Category Archives: Payments

Alternative currencies: as good as their entry/exit points?

With the lasting economic crisis, in Europe and the rest of the world, the focus on alternative currencies seems to have increased. For example the Wall Street Journal has covered extensively the development of such currencies in Spain:

Another famous example is the Brixton pound.

 

 

At the same the dramatic reduction in IT development and infrastructure costs powered by open source technology and cloud services has allowed an explosion of alternative digital currencies. From Time Banks to Reputation Currencies to new currency systems such as Bitcoin, via other solutions like Clearbon, Kurrenci. The lowering base cost of the digital economy is affecting digital currencies as well. Continue reading Alternative currencies: as good as their entry/exit points?

Underbanked? Not without financial services!

Who are the underbanked in the US? If we refer to Javelin Strategy latest study:

“Comprising an estimated 35 million US adults (or 15% of the US population), underbanked are typically young, ethnically diverse, and more likely to use the “computer in their pocket” (i.e. their mobile phones) to conduct their banking.”

But does that not mean that the services targeting them are less diverse than classic banking services? On the contrary, the bank-less (as personal bank account / most of these services leverage the banking infrastructure in some form) universe of services is exploding!\

– The most know is probably the prepaid cardGreendot is one of the biggest new players in the field. These cards allows people to benefit from modern payment means without having to open a bank account. While there are several fees attached to its use (list of Greendot fees available here) , they can have advantages over a bank account as they don’t allow overdraft and don’t require minimum balance.

By the way, you can find these cards in retail stores:

 

– Don’t want to have a card? You can also pay online with cash using services such as Paynearme . Print a code online, present it at the nearest 7/11, pay in cash and the transaction is finalized. You can try it here. Seems strange? Not when you consider that:

 

– While all the talk is about branchless in retail banking, you can also use physical financial services locations without having a bank account.
Walmart Money Center provides check cashing services, distributes various financial services and according to the New York Times has benefited from the current banking crisis. Other players, such as Mango have looked at the opportunity to create Brick and Mortar financial stores. 

 

– While Square may be the most talked about startup in mobile payment, it does not prevent competitors to provide bank-less solutions.
RevCoin‘s difference is not its more rounded shape, its the fact that you can accept credit cards without linking a personal bank account. RevCoin is linked to a Debit Card provided to the users at the same time they receive their dongle. 

 

More than replicating existing offers linked to a personal bank account, prepaid product have also specific and innovative services
Payperks (an Anthemis Investment) combines prepaid card, education program and sweepstakes to provide an alternative to the paycheck  or cash payment. Payperks users are educated and incentivized (via sweepstakes games) to make better long term financial decision (avoiding late bill payment fees for example)

 

– Have a club, an association, a small company and want to manage both your money and your financials at the same time? Holvi offers exactly this by allowing organization to build, control and share their internal finance. Receiving payments are automatically integrated, invoices are matched as well.

 

– Cross-border payment companies such as Western Union are well known. But what if you could directly pay for charges instead of sending money across? Companies such as iSend provides exactly that by allowing people to pay for electricity telco bill or mobile top up of their families abroad. With Mamamikes , based in Kenya, you can also buy vouchers toward specific items.

 

What is driving this innovation?

 

Multiple factors are playing but I think among other things the relatively simpler regulation allows for more innovation that benefit the customers. They often have lighter licences to operate as they cannot provide credit services.  Most of these startups operate on top of the banking infrastructure, which provides some form of security.
For some of them, they  have engaged in following principles toward better financial services. The Compass Principles  designed by the Center for Financial Services Innovation , an unbanked, underbanked targeted think-tank can apply to the financial services sector as a whole.
With the growth of the prepaid market, regulators are starting to pay more attention to this market. It is important, in my view, that they are careful in allowing such innovation to continue via competition. While a number of bad operators can be expected in any industry, the trend is that the services towards underbanked and unbanked are becoming better and cheaper.

No more Credits? An opportunity for Facebook.

