Friday, December 14, 2012

NFC taking off will only happen with focused education

Most of us belong to a group that are fascinated by new payment technology and also (often) love gadgets. This is why it comes so naturally to us to consider using our phone to tap and go. For many others this is quite a strange concept, if we want think about it for a while. In the mind of the average person, this is quite a strange way to transfer payment.

In a recent study conducted by Barclaycard in the UK, more than 80% of UK citizens now can recognize the contactless symbol (this has doubled in the past year). (Read here). Forrester research, in a recent article expects that it will still take a decade for NFC to become mainstream. They predict that it will take three to five years for critical mass (15% to 25%) to be reached (Read here).

For NFC to become mainstream, most subscribers will have to be educated. The payment mechanism will have to be explained and supported with clear instructions and guidance. Only when the average consumer understand and have been made comfortable with the implications of NFC payments will it be used extensively.This will only be possible through extensive education.

The balance of non-competitive behavior in mobile payments

Some-one recently showed me a Spanish article published in Columbia (Read here). My Spanish is almost non-existent with only a few emergency words like "cerveza", so the only way that I could understand the article was to get it translated with Google Translate. Turns out, that the local banking council has been complaining about the business practices displayed by Claro (the dominant carrier in Columbia).

According to the article (and the cryptic Google translation), Claro decided to charge between seven and thirteen times more for banking transactions on their network. If I understand the article correctly, this is to fund the additional infrastructure required to offer banking services on their network. We that work in the industry has seen this behavior in other markets where carriers use their unique position to effectively block banks to offer financial services (or even worse) to compete with them, by implementing punitive commercial tariffs to effectively keep banks out of mobile banking.

This behavior is absolutely deplorable and a reflection on the ethics of companies that follow these practices. It is probably illegal in most countries and carriers following these practices should be confronted with legal procedures. By following such practices, the development of branchless banking will be delayed and slowed down. The result of this is that the poor and the most needy will suffer most. Some-one, somewhere should feel ashamed of their way of doing business.

Sunday, December 09, 2012

This time round, Google may have launched a Wallet that might work

When Google Wallet was released last year, I predicted that it would fail (Read here). I based my argument on the fact that it would be too difficult for them to build a workable payment eco-system for the thing to take off. Based on the fact that the first version of the wallet was scrapped and a totally new version (Google Wallet 2.0) was launched seems to me that I was right.

This time round, I think that they have launched something with real potential. While the model is still extremely risky, it is worthwhile to watch. Google has effectively linked two transactions together to provide a pseudo-experience that you are paying with your own card. Google is prepared to loose money on every transaction in the process (Read here). They are probably doing this to get to the crucial purchase data. The risks is that they would loose significant money before they can show sufficient monetary value.

The other risk is that they expose the payment eco-system to liability risks. Because of the two transactions (tied together), existing dispute mechanisms will not work. Charge-back rules and other protections built into classical payment schemes are broken. This is probably why Google Payments Company (GPC) require the subscriber to hold them harmless in the Terms and Conditions ("You agree to release, GPC, .... and their agents, contractors, officers and employees, from all claims, demands and damages" (Read here))

So providing that Google can manage the significant risks and provide sufficient incentives (maybe in the form of coupons and special offers) for subscribers to use the service, this time round, the wallet may just get traction.

Are we seeing the start of a mobile payment bubble.

The definition of a stock-market bubble is a high activity of purchase of shares in stock that cannot support the prices being paid on the fundamentals of the business. Since the inception of stock-markets investors were warned not to invest during bubble times. In an article published in August Dan Freed alluded that one may be seeing the start of a bubble in mobile payment shares. (Read here).

In the article the following valuations/transactions are quoted as red flags:
  • The growth in eBay's value on the announcement of the deal between Discover and Paypal.
  • Square's implied valuation of $3.25B after recent fund-raising
  • Starbucks valuation on the back of mobile payment announcements.
Since the article, further investments in mobile payment companies have shown very high valuations (not supported by real revenue). Below are some examples:
  • iZettle raises $31.4M dollar Series B funding (Read here).
  • Paynearme (a start-up mobile payments company) raises $16M (Read here).
  • Braintree (a supplier of payment services - including mobile payments, to start-ups) recently raised $35M (Read here).
  • Paydiant (a start-up providing a white-label solution to banks) raised Series B funding of $12M (Read here)
  • Monitise confirming that they are in talks to raise £100M (Read here).
It does look as if we may be seeing some of a bubble forming. Question is; what does this mean?