Brett King

Archive for June, 2011|Monthly archive page

Mobile Payments: More than P2P and NFC…

In Customer Experience, Mobile Payments on June 29, 2011 at 10:37

Today I’ve been in Beetsterzwaag, Opsterland, Netherlands, about 150 kilometers from Amsterdam at an offsite strategic retreat with the ICS (International Card Services) team. Initially part of Bank of America’s presence in the Netherlands, ICS today is an independent subsidiary of ABN Amro NV, but works in the provision of a range of card services around issuance, promotion, processing and so forth. ICS has around 3 million customers today, and the session we had was around the implications of mobile payments in the form of NFC, P2P and other initiatives such as cardless loyalty program implementations.

What emerged was a very interesting realization in respect to opportunities in the mobile payments ecosystem that hadn’t fully occurred to me until this planning session.

More than just a payment

While I’ve often discussed the contextuality of payments and the massive opportunities that companies like Google are trying to leverage in respect to messaging around payments (before, during and after the payment event), it is interesting to think about different payment executions. We need responsible partners in the ecosystem to start handling not just straight through payments, but multiple variations on a theme, understanding the various parties and implied contracts involved.

P2P Direct or Merchant one-off payment

The simplest payment journey to conceptualize is when you walk into a retail store and pay a merchant according to the cost of the purchase, or when you have a service event where you simply take your NFC phone and execute a live person-to-person payment. Today you can already use PayPal Bump to execute a live phone to phone or person-to-person payment, but in the future, I’ll just put my phone into send or receive mode for an NFC payment and the respective individual’s wallet will do the rest (discounting all the back-end complexities, of course).

PayPal is slated to do $3.1 Billion in Mobile Payments in 2011

This is a fairly simple execution – take a payment from one person, send to another via either NFC, bump or a wallet. We can use location services, authentication and NFC to simplify and secure the phone to phone interaction, or we can use an App like PayPal to transfer to a unique individual via their phone number, email address or similar. The ability to split payments amongst a number of individuals, such as paying for a bill at a restaurant would also fall into this category.

The value here is the simple execution of a person-to-person transfer without requiring adherence to the current bank-led wire transfer or ACH equivalent which requires a routing number, an account code, the bank address, etc, etc. The opportunity for NFC phone to an NFC POS or another NFC phone is also obvious.

The credit facility or installment plan

Another powerful in-store implementation will be the ability to offer a real-time credit facility to back a payment. It might be a line of credit, a personal loan facility or a 12-month, low-interest payment plan with regular monthly payments. The ability to offer you real-time finance options that are more competitive than using a competitors hefty credit card APR program is pretty compelling at the point-of-sale, and can steal you away at the most critical moment – when you are about to pay for a big ticket item.

Mobile offers payments providers this sort of contextual opportunity, which currently is too difficult or erroneous to do with a plastic card and traditional advertising offers. Give me an offer in-store and help me execute the line of credit in real-time. Powerful enough to get me to change payment partners right in the midst of a transaction.

The Contract Payment

In this scenario we may have an upfront payment, but the full transaction is only effected with completed, successful delivery of the required goods or services. In business we have constructs like an LOC (Letter of Credit) which facilitates such payment contracts, but in the individual merchant/service provider and consumer space, these sorts of payments contracts are implied and managed informally. However, there may be an opportunity for this to be managed in an semi-automated fashion through the payments ecosystem.

Whether it is time based for hurdle payments to occur as specific milestones are reached, when physical goods are delivered, or when a contracted service is rendered – there is an opportunity to simplify the payments journey by authorizing the subsequent payments via a mobile device or online.

Facilitating the platform

As we move increasingly to person-to-person electronic payments, the ability not only to execute an individual one-off payment, but also variations on a theme with either a payment agreement/plan or a underlying credit facility adds value to the P2P ecosystem.

Today we have the likes of PayPal working on P2P, individual merchants offering some payment facilities, but we don’t have an emerging player combining these different capabilities and relationships to create journeys supported by a range of more flexible, automated payment variations.

When you mix analytics, always on IP layer or the cloud, a mobile device, location and the ability to offer a variety of payment mechanisms, the future of payment journeys looks very, very interesting. Payment journeys offer massive opportunities for reinventing and simplifying the way we currently interact in this space.