I will not pretend that I had even one tenth of an insight into Facebook decision to finish its Credits program (announced here on their blog: http://developers.facebook.com/blog/post/2012/06/19/introducing-subscriptions-and-local-currency-pricing/). Techcrunch as a review of what this could mean: http://techcrunch.com/2012/06/23/why-facebook-is-folding-on-credits-and-doubling-down-on-payments/ .

In the context of their Karma acquisition, this actually solves one of the issue highlighted in my previous post.

The difficulty in this scenario is that the 30% rate is not compatible with ecommerce. Facebook would need to maintain several different rates depending on the activity done through its platform.

With Credits, Facebook may have limited itself to virtual goods as it had its rate of 30% seemed both as a platform tax as well as an “interchange” type rate for processing payments. It was therefore difficult for it to apply different rates on its currency.

Without Credits and with the new focus on local currencies, Facebook can still apply its 30% rate on the use of its platform for in-Facebook apps while having the opportunity to drive more E-Commerce on its platform for social events. Though the question remains, is is this experience significantly better than the one provided by outside websites leveraging Facebook Graph.

Facebook got Karma for payment & commerce

While covered in the aftermath of the Facebook IPO, I think its acquisition of Karma was slightly hidden behind NASDAQ failures, IPO pricing debate and overall blessing for CNBC’s octobox.

What is Karma?

;

;

On the outside it seems to be a simple and nicely designed gifting app, but looking the UX and what is known of the back end, it could become the platform for much more within Facebook:

1. Deep integration with social graph and events. Even before its acquisition by Facebook, the Karma experience was deeply connected to Facebook, pulling up your social graph details and proposing a list of events for gift situations, from birthdays to change of work, relocation, specific posts. This is information that only Facebook has at scale with respect to social graph, and this has a lot of value since an important portion of commerce is event driven.

 

 

2. A smart way of looking at lost shopping carts. When creating a gift on Karma for the first time, there are 2 times when your credit card information will be requested: once before sending the gift – the traditional way for processing payment in ecommerce and a second time when the gift has been opened and accepted by the recipient, meaning when they opened the gift email and input their delivery details. This create a peer pressure on paying for the gift and carries no risk for Karma as they have not sent the actual gift yet. This is very different from payment companies like Klarna which actually take the credit risk of payment made after physical delivery of products.

 

 

3. Ecommerce organisation, from order management to delivery. Whether this has much value to work with the necessary scale for Facebook remains to be seen. It is actually not sure in my view that Facebook would like to keep and expend this competency. There is an important gap between being a digital only platform and building the physical capabilities to deliver a real world experience.

 

 

4. On the other hand, Facebook is looking at Facebook Credits has an important driver for future revenues. Currently they are only used for virtual goods with a 30 % tax rate taken by Facebook for the use of its credits by developers. A possible opportunity is to expend Facebook Credits to real world goods. Karma ecommerce platform could be an important stepping stone toward that. Credits could work as a closed loop currency on the platform. The difficulty in this scenario is that the 30% rate is not compatible with ecommerce. Facebook would need to maintain several different rates depending on the activity done through its platform.

Facebook has announced that Karma will remain an independent app, like Instagram. But it will not prevent it from leveraging the competencies of its team in creating a mobile social commerce experience. More than expending a full e commerce stack internally, Facebook could create a social platform for e commerce companies that would like to leverage its graph. There are challenges in this strategy. As Karma as demonstrated before its acquisition, Facebook current graph capabilities can be leveraged to create a close experience outside of its control. The difference between the two might be too thin. 

