How does PayPal Wallet work?
My focus is to review the two implementations of the digital wallet PayPal is currently developing/implementing for off-line shopping and how the company's acquisitions will help enrich the experience. This means not discussing other PayPal efforts in the mobile space such as PayPal Here. PayPal Wallet on PayPal Rails
- This is the implementation of PayPal Wallet that is currently available to be used at Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank.
1) It is a cloud-based digital wallet that you can access at the merchant's point-of-sale by entering your phone number + password or swiping your PayPal card + password. The phone number and the card are just different ways of entering the token that identifies a wallet in the cloud (there is a unique link between an ID and a wallet). The password is the way to authenticate the user.
In fact, the cloud-based digital wallet I am talking about is the same PayPal account that many of us are accustomed to using for certain online transactions. Allowing users to access it at the point-of-sale is a 'natural' extension of its traditional functionality, although it requires new technology and new partnerships to implement.
2) Off-line transactions, just like on-line transactions, travel on 'PayPal's rails' and are also processed by PayPal. Changes in the software running in the point-of-sale devices and in the middleware that connects the merchant with its processor, along with back-end integration with the merchant systems, is what allows acceptance of phone number + password and the direct connection between the merchant and PayPal.
PayPal's agreements with hardware manufacturers - such as Verifone
- and middleware providers - such as AJB
- have made this system possible.
3) PayPal is the merchant of record for all transactions. In fact, in the 'Account Activity Summary' (step number six in the app sequence provided at the end of this post) the user can see all the steps the payment process goes through. First, it is instantly authorized by the issuer of the card linked to the account. Hours later (as part of a batch process), there is first a cash transfer from the card issuer to a PayPal account and then a cash payment from the PayPal account to the merchant account.
The graph below illustrates this process - in a very simplified manner - using the example of MasterCard as being the preferred method of payment.
4) It is not an NFC-based solution. PayPal is developing a truly digital wallet, not a mobile wallet. As such, the company wants to enable users to pay without using any device (as is the case with phone number + password), which precludes it from utilizing NFC technology.
One could easily argue that swiping a PayPal card breaks this paradigm but, most likely, allowing for this method of payment is just part of the educational process. The company's first priority is to teach consumers to think about PayPal when paying at the store, swiping is what most people are comfortable with doing.
Another reason that may be behind the issuance of the cards is that only the most advanced POSs can support the upgrades required to accept phone number + password as method of entry. The changes required to accept the card are simpler.
Below are pictures of the PayPal card.
5) The phone plays a limited role (please refer to the bottom of this article for a description of the steps required to make a payment using PayPal). When checking out at a store, the consumer is interacting directly with the POS. It is only after the transaction has taken place that the user will receive notifications on her phone regarding transaction status. She will also be able to see a form of electronic receipt with full information on the merchant, amount paid (broken down by retail price, sales tax and other expenses such as handling, shipping or insurance) and item description.
6) The wallet can house loyalty / reward cards and coupons. These benefits will be used automatically at POS.
Although the on-line account has been revamped for users of PayPal's off-line services, no options are yet available to set preferred method of payment based on merchant or amount.PayPal Wallet on Discover Rails
- This implementation of the wallet is enabled by the PayPal / Discover agreement
made public on August 22nd of this year. Let's focus on the differences:
1) This deal enables PayPal to ride Discover rails once the system goes live (spring 2013), thus no new hardware or software is required for merchants to accept PayPal's card. Loyalty, gift, coupons and offers will be easily displayed and redeemed through the wallet.
PayPal will continue to process the transactions.
2) PayPal will issue payment cards to its more than 50 million active users in the U.S as soon as the deal goes live. The new card will have a Discover Issuer Identification Number, or IIN, a code that identifies the card holder, and will allow users to buy from the merchants that are part of Discover's network. All that the user needs to do is swipe the card at the existing check-out machine and enter a four digit PIN.
3) PayPal will charge merchants when users pay with the new cards, and, in turn, will pay Discover for access to its network, on a per-transaction basis. PayPal will define charges based on merchant type and will probably also negotiate special deals with certain merchants.
4) This deal places PayPal in the same league as the issuing banks in terms of its ability to issue a card that is accepted over an open-loop network.
5) This solution, which only works with a PayPal card, completely violates the digital wallet paradigm we discussed above by not giving the choice of using a phone number instead of the wallet. Again, PayPal's vision is a digital wallet but its first priority is to win share-of-mind in off-line payments. The solution is clunky but it is a first step. Additional iterations may provide much more utility.
