Retail Banking in Russia: Innovation Unfolded

Retail payments market in 1H 2011

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 20:07:00 +0000

Retail payments market continued to grow in 1H of 2011, as one can read from latest figures provided by NAUET, an industry lobby. Yet the growth-engine as it previously was "mobile top-up" is no longer the one (MNOs are rearranging their fee-structures and developing their own payment aggregation services): emoney operators and retail payments hubs are reorienting their models on towards the booming e-commerce market.

Latest stats on virtual card champions - and trends supporting the numbers

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 19:58:00 +0000

Late september Alfa-Bank has issued latest stats on number of virtual cards it has issued for customers who are willing to create a separate prepaid account in order to "risk their money" on Internet puchases. Not longer after that, QIWI also updated their numbers. The trends for growth are more or less the same: the overall increase of e-commerce volumes. So far banks can't beat cash displacement agents like QIWI (who has the scale to distribute more cards than any iBanking champion can muster), but new disruptive schemes are also in the works:

- banks are working on their e-invoicing services to allow bankable population pay for e-goods from iBanking interfaces, and with that to additionally secure their money (and their nerves). Evolution of retail (where retailers would guarantee replacement of goods) is also a good motive for people to stop withdrawing cash, hence to counter the cash-on-delivery "monster".

- banks are (crazy enough to start) thinking to issue their own emoney - and allow the same easy experience people enjoy with quick-to-have eWallets (like QIWI Wallet and Yandex Money). We may get some M&A activity here, yet I would doubt banks will be able to keep this business simple.

Yandex Money offers a developer API: banks should follow that

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 15:58:00 +0000

Most of my emoney blogging lately was about QIWI, how it has brilliantly does this, miraculously achieved that... so I missed so many things from Yandex Money. And I missed one critical thing that they've offered to the outer world which is a developer API [link].

The set allows registered developers to reuse Yandex Money services to view account histories and pay from a customer's wallet without having to leave the client application / website. It is also symbolical that the API allows developers to create other views on how Y wallet can look and perform. Should you, say, mash up the API with other applications, that can drive up the revenues of those creating an API in first place.

This approach (knowing that emoney operators are now pretty much like traditional financial payments players (i.e., banks)) should be also taken up by banks (and is already taken by, say, Ukranian Privat Bank, that last year offered a set of API's for payments functions).

We all learned from successes in mobile industries that "platformization" is a force you cannot battle with money - should you propose rules of reuse of your services and explain monetization strategy, you will easily get infinite number of developers all wanting to create #the next best thing on top of your infrastructure. It is potentially a single way for banks to survive in future. Stop thinking about the front-end, create a palette that is wide and flexible enough for customers to create their own realms.

[1] QIWI offers Blackberry Playbook app: a bow not to the popularity of a platform, but to its capability to quickly implement things - and a sign of API portability of its services

Xsolla: an innovative virtual gaming payments platform

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 14:37:00 +0000

Payments business is hard. That I get from constantly reviewing only a handful of big players in Russia, the business first being discarded by banks as standalone-unprofitable, and castigated as unlawful (most players still allegedly bringing revenues from money laundering). But what would you say of a focused payments system that does not have such opportunity?

That potentially goes against conventional wisdom, seeing how everyone talking about payments systems need to scale and grow, but this platform seems to go against the prophesied by connecting virtual gaming worlds with a real world. Xsolla, an US born startup with Russian origins, enables any virtual gaming platform to receive payments (of any kind, be they card originated, or cash).

You can name their model as a PSP / payments system aggregation platform - where they allow any fledgling gaming world / Web platform that want to sell its services to select a number of PSPs / payment gateways they want to receive money from and set up a payment service using Xsolla API.

Xsolla gives a provider a number of auxiliary services that he might need, including customer support and payment redemption, as well as flexible options to set up exactly the type of payment interface a provider wants for his customers. It also supports a dedicated analytics and reporting engine for gaming.

Another interesting service the company offers is mobile based payments for gaming currencies - giving customers opportunity to pay for virtual currencies and goods from his mobile phone account. From what is explained on the company's website, it works similar to BOKU Pay By Mobile service - and targets exactly the audience that flocks around youth social networks (they do their payments from their mobiles)*.

Understanding the amount of talk on virtual gaming business, and the way it is supported by social media drive, there are big money to be taken by Xsolla (and lost by traditional payments players). Just look at PWC report on video games, published in the latest issue of the Economist: online gaming is already giving c.a. USD 20 billion in revenues, much of them coming not from licensing but from in-game purchases.

* The service is also looks similar to Zong Mobile Payments company - that was snatched during summer by eBay to make it part of their PayPal team.

Emoney operators in Russia excel by offering a "long tail" of service providers... how banks can counter that?

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 13:57:00 +0000

Russian e-money operators may have the upper hand vs banks in allowing customers to pay for a potentially infinite number of service providers. From the very beginning, they had every chance to allocate their resources to do just partnership agreements with e-shops, delivery systems etc, and with that now starting to steal people from would be traditional financial interfaces like iBanking.

That trend on which this blog reported many times, is reinforced by a merging of virtual world with a real one. People (those from heavy users of "digital payments" services), no longer see the distinction between virtual goods and physical one, once they equally crave for both (this point I tried to present in my presentation at the recent Emoney Conference in Moscow).

Once we don't see the border, we would work with an interface that brings to one place a potentially infinite number of service providers, including those that you won't think of using each day - be it US iTunes prepaid cards that you can buy through Yandex Money, or paying to "students agency" via QIWI that would do you a fine course paper with 10 per cent discount (link - in Russian). Banks can find a million reasons (about risks involved, benefits taken etc.) on why won't they do business with such outfits.

That contributed to the reason, why big emoney operators ended up being big PSPs as well as payment hubs for banks [1] [2].

But banks still can counter the competition by partnering with independent PSPs, to gain access to this unorthodox services. Banks have started doing this earlier this year* [4] and some dared to go far enough to partner with interesting start-ups in payments facilitation (see my other post on an interesting payments company - Xsolla):

The move might help commoditize competition around just the length of one's payment "long tail", but surely bring heat towards usability and channels. Customers are always so unreliable, there are so many parts of ones heart to be won.

