Last week there was a flurry of articles about cMoney. Here was yet again an incredible new mobile payments platform that will revolutionize the world. It had knocked the socks off of investors who had supposedly given it $100 million. And the press wrote breathily about it, with WSJ’s Venture Capital Dispatch telling us that “a start-up with a funky name has an ambitious plan for replacing consumers’ debit and credit cards with a mobile-payment system.”
We are so inured to hearing about new payment systems that are going to replace [fill in any of the following: cash, checks, mag stripe cards, all plastic cards, the need for money itself] and have gotten investors to bet on these dreams that cMoney seemed like just another one. Evelyn Rusli at TechCrunch, though, smelled something. She did some really good digging into the cMoney story. It would appear this newbie is a quagmire of lawsuits and conflicts of interest and that the $100 million may be funny money from a dubious source. Rusli’s profile of the CEO, who apparently is no grammar girl, is hilarious. And nothing comes between cMoney’s CEO aka College Girl, and her press releases—there have been at least seven this year including C$ cMoney Appoints Board of Directors and C$ cMoney Secures $100 Million Financing from AGS Capital Group, LLC.
While cMoney is an extreme case there is a deluge of press releases and subsequent news stories about startups and existing companies introducing revolutionary methods for making and taking payments. They range from the major card networks who insisted that contactless was the future and have thrown unbelievable sums at ill-thought out plans, to wet-behind-the ear entrepreneurs who think they can build new payment systems with an iPhone app.
The stories that are popping out like bunnies now are often about P2P payments and often related to mobile payments. These are a mixture of large companies pushing out announcements about services for which they have no serious launch plans, to start-ups that have ideas in development but nothing in production, to new firms that have introduced a new product and really think they are going to be the Google of payments. And of course spread among this are the gold nuggets—serious product and technology ventures that could have a real impact on the future of the business.
I don’t think there’s any easy way to screen out the little precious from the large detritus that comes over the wire without a lot of work. But there are a few simple rules for sorting out the plausible from the implausible—and certainly some things that any serious investor in these businesses ought to be looking into. I apologize in advance if these seem utterly trivial—I mention them because they are routinely ignored:
Rule 1: What’s the problem that consumers or merchants have that this new solution solves? I think PayPal is doing lots of really innovative stuff these days but their video for PayPal Bump highlights the burning question for a lot of the proposed P2P solutions: do consumers really want to pay each other and isn’t your solution more trouble than it is worth. Real guys don’t often ask their buddies to fork over for a slice of pizza which is the use case presented in this video. Maybe there’s a problem for which PayPal Bump is the solution but this doesn’t seem to be one of them.
Rule 2: Why is this solution better than cash, magstripe, or whatever it is people would use otherwise? Just because Steve Jobs hasn’t introduced it on stage with glittering lights and rock bands doesn’t mean that a technology isn’t useful. Cash is just a really convenient way for folks to pay each other. In a lot of situations it is so hard to beat. And while it makes sense to dump your 8-tracks for an iPhone it is quite difficult to beat the magstripe swipe. As Rube Goldberg as the system may be, it has worked out a lot of the kinks and a swipe almost always works and takes very little time. (Btw, the other thing people forget is any new payment solution needs to work 99.99% of the time.)
Rule 3: If it is a platform that requires getting buy-in from multiple groups (like payers and payees) how are you going to get a critical mass of both sides and ignite the platform? An answer to this question should be in every business plan presented to management and in every investor deck. This really separates the serious from the clueless. I met with someone recently who basically said they would ignite themselves by getting a lot of press. Next! Anyone who knows the payments business knows that getting to critical mass is like walking through a field of landmines. You better have a clear strategy otherwise you’ll just blow yourself up. See Pay-by-Touch or any other of the hundreds of attempts in the last few years. (By the way you should also read my chapter on ignition strategies in Annabelle Gawer’s great edited volume on platforms.)
Rule 4: This is really a corollary to the previous three rules: Alarm bells should go off if the product or service is: (a) a new payment system; (b) relies entirely on smartphones; (c) has anything to do with P2P; (d) requires merchants to do anything whatsoever at the point-of-sale; (e) assumes that merchants will all have contactless POSs; or (f) depends on interchange fee revenues for success. I’m not suggesting that any of these are fatal but in my experience they all present significant challenges under Rule 3. It is very hard to start a new payment system; it is hard to reach critical mass if it depends on you and other well-heeled folks who carry iPhones; assumes that you can build a business paying babysitters or people trying to split the tab for a meal; requires merchants to spend money or to train their barely conscious clerks; or assumes that the interchange fee river will flow forever.
Rule 5: This is also a corollary but is a very useful short screening device: Anyone who says that they are going to REPLACE [cash, checks, magstripe, or other popular tender types] as opposed to betting on taking a bit of share away from those tender types should go into the reject pile. After several thousand years we know that it takes generations if not more to change payment habits.
So those are five screening rules. I’d like to invite the experienced payments community to come up with their own suggestions. I’ll take the best, and even replace some of mine if people have better suggestions, and offer the 10 best screens for separating what’s possible in reality to what’s only possible in your dreams in the payments biz.
David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass.
C$ CMONEY SECURES $100 MILLION FINANCING FROM AGS CAPITAL GROUP, LLC
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