Once again, the graph below illustrates this process - in a very simplified manner - using the example of MasterCard as being the preferred method of payment.
Note: What is in it for Discover? The company should pick up additional transaction volume as result of this deal while allowing the card network to fully participate in this new growing payments ecosystem.How does Google Wallet 2.0 'stack up' against the criteria listed at the beginning of this series (click here to review the list)?
The intention is to 'rate' the solutions as they exist today. In most cases, the wallets I am reviewing are flexible platforms that, with the right partnerships and infrastructure in place, can provide a very enriching shopping and payment experience. But that is all in the future. As promising as they may sound, I am comparing them against each other as they stand today.
For this reason, this table only includes PayPal Wallet on PayPal Rails, considering the locations where it is currently available (Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank). Hopefully, I will update my review in 2Q2013 after PayPal Wallet on Discover Rails launches or earlier as the number of features and relailers increase.
Reliability and Transaction Speed
It is as reliable as the well proven and tested on-line solution. It is also a lot faster than the on-line solution, to the point that, as far as I can see, there is no noticeable difference in transaction processing speed compared to a traditional card.Security
From a transactional perspective: The security level when swiping the card is actually higher to the security achieved with a traditional mag-stripe card because it uses swipe + pin rather than swipe + signature. Unfortunately, there is quite a bit of concern around entering phone number + pin given that a) a person's number is often a relatively 'public' piece of information and b) the more information you have to enter on the key pad, the more difficult is to protect yourself from eavesdropping. In any case, there is no dynamic authentication mechanism embedded in the process.
From a storage perspective (i.e. keeping payment credentials safe): The fact that all credentials are in the cloud and that you need to use an ID + password to log into your account (whether on-line or on your mobile) makes the solution very safe.
In addition, it is the first non-banking payments mobile service that I have signed up for where you can feel they take 'know your customer' requirements extremely seriously. Before allowing me to open an account, I needed to upload photos of my driver license, my social security card and a utility bill. Inconvenient but important.Ease of Use
The fact that the wallet must be managed on-line is a disadvantage. The mobile app allows you to send/request money to/from another consumer, to find local businesses that accept PayPal and check in with them and to view your transactions. Any changes you may wish to make to your payment methods (include a card, change preferences...) needs to be done from their website. Wallet Functionality
It is good from the perspective that you can include all types of credit/debit cards, bank accounts, loyalty/gift cards, coupons... The experience could be improved in three ways: 1) Although it is in the roadmap, at the moment, you cannot set payment rules based on merchant or size of purchase; 2) The user cannot override the preferred method of payment at the POS (via the POS or the mobile app) and not everyone is granted the 'grace period'; 3) Issuer presence is kept at a minimum (totally absent from the mobile app and only in the form of digits, no branding, on-line), making PayPal a relatively unfriendly channel for banks that are struggling to keep customer's share of mind.Acceptance
It is only available at a handful of stores (Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank), none of them day-to-day retailers.Device Availability
The app is available for iOS-, Android-, BlackBerry- and Microsoft-enabled devices. Valud-add Apps
Although PayPal (or eBay) has acquired a large number of companies that can bring a lot of value to the wallet (Where
...), none of them are yet integrated in the wallet. Although X.commerce, a development plaform, launched over 9 months ago, it is difficult to find value-add apps built on the wallet.Food for Thought
I believe that we all agree that the consumer needs to be educated about mobile and digital payment options. For this reason, I was surprised not to see any posters explaining about PayPal as a payment option at the till or even brochure on the topic. Talking to one of the cashiers (Thank you Mary! You know who you are) I found out that PayPal employees had visited the shop the day PayPal launched at Home Depot but that they had not visited the store since (at least, as far as she knew). Cashiers had been given fliers and brochures that first day but they had not been replenished after they ran out. Is PayPal not providing and requesting Best Buy to share this material or is Best Buy refusing to do so?
PayPal's current strength is on P2P transactions because it allows consumers (as well as small- and medium-size retailers) to accept cards with minimal hassle. How is Visa's plan to bring P2P payments to U.S. account holders
going to affect PayPal?
Will startups like WePay
, with increased ease of integration and reduced merchant fees
, gain enough momentum to affect PayPal's (or Google Checkout, for that matter) business model?The PayPal Wallet in Action
This are the steps I followed to pay at the self checkout at a Santa Clara Home Depot.