* There is a reassuring belief, that Alfa-Bank's / Beeline foray to create an independent PSP / payments aggregation hub RURU was done equally to create a scalable platform from fees perspective, as to compete with QIWI Wallet from customer #ux perspective.

[1] Alternative payments service providers are exploring new horizons - exploiting the "long tail of payments"

[2] Yandex Money underscores its potential as an acquiring business

[3] The future is now - and the shapes are different from what banks wanted it to be

[4] Acquisitions in retail payments field shows banks rising from the slumber

Two Russian acquiring-giants wrestle around loyalty

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 12:01:00 +0000

Several weeks ago media went all frenzy to cover Sberbank's long coveted and heavily marketed announcement of its next-generation card-loyalty program, called "Spasibo" ("thank-you", pretty much copying Citi's styling (and specs too)). The program settings allow you to get 0,5 per cent worth in "thank-yous" from any POS / ePOS transaction (3 per cent for the duration of Sberbank's marketing promotion) and use them later to pay for goods that are offered at the same stores connected to Sberbank's program.

Theoretically, that is to (a) make people pay with cards rather than with cash (supporting Sberbank's tens of millions of cards and over 150 000 merchants network - as of summer of 11'), (b) hook-up other merchants by making them visible in Sberbank's merchants catalog - but (as with every new thing I am not involved) I see several major flaws.

3 per cent (and then "just" 0,5 per cent) in abstract thank-yous are hard to perceive for customers - so there has to be something better than just a deferred obligation from a financial institution to allow to select something, you want to be ingratiated on the spot. Open-loop catalog (you can get freebies from the same stores you buy) is a good one, but that allow cross-merchant redemption and merchants might not see the effect coming from the extra hassle they had to go through when implementing POS terminals.

Saying that, merchants now either see banks all investing time and dear effort to make their card loyalty programs working, or they can go to (and easily get quite the same) with coupons and discount start-ups. What merchants for long demanded from schemes and banks were additional footfall. That did not happen - and probably won't happen as it's not a card that drives me to a store, it's the particular store that does. Merchants want to have data about footfall / redemption, ROI on special discounts they offer (not just a standard and menial 0,5 cash-back that can be expensed in the store).

Another Russian bank, that is wrestling with Sberbank for acquiring championship, seems to get it right. It has followed another world-class case on merchant-sided loyalty - Barclaycard "Freedom" and implemneted Welcome Real-Time platform [in Russian], that enables merchants to create tailored marketing on any card / category / other parameters that would turn customers into returning customers. Once you active loyalty with a particular merchant, you can set requirements for a customer to pay with a card (where he would get preferred treatment, rather than just "points").

Of course, Barclays has its own problems with the program (people being buried under points they get from merchants and not know what to do - thanks what I got from conversations with several program subscribers). For that to disappear, banks should look at the breadth of coupons services and the success they have. That might teach some good points (about redemption, viral effects etc.). Innovation is around banks: there is no point to "re-do" it, banks have to have courage to embrace with the elements that are already in this world. Real innovation in business is editorial, not inventive.

Contactless push by schemes: banks are also exploring elsewhere

noreply@blogger.com (Daniel Gusev) — Sun, 11 Dec 2011 10:59:00 +0000

Contactless has been one big talk for banks and vendors for several years in Russia. It was basically (and to a large extent still is) rumor pyramid: creating new rumors on someone piloting something, that was easily picked up by media, analyzed by project managers at other institutions who then offered to do something about it (such is the state on all implementations probably in every sphere: data diffusion propels new technologies).

What wrong with the approach is the delusion with marches one technology might bring, rather than sitting back and understanding on how that may (in the end) bring business to a company targeting this technology. I am not pointing against pilots of emerging tech, like contactless payments, I am just pointing that by doing step A you have to know the intermediate results you want to receive from the step. A toddler cannot run right after he learns from his experience of slow walking (that necessarily involves falling, as he places his steps too wide). And as I wrote earlier, piloting is not something classic bankers do lightly [2].

Returning to a contactless drive, several banks are mulling either contactless cards or straight NFC pilots - reasons are aplenty on why they would do them ("hell, MNOs are all into it", "we would capture a sizable TPV with this", "that is what customer wants - to transact with his phone"...). That frenzy is supported by marketing budgets of schemes that all of a sudden try to outdo each other to win as many fervent believers as they can get. That is a lopsided approach, that will surely burn lots of bucks before it will deliver a bang. And here is why.

The schemes offering is to burn money in order to get recognition for being pioneers with contactless - hardly something bank would be rewarded: because of: (a) existing motivation to use cash, (b) acquiring inefficiencies and cluelessness of merchants to offer card payments, (c) merchant types / locations to offer contactless services.

(a) people still rely on cash when doing transaction, and I mean that because of merchants callousness to deal with acquiring equipment, slow service to acquire cards at convenience venues (where these contactless transactions are required).

(b) merchants don't want to hassle with getting more terminals (that they usually pay for to an acquiring bank - most often through higher fees) as they hardly getting scale from card acquiring than that from continuing to be "cash-only". Since banks are so fervent in their attempts to create the best card loyalty program, they miss the point that it's acquiring loyalty program that would kick-in card acquiring adoption [4].

(c) This recent "contactless fair" with a number of announcements (the recent one being contactless terminals installed in Russia's most lavish department stores - the GUM*) are surely to attract media attention, but on second thought, discarded as "vocal trials": with real competition slated for 2012 when any of three major MNOs in Russia come with their SWP bound NFC scheme (the two of them signing SWP agreement in GSMA association).

My general belief is that to profit most from the change of payments options, banks have to think about the context of payments, as much as they are thinking about messaging, keys control over SE in a phone, etc. [3]

* My disbelief with GUM experiment stems from average receipt value - that for cafes, that are located at the complex, is above RUB 1000 CVM level - and contactless cards would rather compete with cards than cash (the way cards acquired at the posh venues is for a teller to come to you where you just give him your card - so you would most like not be awed by the "tap-blink-paid" wizardry). Hot vapor instead of real innovation in payments.

