The World of Mobile Banking and Payments

PayPal's Dongle Could be a Real Game Changer

2012-04-06T10:39:00.000-04:00

This has been in the works for a while but PayPal finally announced the launch of its own Dongle that would allow businesses to use their mobile phones to accept card payments anywhere. Aimed at Square and Intuit, the new PayPal Here dongle takes credit and debit cards, and can be attached to Android device or the iPhone, via their audio jacks.
The fee is 2.7% and actually 0.05% lower than Square and the Dongle comes for free as well. It also comes with a couple of additional features which I think really round out the offering

- ability to accept check and deposit it directly from the mobile phone
- Send an invoice out
- Most importantly, it allows access to funds in the PayPal account within minutes.

More details about the service is available here.

This is where this is offering is so much more powerful than Square and Intuit (at least in their current versions). PayPal has done a fantastic job of leveraging its core assets, a PayPal account which is a checking account for all practical purposes along with a linked debit card and ATM access.

The only question is whether PayPal can demonstrate the same success in acquiring merchants in the offline world as they have in the online world. While its true that some of the businesses who use PayPal at ebay or on their website will have an offline presence as well, acquiring businesses in the physical world is a tricky proposition and requires feet on the ground. And PayPal will not have the luxury of building on top of a marketplace like ebay that it so successfully leveraged for establishing itself in the online payments space.

PayPal Pulling Back from NFC

2012-02-11T09:17:00.000-05:00

PayPal seems to be pulling back from NFC-based mobile payment application, according to this report. PayPal stated that it felt the technology would be a “step backward” for point of sale transactions. The company feels that by the time NFC catches up, consumers would have moved away from POS terminals altogether.

Instead, PayPal connects consumer's PayPal account to their phone number and a PIN code. When they cash out at a participating retailer, they choose the PayPal option, enter the phone number and PIN and the transaction is completed. A mobile receipt is sent to the consumer. The application will also support offers and loyalty programs.

To me this is a much better strategy with clearly articulated benefits for both consumers and merchants. Clearly for consumers, its more convenient and secure. PayPal offers to them the same value that it did in the online world - they dont have to share their card information with the merchant.

More importantly, merchants can begin to see the value in mobile payments without having to upgrade their POS terminals to enable NFC payments. All they need to do is to begin accepting PayPal payments. The value of course includes:

- in store offers tied to consumer behavior and loyalty programs
- better consumer engagement
-potential smaller lines at the check out counter
- more convenience for their consumers

I am delighted that a large payment provider has chosen to take an alternative approach to NFC, which seems to have become the holy grail without enough proof points and a sustainable business model. Wonder what Google, ISIS, Visa and MasterCard have to say to all of this.

Verizon Blocks Google Wallet, Well Not Quite !

2011-12-10T20:16:00.000-05:00

This had to happen sooner or later. The fact that we live in the world of co-opetition is best seen in the evolving world of mobile payments. Everyone either has a mobile wallet of their own or plan to have one. The notable ones of course are google wallet, ISIS (the consortium of carriers - AT&T, Verizon and T-Mobile), Visa, Mastercard, the card issuers and the list goes on...the problem is that while they are competing, they also need to work with each other for the business model and technoology to work and create real value.

I think thats what led to this news story in which Google said that Verizon had asked them not to include the Google wallet in the upcoming release of Samsung Galaxy Nexus. That means Galaxy Nexus owners will not be allowed to download Google's new NFC-based tap-and-pay application from the Android Market.Instead of Google Wallet, Galaxy Nexus users will be offered Isis, Verizon's forthcoming NFC payment system, expected to launch in mid-2012. Isis is a joint partnership between AT&T, T-Mobile and Verizon.

Later, Verizon clarified that they were not "technically blocking" the app. At least they blamed it on security - What seems to be at issue is whether Verizon's security team can integrate Google Wallet into a "secure hardware element," or the system for storing private data, in phones with near field communications (NFC) technology. Google Wallet would need to work with whatever secure element Verizon and its partners in the Isis mobile payment venture are using. The secure element contains a user's personal information that allows a payment to be made.

The battle of course is about who controls the secure element and hence the key to the application. To me, thats the crux of the issue.

While we can get stuck in the technical issues, the issue is a pretty fundamental one. Most of these players need to work together for a successful business model and the stakes are high. The go-it-alone approach is likely not going to succeed although PayPal and Square may have a different opinion.

Remains to be seen who has the most leverage and staying power because I suspect its going to take a long time before mobile payments, especially in the offline world, becomes main stream.

PayPal Launches Facebook App for P2P

2011-11-26T08:56:00.000-05:00

PayPal recently announced a "Send Money" app on Facebook.It allows a sender to send money to another PayPal user and to give it a social twist, PayPal has added the ability to send an e-card with the payment.

