I don’t know about you, but 2012 so far has left me a little breathless given the fast pace at which the payments industry has been moving since we all emerged from the New Year’s break. Maybe it’s the mild winter. No matter, the catalyst, not surprisingly, is mobile and the IP-enablement of just about everything that touches or influences commerce. This last week was particularly interesting given a few announcements from very different corners of the payments ecosystem about their payments strategy, not surprisingly, keyed to what they will pursue (or won’t) along the mobile lines. Here’s my take on last week’s mobile movers, shakers, and shockers.
Visa announced last week that it will enable FIs to more easily enable the delivery of mobile financial services solutions to their customers. This mobile banking/payments platform capability is courtesy of its alliance with and equity investment in Monitise, a UK-based technology and services company that has a pretty powerful and proven mobile banking and payments engine. This new Visa capability will allow FIs to extend a variety of useful financial services to their accountholders including balance checks, funds transfers, and transaction alerts. As a purely B2B play, it didn’t get as much airtime as the stuff that is more consumer directed but is interesting nonetheless. It puts Visa right smack dab in the middle of same competitive playing field as Fundtech, Sybase, mFoundry and others who have built their businesses by allowing FIs to deliver banking services via the mobile phone. Visa can now use its powerful FI channel to distribute this capability and to do it worldwide. There was no reference made to the business model that Visa will use as part of its go to market strategy, but one can imagine that it could create a disruptive model given their long-standing FI relationships and the other revenue possibilities that this platform can generate for them.
This move could also be an interesting way to “back door” a variety of mobile payments capabilities that carry the Visa brand without the heavy lift associated with going direct-to-consumer. As the largest global payments network on the planet, Visa has the benefit of global brand awareness and acceptance but it lacks a direct relationship with the consumer. As a platform and absent those direct consumer relationships, it also faces a strategic conundrum in how to capture more transaction share and revenues since it is completely dependent on its distributors and merchant partners to do that for them. Enriching its platform with more capabilities that allow its “distributors” to add more value to its customers seems like a sensible move. It not only adds value to their customer – and their customers customer – but it rings the cash register at a much higher margin – the “distributors” are the ones that do the heavy lift with getting consumers to adopt. And, once these mobile banking and payments hooks are in place via the FI accounts, Visa all of a sudden has a worldwide mobile network of consumers that it can touch, via the platform, with other services like offers, coupons, and who-knows-what else. Visa has been criticized for being slow moving in the mobile world, and while this announcement certainly does not conjure images of “cool and nifty”, but if my assessment is correct, it seems a strategic and methodical approach to creating a mobile commerce capability that it can finally, ahem, monetize.
Facebook has been making a ton of news lately, not the least of which is its S1 filing and all of the juicy tidbits that it revealed about its payments ambitions. [Check out David Evans article which provides insight and analysis.] But, it was its agreement with Bango last week that really got tongues a waggin’.
Bango does two things in the mobile payments space: it integrates with mobile operators’ billing systems so that consumers can buy mobile apps and have those charges show up on their mobile phone bills and it collects and provides data on mobile content usage. Facebook has 425M+ people around the world accessing Facebook via the mobile phone. It is increasingly worried that as more consumers access Facebook via mobile, that its ad revenue will plummet unless it figures out a way to monetize eyeballs that move from online to mobile. It’s a tricky proposition for them. Lots of brands – and mobile operators - have experienced the backlash from users who hate being bombarded by ads popping up on a small mobile (or tablet) canvas. Sponsored stories or similar strategies (a la what Twitter has done) are rumored to be in the offing for Facebook, but that alone won’t really help Facebook capture the revenue it needs – and frankly should be able to get – from the mobile channel.
Enter Bango, potentially. I don’t think that Facebook will use Bango to create its own payment network on Facebook, although I guess anything’s possible. It seems like it would be an awfully big an investment just to make money from moving transactions thru the system. Rather, Bango is likely to be used by Facebook to accelerate the adoption of a new monetary network using Facebook Credits as the currency to effect commerce transactions. Think about it. It’s been reported that one in every three Facebook mobile users uses the mobile phone to play games. Using Bango, Facebook Credits and the carrier billing channel, Facebook could flood, okay maybe just increase, the number of Facebook Credits in the system which Facebook monetizes by taking 30% of whatever Facebook Credits when businesses or people try to cash those Credits for government-issued tender.