[1] What is happening with NFC and mobile POS payments in Russia

[2] Paradox: contactless in Russia will kick-off after banks would understand not to look for profits from it.

[3] Data over IP can be more interactive than contactless - as shown by BankSimple and MoBank and others

[4] Two Russian acquiring-giants wrestle around loyalty

Can't stop and not share this: my presentation on potential future for m-commerce (in Russian)

noreply@blogger.com (Daniel Gusev) — Wed, 07 Dec 2011 09:54:00 +0000

"Platformization" of e-commerce will drive the adoption of e-payments

noreply@blogger.com (Daniel Gusev) — Tue, 06 Dec 2011 19:40:00 +0000

There is a piece of news I want to pick up: of Ozon.ru, Russian leading books (and consumer goods) e-tailer launching a dedicated shop... inside Facebook. With the help of Magazinga.ru, a promising startup that offers multichannel merchant e-platform for suppliers - Ozon now has a social buying application inside world's leading social network.

The impact on financial services is solid: we are talking not of just another merchant to create a similar shopping experience on yet another channel: we are talking about a truly social buying experience, where you can see reputation of wares, formed by other FB logins, comments and likes that are synched with FB activity. That has to have a huge impact on how goods would be consumed by customers - and potentially on how they would pay for them.

Presently, the app allows a customer to log in and select wares under his FB ID - and pay for them (by checking out via an URL that leads to the shop-page). Despite the fact that payment is decoupled from browsing, the latter is enriched with social graph data, leading to new ideas on how people can engage with e-commerce.

It is probably not far from a moment where payment confirmation would also be taken by social media domain - we only have to wait whether that be handled by financial services providers or social networks. The latter demand substantial fees from goods bought on their turf, but the economy works fine with virtual goods - and there is still chance social platformizatin of commerce won't go the way of iTunes: networks would love to leave payments services to specialist while controlling wares marketing and probably charging fees for wares ads.

The reason I am putting big emphasis on the event is that social networks are natural platforms for merchants and so they potentially put banks out of equation to control (influence) customers' preferences on what goods to buy. Should we imagine that the social networking platform collects n number of these merchants - we get an independent loyalty platform that is truly payments type agnostic - and thus competitive to banks.

[1] Vkontakte, Russia's social network, opens the gates of its payments mechanism - offers it to e-merchants

[2] The Web is the new banking store. Where banks don't (currently) fit.

[3] Vkontakte launches "Wishes" list with Ozon (e-tailer) and integrates it with its payment system

[4] Financial services in the times of Social Web

[5] Social networks in Russia is the "third threat" for banks' payments business (the other being emoney)

E-commerce in Russia: channeling profits from overseas

noreply@blogger.com (Daniel Gusev) — Sun, 27 Nov 2011 20:07:00 +0000

Most players in Russia feel energized about how e-commernce (i.e., ability to buy products and services via Internet) is growing in Russia: and there are good reasons for that. According to a recent study, announced at Russian Internet Week conference, e-commerce is expected to grow up to RUB 366 bln. (ca. USD 12 bin.), while still contributing only couple of percentage points to "physical commerce" market.

It is hard to name the advancement as radical; most of the revenues are still in the "dark", particularly because that the services the market covers should be transported in the country, where "cash on delivery" are exempting potential revenues from true e-commerce domain. But the revenues are helped by international purchases: at the latest E-Money Conference in Moscow, held in early November, PayPal's Laurent de Moal confessed that a huge portion of PayPal revenues from China comes via Russia: i.e., russian users using PayPal to buy Chinese goods.

Now, Russian e-money operators are also linking with international Chinese shops [in Russian] and looking to establish third-party agreements with western (mostly virtual goods) shops through payment service providers.

This bodes well for consumers, now having ability to buy goods cheaply, but poses a risk for international schemes, where it eradicates the need to pay with a card - and allows consumer to pay directly from his e-money or banking account.

And as international volumes stimulates development of wallets and direct-debit hookups, they also attract attention of consumers - and would in the end drive the adoption of digital wallets - to more actively displace cash.

[1] E-tailing rose 40% this year - and shows a particular affinity for money

[2] Emoney impact on the world of retail - and banks

[3] Direct debit future is sweet - so fierce competition rocks retail payments landscape in Russia

Personal Encounters: You don't need an innovator - you need an editor

noreply@blogger.com (Daniel Gusev) — Sat, 26 Nov 2011 21:48:00 +0000

With this many blogs posting about innovation and why that is important (including this small blog), it is hard to point at anyone and not find an innovative person.

Yet, to an extent, who is not innovative - the feature is constituent to our day progress, saving our time, building our career, helping our image (picking ones nose in a new way to get more stuff - is also a new idea one may come with).

The problem, as most now get is not about being inquisitive enough to question the order of things, but to get scale (traction / momentum) to have this new view of the world implemented. To achieve that you have to command a loyal team of highly trained professionals who would mark your words and deliver the vision.

To do that - they would need to believe you, so you would have to stress on the right strings - an editorial rather than a investigative trait. Editors, not innovators are true marksmen of today best enterprises.

It is not that they don't have a new idea - they have the idea that is miscommunicated - but they know how to place it in the next best thing.

QIWI launches its physical card: PayPal should take note, Russian banks - beware

noreply@blogger.com (Daniel Gusev) — Tue, 15 Nov 2011 06:51:00 +0000

This has been a slow unwinding story - first leaked to the open world in September of last year [1], that QIWI, the champion of cash retail payments would start offering its own physical card. The future is now: today QIWI announced, in a joint press conference with Visa, that it is starting to offer its QIWI Wallet users an opportunity to get a physical Visa prepaid card.

The step is logical: that perfectly fits into the "last mile" concept - allowing users to withdraw money from any ATM (with a 3 per cent fee), or pay at any visa accepting merchant for free (since the fee is taken from merchant interchange).

The initiative is no dud: the bank has seen some robust stats around its virtual prepaid cards, either one-off or directly linked to a QIWI Wallet [2] - so the bank learned a lot during the past ~2 years on problems with card processing and that now made it possible to offer "real" plastic.