According to this article, "While there are several ways to pay with PayPal via Facebook (Payvment comes to mind), this is the first app to enable peer-to-peer payments via Facebook and PayPal. And because it's a peer-to-peer transaction, there is no transaction fee, though PayPal's regular limits and international fees still apply.

"Sending money, person to person, is free," PayPal Senior Product Marketing Manager JB Coutinho said. "If it's funded by a PayPal balance or linked to a bank account, it's free."

Despite some media reports, it is not a new partnership between Facebook and PayPal. It is simply PayPal creating an App on the Facebook platform. The interface is quite simple and the fact that its free, just like most P2P transactions, does add to the appeal. e-Cards is a nice feature as well. PayPal pointed out that more than 500M e-cards get sent out every year and gifting is a huge market.

I don't see this app taking off in a big way in the short term and this is no reflection on PayPal. I think there is a question mark in general about transactions happening on Facebook but you got to appreciate the fact that PayPal has been very aggressive and smart about making its platform available at every place where a payment transaction is conceivable and this is another good step in that direction.

An Interesting Way to Represent Mobile Payments

2011-09-11T21:33:00.000-04:00

I noticed this infographic on Mobile Payments at MobilePaymentstoday.com. Its a useful and simple way to explian the different types of mobile payments ecosystems and how different players fit into it. Although its not comprehensive and fails to explain the role of banks, I still think its a good way to categorize some of the key players.

The most important mobile payment infographic. Ever.
Compliments of MobilePaymentsToday.com

eBay Acquires Zong - Makes Aggressive Bet on the Digital Goods Market

2011-07-31T17:38:00.000-04:00

On July 7th, eBay announced that "It has agreed to acquire Zong, a leading provider of payments through mobile carrier billing, for total consideration of approximately $240 million in cash. Zong leverages connections with more than 250 mobile network operators around the world, offering localized, secure and easy-to-use payments capabilities for digital goods and services in 21 languages and 45 countries."

Zong allows consumers to easily pay for purchases from their mobile phones or computers through direct carrier billing. Consumers simply enter their mobile phone numbers.

Earlier this year, PayPal launched PayPal for Digital Goods, a new product that lets buyers pay in two clicks without leaving their gaming experience or content site. In 2010, PayPal processed $3.4 billion in payments for digital goods.

This acquisition is quite synergistic and adds a new capability to PayPal which will allow it to move more aggressively in the digital goods market. The business model around carrier billing is ideally suited to this market since the gross margins are very high and carriers are able to effectively extend a credit to the consumer (till their next billing cycle) in return. This could be particularly useful for gaming and purchase of goods/services from the mobile phone.

Its also an acknowledgment by PayPal that its recent moves (new pricing model) that it rolled out last year for the digital goods market might still not be attractive enough for this market and its probably still perceived to be too high. Besides, the payment processing is not as frictionless as carrier billing, esp for the first time user.

According to this PayPal blog, Zong's carrier relationship could provide access to upto 4B cell phone subscribers around the world and could provide rapid growth in international markets.

It will be interesting to see how some of the other players in the carrier billing space such as Boku react.

Google's Mobile Wallet - An Open Ecosystem?

2011-06-20T21:59:00.001-04:00

The announcement of Google's Mobile Wallet has brought a flurry of activity in the banking and payment space. It has also created a lot of buzz around the whole concept, not that there was a lack of buzz to start with !! But this announcement in particular is important because it comes from a company that has the ability to turn business models upside down as well as the necessary cash and desire to help them build an ecosystem that is likely to take perhaps a decade before it begins mainstream in the US.

The question that is being most hotly debated is the one of business model and who is likely to play the dominant role and hence gain the most from the adoption of mobile payments.

1. The first one is between who owns the NFC chip or the hardware on the phone that stores the "secure element" and the payment information on the phone. Carriers and phone manufacturers have been fighting over it for a while now and that led to the emergence of ISIS, a consortium of Verizon, AT&T and T-mobile. They started with the intent to build out a whole new payment network but quickly adapted to say that they are an open network and have been openly and aggressively inviting anyone and everyone to join including the card networks and card issuers.

2. Google has taken the "App" approach and is mostly focused on owning the consumer relationship without trying to participate in the revenue stream. This is classic Google. They have done it with Search and more recently with Android. By sitting in the middling of these transactions and its ability to sit on top of every Android phone, it has the ability to capture rich information about the transaction, consumer behavior and marry it with the phone's data such as location etc. They are of course the masters of data mining and hence create an amazing asset for merchants, advertisers and of course for Google. So their business model does not disrupt any of the players in the current value chain but do create value for everyone else. This is really appealing. The question is how is Google planning to incent carriers and merchants to adopt.

3. That leaves the banks and merchants on how they plan to play in the space. Some bank/card issuers are working on their own wallets but I think those are very restrictive. Similarly, it would not make sense for merchants to plan on creating mobile payment/checkout experience on a standalone basis. So, they need to probably participate in a more open ecosystem such as ISIS or Google or both. But they would need a strong incentive to invest in NFC enabled POS terminals.