Visa draws its lines in the battle for the wallet…

In Customer Experience, Mobile Payments on June 10, 2011 at 07:25

The announcement today of Visa’s acquisition of Fundamo signals the drawing of the battle lines in the face off between Mastercard and Visa in the mobile payments stakes. While I understand that a wallet is much more than just an NFC enabler, the announcement of Google’s NFC trial around their ‘wallet’ last month put some pressure on Visa to make a strong competitive statement against the Android positioning. But what does this mean for the mobile payments landscape?

There’s only room for a few wallet standards

While everyone would like to ‘own’ mobile payments and the mythical m-wallet, the fact is that the recent failure of ISIS to successfully launch a competing payments backbone means that in all likelihood the current card issuer networks will remain at the core of the mobile payments infrastructure for the time being.  This gives Visa and Mastercard a fairly significant advantage in owning the plug-in or API that enables access to the backbone. The wallet effectively acts as that plug-in functionality.

The challenge that Visa and Mastercard have at this point is not technology, but getting partner banks enthused enough to start aggressively rolling out solutions around mobile payments with their proprietary “wallets” plugged-in. The problem is that today you can count on just two hands the total number of banks globally who’ve enabled broader P2P payments as part of their mobile App strategy – such as Chase, Hana, ING Direct and ANZ – and that is an appalling legacy mindset hurdle to get over.

The fact that banks have been so slow to embrace mobile P2P enablement does not bode well for broader bank-led adoption of the mobile wallet. It means that Fundamo and Visa will have to rely on consumer take-up, or integration at the handset level for broader adoption. In this respect, the Google Wallet still probably has an advantage here, but if Visa gets a deal with MSFT/NOKIA or with APPL then all bets are off.

The other opportunity and challenge here is the pre-paid debit card market. With some 50 million+ underbanked in the US alone, with the increasingly strong debit card market in the EU and with China and India ramping up rapidly in respect to smartphone adoption, perhaps the greatest opportunity to be tapped will be integrating pre-paid mobile accounts and pre-paid debit cards in the same handset. It makes sense doesn’t it? What’s the difference between a pre-paid debit card enabled via a mobile wallet, and a pre-paid phone account? They are both value stores…

In that environment, Visa could do with some independence from the issuing banks – perhaps issuing their own pre-paid debit cards as part of the wallet proposition. Given their relationship with the banking community, however, I don’t expect a rapid independent solution to this problem.

The good news is, that Fundamo already has a strong financial inclusion play, so my view is that overall this move is going to be very positive, especially in emerging markets.

Visa's acquisition of Fundamo is a smart move in the battle for the Mobile Wallet

Circumventing the backbone might still be possible

The dark horse here could still be Apple, leading with a P2P solution that circumvents the traditional networks. Apple has just taken a shot across the bow at Telcos with their iMessage component of iOS 5, which circumvents traditional short-message-system networks, so they’ve shown their willingness to use their broadly adopted platform to challenge services that are redundant in the cloud world. In the world of payments, you only need large-scale adoption of IP-enabled handsets to start challenging this space and creating a new service framework. ISIS couldn’t do this because they didn’t have a way to get their service ubiquitous. Apple already has 250 million cardholders plugged-in to iTunes, so they have massive momentum already.  Could they turn that into a P2P backbone?

Sure. Apple will still need to plug in at the back-end in someway, but a cloud-based competitive backbone to the traditional payment networks would be even more pressure on the current interchange environment.

Long-shot? Maybe, but it won’t be long before the pressure on interchange fees, modality of payments around mobile wallets and the changing role of the POS (mobile becomes the POS ala Square and NFC) makes cloud-based alternatives viable. Certainly within the next 5 years this is likely to happen.

It’s still about context

While owning a wallet that has a rapid path to NFC and P2P enablement is a great start, I still believe the real trick with mobile payments is around the context of a payment. The big difference between mag-stripe/Chip and PIN interaction and that of a mobile NFC payment is that I can contextualize the interaction before, during and after the payment. That might be as simple as updating your account balance in real-time, or it might be about integrating offers and loyalty into the payment experience. Square is obviously counting on that as a driver for cardcase.