 

EPCA Payment Summit – Innovation in the Payment space

I had the chance to be invited by the team of the EPCA Payment Summit to present on how innovation is changing the way we pay. Here is the Prezi of my talk:

The startups mentioned are:
http://squareup.com
http://paypal.com
http://izettle.com
http://movenbank.com
http://bill.com
http://tradeshift.com
http://xero.com
http://simple.com
http://stripe.com
http://braintreepayments.com
http://kabbage.com
http://facebook.com
http://bitcoin.org
http://picomoney.com

also referenced:
http://carlotaperez.org
http://www.shirky.com

The Core of the Machine – Banking as a Utility

I have been a strong partisan of Banking as a Service and posted several times on the topic on this blog. Recently I have posted more on the shiny outer layers that could be / are created in such a stack but not so much of the core services under it. So it was with interest that I saw @giyom‘s tweet

A banking utility doesn’t buy debts, issue liabilities nor do maturity transformation, it only is a trusted accountant btw borrowers&debtors

It’s an interesting view, a pure banking utility would provide the pipes to connect depositors and borrowers and maintain the accounting trust between the two, whether direct, in a P2P lending type model, or indirect by reporting aggregated assets and loans. @giyom pointed me also to Dan Kaminsky analysis of  Bitcoin: http://www.slideshare.net/dakami/bitcoin-8776098 – slide 14 and 15 are interesting in his analysis that supernodes in Bitcoin are effectively banks.

In parallel, a second French bank announced the launch of its API: AXA Banque (Credit Agricole was the first one with CAstore). I had the chance to talk with people there and while the current API is READ only, the mention of WRITE capabilities was not rejected from the outset. A Bank that proposes a READ/WRITE API is in effect giving up on a part of the their customer access and accepting its role as a utility for other services (as I pointed out before, it is something well know in the banking industry)

 

 

It seems that from both end of the spectrum, whether its is the  technology enabled P2P or traditional Banking, we are moving toward the creation of banking utilities. But what would be the business model of such players?

On one hand, in the P2P lending example and as specified by giyom, the role of the core provider is track and ensure the relationships between borrowers and lender as well as provide additional services such as transparency in the capacities of the borrowers and loan recovery in the situation of a default. In this system, the trusted core providers would have no leverage nor insurance (as deposit accounts are currently protected). In theory, insurance could be provided by an external provider up to certain amount and based on the lenders selected. The business model of such a platform is fee based.

This is the system adopted by platforms such as Zopa,

On the other hand, in a banking platform world, the bank uses the top layer as a deposits aggregators. It can provide non-interest bearing accounts and base interest bearing accounts the aggregator, as well as transaction facilities to help move money between various accounts. It provides the underlying regulated insurance to the end users. This source of deposits become a part of its core assets mix, which can be leveraged for lending. The same or other providers could be provided these lending facilities, with various rates based on risk etc.. The business model of such a platform is spread based.

This is the system adopted by platforms such as Friendsclear

The distinction made above is not as pure in reality. Zopa, LendingClub etc are using banks to manage cash accounts, payments etc..

I think the total disintermediation for banks is not for now and the two systems will live at the same time. What do you think?

 

Quick ramblings on Mobile Wallet UI

MWC is going full speed in Barcelona and each day has its new payment solution, mobile wallet, magic integrator. I was particularly interested in hearing more from Isis, the Super PAC of US mobile networks (AT&T, T-Mobile and Verizon Wireless).

 


 

 

 

ISIS wallet solution starts with a list of cards, based on the real world wallet paradigm. This is based on a constraint of  the real world. All your cards have to physically be present in your wallet and you choose them based on the provider (hence the leather wallet cards organization). This requires a particular thinking on the user side, reviewing cash level and benefit of each card vs the payment to be made.

Note: the feed is interesting, I could not find much details. It seems like people will be able to follow businesses for offers and information.

 

 

 

Google Wallet follows a rather similar scheme, with cards put upfront, and a swipeable Wallet. The history is the equivalent of the receipts mess in the wallet, though in a much organised way.

For me, this shows either in the best case a conservative fear of changing things for customers or in the worst case a difficulty to understand how much the mobile platform offers. Because the wallet looked like this for centuries does not mean it is supposed to look like this on a mobile.