It will be interesting to see how Google creates incentives for every player in the value chain but in my view, they are probably closer to a business model that could work than any other initiatives we have seen so far.

Bank of America, Chase, Wells Fargo form new venture for P2P Payments

2011-05-30T08:23:00.000-04:00

"Bank of America, JPMorgan Chase and Wells Fargo announced that they have formed a new venture to enable their customers to move money more conveniently and safely using a mobile number or email address." According to the release, "clearXchange is the first bank-owned solution of its kind and the service is available to its partners today."

The three banks will own and run Clearxchange and will integrate with other financial institutions and "end points ", presumably other services such as Popmoney and Zashpay.

Bank of America and Wells Fargo began rolling out clearXchange to customers in Arizona in late April. JPMorgan Chase will begin making it available to customers soon, and the three banks will gradually roll the service out during the next year. Each bank will have the ability to price the service to its consumers,although it will initially be offered for free by both Bofa and Wells.

While this is clearly a competition for other P2P providers as well as to PayPal, it could also help drive the consumer awareness and hence the number of P2P transactions initiated from bank websites.

It will be interesting to see how the service evolves. Most of these services that are owned by banks have been notoriously slow to take off and the governance of the company does become difficult because the same banks also compete among each other for customers and provide competing services. It reminds me of the initiative in India where NPCI took over the governance of such clearing house. While not ideal, it is a sign of how difficult it is for banks to participate in services that require an open network and collaboration.

Discover Launches its P2P Solution in Partnership with PayPal

2011-04-24T22:44:00.001-04:00

Discover Card has joined the fray with other card networks with the launch of its P2P application, "Money Messenger", in partnership with PayPal. They had announced this partnership more than a year ago but the service was launched a couple of weeks ago at http://www.discovercard.com/
Here is how it works:

All you need is the recipient's e-mail address or mobile phone number
There are no fees to send money
Earn Cashback Bonus on every transaction
Amount will be charged to your Discover card account like a purchase
Send up to $200 a day ($500 per month)

Recipient will be notified by e-mail or text message. They can use an existing PayPal account or sign up for one.

I liked the simple user experience and the seamless sender experience using the Discover Card as a funding source. Its creates a unique differentiation for Discover Card and can be used for "Balance Build". It helps that it is treated as a purchase and the transaction is free to the sender, unlike the Visa or MasterCard model where there is an interchange fee which must be paid to the issuer. In a lot of cases, it gets passed on to the sender. Discover of course has the advantage of being its own issuer.

However, I am not sure PayPal being the only destination account is a ubiquitous solution for a true P2P application. Granted that PayPal has a very large network but it is clearly a partial solution, especially for those recipients who do not have a PayPal account. And even for those that do, I am not sure if it is the same as receiving money in a bank account or on a card.

American Express Gets in to the P2P space with "Serve"

2011-04-10T18:39:00.000-04:00

American Express launched its own digital wallet, "Serve", ostensibly launched using the Revolution Money Platform that it acquired a couple of years ago. Serve is not restricted to Amex cardholders; any card brand or bank account can be used to fund Serve transactions, and it works automatically with any merchant that already accepts Amex cards.

It looks very similar to PayPal. It is open to any consumer and not tied to an Amex card. Hence the choice of a separate brand. It is essentially a stored value account and is tied to a prepaid card that can get accepted at any merchant location that accepts an Amex card.
"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before."

"This is not an Amex wallet," said Dan Schulman, American Express' group president for enterprise growth. Serve "allows us to address a larger chunk of the marketplace that we haven't before." Later this year, Amex will allow third-party developers to connect to Serve using software development kits and open application programming interfaces.

This seems to be a smart move from Amex in the sense that keeping it as a separate brand and open to all consumers enables them to go after non-amex card holders with value added services such as free P2P and a prepaid card for spending from the account. I am sure the move surprised quite a few and it is definitely aimed at competing with card networks such as Visa and Mastercard.

What is unclear yet is why would a consumer open yet another account and carry yet another card. While PayPal was able to convince consumers to do so, it had the benefit of the ebay platform that did not have a frictionless payment platform. With no unique benefits and little association to the American Express brand, it is going to be extremely difficult to build scale for this service.

Google to Test Mobile Payments in NYC and San Francisco

2011-03-23T22:26:00.000-04:00

Google Inc. (GOOG) plans to start testing a mobile-payment service at stores in New York and San Francisco within four months, letting shoppers use their phones to ring up purchase.Citing two sources familiar with the initiative, Bloomberg reports Google will pay for the installation of thousands of NFC-optimized cash register units produced by VeriFone Systems, with trials kicking off sometime during the next several months. Sources add the Google service may combine consumer's financial account information with gift-card balances, store loyalty cards and coupon services on a single NFC chip.

