These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
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These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]
What is the leading edge in mobile payments? And where is that leading edge? I'm always scanning for new ideas to bring back to our clients and I'm always looking out for ways to exploit new technology in the transaction space.
Doug Busk, mobile brand strategy and global connections at The Coca-Cola Co.,was one of the participants in the “What’s on the Horizon with Mobile Payments: How All the Pieces Come Together” session. He pointed to a vending machine that uses mobile SMS to enable payment[From Coca-Cola SMS-enabled vending machine changing future of mobile payments « Near Field Communications / Smart mCommerce]
You've got to at least raise an eyebrow at a talk about the mobile payment horizon that uses SMS payment for Coca Cola as an example of the brave new world just around the corner since, to the best of my knowledge, the very first mobile payment ever made (in Helsinki, in 1997) used SMS payment for Coca Cola! But not a million miles away from this birthplace of a new economy,
Meanwhile, Denmark's banks are also working together on a different sort of mobile payments system, using text messaging. BankSMS is slated to launch later this year, enabling users to initiate purchases of things like train tickets by sending a text message with a product code.[From Finextra: Danish telcos team on NFC payments; banks put faith in SMS]
Maybe I've totally missed the curve on this one, what with getting distracted by these new-fangled proximity interfaces. But further afield, an astonished correspondent writes (28th June 2011) to say
I am in Jakarta right now and am seeing an NFC terminal for payment at a coffee shop
What's going on? The developed world is going back to the future with the SMS while emerging markets are getting in touch with NFC?
[Dave Birch] A few days ago I was at Experian's annual Payment Strategies conference, where I had been kindly invited to provide a closing keynote. In it, I made a few predictions about the next phase of evolution of the European payments business, and in passing I mentioned that I felt that some progress had been slow.
Birch lambasted traditional banks and payments providers for their failure to grasp the nature of the opportunities presented by mobile technologies, which has led them to miss the boat. "I'm almost embarrassed to stand before you and say that I thought that banks and mobile operators could work together," he told the conference. "It was a stupid fantasy for which I apologise."[From Identity is the next big thing for payments | Banking Technology magazine]
This isn't a new rant, but a considered opinion. In fact, I wrote about this last year, round about the time I made some similar remarks at an event at the GSMA, reflecting the fact that I think that mobile operators should have been quicker in to the NFC space and with more open models, and that I think banks should have been quicker to develop and implement mobile approaches other than "windows on to the web" or "cut down ATM" solutions.
All of my experience over the last few years has served to reinforce my opinion from those ancient times that it's much harder for banks and operators to work together than either of them might think. So perhaps this part of the [Booz Allen Hamilton] 2001 vision for 2010 may never become reality[From Digital Money: Let's put the future behind us]
The reference to Booz Allen Hamilton, a management consultancy, is because the post was discussing a magazine article by them from a decade ago: "Why banks and telecoms must merge to surge" from the Booz Allen Hamilton strategy+business magazine that I'd filed away back in 2001. I took some comfort from it, because it meant that I wasn't the only one who had expected banks and operators to get together, but I was commenting on the cultural factors that meant that it had proved very difficult for them to co-operate effectively.
This has meant that it has taken longer for the infrastructure to develop than he'd predicted, but more importantly, banks are still missing out: only recently, banks in the US had told him that there is no business case for subsidising the installation of contactless readers in retail premises, just as Google was announcing that it will.[From Identity is the next big thing for payments | Banking Technology magazine]
It is absolutely true that I (as well as number of other consultants) were at an event with US banks earlier in the year where this opinion was expressed. But there was nothing special about it: the banks had said exactly the same thing in public to retailers.
Representatives of three of the country's largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group... to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry. "You know what they (banks) told us? There’s just not a business case right now," Dodd Roberts, head of the merchant group, said last week[From Digital Money: Inception]
But back to the 2001 article, which agreed with me about one particular strategic element. That is, that while banks had have a strong hold over payment systems, mobile network operators would be challengers.
Today, banks are at another competitive crossroads. This time the new contenders in financial services are telephone companies, specifically wireless telecoms.[From Why Banks and Telecoms Must Merge to Surge]
The Booz Allen Hamilton article finishes up by saying that it would be logical for "mega players" such as Vodafone and Citi to combine. This hasn't happened and I can't help but observe that Vodafone's most successful mobile payment service, in fact, probably the world's most successful mobile payment service, M-PESA, doesn't involve banks at all except as a secure repositories of funds.
So why did my comments about banks and operators working together sound so harsh? It's because we (Consult Hyperion) have been involved in a number of projects, going all the way back to the Orange/NatWest joint venture, and so have seen at first hand what works and what doesn't in these relationships. And, yes, things are improving: but it may well be the case that having let a couple of years evolution slip away, the idea of the bank/operator partnership as the central organising principle for mobile payments is over. European operators have started to apply for their own Payment Institution licences, while I expect banks to focus more on developing value-adding services for the retailers and consumers and less on the "bare" retail payments (where the downward pressure on transactional fee income will continue).
