Digital Money Forum

Update from the frontline

[Dave Birch] I'm at Mobile Payments World Asia, where I've been hearing some interesting projections about what might happen in the future. Everyone is fairly bullish, as they have every right to be given the very positive consumer research on the topic. According to the GSMA, who conducted a 17 country market research survey of 2500 consumers, something like three-quarters of consumers would be happy to use their mobile to buy train tickets as well as pay for their shopping at a supermarket. The excellent case study of the Philippines apart, though, a lot of people were still talking about pilots and trials. It's a little disappointing, I think, that the convoluted dance between banks and operators is taking so long to deliver useful services to customers.

Meanwhile, the latest figures from my favourite mobile payments scheme, M-PESA in Kenya, continue to amaze. Safaricom added 870,000 new mobile subscribers in the first quarter of the fiscal year to reach 11.1 million by the end of June (a considerable increase in the subscriber base since the introduction of M-PESA). M-PESA itself is still growing and the registered user base increased 50 percent over the quarter from 2 million at 31 March. New registrations continue to exceed an average of 10,000 per day and by the end of July the total registered user base exceeded 3.3 million. Total person-to-person transfers reached KES 6.88 billion in July (about $100 million), representing a growth rate of 220 percent over the March figure. The total value of all transactions during July exceeded KES 21 billion (about $300 million), and the average transaction per user has continued to increase over the last 6 month.

Wow. I guess that the increase in average transaction size has two obvious drivers. First of all, when people come to a new payment system they may initially be uncomfortable with committing large amounts of money to it. So they being by making small payments, but send large payments through existing systems that they know work, even if they are much more expensive (eg, interpersonal money transfer via physical offices. In time, their confidence grows and the larger payments move to the new system as well. The more important driver, though, might be the adoption of new systems by business. Just as PayPal "proved" itself to consumers sending each other the occasional few bucks and then they began to use it for person-to-business payments (through eBay as first), so mobile payments systems that have proved themselves easy, reliable and cost-effective for interpersonal payments (and microfinance payments in the M-PESA case) will soon be adopted by businesses. With more than three million M-PESA users out there, what Kenyan business wouldn't want to accept mobile payments?

It'll never catch on

[Dave Birch] Well, we've all made some predictions that didn't really work out, but Clifford Stoll's 1995 Newsweek article stands out from the crowd for completely misunderstanding the nature and direction of change. In a general diatribe about how the Internet is useless and will never amount to much, he says that

Even if there were a trustworthy way to send money over the Internet--which there isn't--the network is missing a most essential ingredient of capitalism: salespeople.

[From Clifford Stoll: Why Web Won't Be Nirvana | Newsweek Technology | Newsweek.com]

Well, we still don't have a completely trustworthy way of sending money over the Internet, although PayPal is doing a pretty good job, but there's no shortage of salespeople. True, most of them seem to be selling Viagra, but there's an awful lot of commerce going on nonetheless.

Retail not-banking

[Dave Birch] The relationship between payments and banking is, generally speaking, under some pressure from both developments in technology and wider cultural and business changes. Although these pressures exist in the developed world, they are most visible in the developing world where the lack of existing infrastructure means that technology and business change come together unencumbered. The result is called by some "branchless banking", although in the payments space "bankless banking" might be more appropriate. Anyway, the essence of the concept is access for the financial excluded through non-bank distribution channels. Why? Well, in many (if not most) countries, most people don't have bank accounts:

Statistics from the Central Bank shows that banks currently hold less than 3 million accounts, both current and savings across the country. The present development which is not healthy for the economy means that less than 15 percent of the about 22 million population in the country saves with the banks. According to the data, while the economy is cash based, 80 percent of cash is outside the universal banks.