Back in November, Google CEO Eric Schmidt had said that the company will leverage NFC technologies to enable consumers to touch Android smartphones together to share information or data.

The mobile payments battle continues to heat up with several large players seem committed to this market. This includes:

- the carriers, who created ISIS (a consortium of Verizon, AT&T and T-Mobile) in partnership with Discover Financial Services
- Phone manufacturers including Apple, with a strong base of 200M consumers on iTunes and RIM-Networks such as Visa and Mastercard-Banks
- and of course PayPal
Its mind boggling to think of the amount of resources and money that is being spent to get a piece of a rapidly growing mobile payments market. While consumer and merchant adoption remains a challenge, my view is that its simply a question on when, not whether. The stakes are high and the market is still in a very fluid state.

The business model is still unclear and while every player wants to own the primary consumer relationship, its difficult to predict how it will pan out. Each of these players in the eco-system - Telcos, handset manufacturers and card networks/issuers have very strong brands and have a direct relationship with the consumers in their own right. How is gets divided when all of these have to participate in the mobile payments eco-system is the big question.

Visa Makes Another Move in the Digital Payments Space; Acquires Playspan

2011-02-13T10:58:00.003-05:00

Last week, Visa announced, "...an agreement to acquire PlaySpan Inc., a privately held company whose payments platform handles transactions for digital goods in online games, digital media and social networks around the world. The acquisition of PlaySpan complements Visa's 2010 CyberSource acquisition and extends the company's capabilities into one of the fastest-growing segments of eCommerce - digital and mobile commerce."

Visa will pay $190M in cash for the acquisition. PlaySpan offers a payments platform specifically targeted for the digital goods and gaming platform. Digital goods which generated an estimated $25 billion in consumer spending globally in 2010, a figure expected to reach $280 billion by 2014. PlaySpan sells a virtual currency that can be used to pay fees and make purchases within many popular computer games, including FarmVille and EverQuest. Facebook Inc. also uses PlaySpan's monetization service to give its Facebook Credits users payment options, although it is not clear to me how this compares against the deal Facebook announcmed with PayPal a few months back.

I think this is smart move by Visa to entrench itself early in the fast growing space, although I am not sure about the "high" valuation of Playspan. The deal along with its acquisition of cybersource demonstrates its strong commitment to this e-commerce market. This also comes on the heels of PayPal announcing its own micro payments platform.

It will be interesting to see how some of the other players, esp Mastercard react to this acquisition.

The Future and Impact of Debit Interchange

2011-01-23T16:53:00.002-05:00

On December 16 2010 the Board of Governors of the Federal Reserve System released for comment a proposed regulation to implement the debit interchange fee and network exclusivity and routing provisions of the Durbin Amendment – Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For each of the two primary provisions covered by the proposed rule – debit interchange fee regulation and network exclusivity/routing regulation – the board has proposed two alternative regulatory regimes.

Interchange Fee Proposal - all issuers could collect a per-transaction interchange fee up to $0.07 a transaction. Issuers could seek a higher fee, but never more than $0.12 a transaction, based on actual costs. The fee could be no more than the issuer's total allowable costs divided by the total number of debit card transactions during the previous year.

Debit card exclusivity and routing regulation -The proposed rule also includes regulations, as contemplated by the Durbin Amendment, prohibiting contracts, rules or other arrangements under which a debit card can be processed only by a single network (or only by affiliated networks). The Durbin Amendment also prohibits issuers and networks from inhibiting a merchant's ability to route a transaction over any one of the available networks.

The amendment only applies to the high-rolling banks with assets greater than $10 billion. The bill aims to give a competitive advantage to small banks by going after the big guys.

Impact on the industry and the consumers -

Consumers - I have mixed feelings on this one. Initially, I was happy to see regulations that would decrease the cost to merchants which could potentially lead to reduced cost for the consumers. But as I think more about the proposed regs, I think banks/issuers will figure out ways to make up the "lost" revenue through other means. We have already heard Jamie Dimon (JPM Chase) talk about the impact on the underbanked segment in particular and increased fees for checking accounts. Also, I fully expect issuers to levy other charges such as annual fees for debits cards, reduced rewards etc., which in the end will impact the consumers negatively.

Those who opposed the regulation, often cite the example of Australia, which tested similar legislation when the government capped interchange fees. The annual fee in Australia increased by 22 percent for standard cards and 47- 77 percent for rewards cards.

Issuers and Banks - As mentioned above, while it may have short term impact on their debit interchange revenues, they would figure out other ways to skin the cat or pass on the cost to other products and services.

Merchants - I can't imagine how this can be bad for the merchants. It will perhaps benefit the larger merchants disproportionately.

While it remains to be seen if the law gets passed and with what changes. Lobbyists from both sides (issuers and merchants) are working overtime to make their case and I suspect in the end, its once again the poor consumer who will end up paying one way or the other.