1) A soft button gives me the option to pay with PayPal
2) Once I choose PayPal, I am asked to confirm amount
3) Next I am given the option to swipe or enter phone number
4) I enter my passcode and the transaction is processed
This is what I 'saw' happening in my PayPal App.
1) Summary of transactions before my visit to Home Depot
4) Transaction status right after payment at checkout counter
2) I received two txts - One from PayPal and one from the cc linked to my account
5) Status changed to 'Completed' hours later
3) Summary of transactions after my visit to Home Depot
6) Full list of 'Activity', including 'Authorization', 'Transfer' and 'Payment'
TED Talk at University of Essex by David Birch (May 2012): Birch is a director of Consult Hyperion, an IT management consultancy that specialises in electronic transactions. Described by the Oxford Internet Institute as "one of Britain's most acute observers of the internet and social networks", in The Telegraph as "one of the world's leading experts on digital money" and by the Centre for the Study of Financial Innovation as "one of the most user-friendly of the UK's uber-techies". He is a media commentator on electronic business issues and has appeared on BBC television and radio, Sky and other channels around the world.
My focus in the last couple of weeks has been to compare some of best known digital payment systems currently available or under development in the US - Google Wallet
among others. It is exciting to see that we are clearly moving away from mobile payments to digital payments - a much broader and 'liberating' concept - and that they all explicitly identify digital banking and digital commerce as key capabilities to be included in the wallet, albeit at a later stage. But the wallets, given their (mostly) open architecture and their ability to communicate with the outside world (for example, via NFC
), can be much more. In fact, they can be almost anything.
And it was while pondering about the endless possibilities of the wallet that I came across David Birch
's video on Dr. Who's Psychic Paper
. For those of you not familiar with Dr. Who
, it is a British science fiction television program produced by the BBC in the 1960s. The main character, The Doctor
(or Dr. Who) is a time traveling, humanoid alien with two hearts that explores the universe in his TARDIS (Time And Relative Dimension In Space) ship, which has the shape of a blue British police box (a long gone sight in British streets). Or, as Birch describes him, he is the 'greatest living scientist in England and a beacon of true and enlightenment to all of us'.
Whatever description you chose, his Psychic Paper is exactly what a digital wallet should aspire to be: A means to show the exact elements of your identity that are required at any given time. Nothing more and nothing else. So, what does a bartender need to know about you? That you are over 18 and that you are not bared from the bar. What does a retailer need to know? Your PIN (in an encrypted form). And the bouncer at a party? Your invite. Or even further, what do you need to know before letting a stranger with a Comcast uniform into your home? That she is indeed the Comcast employee scheduled to come at 3 pm.
Well, there is only one difference between the Psychic Paper and the wallet. The Psychic Paper will show whatever you want it to show. That is, it will show the bartender that you are over 18 regardless of your actual age or the bouncer an invite even if you have not been invited. The wallet will only show that you are over 18 or your invite if in fact you are over 18 and you have an invitation.
Of course, as Birch points out, everybody would need to have their own Psychic Paper and everybody would need to be able to read the relevant bits during each interaction. It would need to be a convenient utility supported by a ubiquitous infrastructure. It does sound like a job for NFC-enabled (or other type of proximity communication technology) phones and devices. Something that we always carry with us, that we would quickly miss if it was lost, that could be easily protected from unauthorized access (via a pin or with some other recognition technology).
Thank you David Birch for painting a clear picture of what a digital wallet should aspire to be!
Boku may not be very well known to the general public but it is quickly becoming a force to reckon with in the world of mobile payments as it moves from on-line payments of digital goods to both on-line and off-line payments of physical goods. Through this expansion, it is now targeting a much larger market - $9 trillion dollars used globally at the point of sale, compared to the $350 billion spent on-line. It is also entering the Mobile Wallet Wars against giants such as Google and PayPal.
Let’s start by reviewing Boku’s key services, starting with the company’s bread-and-butter offering and moving to its latest launch:Mobile Direct Billing via Premium SMS service
– It provides payment services for digital goods on-line in 66 countries, and over 4 billion customers, including US (AT&T, Verizon, Sprint and T-Mobile), UK (Vodafone UK
), Germany (Deutsche Telekom
) and France (Bouygues Telecom and SFR
This is a convenient and widely accepted method of payment for digital goods but not for physical goods for two main reasons:
- High charges imposed by the telcos – from 30% to 50% of the price.
- Only basic fraud protection and customer service offered due to limitations inherent to the Premium SMS service.
