Digital Money Forum

It isn't black and white

[Dave Birch] A couple of days ago I made a presentation on the mobile payments market for one of our customers -- the purpose to and details of which are naturally not germane to this post -- and I mentioned in passing some of the dynamics of the Japanese market. At the time I made a mental note to make reference to this on the blog. First of all, let me set some context by noting that a model of the marketplace that simply divides the globe into developed and emerging markets, while widely used, is not sophisticated enough to help with strategic perspectives.

The mobile payment services market, while stagnating in the developed markets amid the abundance of alternatives, is accelerating rapidly in the emerging markets because of the lack of alternatives.

[From Pricing the key to success of mobile payments | Telecom Asia]

I don't think it's that straightforward. If it were simply a matter of alternatives, then no developed markets would be using mobile payments, and this is obviously not the case. Perhaps people who talk about stagnation might be thinking of Japan, where the proliferation of mobile and e-money schemes means that e-cash transactions only grew 197% in the last two years. Oh wait... What's the explanation? Japan and Korea have plenty of alternatives yet mobile, e-money and mobile e-money are already in the mass market. Maybe it's because in Japan and Korea it's MNOs, transit operators and retailers who are pushing e-money that interesting things are happening?

In the twelvth regular survey into electronic cash... it is now not just credit card electronic cash that has passed the 50% penetration mark, but also mobile phones have reached that milestone, although the majority of the mobile phone contactless IC chips are lying idle.

[From Majority of mobile phones now have IC chips | What Japan Thinks]

In fact, if you read the actual survey it shows that while the penetration of e-purse cards has continued to climb, the penetration of mobile e-purses appears to have got stuck about a sixth of mobile phone users. The use of all e-purses is still rising, however. The statistics show that 3% of e-purse users in Japan are spending more than $1,000 per month on them, an astonishingly high figure for Europe and the US but Japan remains a cash-oriented society and this prediliction extends to the virtual.

Note also that while the survey data shows that the penetration of mobile phones for proximity payments appears to have plateaued over the last year, the penetration of mobile proximity for other applications, particularly ticketing, is still rising.

Not on the money

[Dave Birch] I'm always keen to try out innovative new payment products. And I'm an O2 Premium Customer, or whatever it's called. So when I was idling around in London yesterday and happened past an O2 outlet offering the new "O2 Money" prepaid card, I thought I'd pop in a get one. Since it's a prepaid card, I assumed it would be a bit like getting one at the newsagent or supermarket. I wandered in, expecting to hand over £50 and walk out with a card with £50 on it. But it turns out that despite the big advertising poster in the shop window, the doesn't actually sell them. The guy told me I had to go home and apply on the interweb. Oh well. One night I was bored enough at home to try and do this, so I went to the O2 Money web site. I thought I'd get a card for my son to use. The web site asks you to put the mobile number in and sends you a code. I did this, and got the code. I typed it in expecting to see a screen saying "congratulations" but instead I got another form asking me to top up the phone using one of my other cards. Naturally I couldn't be bothered to do this, so I still don't have a card and nor does my son.

Since O2 already know my address, phone number and bank account details, and have a decade-long credit history on me, Wouldn't it have been cheaper and simpler to have a "text 'yes' to XXXXX and we'll post you a card" option? Why no integration?

The balance on this card is...

[Dave Birch] Several people mailed me the same link to the story about some Visa cardholders being somewhat surprised to find an unusually large transaction on their accounts.

A technical snafu left some Visa prepaid cardholders stunned and horrified Monday to see a $23,148,855,308,184,500 charge on their statements.

[From Glitch hits Visa users with more than $23 quadrillion charge - CNN.com]

How can you charge more than the GDP of the entire world to a prepaid card without a red light going on somewhere in the system? Once again, the golden rule is proven. Someone will always make a mistake, so make sure your payment system fails safe. A simple bounds check ought to do it: if PAYMENT_AMOUNT is greater US_NATIONAL_DEBT then "refer authorisation to a human operator", or something like that.

prepaid

Why isn't prepaid as exciting as it should be?

[Dave Birch] In a meeting about some new prepaid products, I was thinking back to Prepaid 09 (which was very good, by the way) and remembering that I left feeling slightly flat. There was lots going on, sure, but somehow I couldn't help feeling that prepaid hadn't broken through the way that it should yet. I don't want to launch into a detailed analysis -- apart from anything else, I don't know what the answer is -- but it's worth flagging up one or two areas where the industry could try a little harder over the coming year.

One serious barrier to reaching the mass market, I think, is pricing. Not only that it is high, but that it is opaque. It's difficult for people to work out how much a prepaid card is actually going to cost them, and this is an important calculation because the results are amazingly variable.