[From 18m Ghanaians Shun Banks - ModernGhana.com]

Look at the example of Brazil to see how the technology, business and social factors can co-evolve: In Brazil, payments account for nearly four-fifths of bankless banking transactions. In other words, transactions that are performed over electronic channels (in countries like Brazil, this almost always means mobile, not the internet) are overwhelmingly payments transactions. Again in Brazil, 90% of the people who use some form of branchless banking, use it to make utility payments and other non-interpersonal payments. And of those people, only 5% have a bank account. This market shape is unlikely to change because the cost of providing these people with bank accounts that have the potential to deliver a wide range of financial services, but the cost base to go with that is simply too high. In fact, I would go further and say that it seems to me entirely likely that of the small number of people who do have bank accounts, many of them only really want payments accounts (if we can them that). Therefore if technology makes it cost-effective to deliver payment accounts into mass markets, then the demand for bank accounts at the low end will fall further.

The role of the mobile phone in all of this is critical. Mobile banking providers have now both the products and the implementation experiences needed to open up much wider markets. They are held back or constrained in one rather obvious way, which is that they depend on the handset manufacturers and mobile operators to provide the platform for the functionality that they need, and this often constrains the customer experience, but nevertheless they are taking transactions to the masses.

More mobile business models

[Dave Birch] Mobile payments aren't all about NFC and proximity. As you may recall, some time before RBS and Barclays announced their NFC pilots, the U.K. mobile operators launched a payment scheme allowing customers to pay through their mobile phone accounts for items such as train tickets, and parking fees. The new PayForIt technology scheme mobile phone customers to credit small purchases up to £10 to their mobile phone accounts, a scheme likened (not by me) to turning mobile phones into 'digital wallets'. The reason why I don't like this terminology is because in my distorted world view, a wallet is something that you can put cash in, and cash is something you can use to pay other people, not just merchants. Real m-cash can be transferred from person to person.

Technorati Tags: mobile, p2p, retail

Jack Selby, Clarium Capital

[Dave Birch] Jack R. Selby is a Managing Director at Clarium Capital Management LLC. Prior to Clarium, Jack was as a Corporate Officer and Senior Vice President of PayPal, Inc. Jack has been a great friend to Digital Money and introduced members to Paypal at the Fifth Forum. As an original member of the founding PayPal team, Jack's experiences and perspectives will be of interest to anyone interested in the subject of launching new electronic payment systems.

Technorati Tags: p2p, podcast, rfid

What kinds of competitors?

[Dave Birch] PayPal has pottering along nicely. The steady growth of their off-eBay business means that they are sitting side-by-side with traditional online acceptance brands (Visa, MC, Amex, Discover, et. al.). Competitively, payments companies and their issuers have looked at this as an online phenomenon. Rightly so, as it has been. Online transaction volume is just north of 10 per cent. One of PayPal's new products is their virtual debit card, a response to customer requests that PayPal be accepted at more online merchants. If you want to buy something at a merchant that accepts cards but not PayPal, PayPal will generate a one-off MasterCard number for you. Now in testing, the virtual card is expected to be rolled out in the Unites States by Christmas. They are also steadily putting together other services that may pose a genuine threat to incumbents, according to Aite Group payments analyst Adil Moussa: deferred-payments options and mobile payments. But why? Surely a bank can work out how to offer a good mobile payments service can't it (or, more likely, wait until someone else has worked out how to do it and then buy it, rather as RBS did with WorldPay and Bibit). Why is it considered a threat to banks? Similarly, the deferred-payment option is already provided by banks in some countries, and if customers show that they want deferred-payment options that it doesn't seem wholly implausible that MBNA or HSBC could provide them. In this particular case it's not actually PayPal that provides the underlying instrument, it's GE Money that is delivering the credit behind the deferred payment and since (as a general rule) providing credit is the most profitable part of the payment process for banks, that is why banks might be eyeing PayPal more nervously than before.