The move is similar to that of PayPal (that last week announced its ongoing plan to launch in Russia in the fall of 2012) - to offer a card for people to take in money from money transfers and use a wallet much like they do with wallets in their pockets.

In a cash economy like Russia, and knowledge that there is real money constantly going out of money wallets on to people's bank accounts - for underbanked people who are either financial luddites (don't want to bother having bank accounts), or for some reasons can't have them - this may be a real disruptive product for them.

The card's financial properties take note of the recently adopted National Payments Bill, that allows operators, should they provide a formal authentication procedure, to allow residual balance for this card of up to RUB 100 000 (my take based on information that the user should provide to get the card - QIWI is now working to allow remote auth. procedures to raise the "entry" limit from RUB 15 000).

The card also holds a long(er) term potential for QIWI - to allow the company to offer a first decoupled debit product in Russia, with which a QIWI Wallet user can transact at physical POS points. With that in mind, QIWI now extends its user experience (that for QIWI's digital wallets is far better that of most e-banks in the country).

The problem that QIWI might face is the relatively low value of each QIWI Wallet top-up - leaving it's prime area of use for heavy money movers: free-lancers, kids etc.

Any way, a bold move that would bolster competition in retail payments in Russia.

[1] QIWI is more like a bank with each passing day - launched Visa Money Transfer and plans to roll out prepaid cards

[2] QIWI prepaid card strategy gets clearer

[3] QIWI and Webmoney announced pilots to offer POS mobile payments - should banks panic?

Russian 3rd E-Money Conference: my presentation

noreply@blogger.com (Daniel Gusev) — Sat, 12 Nov 2011 08:04:00 +0000

I am about to break the several month silence on my blog, as the load of info I was planning to deliver since there were so things going on, is finally unblocked by the workload (and ensuing stress) I was experiencing.

As with any good diet, you have to start slowly - and I am commencing the autumn blogging frenzy with a presentation I gave yesterday at the 3rd annual E-Money and Retail Payments Conference.

I was asked to deliver the talk on M-Commerce in Russia - that ensued from my earlier research on the topic for a major IPS. The major trends are (and you know them already):

- cash is still king - and commands trillions of rubles each year - so to discard this effect the scheme should actually be rewarding (and we should start seeing this pretty soon);

- the confluence of local, mobile and social elements of info-sphere - and that having a HUGE impact on payments;

- devices (hence the OEM or software manufacturer defining the experience, so payments schemes ignoring this would fail;

- "platformization" of players will prove to be the greatest effect on the industry, you just can't reinvent the wheel, but to succeed you should rely on ideas and platforms of others.

Craze about POS and mobile social networking payments in Russia ended. National Payments Bill is the prime suspect.

noreply@blogger.com (Daniel Gusev) — Mon, 15 Aug 2011 13:54:00 +0000

Just a short note - I once marveled at the suspected play that leading social networks in Russia could do when both Vkontakte and Odnoklassniki started their internal currency that users could buy in order to pay for virtual (and real) goods that were offered on these platforms.

Vkontakte followed a sophisticated strategy that had compelled it to create a merchant API - that both allowed users to click on the button to have the goods they liked on merchant sites added to their wish-lists on their pages inside the network - and these items could be later purchased through a special sequence - with money deducted either from a credit card the user specified, or from his virtual currency account. For that matter, Vkontakte offered a special top-up scheme with QIWI cash kiosks.

The scheme was too good to take over conservative public (other than the geeks like me), so both networks did not see the uptake that enthusiastic to continue with personal experiments when the National Payments Bill came to mandate bank-like regulation, reporting, KYC-AML procedures - as well as several EUR mln. capital to create a banking entity to manage these payments.

Vkontakte wounded down the merchant API service, and no matter the network has recently passed through a strict PCI DSS certification process - it would use it to store payments cards data to allow for customers to pay through banking cards. Almost the same is offered by Odnoklassniki - where the linkage of cards is supported by Alfa-Bank.

The craze about network based payments is probably ending. They find it more likable to go with payments specialists and get additional business from merchant offers (serving as a marketing layer and leaving payments in a decoupled state to others).

[1] Vkontakte, Russia's social network, opens the gates of its payments mechanism - offers it to e-merchants 24.04.2010

[2] Vkontakte moves with the merchant platform - offers to host shops inside the network 25.05.2010[3] Vkontakte launches "Wishes" list with Ozon (e-tailer) and integrates it with its payment system 09.07.2010
[4] Vkontakte, Russia's leading social network, plans to launch its own e-payments platform 06.03.2010

QIWI Wallet financials for 1H 2011

noreply@blogger.com (Daniel Gusev) — Mon, 15 Aug 2011 13:25:00 +0000

QIWI has recently published financials of its QIWI Wallet subsidiary for the first half of 2011. Clearly there are interesting numbers to look at.

- Company more than doubled its turnover - thanks to P2P and heavy recurrent payments (prepaid card business clearly working)

- Availability to attach bank cards makes the wallet one of the best in day-to-day e-payments (exceeding most banks m-banking apps)

- Objectives for end of year may be in providing withdrawal (card based) and e-invoicing (e-based) services - to further propel use on both sides of customers spectrum

And they are surely taking note of PayPal course - since it announcement to enter Russia.

QIWI offers Blackberry Playbook app: a bow not to the popularity of a platform, but to its capability to quickly implement things - and a sign of API portability of its services

noreply@blogger.com (Daniel Gusev) — Mon, 15 Aug 2011 11:21:00 +0000

I am trying to write about diverse range of subjects in financial services in Russia - but for the past two years much of what is happening in this area is pushed by QIWI, the established cash kiosks champion and an aspiring mobile wallet player. It allows users to pre-load their mobile-phone-number linked account with cash and then pay it either via SMS, or through a Web client, or through a number of apps the company supports for major platforms.