Incidentally, I wonder if both the banks and the mobile operators held back because they'd been listening to their customers? If you had done a survey of consumers asking them if they wanted an iPod, the day before hte iPod had been invented, you would never have launched it.
in an interview with the Daily Telegraph in February 2005. The founder of Amstrad said: "Next Christmas the iPod will be dead, finished, gone, kaput."[From Bill Gates and Sir Alan Sugar made some of worse technology predictions of all time - Telegraph]
Predictions are difficult, as the saying goes, especially ones about the future. Of course, you do have to understand what it is that you are predicting, and in many cases people don't really understand the proper context. This is why I read surveys like these with a raised eyebrow.
Just One-in-Five Brits Currently Interested in Paying by Mobile Phone[From Just One-in-Five Brits Currently Interested in Paying by Mobile Phone]
Now this might be interesting news if I cared what the public think about anything (I don't), but I wonder if it's the sort of thing that causes mass market players to slow down? It caught my eye because it tallies with the revealed consumer preferences of Japanese consumers, where mobile proximity payments are mainstream. Indeed, only around one in five or six people in Japan use their proximity handsets for payments. But then only one in five or six people here pay for things using credit cards (debit cards dominate in Europe) and that's still a business. The headline intends to be negative, but what it says to me is that the potential for mobile payments is such that ten million people could be using them in the UK in the not-too-distant future, if banks and operators (or someone else?) can come up with the right proposition.
At the end of March, we learned that there is no business case for moving to NFC at POS in the USA.
Representatives of three of the country's largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group... to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry.
"You know what they (banks) told us? There’s just not a business case right now," Dodd Roberts, head of the merchant group, said last week[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]
That's a shame, because it's a fun technology that consumers like. Never mind. Of course, not everyone thinks that banks can't make a go of it, and going back a couple of years we can find some positive projections.
Celent estimates that a 30% cash displacement ratio, or an incremental US$151 per card account, per year is reasonable, with an average revenue increase of US$1.83 per debit card account per year.[From The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World]
Anyway, a month after the US banks told the Merchant Advisory Group that there was no business case, we learned that...
France-based POS device manufacturer Ingenico has confirmed that it is working with Google on the development of NFC-based services for retailers[From Confirmed: Google developing NFC solutions for retailers • NFC World]
Was this an "Inception"-style paradox? A fault line between two sets of dreams that don't quite connect? A glitch in the matrix that could be eliminated if we all take the bank's blue pill? Because now someone is offering red pills...
The first NFC service launched by Google for its Nexus S phone is an enhancement to its Google Places service. Customers tap the phone against NFC tags embedded in stickers or decals that merchants affix to their storefronts to access information about the local business, including phone numbers, hours of operation, payment types, reviews and recommendations.[From Checking in with NFC–Some Social-Networking Start-ups to Use NFC | NFC Times – Near Field Communication and all contactless technology.]
Aha! So now we can see how to resolve the paradox. There's no business case if you only think about transaction revenues (the bank model) but there is a business case if you "ignore" payments and focus on value-added services that retailers will pay for (the Google model). This has got the mobile operators interested enough to start upping the orders.
Such Android handset makers as Samsung, HTC and likely LG and Motorola are preparing for NFC, based on keen interest or orders from mobile operators, including South Korean telcos, SK Telecom and KT; China Mobile; as well as American and European carriers, NFC Times has learned.[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]
But is Google's interest enough to create the contactless rails for these mobile devices to run on, as we keep talking about? Chris Skinner made a very accurate post about this recently.
And here’s the rub: we need more terminals. Maybe they could learn something from Zapa in Ireland, where AIB Merchant Services has worked closely with them to rollout terminals that can use the tags. Half of all AIB’s merchant terminals are now Zapa ready: that’s 40,000 of their 90,000 terminals, with over 1.5 million contactless transactions in the year to September 2010. Compare that with Barclaycard, which has rolled out just 42,500 merchant terminals to date and is processing just over a million transactions by November 2010, and you can see the challenging dimensions they face.[From BAI | Banking Strategies | Distribution Channels | Mobile | Why Mobile is Critical to Banking]
A characteristically well-informed comment from Steve Mott delves further into resolving the paradox. Perhaps payments are losing their strategic appeal for banks because they are becoming commoditised, utility businesses that just won't generate the cash that they did in the past.
Consultant Steve Mott, CEO of BetterBuyDesign, who also attended the Merchant Advisory Group meeting, told me the U.S. banks do see the advantages of mobile to increase transactions. But mobile confronts them with an unfamiliar payments landscape at the same time they are being squeezed by regulators with the Durbin amendment,[From Big U.S. Banks Look for A Business Case for NFC | NFC Times – Near Field Communication and all contactless technology.]