Technorati Tags: coins, money, p2p

Blue Skype thinking

[Dave Birch] I remember thinking, when Skype announced that it would provide a a money transfer system using PayPal, that the connection between a payment mechanism and its "medium" could deliver sustainable competitive advantage. Hence for eBay, the combination of PayPal and Skype might well be a genuinely disruptive innovation. But is this true globally? As the commentator here wrote:

My ‘Internet friends’ are located in some far off places and tiny towns which do not appear on any tourist map! Their little known banks, different currencies and jurisdictional regulations often make it often impossible to quickly send or receive local funds. Consequently, we use digital money. PayPal is sometimes used but not often. Due to the different rules in each jurisdiction most of my friends don’t use PayPal.

As an aside, the article notes that Moneybookers, 1MDC, e-gold and Webmoney (which we looked at here recently) are all viable alternatives but it strikes me that they are each quite different -- must look into this more in the future. Nevertheless, in the U.K. and other less far-flung places, the synergy between talking to (for example) a merchant via Skype and paying them (especially if pseudonymity is the natural choice) is real. There's a "Send File" menu in my Skype but still no "Send Money" menu, so I don't know what they're doing about it: I would have expected an e-mail by now letting me know that I could log in to PayPal and link my PayPal account to my Skype username.

Technorati Tags: internet, p2p, payments

Cash on the net

[Dave Birch] Back in March 2006, BT Click and Buy became ClickandBuy. ClickandBuy Europe is wholly owned by FirstGate Holding which is why some people still call it FirstGate, the name of the original German payment service, rather than ClickandBuy but anyway. You'll remember that ClickandBuy was a sort of virtual chargecard, letting consumers choose whether to pay using their bank account, credit card or a BT phone bill. ClickandBuy was awarded an FSA e-money licence in November 2006. They then added an e-money service around the end of last year so that consumers could load their wallets with stored value, funding it from other cards. As of today, customers can now load their e-money wallet using cash. Next year they plan to introduce stored value person-to-person. Why bother with capturing cash? Well, ClickandBuy quote some pretty recent research showing that almost half of UK consumers (15+) don’t have a credit card and a third don’t have a debit card, which means that there are plenty of people out there unable to take advantage of the convenience and lower prices of buying online. You can load your ClickandBuy wallet with cash by going to any retailer that has payzone, the wholly-owned Alphyra retail payment network, which has nearly 30,000 locations in the U.K. I'll give it a try and report back.

Technorati Tags: cashless, internet, p2p, prepaid

I could imagine using this

[Dave Birch] There's been a rash of announcements of new payment schemes recently, many of them centred on mobiles. I find myself reading some of these announcements and thinking "well, that sounds neat" but then saying to myself "I couldn't see me using it". There's a disconnect. But some of them I could see myself using. For example, Pay By Touch have developed a Reward and Gift Card Kiosk. The Internet-enabled kiosk lets shoppers create customized store-branded and third-party gift cards with personalized “to” and “from” names and single or multiple design full-color graphics. Gift cards can be purchased and dispensed directly from the self-serve kiosk, eliminating the current requirement of purchasing gift cards at the check-out lane or customer service counter. The kiosks store an unlimited number of graphics, so multiple merchants or brands can be supported on a single kiosk. Here’s how it works:

1. Using a touch-screen, the shopper chooses from multiple designs to match the gift-giving occasion, and chooses the denomination he or she prefers.
2. The shopper then types in both the recipient's and the gift giver’s name (likely her own) into the "to" and “from” fields.
3. Using a credit card, the shopper purchases the gift card directly through the kiosk. The shopper presses “print” and a personalized, activated gift card is printed in seconds, along with a receipt.

Technorati Tags: loyalty, p2p, payments

Aid budget

[Dave Birch] Our good friends at Safaricom in Kenya have allowed us to share some up-to-date (and really rather positive) figures from the launch of the M-PESA scheme that we have been working on there. For those of you not familiar with the service, it's based on secure text messaging and aimed at the more than 80% of people who are excluded from the formal financial sector there. Apart from transferring money from person to person - a service in demand from urban Kenyans supporting relatives in rural areas - customers of the Safaricom network can also keep up to 50,000 shillings (£370) in a "virtual account" linked to their handset (well, SIM actually).

Technorati Tags: mobile, p2p, remittances