s developing nations. Any broad categorization of these opportunities is difficult separate from the market dynamics (Example Vodafone has an 80% market share in Kenya that drove MPesa).

       IX.      US MNOs are working to define how they can take part in transaction revenue (e.g. control). International markets are much different.


For investors assessing start ups attacking the confluence of “payments” and “mobile”, historical view of past transactions and investments is of little value. In the US, the big players (MNOs and Banks) have not acted yet, and when they do it will impact every mCommerce company in your portfolio.  Take a look at Japan, HK, Nordics, SG to see alternate visions of what the future could hold. Ensure the prospect has a sustainable value prop in the current market, and a management team capable anticipating market moves to adapt it.

Select Transactions

Select Capital Raising Transactions

MobileMonday provides an excellent overview of the current deal flow in mobile.  A few select transactions are listed below (further detail is available).

 mobileMonday investment pic

Mobile Monday

It is apparent (from the complete data set) that capital raising valuations for “mobile services” have very little basis. FT Partners provides an excellent detailed look at M&A activity in financial services space, and should be considered when evaluating mobile money investments.


Payment Providers – Valuation (Source JPMC)

JPMC Analysis

Next Post – Assessing Cash Replacement

Written by tomnoyes

November 10, 2009 at 6:26 pm

Posted in Mobile

Tagged with , , , , , ,

PaybySquirell and iPhone Payment

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Twitter founder Jack Dorsey. Card swipe on iPhone.

Roberto Garavaglia was nice enough to share this finextra story on linkedin. Is this a consumer play.. or a “merchant play”? Will I see my local ticket scalpers taking credit cards on their iPhone? This start up was certainly “in the black”.  Data we know:

  • Squirrel has a “signature” line in the app
  • Have hardware on the phone
  • Alpha test in NYC
  • Receipt in engadget pic above shows consumer payment (you paid)
  • Mind behind it is Dorsey
  • Top VCs know about it, and seem to think it is a merchant play.
  • Very US centric.. no EMV (Chip and Pin)

There are certainly some conflicting data points. If a consumer play.. this signature will not be valid… and transaction will be treated as a CNP (so why the signature?). If this is a merchant play who would possibly want to act as acquirer (fraud loss)? The merchant use would make most fraud heads loose a little sleep, for they would have a whole new threat vector. Can you imagine the buyers of the merchant use?.. The bank and I will have to worry about every kid in a fast food window and every waitress holding my card swiping on their iPhone (in addition to paying for my dinner). My guess is that squirrel has the technology working.. but haven’t figured out the “banking side”.

Fraud attacks the “weakest link” in payments quickly. Would love to hear from others on the community, but my view is:

  • Interesting as a merchant play…. but acquirers will shy away from originating transaction in either network without solid fraud controls. The merchant owns the loss here by rules of network in a “CNP transaction”. Signature capability will be debated…
  • Squirrel biz model.. questionable as anything but a hardware business. The fraud numbers of leading merchant selling digital goods is astounding. All top merchants have had to develop their own internal specialist teams to handle.  If Apple and PayPal have trouble with teams of 300+ (after 10 years) this will be a challenge for any new “merchant”. As a payment method, squirrel will have to take this on. Having access to the physical card may allow them to try something disruptive like MagTek which reads the randomness (noise) in the card stripe to establish a “unique” card… which has the downside of card registration. Something like this would push squirrel further into a “US centric” model as it appears that they do not support EMV (aka Chip and PIN).  
  • “No go” as a consumer play. Why not just keep my card at the Apple app store? or at PayPal? What is the incremental value that this provides me? Why not just key in my card data.. why add a reader to my sexy iPhone .. .in its sexy case.

Innovation in payments is tough…  if I were going to add something the Steve Job’s product plan for the iPhone what would it be?

  • Global
  • Ubiquitous
  • Unique to every person
  • Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
  • Low error rate
  • Impossible to clone
  • Difficult to crack

The answer is… (   ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Apple has a payment patent around a semacode displayed on the screen and “scanned” at the POS (Starbucks in trial).

Apple has been VERY non-committal with respect to NFC, as it develops strategies to get a cut of the transaction revenue … merchants would be insane to put yet another vendor in the mix at the POS (apple Semacode reader)… I don’t see it on HP/Verifones product plan either.  We may be left w/ putting NFC stickers on the back of our beautiful iPhone.. . of course that is better then a card reader.. or a semacode… but not as nice as NFC embedded w/ chipset with software providing OTA capability.

Apple’s instance in getting “control” in payment, combined with same tendencies at carriers, is leaving the door wide open to Android and competitors. There are some super start ups with plans to enable all kinds of services through NFC. Imagine using your iPhone to open doors, store coupons, vending machines, college campuses.. a whole new ecosystem all locked up because Apple wants to control the payment channel (and refuses to embed NFC).

Regarding this Apple payment patent: What is starbuck’s business case? is it driving traffic? How many more stops will the average iPhone user make because of this app? My guess is that this was funded out of Starbuck’s marketing budget.. and payback will be minimal. But it is cool. (I wish I could make a living out of being cool.. of course I would first have to be cool… not currently the case)

Perhaps a more ubiquitous form of payment is something coupled with authentication. Perhaps IRIS scanning, which is now being miniaturized to fit on a chip the size of your thumbnail (below).

Iris Reconition Built into Phones

Iris Reconition Built into Phones

Written by tomnoyes

October 20, 2009 at 1:14 pm