India Gets Its Own Domestic Card Payment System - IndiaPay

2010-12-18T20:19:00.002-05:00

India is following China in creating its own national payments systems.IndiaPay, the country’s first indigenous payment gateway, is set to take on the global card payment systems such as MasterCard and Visa — when it launches in the middle of next year. IndiaPay will charge half of what it costs a merchant to process a Visa/MasterCard transaction and will be primarily targeted towards debit cards. In India, debit cards far outnumber the number of credit cards by almost 10:1 and most Indians prefer it to credit cards.

While it will reduce the margin for bank issuers, merchants are more likely to accept IndiaPay to other card payments because of lower interchange fee. This could in turn push banks to issue IndiaPay cards.
Still, there are several issues that need to be sorted out before IndiaPay gains acceptability. Firstly, point-of-sale terminals, in which banks have made huge investments, are configured for MasterCard and Visa cards.But NPCI is confident that this problem can be solved, as it has the backing of the government.

China had introduced its own domestic system- China UnionPay. It was introduced in 2002, and gives access to over 85,000 ATM counters of 14 major and minor banks across the world.

The potential in the India market is huge. Around 95 per cent of transactions in India are still carried out in cash, and studies suggest under utilisation of debit cards. It remains to be seen whether NPCI is able to execute on this ambitious project but with the backing of the government and large public sector banks, they definitely have a huge advantage over Visa/MasterCard.

Half a Billion Mobile Subscribers in India Get Real-time Mobile Payments

2010-11-27T10:06:00.003-05:00

In a new service that is set to revolutionize the retail money payment sector in India, consumers will now be able to transfer money from their accounts to any other account in the country using their cellphones via the National Payment Corporation of India's (NPCI) Inter-bank Mobile Payment Service (IMPS).

According to a press release from NPCI, "The service provides an inter operable infrastructure for the banks to offer real time money transfer facility to their customers through the mobile channel. Banks are free to use any mobile banking application of their choice.
Since IMPS can be made available in all forms (SMS, USSD, thin Client, Thick
client), it can support the transactions from low end mobiles to high end
mobiles to serve everyone’s needs. Banks will have to adhere to RBI’s mobile
banking guidelines while offering this service to their customers."

IMPS rides on the existing NFS Interbank ATM transaction switching
infrastructure and the message format which was co-developed with MPFI.

How the System works:
Both the remitter and beneficiary need to register their mobile phones with their bank account and should take mobile payment ID known as MMID ( Mobile Money Identifier ) from the bank . MMID is a seven digit number, unique to bank account and linked mobile number and will be used in mobile payment transaction .

For making a payment the process flows like this:-
Step 1: Remitter sends instruction from his/her mobile through his/her bank provided application or SMS.
Step 2: Remitting bank validates the details of the remitter and debits his/ her account. This transaction is sent by the remitting bank to NPCI.
Step 3: Transaction is passed by NPCI to the beneficiary bank. Beneficiary Bank validates the details of the beneficiary customer, credits the account, sends confirmation NPCI about transaction status and sends a sms to the beneficiary customer informing him of the credit.
Step 4: NPCI sends the transaction status to remitting bank which in turn informs the status of the transaction to the Remitter.
Step 5:Remitting bank send a sms confirmation of the transaction to the remitting customer.

The service is known as Interbank Mobile Payment Service (IMPS) and so far as seven banks on-board:

State of Bank of India (SBI)
Union Bank of India
Axis Bank
ICICI Bank
HDFC Bank
Yes Bank
Bank of India

At launch the service has a cap of Rs 50,000 a day for the user with Rs. 1,000 being the maximum amount that can be remitted without end-to-end encryption. Signing up for the service is free and can be done by getting in touch with your bank who will issue a mobile money ID (MMID). Each SMS will be charged at Rs. 2 and the banks will be bearing the transaction cost of 25 paise.

I think this has the potential of revolutionizing retail and mobile payments in India, especially is NPCI is able to get all the banks on board and the bank actively promote the service. Having said that, the notion of creating another unique id that links mobile numbers to the subscriber's bank account number has been tried in the past with limited success. Since NPCI is already in talks with the telcos and have several large banks on board, I think it would have made more sense for them to simply create a directory linking mobile numbers to bank accounts instead of creating another unique identifier. As a sender, the only thing I probably know is the recipient's mobile number and the need to know MMID creates an unnecessary friction in the process. We will be closely watching the adoption in India.

PayPal Unveils New Payment Solution for Digital Goods

2010-11-07T19:52:00.003-05:00

PayPal announced the availability of PayPal for digital goods, a new in-context, frictionless payment solution that lets consumers pay for digital goods and content in as little as two clicks, without ever having to leave a publisher’s game, news, music, video or media site. This announcement was made at their developer conference a couple of weeks ago.The new solution offers PayPal’s competitive fee structure for micropayments, with pricing at 5 percent plus 5 cents for purchases under $12.