These are the steps
that need to be taken when paying with Boku via Premium SMS service:
Mobile Direct Billing via direct integration with carriers’ back-end and payment systems
- The customer selects an item to purchase from her favorite website – for example, an invisibility cape for an on-line game or a ring-tone.
- She then selects Boku as payment option in the checkout page.
- She enters her mobile number when requested.
- Shortly after, she will receive an SMS requesting that she confirms the purchase by replying to the SMS sender with a ‘Y’.
- Her cell phone bill is then charged with the price of the invisibility cape or the ring-tone.
- In the background, without her knowing it, her mobile carrier will keep between 30% and 50% of the amount she has been charged, with the payment intermediary (in this case Boku) taking a small percentage and the rest going to the content provider (i.e. seller of the cape or ring-tone).
– Payment companies providing this service are fully integrated with the carrier’s back-end and billing system, providing tighter security, better fraud protection, full customer service and even rebates. In addition, carriers’ costs for this service is much lower and are thus open to negotiating lower fees with payment companies (for example, around 15% in the US and even as low as 5% to 7% in South Korea). Together, all these factors make this payment method suitable for on-line purchases of physical goods.
Boku has been actively working with telecom companies in the US and Europe to develop this type of tight integration and offer this service. At the moment, it is trialing the solution with Vodafone in the UK but has not been successful with the US carriers, all of which have signed agreements with BillToMobile (US subsidiary of Danal Corp. headquartered in South Korea). The current plan in the US is to offer the service by using BillToMobile as gateway to the carriers
while it continues to negotiate with with the Big Four to develop its own solution.
These are the steps that need to be taken when paying with Boku via direct integration:
- The customer selects an item to purchase from her favorite website – for example, a pair of earrings.
- She then selects Boku as payment option in the checkout page.
- She enters her mobile number along with some sort of additional identifier when requested. This additional identifier could be, for example, a pre-defined passcode or her zip code (this will be defined by the carrier).
- Shortly after, she will receive an SMS with a one-time passcode that she will need to enter in the checkout page.
- Her cell phone bill is then charged with the price of the earrings.
- In the background, without her knowing it, her mobile carrier will keep around 15% of the amount she has been charged, with the payment intermediary (in this case Boku) still taking a small percentage and the rest going to the retailer.
– It is a safe and secure prepaid account
– provided by MasterCard – that can be accessed via an NFC-enabled mobile (sticker or chip) or physical card and that is issued directly by a carrier or bank (i.e. white-label solution). It can be used at any retail store that takes MasterCard and / or is PayWave enabled. The fact that a physical card is part of the solution demonstrates Boku’s determination to overcome the limitation inherent to NFC, just like PayPal is doing. Also, just as with PayPal, customers can access their account on-line or via the app to setup transaction and budgetary alerts and to review promotions and offers from their favorite merchants at the most appropriate times
This new service has been launched and will be promoted using $35 million in fresh VC funding
received from New Enterprise Associates and Telefonica Digital (the growth arm of Telefonica) as well as from existing investors bringing Boku’s total to $75 since its launch in 2009.
Backing from the world’s third largest carrier lends credibility to the product and the benefits it brings to the carriers and even the banks: Boku is providing them with technology to increase the value they bring to their customers instead of trying to disintermediate them.
All of this activity, particularly the launch of Boku Accounts, has helped the company attract some very senior and seasoned talent from PayPal (Martin Buhl, now head of Boku’s German office), Visa (Jon Prideaux, Exec VP for Visa, now Senior Exec) and Barclaycard (Stuart Neal, MD of International Development for Barclay card, now Senior VP of Biz Dev). Perfect complement for the knowledgable founders Mark Britto
, Erich Ringewald
and Ron Hirson
Does Boku’s expansion and its high-flying talent make it a good acquisition target (http://www.privco.com/research/featured-acquisition-target-mobile-payment-service-provider-boku
)? Let’s review the points we have made above:
PayPal already acquired Zong
- Good set of services across on-line and off-line for digital and physical goods.
- Reputable founders with additional senior talent joining from major players, bringing additional knowledge and credibility.
- Well funded with good partnerships in place.
- Scalable infrastructure that will be strengthened with this infusion of money.
, a direct competitor of Boku, in July 2011. Could Boku fit within Google or Apple’s strategy?
