Friday, September 30, 2011

The core to the cost associated with Debit Cards

Much has been said about the costs associated with debit cards. This recently culminated in a US senate approved amendment called the Durbin amendment which is designed to reduce the "swipe fees" charged for debit cards. The intention is that the Fed would ensure that these fees are reasonable and proportional. (Read here). Some banks responded by indicating that they would charge a monthly fee to cater for the cost of providing debit card functionality to their customers. (Wells Fargo, BofA). The question that needs answering is: why are debit cards generating more cost than for instance credit cards?

What costs do a bank incur by providing debit cards, that is not present in credit cards? In a way the transactions run on the same infrastructure; merchants do not have to get new equipment and the risks for fraud are similar (if not the same)? The only real fundamental difference between debit and credit cards is that the value available - the balance - is managed in a different way. Debit cards requires a tight integration to the bank's core banking system. Could it be that this integration, the complexity created with bank processes and implications for other payments streams add to the costs? and that this additional costs are so high that it is problematic?

Friday, September 16, 2011

"The most important Mobile Payment Infographic Ever" is a misrepresentation

Infographics is a technique to display lots of data and information in a graphical way so as to be able to easily comprehend the information and interpret the facts. Knowing how complex information about mobile payments could be, I was very happy to read about "The most important Mobile Payment Infographic Ever", (Read here). It surprised me to find out that there are now five types of mobile payments, so I decided to investigate.

It seems that there are something magical about "five types", as the mobile payment industry has been categorized into five types frequently:
  • In a very interesting and informative study performed by Simon-Kucher and Partners about consumer readiness for mobile payments (Read here).
  • In a recent survey of executives conducted by KPMG on when mobile payments will be mainstream (Read here)
  • In the topics of a course about the basics of mobile commerce offered by MobiBlueprint (Read here)
  • Even Cindy Krum in her book on mobile marketing seems to believe that one can find five types of mobile consumers (Read here).
Only problem is that none of the experts agree on what the five types are - not even close. It is clear that the information on how to categorise mobile payments is not stable, nor agreed on. To make the claim of "The most important Mobile Payment Infographic Ever", is therefore a slight misrepresentation.

Tuesday, September 06, 2011

Update on Eko - success will breed success

I wrote a blog on Eko about eighteen months ago. Eko is a start-up in India focussing on bringing financial services to the poor by making use of mobile technology. The management team did a lot of good work on the operational models and have learned a lot about the specifics of India. In my blog I emphasized that Eko is doing three things well: running the operations at a very low cost point, getting the economics of the agents right and having a passion to genuinely assist the communities that they serve.

This seems to be paying off now. It has been reported in the media that Eko now have more than two thousand agents activated, that almost a million subscribers have now been registered and that close to $300 million of value were transacted in the past year. Transaction volumes are growing at close to 50% year on year. (Read here). (While these numbers are impressive, they are still very low from an Indian perspective.) In addition, Eko was one of only six Indian projects recognised in the annual prestigious Tech Awards by the Tech Museum of San Jose. (Read here)

I am sure that their success and recognition will breed more success, and I would like to congratulate them.

Continuous innovation and new start-ups - why radical innovation cannot work for payments

The innovation required to re-do payments is quite complex. The reason for this is that payments is like a multi-tentacle octopus: it is a extremely complex eco-system that is integrated with many other systems. It is therefore unlikely to see a radical innovation changing payments as we know it overnight. Yet, one sees new start-ups all the time with a new angle on how payments can be re-vamped to be more effective, more ubiquitous and more secure.

A case in point is Zunguz (Read here). Zunguz is a payment system where you can pay any other person that is registered on Facebook - merging the world of payments with the world of social networks. This is a great idea of course and probably logical. So I jumped on to Facebook and attempted to register for Zunguz. I gave up when I had to change my Facebook security profile in order to support the security requirements of payments. As an aside, I noticed that twenty people have already registered for Zunguz.

Maybe this is too a radical innovation in a world where continuous innovation is required.