The study reveals that expenditures for the same transactions can range from $10 per month to almost $100 per month depending on choice of product or provider. Results indicate that there is no one financial strategy – whether based on using a traditional checking account, a prepaid card or check cashing services – that is right for all people.

[From Payments News: How Much Do Prepaid Cardholders Spend Monthly on Fees? - June 01, 2009]

We somehow need to persuade the industry as a whole to introduce some transparency and perhaps even some standardisation here. When I went to get a prepaid card for my son, I was shocked when I got home and read the charges -- needless to say, that card was never recharged. Now that O2 and NatWest are shaking up the sector in the UK, there might be some more new ideas coming, which can only be good.

Another factor might be form. Are cards just too boring? I wonder if we could add more sex appeal by driving new technology (in particular, though I know I will get into trouble for mentioning them again, stickers) to deliver more compelling prepaid products in specific, but large, niches -- you know, the usual kind of thing, sports stadiums, events.

Harry Clarke, RingGo

[Dave Birch] Following his army career and MBA at Cranfield with stints at Mercury Communications and the Automobile Association, Harry Clarke was one of the founders of automated transaction handling company Cobalt Telephone Technologies. Started in a portakabin in 1997 with just £20k of largely redundancy money, Cobalt today cites Manchester United, four UK airlines and Ten London Boroughs as clients and has processed well over £250M of parking ticket payments. Under Harry’s leadership Cobalt has, since 2005, been heavily focussed on the commercial development of RingGo, a mobile phone parking payment service. RingGo has now established itself as the UK’s leading brand of phone parking with a dominant presence in London, in Western England and also South Central England in particular. In this podcast, he talks about growing a real cash replacement business and discusses where it might go in the future.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Olga Morawczynski, University of Edinburgh

[Dave Birch] Olga Morawczynski is a Ph.D candidate at Edinburgh University where she is researching... She has been living in Kenya, conducting ethnographic research on the M-PESA money transfer scheme. In this podcast she shares her observations on the scheme and discusses some ideas about the future.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Mark Chirnside, Ukash

[Dave Birch] Mark Chirnside, has been with Smart Voucher Ltd since September 2004, and as Operations & Development Director was instrumental in the successful launch of Ukash into Europe. He was appointed CEO in September 2006. Mark has over 20 years of international experience in the payment and software development industry. Prior to joining Smart Voucher, Mark worked in Germany, Sweden, Spain, Austria, the USA, Russia and the UK. As Head of Paid for Services at Wanadoo, one of Europe's largest ISPs, he was responsible for the successful SEMIC application in the UK and the introduction of a Stored Value Product. Previously as owner of e-Vantage he worked for Deutsche Bank in various roles from Managing Director USA for Paybox, and COO of Paybox UK. He was responsible for starting Paybox from an Operational and Technical perspective on a multi-national basis. Mark was also involved in the development of the Russian Stock Exchange and has held several high-profile roles in a number of software houses with specific experience in ecommerce and payment applications.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Can contactless save content?

[Dave Birch] I've always been interested in the potential for micropayments and the idea of a metaphorical "red button" on a keyboard that means "pay the owner of the web page I'm looking at 10 pence" or something similar. There are many times when I've come across an interesting or useful blog post, link to a magazine article or something and I would have happily paid a small amount for more detail, more links, more references. I certainly can't be bothered to type in usernames and passwords, credit card details or to take out subscriptions though. So I have the sense -- despite all of the reservations about micropayments, which I understand fully -- that there is a market out there and a synergistic link between an effective low-value online payment system and a vigorous and innovative sort-of-content but also sort-of-relationship set of businesses on top of it. This view has been a minority view for some time, because the advertising-supported model came to dominate the content space. Yet, as I said last year, that model is not obviously the best solution, nor is it an immutable law of the web:

Therefore, while it is true to say that there is little demand for new micropayment mechanisms to support paid content at this time, I would not rule out a resurgence of interest in more sophisticated micropayment schemes in the future.

[From Digital Money Forum: Microebb and microflows]

While watching Jon Stewart's Daily Show the other night, my interest was re-kindled by his interview with Walter Isaacson of the Aspen Institute. Many years ago I used to be one of the lecturers/facilitators for the European branch of that august body, the then Nortel Aspen Institute, so he caught my ear (so to speak) when he started talking about paid content, journalism and the future of news. A quick google revealed that he'd actually written a story about this for Time magazine, in which he referred to the odd paradox of content that has been noted here before.