From Drop Labs Blog by Cherian Abrahan:
‘Being on Week 3 of a self imposed Google Wallet embargo, I had instead been writing about the ongoing turf wars between Platform providers and Carriers, which is starting to sound like an episode of ‘Mob Wives’. Though the bulk of it was to be focused on Android, it became impossible to ignore rumors around iPhone 5 and NFC. ‘ Continued. Trish’s Comment:
Today I just want to share with you all Cherian Abraham’s latest post. It is a very thoughtful and insightful review of the options that Apple may be considering around NFC and mobile payments. I agree with all the points he makes and the questions he raises. Maybe I would just add another question: Will Google change its strategy to focus on a cloud-based wallet? Could this be the key to overcome the current issues and gain traction?
Certainly worth reading his blog and, why not, the comments! Thank you Cherian!
From USA Today by Cadle Thompson:
'Interested in digital wallets, gaming, or social media? You'll soon be acquainted with NFC — which could transform the way we shop, pay, save, and interact with other mobile device users and even with physical objects.
NFC is the technology that enables smartphones and other devices to establish a radio connection by touching them together or coming within close proximity.' Continued.Trish's Comment:
As a Philips Semiconductors alumna, I follow NXP and always enjoy reading about their successes. For this reason, I am celebrating their arguable leadership in NFC technology. The fact that their chips can be found in the Google Wallet - currently in the Nexus S and soon in the Galaxy Nexus -, Microsoft's Windows 8 tablet - to come out next year - and future smartphones from Sony Ericsson is great news! And if we take into account the growth expected in the industry - John Devlin, an NFC analyst at ABI Research expects the number of NFC handsets to increase from about 34 million this year to about 80 million next year - this can only spell new opportunities for NXP. Even in spite of increased competition from other major players such as Inside Secure, Gemalto and Oberthur.
At the moment, the main focus is on NFC technology for mobile payments but let's not forget the opportunities it represents within mobile gaming, entertainment and social media. For example, players of Angry Birds Magic using the Nokia C7 can open new levels by tapping on another gamer's NFC-enabled phone. The location-based social networking website foursquare's
uses NFC tags to simplify the 'check in'
Indeed, if Gartner is correct in its estimation that 50% of smartphones will have NFC capability by 2015 and that NFC semiconductor revenue will be more than $1 billion, these growth opportunities should reflect in their stock price. This fact has been reported by The Montley Fool as Rich Duprey included NXP in his list of 'Wall Street's Best Hidden Stocks
'. Does your portfolio include NXP stock?
From On-Line Strategies blog:
'According to eMarketer
, m-commerce sales in 2011 will nearly double sales from 2010, and then will more than quadruple again by 2015. So what were some of the trends in mobile commerce and alternative payments
that emerged in 2011? Let’s take a look...' Continued.Trish's Comments:
I think that the industry in 2011 can be summed up in one word: Contradictory. It seems to me that it is finding multiple opposing solutions to some key challenges, for example:
1) Google Wallet and NFC payments vs. PayPal and its plans to enable off-line mobile payments that don't depend on NFC adoption.
2) Banks offering mobile payments that use traditional card networks rails vs. the broader opportunity to enable mobile payments that by-pass these networks.
3) Square opting to serve only the swipe-card mobile payments segment vs. iZettle total focus on the EMV segment.
4) Sprint's approach of working with Google Wallet without charging partners or customers (beyond data use) vs. Isis' approach where the other telcos are focusing on defining new revenue models.
And this is just by looking at the US market. This lack of clear trends also applies to Latin America, Africa and Asia where, extreme market fragmentation makes it very difficult for major trends to form and direct the industry. In fact, the fear is that, without a leading force it will take a long time for major trends to emerge because winning initiatives may be restricted to one or a few countries that may not allow the critical mass necessary for the technology to take off. Who could be the regional regulatory body, global macro-corporation or regional entrepreneur to take on this challenge?
In addition, a number of solutions seem to be half-baked and some others have not even been launched yet. An example of the former is Google Wallet, which doesn't fully and conveniently integrate offers and doesn't have access to information on Citi's transactions. PayPal hasn't yet launched its platform.
Obviously, this is typical of a nascent industry and, in fact, is what makes it so exciting and interesting to be part of it. Nothing is yet written in stone and companies need to place several bets and partner with different players to keep their options open in an ever-changing market. Fun, fun, fun!