It may be cliché but worth repeating:

A modern cell phone has more computer power than all of NASA back in 1969, when it placed two astronauts on the moon.

I would add that: not only that but it has an incredible array of captors: camera, GPS,etc.. and access to information and computing power via internet connectivity.

Lets use Square Card Case as an example:

From the outside it looks just the same: Wallet (with skeuomorphism – thanks @aden_76 for the word), Slots, Card. Except they are not Credit Card, they are Store Cards…. As I have said before Card Case is built around the Buying Experience, not the Payment Experience so it makes sense they highlight merchants and products.

 

 

“But wait, there are tons of merchants, how would they fit on my phone screen?” Why would they need to all be on your screen? The merchants’ cards can dynamically adjust based on location, time during the day (restaurants put forward during lunch time), past buying experience. Sponsored merchants could be given a preferred space in the wallet.

This is one possibility, but there are others. As Brett King pointed out in Mobile Banking vs. The Mobile Wallet

Whether it is simply the fact that I can see my balance before and after I make a payment (not possible with plastic, cheques or cash) or whether you can start to advise me day-to-day on how to utilize my money better – the opportunity for mobile is not the wallet, and not mobile banking. It is re-imagining the utility of banking from a mobile perspective.

The technology offer us the opportunity to help people in doing what they currently almost without thinking try to do (badly). What is my balance, what are the advantages of each card, what should I pay with? Not only a big part of this logic is better computed by a machine than by a person, but a well designed UI can inform and help in this decision.

Instead of showing cards the mobile wallet could show payment options cost and opportunities.

I am hopeful we will see more and more of the latter, designed by people who have no preconception on how it should look like. 

The receipt revolution!

I am mad about receipts. As I have written before:

– The receipt is the perfect example of a broken experience, as defined by Seth Godin.

Seth Godin at Gel 2006 from Gel Conference on Vimeo.

Look at any typical receipt and you would have a hard time understanding most of it. Batch numbers, RRN, Terminal Id, Merchant #, and other random pieces of numbers and letters. In most cases the product name is not even recognizable and the merchant name is broadly defined. If you try to remember where you bought a product, how much it was etc, chances are al receipt will not help you because it is not designed for the customer.

But improving the receipt is not just about making it more clear, sending it by email, putting it on the web… Making receipts an experience may become a key aspect of mobile payments. The question is : what needs to happen when payments disappear?

One of the goals of Square (and Card Case is a first step in this direction) is to change the payment experience:

“This is truly the most seamless way to pay,” said Megan Quinn, director of products for Square. “It becomes more about the interaction between customer and merchant and that relationship rather than the actual act of the payments. We want to make payments fade away. People don’t appreciate that; they enjoy making a purchase and feeling like a regular at places they shop.”

Square’s “magic” has nothing to do with its dongle but is with its capacity to be the first coherent and complete link between the merchant and the customer. Controlling the all experience is key to extract the most benefit from the payment graph : always accurate product catalog, real identity, metadata on payment (localization, time, previous payments and patterns), all these elements create a rich data set for each payment, that can benefit both the merchant and the customer. In the middle of this, as a memento of each purchase made, is the receipt. But a purchase is not/ should not be a static event. If your best customers are regular customers, you need to maintain a constant relationship with them and they may be interested as well in engaging more with your business. Receipts could become implicit social graphs.

The first and most obvious use of social in receipt is for guarantees, support and repairs. No more digging around for a piece of paper when your computers fail, no more search for cryptic reference numbers (most people have a printer at home, not a HP Laserjet P2015-G). This becomes even more important for companies that aim at sustainable product management such as Patagonia: Patagonia Asks Its Customers To Buy Less.

“We realized that what was really needed was a mutual responsibility between company and customer for the full lifecycle of stuff,” Rick Ridgeway, Patagonia’s environment VP. “So we would try to reduce the amount of stuff that people buy, fixing products if they were broken, and asking people to clean out their garages and closets, so that if you have clothes you are no longer using, you put them back into circulation.”