Banks aren't stupid. They know that NFC is coming, that consumers and merchants like it, that it means disruption. But it is very difficult to change core businesses, especially at a time of great regulatory uncertainty. In the meantime, the non-payment use of NFC will lead it into the mass market. But will the new technology pull in the customers? Sam Shrauger, VP Global Product and Experience at PayPal, puts it succinctly:
People couldn’t care less which technology a hardware or software manufacturer would like to sell them. They couldn’t care less which technology merchants may or may not put in their stores. Ultimately, they just want something that makes their life better when it comes to buying and paying.[From Why the Mobile Payment Debate Is Headed in the Wrong Direction [OPINION]]
Now, as it happens, I was chatting with Sam last month and I agree with him about many things, but I think that in this particular case he may be underestimating the impact of "tap and go" technology. The point is that tapping is so much simpler, so much quicker, so much more convenient for consumers that it will make a difference to them. People will start looking for the phones that you can tap together to become Facebook friends, or whatever, because that experience blows away bumping, or texting or QR codes or whatever.
This, I think, means risky time for bank payments. Once people are using their non-bank wallets on mobile phones to execute retail transactions, initially using bank-provided payment schemes, it will be a small step to get them to move to non-bank payment schemes inside those wallets. Banks need more active responses to the changing environment and I hope I won't be offending anyone to say that I know from personal experience with recent projects that banks are losing opportunities right now because they are not able to deliver products in the timescales demanded by other industries.
I happened to be leafing through my (signed) copy of "Services for UMTS" by Forum friend Tomi Ahonen and his colleague Joe Barrett. In section 7.10, writing a decade ago, they say that "becoming a trusted partner money community should therefore be a strategic priority for the mobile service networks". This was an obvious strategy then, and many people thought that mobiles would become wallets, and many people thought that transactional opportunities would drive the mobile operators to develop a central role in the future of payments. What's more, many people (well, me) thought that the role of the mobile in the future of payments would be so disruptive as to have an impact not just on those payments but on the future of money. Having just seen the most recent figures from M-PESA in Kenya -- which show 4.33m net additions in the last financial year and 28,000 agents -- this prediction seems accurate. But in the developed world, progress has been slow, because of the need to negotiate a path with existing stakeholders and incumbent players. Nevertheless, there have been a couple of key developments in the past week or so.
Orange last week unveiled its Quick Tap service, while rival O2 says it is lining up for a major launch in the autumn. Meanwhile, Google this week launched Google Wallet for Android phones which might soon make the traditional wallet stuffed with cards, notes and coins a thing of the past.[From Mobile phones bring the cashless society closer | Money | The Guardian]
In the UK, Orange and Barclaycard put the first NFC handset with SWP and SIM-based SE EMV payment application on sale. And to prove it works, here I am using it to pay for my son's haircut!
In the US, the news has centred on Google since Isis' announcement that their wallet would be open to Visa and MasterCard applications as well, and the Google announcement of their wallet running on just one handset has caused intense interest and comment. Setting aside the wallet play, and just looking at the payment application, a very significant aspect of the Google announcement (at least to people like me) was the location of the application.
Moreover, no mobile operator is believed to be directly involved in the project to put a Citi-issued PayPass application on the Nexus S.[From Citi and MasterCard to Launch NFC Payment on Google’s Nexus S | NFC Times – Near Field Communication and all contactless technology.]
This sharpens the focus of the operators, I think. They've been slow to get NFC out into the market and spent a couple of years developing the operator-centric model. If other people are going to put out NFC with secure elements that are not under operator control, then that operator-centric model may not support a business model. In which case, what can the operators do to stay in the payment loop. Well, one way, that I have written about before several times, is (in Europe at least) to find ways to make payments part of the "smart pipe" proposition and stop depending on third-parties (eg, banks) with expensive infrastructure.
French-headquartered IT services group Atos Origin has formed a joint venture with the country's three MNOs, Orange, SFR and Bouygues Telecom, to develop an internet payment platform to take on PayPal, Google and Apple,[From French operators, Atos form Buyster e-payment venture - Telecompaper]
As I've been pointing out for some time, the natural way to proceed is to use the PSD to obtain a PI licence, and perhaps obtain an ELMI licence as well. This is exactly what the French operators have chosen to do, and I absolutely predict that as soon as they get the licence they will join one of the international schemes so that they can issue "cards".
The new company will apply with the central bank to become a registered payment service provider and aims to launch commercially before the summer.[From French operators, Atos form Buyster e-payment venture - Telecompaper]
Now, this would give the operators something to offer RIM, Google and Apple other than the raw bits and a secure element that they don't want.
Our sources say there is a lot of internal debate at Google about its payment strategy, with some folks wanting to appease the carriers and have them become the payment options. Others disagree and are insistent that Google develop its own payment system – and rightfully so.[From Et Tu Bedier? Why PayPal Is Suing Google, Execs Tech News and Analysis]
You can see why people think like this. The existing mass market payment schemes were never designed for the online world and the mobile operators (aside from the odd exception that proves the rule, like M-PESA) have been slow to seize the opportunity. Therefore, the argument goes, why wouldn't Google just do something themselves and stuff everyone else. Well, yes and no: running payment systems isn't quite as easy as it seems, and I genuinely think that if the operators develop new mobile-centric solutions then they can provide real competition to both the existing systems, the legacy infrastructure and the startups. In the long view, the operators can still succeed.