MasterCard, is developing some new exciting concepts that, although are not yet available in the marketplace, give us an idea of how MasterCard sees the future of mobile payments and of the role they want to play within the ecosystem. Let's look at some of those concepts:
* Xbox Kinetic prototype
: The idea is to allow consumers to purchase a product on TV by, for example, waving your hands at an icon in the corner of the screen. Another example, being able to pull up shopping menus at any time using body language such as putting your hand into your mouth in an 'I'm hungry' gesture.
Although this is only a prototype and it is clear that agreements with TV manufacturers, broadcasters and retailers are required to launch this service, it is a great example of how easy and seamless technology may allow payments to be in the future.
* QR codes
: QR Codes have become a societal norm within the last several years. Yet, there is untapped potential in the TV world. For example, imagine watching the Home Shopping Network, or just a random commercial, with a QR code in the corner that allows you to order the product being shown (perhaps at a discount) from your phone. Yet, instead of scanning the QR code and being taken to HSN's or the product's website, there is an app - QkR - that processes the entire transaction through your phone, stores it and saves the receipt. Again, just as with the Kinetic prototype, scaryingly easy to shop.
* Audio cues
: Another way to seamlessly shop while comfortably resting in your favorite armchair is to have your phone listen to the TV to have it pick out any high-frequency codes that an advertiser has embedded into the product. An example showed at MasterCard Labs was of NFL products during a football game. Of the concepts that MasterCard Labs has developed, this one may be the most far-fetched since broadcasters might need to alter their signal to make it work. Not to mention the change in smartphone audio functionality to register this signal.
* Pre-paid wristbands
: VIP guests to the 2011 Isle of Wight Festival
, held in June, had the opportunity to pay for their purchases with UK's first ever MasterCard PayPass prepaid contactless wristbands. The feedback received from the users was extremely positive, to the point that the wristbands were the preferred method of payment. Respondents to a survey said that this solutions was quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they’d want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.
In addition to this deployment, MasterCard also put terminals in some public areas for faster card payments and integrated them with the main gate access points, to demonstrate another aspect of its technological innovation: access control. All together, a success for MasterCard in showcasing the benefits of their technology in a real-world setting.
MasterCard's effort to develop mobile technology is not new but, unfortunately, some of the efforts it has launched in the past have not been as successful as they would have hoped. Again, let's discuss two of those examples:
* Mobile Payments Gateway
: MasterCard's Gateway is a turnkey mobile payment processing platform that allows issuers, acquirers, merchants and mobile network operators to provide customized mobile solutions in developing payments markets by tapping into the MasterCard Worldwide Network, a globally integrated network. As a result, banked and unbanked mobile consumers gain access to a wide range of MasterCard Mobile payments solutions, which provide greater payment convenience and security over cash - using their mobile phone to make purchases, send and receive money between family and friends, transfer funds between accounts, pay bills, deposit funds such as payroll or social benefits, top up mobile airtime, load value to prepaid accounts, get cash from ATMs, and keep track of their balances and activities with mobile alerts.
MasterCard launched this turnkey solution a few years back but, at the moment, only has one customer live on the platform - in Brazil since 2009, the partnership that includes Itau Unibanco, Redecard and mobile network operator Vivo. Just recently, a new opportunity has developed in the Indonesian market
, although whether or not this will develop into an actual deployment in Indonesia and beyond is still not clear.
: This product is MasterCard's response to PayPal for mobile. The service is relatively similar to that of PayPal with the solution offering peer-to-peer transfers after registering and entering a MasterCard card number to be associated to the transactions
. The user will create an ID and password to access his account and will only be able to exchange funds with other MobileSend users.
Although the service is fast, secure, relatively inexpensive and available via mobile browser, app or text message, it has not gained widespread popularity, probably, in part, because both users - sender and receiver - need to have a MasterCard credit / debit card.
Nevertheless, the company has learned from these two initiatives and is sure to continue building upon them. The hiring of Mung-Ki Woo as Group Executive for Mobile
, which took place earlier this year, is a sign that things will continue to move in the right direction for MasterCard in this area. Woo is helping the company further clarify its mission and vision for the mobile future. What will the story be 12 months from now?
MasterCard approach to mobile commerce and payments seems to be a bit different from the approach taken by Visa
and American Express
. There are fewer partnerships, at least in the US, and for the moment, no relevant acquisitions.
For starters, there isn't a 'MasterCard Wallet' in the US although the company is involved in two major initiatives:
- Google Wallet: They were the first to partner with Google - at the moment, only two cards are accepted in Google Wallet: Citi MasterCard and Google's prepaid card - and this partnership continues to be the main company focus. Participating in the testing process and then in the national rollout has allowed them to learn a few things around mobile commerce, NFC and consumer adoption such as the need to have a good locator service and an audio confirmation of the correct download and deployment of the app. Small things that greatly contribute to consumer experience and, thus, to adoption.