Thus we have a world in which phone companies have accustomed kids to paying up to 20 cents when they send a text message but it seems technologically and psychologically impossible to get people to pay 10 cents for a magazine, newspaper or newscast

[From How to Save Your Newspaper - TIME]

There are some immediate explanations that spring to mind: perhaps people ultimately value communications more than content (which I believe to be true to a great extent) or perhaps the content isn't actually worth 10 cents (which I also believe to be true to some extent, especially since I'm writing this on a train, having finished reading the free newspaper given to make at the station) or perhaps people just won't pay for news but that means nothing for content in general (entirely plausible. But the technological determinist in me is drawn to another explanation: people won't pay 10 cents for stuff on the Internet because they can't, whereas they will spend $2 for a stupid ringtone on their phone because they can. Perhaps the technology is to blame. Isaacson goes on to say just that.

We need something like digital coins or an E-ZPass digital wallet — a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.

[From How to Save Your Newspaper - TIME]

Put the news part of this to one side and ask why don't we have this? It's not like micromint, hashcash, millicent et al didn't work. In fact many of them had very good technology inside them and many of them had some great ideas built in (I always liked the way that millicent, for example, changed the cursor to a "$" sign when you moved the mouse over a link that you would have to pay for). And it's not like no-one has a working micropayment system: on my iPhone I pay for data, for voice, for applications, for text and I make 59p micropayments for music all the time. But can the iTunes example tell us any more? Clay Shirky, who has been consistently sceptical about micropayments asks a very specific question about this:

small payments survive in the absence of a market for other legal options. What’s interesting about ITMS, though, it that it contains other content that illustrates the dilemma of the journalists most sharply: podcasts. Apple has the machinery in place to charge for podcasts. Why don’t they?

[From Why Small Payments Won’t Save Publishers « Clay Shirky]

This is a good point, but is Clay right? I already do pay for podcasts -- I support the Conversations Network -- and, oddly, there is a lot of podcast content that I would pay for that is actually free -- some of my favourite podcasts, for example, such as Dan Carlin's Hardcore History or Skeptoid -- despite the existence of a working payment system through my iPhone, so clearly there is another business model emerging as well, one that was sagely summarised many years ago by Esther Dyson as "content is an advertisement for a relationship" and it's the relationship that is going to be monetised, not the content at all. But let's focus on paid content for a moment. Some of the responses to Isaacson's piece have been rather negative, and there's no doubt that the relationship between content, journalism and the net is a complex one.

I'm not saying that problem is insoluble. Just that, as far as I know, no one has solved it yet

[From Poynter Online - Romenesko]

We can begin to look for solutions by narrowing down the options. I suppose I start from the general perspective that "proper" news is a good thing and that we ought to have some of it instead of the musing of the celebretariat.

There’s no guarantee that private demand will produce the socially optimal quantity of investigative political reporting.

[From A Voucher System for Investigative Reporting - Freakonomics Blog - NYTimes.com]

If a free press is a public good that cannot be satisfied by private demand, then it doesn't matter one way or the other whether we use micropayments or not: we will have to come up with more radical solutions to the problem of news provision (as opposed to the narrower problem of how to save newspapers).

Newspaper readers have never paid for the content (words and photos). What they have paid for is the paper that content is printed on.

[From Op-Ed Contributor - You Can’t Sell News by the Slice - NYTimes.com]

So it may well be that news is a very special case of content and that it needs very special solutions. Indeed, I will be chairing a seminar on this topic at the Free University in Brussels on 19th March 2009 (for the Fleet project) and hope to develop my opinions further there.

Chinese whispers

[Dave Birch] When it comes to virtual money, as in so many things, China makes for a fascinating case study. It lacks an efficient online payment system and, together with its somewhat inflexible regulatory framework,this means that there are significant dampers on businesses ability to innovate around payment schemes. There, the results of this unfullfilled market demand has been the development of virtual currencies. These currencies, which were not originally intended for the purpose of generalised online payments, have absolutely exploded over the last few years. The key case study of TenCent is illustrative. They produced a virtual currency called QQ Coins and, as their IM platform dominates the market there, they soon achieved almost universal acceptance. Note that while TenCent has never Iallowed people to exchange the coins back for real money, QQ Coins circulate as "real" money. They are liquid because people have no concerns about the coins being accepted (a bit like Marks & Spencer's vouchers in the UK: everyone will accept them because they know that if they don't want to use them, someone else will).

Contactless front line

[Dave Birch] You may have noticed the announcement of a new contactless purse/loyalty scheme in the UK.

UK coffee chain Coffee Republic has teamed up with electronic money operator sQuidcard to launch the Coffee Republic contactless prepaid 'Payment and Loyalty' card.

[From The Paypers. Insights in payments.]

I asked Forum friend Adam Smith at sQuidcard for a card and he was kind enough to send me one. I logged on to their web site, registered, loaded a tenner and looked forward to my first contactless loyalty experience.