And now QIWI launched its app for Blackberry Playbook [link]. The move is consistent with QIWI's strategy to offer pervasive mobile payments [1], but Playbook is different from a usual mobile device. It is a tablet - but that didn't stop the company. They did not create an app either for iPad or for Galaxy Tab - probably because the ground-up reframing them into Objective C takes more time than the step they took with BB app.

QIWI simply took the Flash-based application it had in Facebook and other Russian social networks - and exercised it as an app. So the step is not rather a bow to the sudden popularity of RIM device (haven't seen one yet), but to a fact, that the company is nimble enough to reframe things and execute them fast.

It may be an off-shoot, but the move points to a bigger picture, that QIWI is aware for some time. It can use its platform and offer it to developers as a set of API's. Offering payments services much like PayPal does through its X. platform is a logical step to continue with.

[1] QIWI shows the promise of mobile pervasive payments and info-services 05.05.2010

[2] QIWI gave its customers opportunity to manage payments via SMS 05.10.10

[3] QIWI adds Bump to its iPhone app 09.05.2011

Data over IP can be more interactive than contactless - as shown by BankSimple and MoBank and others

noreply@blogger.com (Daniel Gusev) — Mon, 15 Aug 2011 09:45:00 +0000

Hardly a day comes by without any additional news items on NFC and how that technology would make our lives richer. The expectations are rich - all pointing to the hot money being poured into the area, the hype coming out of it (leading to Gartner to enlist the technology on top of its "peak of inflated expectations"). We all agree that the success would come from more handsets supporting the technology. With almost all of these handsets planned to be touchscreen smartphones, this point makes me think of an alternative, or substitute methods to pay, when using a phone.

It follows an already typical category-based behavior, where you either "pay after", "pay now", or "pay before"; in the payments cards world these being met by credit cards (after), cash (on-hand money) and debit / prepaid. I propose the same logic for the world of mobile - but the "pay before" mechanism will be about data over IP: why wait and pay for something at the teller, when you can digitally sign the transaction and have the money deducted from your account OTA, and then to only pick it up. The phone's screen size and the robustness of its platform allows for rich interfaces that already prompt big retailers to create mobile "digital" stores. Contactless may only have the instant payments in closed-loop systems like transit, vending, parking - and "data over IP payments" on your mobile is a strong contender to have the general convenience payments category.

Payments on the go are possible, if you truly account for the experience of phone-wielders. We play with the handset more that ever before.

Mobile experience in a loop.

I am looking at the recent announcement of another Russian service that allows customers to remotely buy movie tickets. In a sense it is a continuation of a banks dive into e-invoicing where you can pay for something from your current account. Several big banks in Russia offer such services. Yet despite the number, it is customer experience that matters when offering such services. They should be offer in "right time" and "the right way".

This reminds me of a good UK financial startup called MoBank. Launched in 2009, it proposed a radical view on the future of finance - probably the first to formulate and propose a decoupled experience - that a person could use his old banking accounts and get a far richer experience when spending money from these accounts.

MoBank, BankSimple - they continue marching the road that was found by ING Direct - proved that managing money can be a fairly painless activity. They all are cautious of explicitly naming NFC in their roadmaps. My belief is that the technology does not matter. E-invoicing over IP to your mobile can be as engaging and usable as any other technology.

[1] "Decoupled everything" 28.06.2011

[2] We are all cyborgs now - and always were 04.06.2011

[3] The future is now - and the shapes are different from what banks wanted it to be 15.04.2011

Samsung indicates NFC shipments to Russia by end of 2011: NFC heat gets more vapor

noreply@blogger.com (Daniel Gusev) — Tue, 09 Aug 2011 13:50:00 +0000

The hype is getting louder - amid the scarcity of solid commercial trials (not even talking about rollouts), vendors and MNOs are engaged in discussing different structures that would carry NFC payments to customers. The talk is getting louder and has been recently upped by Samsung announced plans to start shipping NFC compatible phone [article - in Russian] - Samsung Star II in Q4 - priced slightly more than USD 250.

It's hard to make solid guesses about whether the vendor plans would contribute to the abundance of schemes that boil in players head - but this would hardly make the scheme rock: the technology itself is discussed for several years - and nothing comes out of these talks:

- technology does not matter as customers can make one discarded technology a success - substituting schemes that were planned for the service (we know that SMS was first considered to be a technical exchange protocol for MNOs). What matters is the use-case, and there hardly were any besides closed-loop payments in transit;

- substitutes rock the bottoms of customers wallets: cash is the hassle free instruments to pay for virtually anything, so you have to make digital payments effective to introduce the technology that would carry the benefits;

- price of a handset matters - as is the model and its functional specs: it is a well learned fact that people find it a barrier to switch to a new device that would not meet their preferences with their usual phone.

It is a positive sign that major vendors start shipping NFC phones - when MNOs are currently struggling to make SD cards, NFC-SIMs and stickers work - but the announcement does not clarify whether the phone would support the Single Wire Protocol, allowing the latest security requirements for financial transactions.

Since mobile operators are legally allowed to facilitate payments from mobile accounts (sanctioned under National Payments Bill) - their desire to transform a phone into a wallet gets more stronger. We'll see if the technical innovation transforms into real gains in terms of ease of use vs. cash.

[1] Banks are queuing to implement transit contactless in Moscow - 15.06.2009

[2] Saint-Petersburg's metro announces it's preparing for mobile NFC trial - 30.07.2010

[3] Saint-Petersburg's metro will offer NFC transit payments in 2011. No special phone required - 14.10.2010

[4] What is happening with NFC and mobile POS payments in Russia - 25.06.2011

Personal encounters: the role of my life

noreply@blogger.com (Daniel Gusev) — Tue, 09 Aug 2011 11:52:00 +0000

I am quick at measuring-up different roles: a "gadgeteer", a visionary. That might happen occasionally to some of you - trying to understand whether the role is good for you - and whether you are good to it. The era where we are carried away by "design thinking", "crowdsourcing", "t-shaped innovation" structures - you have to monitor your skills. And no matter this self-assessment rarely works properly (too much ego is involved) - you are trying to get a glimpse of your past and project it into the future.