Their position as single provider will soon change as Discover, Visa and American Express will also be available in the next release of Google Wallet - planned for later this year. But this is not an issue for MasterCard, in fact, the company understands and supports this development since they also believe that in order for an e-wallet to become widely adopted, it needs to be convenient and actually improve upon our current physical wallets. Having several e-wallets would reduce the value to the consumer and limit adoption.
- ISIS: Isis is a joint venture in the United States of AT&T, Verizon Wireless and T-Mobile USA, the top three telecommunications operators, and the credit card companies Vis, MasterCard, Discover and American Express The approach taken by ISIS is fundamentally different to that of Google: The carriers that are part of Isis will charge banks / credit cards for the network and cell phone space used for mobile payments. Not only the corresponding data charges – as Sprint does in the Google Wallet solution – but additional, or alternative, fees. MasterCard, like the other credit card companies, has opted to back both approaches since, from their perspective, the choice should be left to the consumer and they want to be part of whatever solution their customers favour.
The fact that Isis will not launch its first trial until the first half of 2012 - it will take place in Salk Lake City, Utah, and Austin, Texas - will allow MasterCard to apply the knowledge acquired while working with Google to make this deployment easier and smoother for themselves.
Outside of the US, MasterCard has been involved in a number of initiatives in markets as diverse as Canada, the UK, Turkey and India. Some of these initiatives have been large-scale trials that may not yet have developed into full-fledge commercial products - for example in Canada or India - while some other - the most notable case being the UK - are now services available at a national level. Let's look in more detail at a few of these initiatives:
- India - Partnership with Vodafone and Citibank: This was the first large-scale trial launched in India. It started in June 2009, reaching over 3,000 customers and involving the 250 retailers that accepted PayPass for the 6-month duration of the trial. Over 43,000 transactions were recorded (an average of 14 transactions per user). Considering that there was a financial incentive to use the mobile payment application over 12 times, it could seem that the main reason for usage was financial benefit rather than convenience or interest for the technology. However, it is also true that users that participated in the trial and that also had Citi card, steeped up the use of the latter ones with retailers that did not have PayPass. Possibly proving that, easier methods of payment will be well received in developing markets even though adoption may be slow and need to include education and incentives.
Possibly, this first foray into mobile payments in India gave MasterCard a good platform from where to jump into other opportunities within emerging markets such as the two that are presented below.
- Kenya and across Africa - Partnership with Airtel: In partnership with Standard Chartered and Airtel - Airtel Wallet and Airtel Mobile Money, Mastercard is launching a service that allows on-line purchases from your mobile phone using a 24-digit number uniquely assigned to a customer for a specific transaction. The purpose, once again, is to empower the large number of mobile users across Africa to purchase goods more easily.
There are also other opportunities that, although have not yet crystallized, could turn out to be great wins for MasterCard including possible deployment of MasterCard Mobile Payment Gateway in Indonesia
- the company already has the blessing of the Central Bank but needs to get banks and telcos on board - and testing of in-flight contactless technology
- with cards and NFC technology to achieve real-time online card authorization and reduce fraud.
Clearly Mastercard is working hard to further promote and leverage PayPass, its contactless payments system, which is already widely used across the world. It is only reasonable to assume that the company will use this infrastructure to move ahead with NFC as the next wave of contactless payments.
Next week we will discuss some of the other initiatives where Mastercard is involved, focusing on their R&D activities around the QkR app, motion with Xbox, sound and QRs in ads.
On the heels of BankSimple
and with what seems like an even more ambitious goal, Brett King
, author of Banking 2.0 and founder and chairman of this new venture, publicly announced MoveNBank
during Sibos Innotrive 2011
conference a couple of weeks ago. MoveNBank
was founded in July 2010, will begin to 'alpha test' its services with a select few members of the public on October 1st and will proceed with a soft-launch on July 2012.
What is MoveNBank?