Facebook and FT.com also announced that they will be using the Paypal platform. This announcement was in the offing for a long time from PayPal. It will be interesting to see how this will impact several other payment platform providers that have targeted the digital goods marketplace such as Playspan, Jambool etc.

While this was an exciting announcement, it was wonderful to get some insights into how PayPal thinks about the future of payments. They identified 3 macro trends that will fuel the next set of innovations around payments - Mobile, Social and Local. "The convergence of mobile, social networking, and location-based technology is creating tremendous opportunity for developers today," said Osama Bedier, vice president of platform, mobile and new ventures for PayPal. "It's like the gold rush of the dot-com era, only bigger and smarter. PayPal X is all about helping developers monetize the opportunity, and that's what Innovate 2010 is all about."

PayPal's Deposit Capture Adoption Surpasses Expectation

2010-10-18T21:40:00.003-04:00

PayPal launched its own remote deposit capture application on October 5th and the early adoption took everyone by surprise including the company itself.PayPal announced late last week it had taken in $100,000 in deposits on the application in the first 36 hours.The new version 2.7 of PayPal’s mobile app, which incorporates the check-capture feature, had racked up an overall average rating of 3.5 stars out of a possible 5 on Apple Inc.’s app store.PayPal’s app works on the iPhone and other devices running Apple’s operating system. Its check-capture feature, which allows U.S. users to deposit checks into their PayPal accounts, relies on technology supplied by Bankserv Inc.

This must please the remote deposit capture vendors out there. This is likely to fuel additional demand within financial institutions, which are the primary target customer for the technology providers.

At the same time, it is likely to make banks even more skeptical and nervous about PayPal. It is acting more like a bank these days and the addition of a mobile remote-deposit capture feature to its Apple Inc. The mobile remote-deposit capture feature “is the continuation of [PayPal’s] extension into bank-like payments services and shows their ability to disintermediate the banks in all typed of payment avenues,” says Andy Schmidt, a research director in TowerGroup’s global payments service.As you know, PayPal also launched its P2P transfer application using mobile bump technology.

At the same time, PayPal has been courting banks as potential partners to offer its P2P transfer products and debit card offering to bank consumers. Strategically, I don't know if Banks are likely to see PayPal as potential strategic partners, even though some might establish such partnerships for tactical reasons.

Email and Mobile Payments for Small Businesses

2010-09-26T22:34:00.006-04:00

We have all seen several incarnations of P2P payments that enable consumers to send money to another individual using an email or mobile number. While PayPal has always had a solution that has enabled businesses to receive payments from consumers without sharing their financial information, in a first for the banking world, CashEdge Inc announced a service for Small Businesses - "First Email and Mobile Payments Service Designed for Online & Mobile Banking Small Business Customers "

The service is an extension of the consumer platform, branded Popmoney. According to the release, "Popmoney for Small Business provides businesses with the unique capability to pay vendors and employees electronically using only an email or mobile number. They may also pay using an account number.
Popmoney for Small Business will also allow small businesses to conduct invoicing, receive payments via ACH or credit card, make and track payments, send invoice reminders and view payment history – all directly from their bank’s online banking portal or mobile application through the market-leading Popmoney platform. "

This is clearly a smart move and targets a huge, unpenetrated market. Also, the notion that consumers and businesses can interact on the same platform has a lot of appeal, especially since its a shared hub for US banks.

According to this article, "Even today, CashEdge's consumer Popmoney service is used more for business payments than the person-to-person payments for which the system was designed. Consumers favor it for paying landlords and piano teachers, for example — the sorts of business payments that are still paid by check, while big billers won consumers over to online bill pay."

BSNL Launches Mobile Bill Payment in Partnership with Obopay

2010-09-19T22:40:00.008-04:00

State-owned telecommunication operator Bharat Sanchar Nigam Ltd. (BSNL) on Sept. 13 launched a service that enables its customers who have credit cards to pay their telco bills using their mobile phones. They announced this capability in partnership with mobile payments company, Obopay.

To activate this service, mobile customers will have to register their credit card one time and generate an M-Pin by sending SMS to 52828. This will allow them to only use this M-Pin for paying all of their BSNL bills in the future in a Safe, Secure and Convenient manner. Apart from credit card linked mobile payment service, BSNL is also keen to introduce other modes of mobile payment in the near future, which will include bank accounts and stored value accounts.

Deepak Chandnani, president, Obopay Inc., said: “India is an important market for the growth of mobile payment services and our partnership with BSNL is a significant step in proliferating these services to its vast subscriber base in urban and rural areas. Since our entry into the Indian market in 2007, Obopay is committed to the cause of providing financial access to every Indian in a simple and secure manner and all our initiatives till date have been to achieve this vision.”