I did not take the role of an innovator - it took the shape of me to project some bits: shaped in an audacious goal of changing the nature of retail banking in Russia. Most failed. Small number of changes are visible. Calculating the odds - and trying to increase them - you have to catch up with your background and skills. Mine are all experiential - graduated from classic humanities University (history) - I mastered my arts through my work in an IT vendor, then in an international strategy consultancy - and then in banks.

The guiding principle was to shape up the service you'd want to get as a customer. That radically differed from the point of view of many - because you don't get paid for a vision. Mine approach was differed because I took a job as a hobby - a financially backed-up research project that you try to make look like a job.

The job that wasn't.

Most would say that a hobbyist profession is a myth - and a distraction of employer's resources. I'd counter that - that without audacity to implement your goals, the work is a waste. Where the notion of a job is a mandated set of skills that can be monitored and tasked to bring output - it is also fallible under cost-cutting, optimization, automation.

Yet when you do have a goal that is bold enough, and you convince people that there is more under the skin of this idea - that is when you start to mean something in this capitalism-driven world.

I may have given a hard time to managers, directors and CEOs. But i was tasked to make that so - to change the status quo and adjust the vision to some things missing from the agenda (one of core meanings of innovation). The search with no end in sight is a crazy adventure. I find it liking to compare the exploits with alchemy of Middle Ages - where people pursued the unknown - not knowing of the results they then witnessed, but capturing the pure science of discovery.

Corporate innovation is a compromise of this medieval alchemy - bringing tangible results from the void of unmarked map-spots. Some corporate innovators, like James Gardner - would say, that you have to be a pragmatist to be a good corporate innovator. The sensible part of me is inclined to disagree. Numbers may bring statistic confidence and significance to the trading table. But numbers alone aren't giving you hints about where to look for the next best thing. You have to live in the area to feel intimate about it.

Getting a broad meaning of the place you try to make better - is almost all that counts in the day-to-day business of a corporate innovator. Numbers behave according to the model you define.

Radical thinking in banking

noreply@blogger.com (Daniel Gusev) — Mon, 18 Jul 2011 17:51:00 +0000

Most bankers assured me of a total infallibility of the business, pointing to futile attempts to think radical, when a stone throw would hardly cause many rings on a water surface. Seeing how many global banks went under - I understand the irony.

The case for "black swans" in banking was brilliantly demonstrated by Nassim Taleb - yet many bankers demurred, voicing their concerns that the case is primed at investment activities, where risk is much higher than that with S/L business. They are mostly prime-focused on maintaining the status-quo - so their lieutenants also form a unison in their attempt of upholding it.

Banks fall prey to "groupthink", that resulting from the legacy of their formation, attitude toward dissent (their clarification of different thinking) - and look for options only at the time of near-death.

Alternate thinking is close to chaos, they'd say - not knowing that there (a) are procedures that can manage differences in the course of action and (b) they have been implemented in analog in respect to rigidity, but more risk-prone fields: policy-making and oil business.

Herman Kahn, Pierre Wack - these names could be derided like apostates - but they brought sense to the course of action that took note of radical futures, that were narrated by them. You don't have to completely adjust the course, not even a notch - but you prepare yourself for a contingency that could be bogged down by sweet ooze of positive thinking.

This is directly relevant to bank's innovation programs, that is some times seen as a result tool of strategy sessions - where it could serve as an input mechanism: pointing to radical visions that should not be discarded - but inserted into official dogma.

A story about ID scheme in Russia

noreply@blogger.com (Daniel Gusev) — Sat, 16 Jul 2011 08:23:00 +0000

I reneged on writing posts about national payments scheme and Russian ID scheme: not because they become more complex (as any solid framework should at the stage of implementation), but rather rigid and filled of vague constructs. Politics have taken over reason in the deliberations to bring a card that would unify different ways people authenticate themselves at dozens of state facilities when applying for state services - and the way to pay for these services through a special "third scheme".

The grand plan was a revelation for high-ranking officials as it mustered everything they vouched for in their campaigns: coupling national security with social obligations (independent payments scheme, offering a fast and cheap way to pay), modernization agenda (greatly increasing cards usage in the country).

One problem. When facing the test of reality, even the most boldest initiatives have to rely on existing assets, in other way failing to grasp the goals it was created for. Here is a short list of reasons why it went wrong.

- providing payments: the ability to offer payments would have required to initially cover virtually all merchants with POSs, so that potential users could see the value of yet another card in their pocket. The problem is, that more-or-less dense network of POS acquiring exists only in 3-5 regions (and I am talking cities). That means that the governmental scheme would have had to install dozens of billions worth of equipment in order to compensate for that gap. Understanding that, the last versions of the bill offered to fund POS installation only at eGov points - leaving market POS to those banks who would want to fund the installation themselves. Problem: once you have a card with ID applications so that you can consume the eGov services, you'll focus the card exactly on that - doing market transactions with cash (residing to your normal behavior). And that point is ruinous for ID card's business model.

- creating the ID card: the card should have been created using Sberbank-sponsored scheme, called PRO-100 (sounds "easy" when pronounced in Russian). It turned out to be not so easy. Sberbank could not convince all, other than three institutions, to fund the development of the card and the acquiring infrastructure (see point 1) - and the idea to insert a ID cryptogram on the chip stumbled as the chip had to be upgraded (placing another dent on the budget). Furthermore, cryptogram development is no easy task when you talk about completely new scheme - and that creates risks for politicians who've voiced the program to start issuing cards from 2012. End result: partnership with MasterCard (potentially relying on their PKI standard).

- funding the whole thing: budgets for the initiatives varied greatly - demonstrating the sheer callousness in preparing the models and the total lack of understanding of what was mandated by the government (because even the government's goals differed - from covering the whole of Russia with a separate ID / payments scheme, to only offering ID services at state facilities). The price range varied between RUB 150 bn. (USD 5bn.) to RUB ~460 bn. (USD 15 bn.). Seeing the real cost of the play - government started searching for substitutive schemes - and found one with Rostelecom (russian fixed line giant) PKI initiative. It basically follows the scheme I envisioned earlier - offering standard PKI for EMV compatible cards that allows cardholders to consume eGov services over the Web. It already has signed agreement with more that a dozen banks - and does not require said billions of rubles. At all.

