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« Japanese notes | Main | Ad valorem, add value »

Banks and operators announce peace settlement in mobile payments

By Dave Birch posted Mar 31 2010 at 2:22 PM

[Dave Birch] OK, I just made that headline up. There's no prospect of such as far as I can see. We've all sat through countless conference presentations, panels and discussions about the potential for mobile proximity payments with nothing much happening. Apart from a few handsets in France and some 6131s used for transit in Austria, Europe seems to have ground to a halt. Nokia have withdrawn their SWP handset. So what's the problem? Patrick Gauthier's excellent piece on PYMNTS highlights three key roadblocks.

  1. The economic buyers – i.e. the Mobile Operators and Issuers – have not solved their rivalry: Behind the scene a furious battle has raged on the ownership of the secure element used to secure transactions, a proxy for the question of who will own the customer relationship.
  2. Consumers have good enough methods of payments as it is: Without prejudice for the vision behind NFC, the need for a new method of payment delivery based on handsets is tenuous... Absent a reason for consumers to want it and a business case for Issuers to support, standalone payments is an unlikely "killer application."
  3. No good path has been proposed to reach a critical mass of users: If I had a penny for every time I have heard about "the-chicken-and-egg" problem, I would be retired by now.
[From NFC: Past, Present and Future - pymnts.com]

Patrick's analysis explains the paralysis in the operator-handset-bank domain. Yet the truth is that customers like NFC -- in fact, as Mark Ratcliffe said in one of our recent podcasts, the consumer response to NFC is very unusually positive in comparison to other new propositions -- and they want it: hence the action in the real marketplace is shifting from a consensual evolution at the interface between the mobile industry and the financial industry to a "screw you" revolution where more aggressive service providers (not only in payments) are using stickers (Bling Nation), microSD (Visa) and other technologies (China Mobile) to simply bypass Nokia and Telefonica, Apple and AT&T, RIM and Vodafone. Why? Well, because there is a genuine market drive for new solutions but the combination of banks and operators doesn't seem to be able to meet it.

Payments keep wanting to escape from antique form factors such as the business-size card (an artifact from the 1800’s), but all progress stops at the lack of cohesive revenue-share models between executives in the two sectors of financial services and telecommunications

[From Mobile: data use now outstrips voice - Javelin Strategy & Research Blog]

How will this change over the coming year or two? As the smartphone market continues to evolve, and as the proportion of smatphones in the user base continues to increase, the opportunity for conventional financial institutions and conventional telecommunications operators to extract value from the payments value network is surely vanishing. They’ve got no-one to blame but themselves: three or four years ago the MNOs could have added NFC to their device profiles and the handset manufacturers could have responded with a range of devices at a marginal additional cost. But just as the operators had a decade to build businesses based on music, applications, location and didn't (and then watched Apple come along and blow up the sector) because their real business is voice, text and data so some industry observers that I've spoken to are saying that the payments industry (and, for that matter, any other industry) doesn't want anything more than a reliable IP connection from the mobile operators: it doesn't want them involved in the business of providing services at all, not in the transactions, not in the provisioning, not in the management.

Will some of these new plays that go around the operators and the handset manufacturers succeed? I think they will: I've consistently said that the "coordination cost" for the complex telco-centric model for NFC has proved to be so high that it is a barrier to innovation, so simpler, less co-ordinated alternatives will prosper because they deliver popular services. So the complexity of the interface between the stakeholders has held the mobile proximity market back. So it's all the operator's fault? No. Forum friend Aneace Haddad points to a another problem on the payments front:

We are so far removed from solving significant pain, or even recognizing it when we see it, and so stuck in the nitty gritty technical whiz bang features that this technology can provide, that our industry just muddles along with little incremental improvements in payment systems that nobody gets really excited about other than ourselves.

[From Op-Ed: Why There Is No Real Progress in the Search for an NFC Alternative for Mobile Phones - pymnts.com]

Indeed. When you delve into the results of the pilots that have been going on in Europe, you can see that while consumers did like using their phones to pay -- there's no doubt about that -- it was other functionality that got them more excited: transport and transit ticketing, value-added services, loyalty and so on. It's worth noting that in Japan, where now 73% of mobile phones have NFC built in and there are more than 10m mobile proximity credit cards in use, transit is still the most popular use (as I wrote yesterday). The payments propositions are not, in themselves, innovative enough to generate excitement because they are just the same payment products that we have now, but on the phone. So having had a moan about the mobile operators, let's also have a moan about the banks, because they haven't brought any new payments services into the sector (where's the mobile front-end to the Faster Payments Service, for example?).