This is an interesting evolution for Obopay as a company that has tried several different strategies with limited success in the US but seem to be making some progress in emerging economies including India and Africa. The Bangalore-based company in agreements with Nokia India Pvt. Ltd. and Yes Bank Ltd. had launched a pilot in Pune called Nokia Mobile Money service. We are still awaiting results of the pilot but Obopay has said that they will be launching it in a few other Indian cities and they have the approval from the RBI.

Mobile Payments Continue to Heat Up - Bank of America Joins the Fray

2010-09-02T14:46:00.005-04:00

Bank of America and Visa recently announced a partnership to begin testing mobile payments from smartphones at POS terminals in the NY area. According to the announcement, "Bank of America Corp, the largest U.S. consumer bank, and Visa Inc, the world's largest payment processor, plan to begin a test program next month that lets customers use smartphones to pay for purchases in stores.
The program, to run from September through the end of the year in the New York area, is the biggest step yet by the two companies toward creating a "digital wallet" with a host of financial capabilities built into the latest, most sophisticated mobile phones." Visa had also announced a similar pilot with US Bancorp which is likely to begin in October.

The service may be expanded if the test goes well, according to Michael Upton, senior vice president of emerging capabilities at Charlotte, North Carolina-based Bank of America. New York City taxis, Walgreen Co. drugstores, Home Depot Inc. and McDonald’s Corp. restaurants in the region can accept mobile payments, Upton said. This pilot could get the scale that could provide the momentum for merchants to adopt contactless payments. Bank of America had 98.1 million payment cards outstanding in the U.S. at year-end, according to the Nilson Report, an industry newsletter, and counts 57 million relationships with consumers and small businesses.

Wireless carriers are seeking to enter the U.S. payments market dominated by San Francisco-based Visa Inc. and Purchase, New York-based MasterCard Inc., the world’s biggest card networks. AT&T Inc. and Verizon Wireless, the two largest U.S. mobile carriers, are leading a venture that may begin testing phone payments at stores in four cities by the middle of next year, people with knowledge of the plan have said.

It remains to be seen how all of these initiatives play out but clearly all the big guys are getting into the space. This announcement could become a game changer. This pilot could get the scale that could provide the momentum for merchants to adopt contactless payments. Bank of America had 98.1 million payment cards outstanding in the U.S. at year-end, according to the Nilson Report, an industry newsletter, and counts 57 million relationships with consumers and small businesses.

At&T and Verizon to Team up for Mobile Payments

2010-08-08T16:56:00.003-04:00

According to recent news from Bloomberg, "AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said. The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone, the people said. "

This is the biggest effort till date by large carriers to challenge the likes of Visa and Mastercard who dominate the POS payments by consumers.The move comes as retailers continue a bitter battle against Visa and MasterCard over transaction fees on credit and debit cards. Congress last month passed restrictions on fees charged to retailers on debit transactions as part of its sweeping financial reform overhauls.

The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays is likely the bank which will manage the payment accounts and settlement.

Details are still not clear and it remains to be seen if such an alliance can really take off. Historically, such alliances have seldom been successful and it remains to be seen if consumers and retailers embrance another payment option. It will also be interesting to see how Visa and Mastercard react to it. Both companies have been separately testing their own versions of the NFC payments at POS terminals.

Personally I remain skeptical about the initiative but it will certainly be a game changer in the US if it takes off.

Wesabe Shutting Down its PFM Operation

2010-07-07T13:11:00.003-04:00

Wesabe, one of the several PFM providers that started a few years ago has decided to shut down its PFM operations on July 31st, 2010. The Groups tab, which hosts discussions on personal finance topics, will remain online indefinitely.

I am sure few other PFM providers, perhaps not as well known, have closed shop because of a lack of a viablew business model. There was clearly a glut of PFM providers in the market, as is the case with any upcoming business model that generates a lot of buzz. Most of these providers opened with an ad-supported model. It is a difficult model simply because it requires a scale which is not easily achievable and requires significant brand building and consumer loyalty. Mint did to some extent and was quickly acquired by Intuit. Geezeo quickly adapated its business model and started offering its services to banks and credit unions and looks like they are doing reasonably well. Although I am not quite sure how their business model will scale by selling mostly to smaller institutions, especially if they choose to service these clients directly.

I think Wesabe failed because of its reluctance to commit to a revenue model. They steadfastly refused to support its business model through Ads. Fair enough- but in that case, I don't understand how they could continue to offer a "free service" to consumers. They did dabble with offering their services to financial institutions. They posted their pricing online and tried to make it very simple for banks. Unfortunately, that's not how most decisions make their buying decisions. It is a lot more involved process. While simplicity and ease of integration are good marketing messages, I suspect they went too far with it.

It remains to be seen how this space will play out over the next few quarters and how some of the new players such as bundle.com and hellowallet will position themselves against the existing ones.