At first Sberbank's controlled association, that supports the PRO-100 variant, changed the assumptions in the model and announced that the scenario would require only RUB 43 billion, but, according to leaks to the press, was denied even that money.

The battle is not over yet: the implementation is scheduled to proceed until 2014, but PKI scenario has the voice of banks who would basically drive adoption (as they control the issuing process) - and is a good end result from the process that kept us wondering for near 3 years.

Following the post are two slides that narrates (in somewhat satirical style) the story of the ID scheme:

[1] Social card and national payment card proccess in Russia's stuck. To many questions

[2] Payments nationalism - is it what the government wants?

[3] Hype around national payments scheme in Russia

"Decoupled everything"

noreply@blogger.com (Daniel Gusev) — Tue, 28 Jun 2011 14:16:00 +0000

We are living in an increasingly connected, yet fragmented world. It's like the rapidly growing Universe where the basic bits of the taxonomy start specializing on small tasks, while supporting the initial grand-design of the system. The dichotomy of connectedness / fragmentedness is perceived through the concept I'd call "decoupled everything".

It is described through the process of consuming services and goods that are upgraded with more functions through "new granular lenses" - our assessment of the process doesn't change, as we are getting another instrument to "process more with less". People could not possibly process several thousand items of news today, had they not used RSS feeds or twitter - that enables to filter out the details while leaving the bigger picture. Twitter and RSS readers are (partly) a decoupled service for the #bigdata Internet - that maintains the correct level of noise and overall experience that we expect from a consumer device.

These lenses allowed for customer experience to easily transcend onto new realms and thus raised our expectations that the interactions with professional tools should be just as easy as we would want them to be in our private lives. These were still several industries and verticals that lagged in the adoption of such lenses. And so they were sidestepped by decoupled services.

- Wallets (prepaid) are a decoupled service for payments

- Groupon and other group-buying sites are decoupled services for loyalty programs (you would argue that discount pricing is not loyalty, but I mean that these are initial steps for mediation between providers and repeat customers). We reuse Internet on a daily basis, so in a sense we would integrate coupons to be a daily, not an occasional experience)

- BankSimple and SmartyPig, branded PFMs and even white-label PFMs are decoupled services for banking - catching up with the way we would want to interact with our bank - and compensating for the lack of services we now expect for banks to cover.

It is indeed a decoupled customer experience.

A crowd-funding service from 2010 by Alfa-Bank: great marketing, but lacked purpose

noreply@blogger.com (Daniel Gusev) — Sat, 25 Jun 2011 10:23:00 +0000

I was fascinated by what BBVA has created - "Friends and Family" that is a crowd-funding e-service, that, in my view, raises the reputation of the bank as a socially-embedded institution and offers a glimpse in how banks can extend their social role (though we can also see a hint of bank competing for customers who bank with Banca Civica (former Caja Navarra) or other social banking outfits).

You can read a captivating (as always) report from Christophe's blog here - the summary of it is that the service allows you to call for support of a socially important cause and get funding from customers - all done through a secure payment environment of BBVA (you have to have an account there).

Amazingly, I've uncovered a near similar service, done by Alfa-Bank. The site, called "Fulfill your dream with Alfa-Bank" allows anyone who bank with AB, to post a dream and rally up support from other members of this community, or amplify your voice by sharing the idea on Twitter, Vkontakte (Facebook lookalike in Russia), or Facebook.

Other registered users can vote up or down your idea and donate money to make it happen. Launched in 2010, it is now considered a niche project for the bank - as the range of ideas you could post to the site varied greatly and that lead to most popular ideas getting tens of rubles - killing the idea behind any crowd-funding service. The platform lacked purpose, and should Alfa try to retrofit the service, that should support a social, charitable cause or any other - but the process should be guided.

What is happening with NFC and mobile POS payments in Russia

noreply@blogger.com (Daniel Gusev) — Sat, 25 Jun 2011 09:57:00 +0000

The barrage of data was so intense that there is no way to report them all in a consistent manner - you'd be simply lost in the stories: so what I am going to do is write a summary that inter-relates all what had happened. The reason - all of the stories are inter-related and act either as a causal or resolving issue. All of them underline the great pace of innovation in payments that is happening in Russia today and promise some bold initiatives for next year. I will structure the post around legislation aspect - as setting the rules of the game, then proceed with infrastructural level and end up with my understanding on how latest e-services fit into the bigger picture

Legal / legislation: no matter it is regarded as raw and inconsistent with what was expected of it at the beginning, the recently passed "National Payments Scheme" bill thrusts forward the development of emoney-based schemes, since they now have the basic definitions of what can and can't be offered to customers. The bill enacts the definition of "emoney" and the approach on how to issue, process and accept these new notions of payment. What is more interesting, is that the bill allows mobile-based payments (payments done from mobile phone accounts).

The latter was a long-discussed story that allegedly was sponsored by one of the "big three" MNOs - and paves way for all sorts of e-payments (potentially worth RUB hundreds of billions) and POS payments (worth of RUB trillions) directly from your mobile account. The setback is that the bill has left more questions opened than answered - redemption, authentication, P2P - most of those features that propel the industry forward elsewhere in the world, stay in the "grey area". That is probably the price of innovation where new services anticipate the areas that have to be regulated, not the other way around.

Despite having the legal aspects of the game, mobile payments schemes have yet to change its rules: taking over the volumes that are topped on to mobile phones: with the majority of volumes coming from kiosks (in cash form), they are controlled by those kiosks operators who've created wallets that can be accessed from mobile devices. I've wrote about this paradigm before (kiosks vs. MNOs) - and the competition would be around price factors (making it cheaper to pay either from an abstracted wallet or a SIM wallet), but I firmly believe it should be done around convenience - allowing these money to be expensed at POS.