The banks, who aren’t trusted, and the mobile operators, who aren’t particularly interested in payments, at least not in the rich world. It seems likely that the market will need its own ‘iTunes’ moment, when an outsider steps in to create a decisive disruptive change.

[From The future of payments | Energy Bulletin]

What's the cool stuff going on in payments that is enabled or energised by the mobile? Is it banks taking existing payment services and moving them to the mobile platform? Well, probably not any more. Now it's Square and Blippy, it's Starbucks and Eagle Eye, it's multi-retailer loyalty (such as Aneace's own venture, Taggo), it's Bling Nation and Tape a l'Oeil. Time for the banks to step up to the plate, if you ask me.

Well, if they'll still let me in through the door, I'll be chairing the Mobile Payments Revenue Stream at this year's Revenue Management and Profitability event which is part of the TM Forum Management Summit in Nice on 18th-20th May 2010. It will be a great opportunity to learn from operators from around the world and I'm particularly looking forward to the wide variety of case studies that will be presented: there are plenty of working mobile payment schemes run by operators out there!

In an action of almost unparalled magnanimity, the splendid people at TM Forum have given me a three-day delegate pass for the event -- worth more than THREE THOUSAND DOLLARS -- to give away on this blog as a competition prize. So if you are going to be in Nice on those dates and you'd like to come along to meet some of the leaders in the field from around the world, all you have to do is be the first person to respond to this post with the name of head of Western Union who, in 1877, turned down the opportunity to buy Bell's famous patent and dismissed the telephone as an "electrical toy".

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and congruent with UK equality laws in all respects. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

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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Comments

Dave, Brett

A credit clearing union architecture is an interesting approach. The Swiss WIR - which is B2B - gives an idea of how this works, where goods and services are exchanged on credit terms not for Swiss Francs, but by reference to the Swiss Franc, with the WIR bank essentially issuing swiss franc look-alike currency.

Proprietary barter operations like Bartercard work the same way, because wherever a barter system incorporates time to pay aka credit, the result IS a monetary system.

There's also an interesting initiative under development in Ecuador - FactoRepo - whereby VAT-registered businesses may discount VAT invoices directly with the Central Bank. Essentially Bills of exchange updated for the 21st century.

The idea here is that obligations are used to settle obligations and Ecuador (which is dollarised) gets to keep the dollar as an abstract unit of measure or value standard (whih the punters like), while not needing to rely on the Fed for supplies of the real (?!) thing.

There's no reason why B2B credit clearing can't be extended to B2C with the right trust framework, which is what we think we've developed with a bit of seed funding from Innovation Norway.

It is possible to disintermediate banks entirely if undated bilateral debit and credit balances are left open, and the gross positions netted out - using a settlement agent like Ripple - in a similar way to the settlement chains that occur on expiry of North Sea crude oil Brent/BFOE forward contracts for 600,000 bbl cargoes of crude oil.

There is actually no need for banks as credit intermediaries any more, and that is in fact in their interests, because the only capital they then need is that required to cover operating costs: Basel goes out of the window, at least in respect of the credit needed for the circulation of goods and services.

Long term credit for productive assets is another issue, and that's where P2P investment comes in.

But the key to it all IMHO is a new - neutral - business model for utilities, which is a conclusion I reached when I developed an internet utility - 'OilClear', MetalClear and so on - for generic transaction registration ten years ago and fell foul of the Internet market paradox: if it's neutral, it's not liquid; and if it's liquid, it's not neutral.

That's where a partnership framework agreement comes in: see

href="http://www.mondovisione.com/index.cfm?section=articles&action=detail&id=38754

which I wrote in the aftermath.

Dave,

We had the Mobile Commerce Summit in Asia last week (http://www.neo-edge.com/events/event.php?fld=it&page=it_9&event=3rd_Mobile_Commerce_Summit_Asia_2010) and the outcome was a realization that banks just can't innovate quickly enough to tackle this. Look at how they responded to e-commerce and PayPal...

The only option is for banks to partner with operators and retailers. The lack of a clear payments standard, however, is what is currently deterring banks in my opinion.

Brett King
Author - Bank 2.0

We have a winner! Send me your contact details Trevor and I will pass them on to the organisers. Well done!

William Orton!

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