MasterCard Opens Up Its Platform To External Developers

2010-06-27T21:02:00.004-04:00

In a move that is likely to dilute Paypal's dominant position, Mastercard announced that it will open its APIs for some of its payment and data services to developers worldwide. By opening up previously proprietary payments and data services, developers will be able to create a new wave of e-commerce and mobile payment applications. The new Open API program is the first initiative from the newly created MasterCard Labs. A new developer portal will also be launched to enable developers to easily sign up for access to all of the Open APIs that MasterCard makes available will also be launched.

In addition to payments, MasterCard has identified approximately 20 platforms and services that it plans to open up to developers via the portal. These platforms and services provide additional functionality and enhancements to MasterCard's payment capabilities. The Open APIs will further enhance the development of new applications and systems beyond those currently available, including CRMs, ERPs, online games, merchant e-commerce web sites, eWallets, mobile applications, and payroll systems.

This is definitely good news for the payment industry in general as it creates competition for Paypal's developer platform x.com

This move is not likely to threaten Paypal right away, that already has a significant lead having made its platform available last fall. According to Paypal, "“thousands of developers have signed up, hundreds of apps have been built, and millions of dollars have transacted over our platform.” We have certainly seen some exciting and innovative Apps being developed using the Paypal platform. Paypal also cites Facebook, Salesforce and IBM as users of its APIs.

It remains to be seen if Mastercard is able to successfully challenge Paypal and whether Visa follows suit with its platform. A lot will depend on how user friendly the platform is, what features are exposed using the APIs and most importantly the revenue sharing with the developers.

Android Becoming a Popular Platform for Mobile Banking

2010-05-22T10:29:00.002-04:00

A new Javelin Strategy & Research report issued today – 2010 Mobile Payments – Crossing the Chasm: Industry Models Battle to Bridge the Gap – finds that Android phone users are the most likely mobile phone owners to have logged into their bank in the last seven days, followed by iPhone users. Nearly half of Android and iPhone owners use mobile banking on a quarterly basis, which is nearly triple the rate for all consumers, according to the report.

According to data provided by USAA on Monday, Android uses accounted for 15% of the mobile banking sessions at USAA — up from 7% in January, and just surpassing the 14% that came from Research in Motion Ltd.'s Blackberry devices. Android as a platform is definitely gaining ground. Market feedback on Android has been very encouraging especially when it comes to speed. This could be useful for designing data-heavy apps. A faster speeds certainly lends well to feature rich mobile interactive apps.

We expect that banks will need to continue to evolve its mobile strategy and the ability to support multiple and evolving platforms will put cost pressure as well. Mobile banking vendors that can demonstrate the ability to write once and deploy it for multiple platforms and devices will clearly come out winner in a fast evolving space.

Another interesting finding was that consumers who use mobile banking are three times more likely than other consumers to have made a mobile payment. This makes sense because you could argue that consumers that use mobile banking are much more aware and mobile savvy and hence more likely to use mobile payments.

Apple's mobile payments point to a comprehensive m-commerce strategy

2010-04-28T21:12:00.002-04:00

Recent patent filings from Apple point to a pretty well thought out strategy around the entire m-commerce value chain. There are 4 separate patents:
The first two relate to peer-to-peer (P2P) payments and show an iPhone menu that would enable the user to choose from a variety of payments options at the time of purchase.

It describes an iPhone app and service, that will allow iPhone owners to store all their credit card, bank/checking account and other info on the device, and to make quick personal and business transactions with a few taps. The payments can be made by linking NFC enabled iPhones, or using the handset camera and some clever image recognition techniques.
There’s even an interesting usage case for paying group bills, e.g. for a dinner at a restaurant, described. It includes one person from a group getting a bill on his iPhone, forming an ad-hoc network with the iPhones of other friends at the table, with each person selecting and paying his due via the first handset.

Two new patent applications entitled ‘Smart Menu Options’ and ‘Real-Time Bargain Hunting’ have also been published which together describe a comprehensive business model for mobile commerce including coupons, promotions and payments service.

The abstract for the Smart Menu Options application explains that it primarily covers methods for choosing which payment option to use at the point of purchase. As well as going into detail about how a user would choose which payment option to use at the point of purchase, and also describing the use of the iPhone to deliver transport ticketing applications, the patent application also describes in detail how Apple expects to generate revenues from the service.The concept of a data manager, a manufacturer database, retailer database and consumer database are introduced alongside the concept of fees being charged to retailers and product suppliers by “the manufacturer of the device” for the delivery of coupons and other promotional services to consumers. The abstract for the Real-Time Bargain Hunting patent application, meanwhile, provides details of a comprehensive mobile shopping system, again including the ‘iCoupons’ concept.

If they are able to execute on this strategy, you can see iTunes becoming a marketplace for m-commerce and perhaps even use iTunes as a currency for making payments. Similarly, NFC enabled iPhones could be used at POS terminal. Integrate that with the delivery of coupons and promotions and it has the ability to create an entire ecosystem even in the physical world. Of course, execution will be the key but I am impressed with the clarity of their strategy.