That "POS extension" breeds the demand for acquiring infrastructure and also changes the role of an MNO, should it really want to partake in the activity (transforming itself into a "clearing hub"). That is hard for me to imagine, as the payments opportunity simply called for an MNO to account for deductions from customer's mobile account, and risk management and financial payments had to be facilitated by banks. So, the POS game would be surely done by banks - and they are still a critical force for making mobile POS payments happen (the other scenario is that we may find another technology to process and clear transactions without banks - I'll leave that for another story). We also have to remember, that the "payments hub" role is taken by kiosks champions, making the competition look even more exciting.

To outdo the competition, you have to really change the rules of the game - make payments through your wallet more instant and more rewarding for customers. No way you can do it through price differentiation - payments being a low-margin / high-volume game would kill the business model.

One thing worth remembering is that MNOs who participate in e-payments game, are starting to cannibalize their "premium SMS model" (with margins worth tens percentage points) - as correctly prophesied by one alternative payments player - loosing out gaming top-ups to try win bill payments is risky.

Infrastructural layer: one of the ways to bridge mobile payments and current ways of payments is through NFC - and there is lots of talk about the technology that promises magical transformation for lives of customers. I can tell from my friendly chat with payments schemes people and friends from banks who deal with these things on daily basis - that they are approached by people who deem themselves competent to be named TSMs (around more than 5 already in Russia) - who propose both banks and MNOs to kick-start projects that would have customers with NFC phones (either with embedded SE or SIM-based SM, or with SD cards) paying for transport in major cities and also paying for goods with bank-compatible contactless standards. My questions for them are: with the penetration of current payment options (cash - 95 per cent, cards 5 per cent) - how successful this dash into unknown would be and how dear may that cost them? You have to resolve the cash payments problem before you dash into NFC - or make the technology essential for cash paying people.

Starting from customer experience - the same point pushed by NFC "junkies", what would be the impetus to lower the amount of cash and have it transferred to a mobile phone, or a bank account? The cost of cash is lower that cost of bank acquiring, and no additional benefits (people pay with their own money - so cards bring no new customers). It is a cost. In my view, MNO-driven NFC has a bigger chance of succeeding than that of pure banks - as MNOs would have better understanding of people paying with cash (as they still bring most of the revenues for mobile top-up service). You have to create the right motivation.

Service layer: my eyes and years were tuned to several announcement of Alfa-Bank, one of the most active institutions in e-commerce: that announced the creation of a new e-payments scheme in close cooperation with Beeline (with whom it shares a single shareholder). The scheme at first would allow customers to get an electronic wallet (essentially being a mobile account), funded either by cash - that can be topped up through kiosks, though a card that can be linked, or through other wallets. The services allowed for today are simple bill payments, no relative distinction from other wallets - but promises NFC payments (@POS) later by end of this year. Synching with this announcement, Alfa-Bank also started issuing MasterCard PayPass cards - seeing there is no technology to support this on the acquiring side - Alfa may start bringing NFC terminals to their POS network. This makes perfect sense to both service mobile payments of the bank's venture as to simply service their cards (another Russian-based institutions already offering PayPass is Moscow Credit Bank and Raiffeisen).

Still, when talking about the e-payments service - it is a direct competitor to QIWI Wallet - doing the same thing, while offering lower commission rates. Seeing the volumes and CAGR rates of wallets, Beeline tries to lure customers from toping up the intermediary wallet to directly fund the mobile phone number. What are the challenges for this to happen?

Fee structure: When directly topping up your mobile phone - and remembering that most money comes from cash - a customer has to pay a loading fee to an agent who services a terminal (kiosks are operated not by QIWI, but by thousands of agents) - so promising lower costs for these clients is a no-go. A customer can load their QIWI wallet for free - but that kills the logic - bringing you to a situation where you already have your money with QIWI.

The promise of POS payments is still a myth (have to deal with acquiring and ubiquity to change the behavior of a customer).

In the end - the scheme is a basic extension of what is already offered on the market - and is primarily targeted at (or would succeed working with) bankable customers - who would link their cards to a mobile phone. Alfa may have a good (statistical) input from their concurrent project with Beeline where you can already pay for Internet purchases with your mobile phone balance - but I won't expect anything big from the scheme - until the scheme starts working @POS. That is where you have to bring in a differentiator.

[1] Kiosks networks target mobile as the next step - but will they gamble their business model?

[2] Payments domains borders get blurry, as players advance into new core businesses

[3] QIWI asserts its mobile strategy - and prowess in terms of e-acquiring business

[4] Paradigm shift: payments in Russia are slowly migrating to mobile - and MNOs are in charge (not kiosks)

[5] MNO lobbyists pushing forward with a special framework for mobile payments

[6] Mobile payments are still out there

The Idea behind the #nextbestthing

noreply@blogger.com (Daniel Gusev) — Fri, 24 Jun 2011 09:50:00 +0000

The habit of quick-posting to a blog is going away from me for a while - as I am increasingly more and more dedicated to me own startup thing, that will surely change the way services are perceived and consumed in Russia. While the recent spat of postings and comments (somewhat justifiably) pointed to another growing bubble, a predictably irrational movement of both people and the stock-prices of companies that spawned from nowhere - my endeavor is partly a social exercise and partly a socialist mission.

That said, it is an attempt to help people consume financial services without stress and escaping the intricacy and overall opaque nature of financial services as they are in Russia. Where most profit-driven enterprises are prime-focused on cashless instruments, they fail to acknowledge the still most efficient transaction mechanism - cash. While appealing towards regulation and some mystic new financial schemes that would bring joy and universal "cashless-ness", they fail to provide a simple language and common sense into the equation.

That's why, cash still proliferates in Russia, taking, based on the research I did recently for one international payments scheme, over 95% of GPV. It is the habit of both customer and merchant that make cash a prime weapon of choice.

As the financial agents first tried to battle rather than negotiate with old behavioral patterns, they instead firmly grounded - supported by "amateurs", that took note of people "rituals". Because social patterns of people don't match with profits forecasts / expectations of banks, and ways these profits should be collected, they fail to imitate the real needs of people.

#nextbestthing is all about meeting these calls.

More on that later, as at the story unfolds and the code is fine-tuned. Should see first glimpses of the next Russian innovation this year.