Monday, September 05, 2011

UID and mobile banking in India - too ambitious to succeed?

One of the biggest challenges with the distribution of mobile banking is a unified, national identification system. In many developing countries this does not exist, or, if it does, it is polluted with fraudulent data. That is why the UID project in India must be lauded. (Read more here). It is an ambitious project to provide a unique national identification number to every citizen of India and to do it in such a way that it is tightly coupled to unique biometric data. As this project is rolled out, it would theoretically streamline the issuance of mobile banking accounts.

Ultimately, every Indian citizen will have a unique identification number that can be traced to biometric data (fingerprints and iris scans) stored in a central data repository. The vision is that this will drastically reduce identity fraud, while at the same time, form the basis for many other industries to thrive: banking, social security and many more.

Unfortunately, the ambitious nature of the project is placing the whole project at risk. This is primarily because of three reasons:
  • The use of biometrics as the primary mechanism to uniquely identify citizens has never before been used successfully. To role this out in the second most populous country in the world without successful case studies in smaller countries is a bold move. Furthermore, the use of biometrics as the primary identification mechanisms for citizens is being questioned by some academics. (Read here).
  • The cost associated with a fully functional UID issuing agent is relatively high. (Considering the cost of fingerprint and iris capture systems as well as the need for connectivity etc.) The initial costs estimates to provide UID numbers to all citizens seem to be too low, and in addition, government might cut the allocated budgets (Read here)
  • In order to drive the take-up of UID, government has started to create demand for UID numbers. For instance, it is now only possible to be paid certain grants or apply for certain jobs if you have a UID number. (Read here). With a system not fully funded and an unbalanced demand, it is likely that loopholes will be found to issue fraudulent UID numbers.
It is in everyone's interest that the UID project succeeds, but will the degree of ambition ultimately lead to the downfall of the project?

PayD. A new way to pay with a Debit Card.

Some months ago, MTN announced a new payment initiative that has been launched in South Africa in collaboration with Standard Bank and Nedbank (Read here). The technology utilised in this product uses SIM cards and PIN entry to turn mobile phones into secure encrypted point-of-sale terminals.

In a related announcement, Paygate (one of the largest online aggregators in South Africa), announced that they will allow PayD (Read here). This opens up a large merchant community (ranging from major airlines to smaller retailers) for consumers that have registered their debit cards with PayD.

In order for this service to succeed it is now important to make it available to a large community of subscribers, for the subscribers to sign up to the service and to use it in earnest. The transaction volumes will ultimately dictate if this service will be seen as successful or not. It will take dedicated attention and some smart marketing initiatives to drive transactions.

Payment eco-system must lead to cross-industry collaboration

The complexity of payment systems and the inter-dependencies of the many players in the value chain, necessitates collaboration. Fifty years ago, this need created the big payment brands (Visa and Mastercard) when the major banks understood the importance to collaborate. Today many efforts are made to form new alliances and collaboration groups. This is especially visible in instances where mobile operators form groups to establish shared payment mechanisms. For instance read here.

It is clear that with new ways to pay and the ability to change the whole payment experience, that other players could join the payment eco-system. This is why I found a recent Forbes article so interesting. (Read here). The article emphasises that many players must collaborate the create new payment eco-systems. The usual players are named, but then a new player is added: consumer packaging. With some very good motivations on why one should involve this industry in payments, this was quite a stimulating article.

The business case for mobile payment applications

I recently saw an article about using mobile payments to pay for parking in New York. (Read here). This is of course not new and has been effectively deployed in many countries (particularly in Eastern Europe). This is one of the coolest and most logical applications for mobile payments. It is of course important to redesign the whole business process - to change it from a proximity payment to a location-independent payment. But the biggest problem (of course), is to build a workable business case for it. The revenue from parking revenue and the investment required to make it work, just does not do it.

For mobile payments to become ubiquitous, it is important that multiple business applications be deployed at the same time, based on the same payment infrastructure. The combined business cases now add up into a viable investment case. It is important to approach mobile payment applications in such a way, as it would otherwise never be realised.