It is a pretty sweet set up. Every $1 of Facebook Credits means 30% back to Facebook at some point down the road when those Credits are pulled out of the Facebook network. One might imagine mobile operators using Facebook Credits as a currency to pay developers who are, in turn, being paid via Facebook Credits when consumers buy their apps. At some point, those Credits will be “cashed in” and the 30% tax will be directed back to Facebook, but until then it is sort of like there is this little alter-monetary system happening all around us that is fueling commerce on a massive social and soon to be commerce platform, the Facebook way.
This mobile payments strategy cum-Bango also shifts the risk of chargebacks to the carrier, who probably bears little risk anyway since the transaction amounts are relatively small and the last thing people these days want to risk is having their phones shut off for non-payment. And those 30% “taxes” are pretty high margin to boot.
This whole scheme is made all the more powerful when you consider it on a global basis, where not now, but soon, most everyone in the world will have a mobile device and be able to connect to the internet via that device. Facebook, with its ~1 billion users today, is likely to capture many billions more as consumers in developing markets begin to use their phones to interact with this social platform. Once this happens, Facebook will see even more enormous growth - for instance, in spite of having an enormous user base in India, less than 4% of its population is on Facebook. Once that happens, Facebook will have a mechanism in place to monetize on the interactions of its consumers with the apps on its platform via a payments network that is already in place – the mobile carrier and a monetary system that they control - Credits.
Talk about shaking up the ecosystem. Now we know at least one other reason why Facebook’s IPO value is in the $100B range.
Google’s a shaker for a totally different reason. The news last week was all about the reported ease with which Google’s Wallet could be hacked – and was. Reports suggested that if one’s phone is lost or stolen, all a bad guy has to do is to go into app settings, clear the data and reset the PIN. Now, that of course only applies to the universe of people with (a) a Sprint Galaxy Nexus 4S and (b) a Google wallet account which is still a pretty small universe. But it is unsettling particularly given the dust up in December over Verizon’s decision to block Google wallet from its Galaxy phones over security concerns. [See my commentary on that announcement here.] My take on that decision was that it was likely motivated over control of the wallet, but maybe their concerns were rooted in real security issues after all. This news also comes on the heels of recent reports of a pretty lackluster reception to Google Wallet in the marketplace as a result of many things – its NFC POS requirements, its demand for SKU level data from merchants and lack of a compelling value proposition for consumers (not many phones avaiable to acces Google Wallet and not many places to use it if you had it).
PayPal made big news last week when it totally confirmed what eBay CEO John Donohue said about NFC some time ago .. .and that is that it stands for “not for commerce.” On Thursday, PayPal went on the public record to say that it was ditching, um discontinuing, its efforts involving mobile payments at the Point of Sale via NFC. The reason? Not enough merchant interest to continue. It seems that PayPal’s other POS innovations were far more interesting to them since they create less disruption at the point of sale (and don’t even require mobile phones to access PayPal accounts) and therefore a whole lot easier to implement and get traction. We’ve talked to a bunch of merchants who still want to see more of what PayPal has to offer but who admit to being intrigued by its frictionless POS experience and the prospect of enabling the PayPal account base on their behalf.
We’ve said before that PayPal has made a bunch of really smart moves, backburnering NFC as just the latest example of that, and is doing some interesting things to enable the convergence of on and offline commerce that will reinvent commerce at the physical point of sale. But, it ought to keep a close eagle eye out on its Silicon Valley neighbor Facebook, now that it will soon come under public pressure to deliver shareholder returns and sees payments as one of the ways to do that. Facebook, just by its sheer reach of consumer eyeballs, is in a great position to create an alternative online and mobile payments network but not in the same way PayPal has.
Instead of creating an alternative acceptance mark Facebook could force the adoption of an alternative currency on those channels that uses other funding sources to enable payment on its social platform. As more and more eyeballs and commerce move to the Facebook platform – which we believe it will in the next several years – it could more plausibly become a ginormous payments network without any of the investment required to build one and without getting into the risk and risk management business just by controlling the monetary supply, if you will, for enabling commerce on that platform. If it does, it could turn the online and mobile payments business model upside down by making its money, in effect, on currency conversion and not payments transacting.
Oh, and I am totally invoking my right to say I told you so on the whole mobile payments/NFC front. For those of you who haven’t read all of my NFC rantings, a few of the more recent ones are here. I don’t know about you, but I can’t wait for this week to see what else is in store!
Karen Webster is the CEO of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.