Receipts are also the best resource to create community of users around products. These communities already exist, in a relatively unstructured way, in forums, blog posts … a central point of reference per product would help structure this content, link it together or link to a platform maintained by the producer. Receipts could also be used in collaborative consumption to track the use of a product when it is reshared, recycled with others.

In VRM, intelligent receipts could play an important role, as it empowers customers with data that represent their relationship with a merchant. This information could be leverage by them to reverse their relationship with merchants.

Using this data is not new … some digital companies have been doing it for some time. Tripit is a good example. It mines data contained in flight / hotel receipts to create a travel plan or even share this information with others. In theory, it could also mine price data to determine if you are overpaying for your trip.

Interest in receipts is growing and several companies are trying to position themselves in this market. Onereceipt, Lemon, Slice are all trying to aggregate users receipts and transform them in usable data. Most focus on expenses management for users, but I am not sure this is the best angle to adress this market.

Hopefully these will be soon definitely something of the past.

Snap & Deliver vs. Pick & Go: the future of mobile payment?

The last few weeks have been really interesting if you are following the ongoing battlefield of mobile payment. Paypal, Square notably have made big announcements on their vision the future of payment. Behind all these players, there is an elephant in the room that doesn’t say much: Amazon.

Online retail as been making constant progress and seems to have a lot of room to progress even further more.

 

Source: http://kpcb.com/insights/internet-trends-2011

Mobile Commerce is “lifting off” (to take Mery Meeker’s wording)

Source: http://kpcb.com/insights/internet-trends-2011

More importantly, search while shopping in retail stores is becoming a tool for price transparency and retail competition. The saying that Amazon has the best showroom of all retailers is becoming a reality. Search and its proxy for products (barcode scanning and Prime) is becoming the new mobile checkout. No stop at the counter, no cashier, no paper receipt:

 

Note: the same survey also indicated that 50% of USA smartphone users have used their smartphones to find a nearby store. So while mobile Internet is helping drive foot traffic to local stores, it is also helping make pricing info more transparent for the consumers

Source: http://kpcb.com/insights/internet-trends-2011

=> Snap & Deliver

 

On the other hand, the recent update to Square Card Case as well as Paypal’s proposal for its future of payment show what I think is viable alternative for retailers.

With Card Case, Square offers one of the only (the only?) fully integrated experience from the retailer to the customer. They control the “wallet” experience, the POS experience as well as the entire data chain in the middle: payment information / product information and all relevant metadata around it. It is therefore significant that their first upgrade took the core decision of making the payment disappear.

“This is truly the most seamless way to pay,” said Megan Quinn, director of products for Square. “It becomes more about the interaction between customer and merchant and that relationship rather than the actual act of the payments.  We want to make payments fade away. People don’t appreciate that; they enjoy making a purchase and feeling like a regular at places they shop.”

From GigaOM : With Card Case, Square launches hands free payments on iPhone

Paypal offers a similar vision, even if it seems less realistic in its Future of Payment vision (see at 1:45)

Rumours have also been surfacing that Apple could propose a similar checkout system soon. BGR has a detailed “exclusive” on the future solution: New Apple Store app launches Thursday; here’s how it will change Apple’s retail operations

“Here is how this will work: after you find the item you want to buy, like an accessory, you launch the Apple Store app on your iOS device and there will be an option to buy a product in the store. You scan the product with the camera on your device in the app, click purchase, and it will charge whatever credit card is associated to your Apple ID. You then just walk out of the store.”

=> Pick and Go

 Apple has slowly transformed its in-store experience toward less square footage for retail and more for support / classes / events. With Apple Genius running around with Ipod equipped for Credit Card acceptance, they seem to be able to combine delivering the Apple experience while maintaining a strong retail activity. The other possibility to buy online and pickup in-store should help drive foot traffic.

For businesses that are facing increasing competition from online retailers via the mobile web, this seems like a possible solution for their future in-store experience and mobile payment solutions.