The challenge Visa faces right now is building context. The wallet is just a plug-in for payments. Where Google (Offers), Apple (iAd), Groupon, Foursquare and others are threatening is the context of those payments.

That’s where I can influence a payment based on location or a trigger.

That’s where I can steal you away using a competitor’s wallet.

That’s where I can circumvent a traditional payment interaction and avoid using the traditional POS all together.

That’s where I OWN the customer.

Visa has made a great start with their acquisition of some very solid tech in the form of Fundamo, but they’re not there yet. My greatest concern is they’ll wait for banks to add the context, and banks are even slower at doing this stuff than visa is…

Google Wallet is not about Payments

In Engagement Banking, Future of Banking, Media, Mobile Banking, Mobile Payments on June 6, 2011 at 02:27

Last week Google announced their long awaited NFC-trial for mobile payments. On the face of it, many perceive that Google’s play is an attempt to cannibalize the lucrative payments market, but if that was the case, why has Google not taken a share of interchange fees from Citi and Mastercard? In addition, Google is supplying contactless point-of-sale units to merchants participating in the upcoming NFC trial free of charge. Why on earth would they do that?

It doesn’t make sense

In early May the Smart Card Alliance conference held in Chicago, Wal-Mart’s Jamie Henry was asked directly about the retailers plan in respect to point-of-sale. His reply was telling:

“We’re interested in helping to migrate EMV to the U.S. market. We view it as a much more secure transaction, and we want to provide our customers with the most secure transactions in the market place,” Jamie Henry, director of payment services with Walmart treasury organizations (source: NFC News)

Henry has said that 100 percent of Wal-Mart’s terminals already support EMV cards. However, when asked recently at the Smart Card Alliance Annual Conference about the role of NFC or contactless technology in the greater POS environment in the US, Henry was reported as saying

“There’s no business case for NFC yet”

Many bankers take a similar stance in respect to mobile payments support for NFC phones, stating that until contactless point-of-sale terminals have broad enough distribution, customers won’t be able to make use of their NFC phones and thus the expense of rolling-out a trial and investing in the supporting technology would be premature.

So why would Google, who admittedly have some pretty smart people in their team, not only invest in an NFC-trial, but also give away NFC point-of-sale terminals free of charge to partner merchants?

Maybe it does make sense

The thing is, Google sees the big picture.

NFC is not about payments modality alone. It’s not simply the shift from chip and PIN or contactless plastic to contactless mobile payments. It’s about what the mobile phone can do as a payment device that a plastic card can’t – it can give you context.

For example. The number one enquiry to retail banking call centers today is still “What’s my account balance?” Combining that piece of information with a payment device gives you a very powerful context for your everyday personal financial management.

If you are focused on a savings goal, I can show you the potential negative effect of making a big ticket purchase.

If you are at a retailer about to use a competitor bank’s credit card, I can offer you a no-interest payment plan through my bank.

I can tell you if you purchase that big flat screen TV that you won’t be able to make your mortgage payment due in the next 3 days.

I can offer you a really great deal at a retail outlet that you just walked into or you are walking past.

Google Wallet is simply a platform for Payment-based marketing

Google has worked out that the context of payments is perhaps the biggest advertising market ever to emerge, far more impactful and lucrative than search-based advertising. This is about offering you compelling, relevant and timely messages that improves your service experience in-store. This is about positive behavior on the part of your service providers that produces extraordinary loyalty through relevancy and responding to your behavior in a way that benefits you day-to-day, not just when you go to the bank to ask for something.

The future won’t be written by banks and marketing organizations that are passive. It won’t be written by marketers who broadcast message after message hoping you remember a brand when you want to make a purchase.

The future will be written by organizations who know you so well that they anticipate your needs, make it very simple for you to capitalize on the relationship, that saves you money and respects your time and privacy. Trust can be earned back, but it is about me trusting you enough to receive your offers and you not burning that trust with irrelevant direct mail, newspaper ads and TV commercials.

The future is messages wrapped around the context of a payment, and Google wants to own that space. It doesn’t look as if there’s really anyone ready to challenge them on that front.

Whatever you think of Google Wallet, it’s clear they have probably the most compelling business case of all for pursuing NFC payments, and it has nothing to do with competing with banks, but everything about owning the customer.