First of all, we need to clarify that MoveNBank is not a bank itself but rather, like BankSimple, a 'reseller' of banking services or an intermediary that stands between the bank and the consumer. It attempts to change the experience that users have around banking but without applying for a banking license, although Mr. King has made it clear that they may, at some point, acquire a bank or build their own for purposes of scale
. MoveNBank is
1. Mobile only banking, with no paper or plastic
2. NFC-enabled app
3. Incorporates "gamification" in UX
4. According to (10) Startuply, "reinventing credit scores and more with an open, social transparent, and viral model" (sounds P2P lending-esque)
Points 1 and 2 are related since, in order to go paper-less and plastic-less, we need to have an alternative technology for payments. NFC is the most obvious choice at this point in time given the number of phones expected to come out in the next few months that will include NFC chips and the current hype around different implementation of mobile wallets in the marketplace - such as Google Wallet
or the ISIS project
. These two factors will help accelerate deployment of NFC-enabled POS at stores across the world - although it will probably still take some time for this technology to be truly ubiquitous.
It was really just a matter of time for NFC as a payment method to be offered directly by a bank - or, in this case, by a reseller of banking services. A mobile wallet, as it is defined today, is meant to simplify and improve your shopping experience. Mobile banking, as defined by MoveNBank, is meant to integrate spending and saving, improving the overall control of your finances. Different goals, maybe suitable for different audiences?
The next two elements are particularly innovative: Credit scores and gamification.
3. Reinventing Credit Scores
MoveNBank uses CRED as its credit score mechanism
. It recognises a person's social reputation along with their financial behaviours. In other words, as your credit score can be used to recognised how credit worthy you are, your social credibility on Facebook, Twitter, eBay, Amazon and other services can increase trust in dealing with you.
Including a person's on-line presence in the computation of his/her credit score is an extremely innovative concept and one that could indeed help banks get a much better view and understanding of the risk and value a given customer may represent to the institution.
MoveNBank is not trying to make banking a game but it is using the principles of gamification to engage customers and to help them make the right financial decisions in their everyday interactions. King gives the following example
: 'If you want someone to keep a positive balance in their savings account – then allowing them to see that balance or reminding them that a specific transaction or event will take them into negative territory, makes the spend a conscious decision. Is it gamification? It is when you ‘game’ the messaging, and make it frictionless or even fun. We’re playing with that messaging and engagement layer to influence your financial health positively'.
King goes on to say during his Sibos 2011 presentation: '...banking is no longer a place you go, but a thing you do'. It’s necessary for banking to be re-invented to focus upon the 'utility of banking, not the formality of banking'.
So, what are the established banks waiting for? Why not embrace the new technology and move forward with the customers? Today, they still 'own' them. Tomorrow, they may play a secondary role to the experience-centric and technology-savvy new-comers.
In the UK, all three major carriers have launched or are planning to launch their own mobile payments initiatives
will introduce its own Visa-branded prepaid payment applications on its NFC phones later this year.
2) Orange UK
, part of Everything Everywhere
, launched its Quick Tap FNC payment service with UK issuer and acquirer Barclaycard in May of this year.
3) Vodafone UK
is planning to enter the space but has not yet revealed its plans.
At the same time, they also plan a joint venture to provide a "one-stop shop" for mobile advertising, payment, ticketing and other services in the planned NFC mobile wallet they will be launching next year. To make this a reality, the operators plan to invest together
between $16 and $80 million – depending on how well the initiative is received – to develop the technology and market it to retailers.
This UK NFC joint venture (no name or logo has yet been published) has been built in a near exact model as it’s US cousin, Isis:
1) The three carriers hold an equal state.
2) The joint venture will deploy and manage advertising and loyalty programs.
3) It will also act as its own trusted service manager, which would give them the necessary control to keep competition – other carriers or other wallet solutions – out of the majority of the UK market since, together, they control around 90% of the UK market. In the words’ of the partners
"This will enable consumers to transfer their entire physical wallet into a new secure, SIM-based wallet regardless of which NFC enabled mobile device, or mobile network they are using," say the partners. "Companies and organisations that provide anything from credit, debit and loyalty cards to membership cards and transport tickets will be able to create secure mobile versions of their products. Consumers will be able to use their mobiles to pay for goods, services and travel using contactless technology (NFC) with one touch of their phone, or online via mobile or PC."
The new business will provide a single contact point for advertisers, media agencies and retailers looking to reach consumers on their mobile phones. The joint venture company (JV) "will enable them to book advertising space and create campaigns as well as provide offers, coupons and loyalty cards which can be stored on the phone and redeemed in shops. For consumers, the JV means that they will be able to receive discounts and offers from brands that are relevant to them and that they want to receive."
Everything Everywhere, Telefónica and Vodafone will also "continue to develop their own competing products and services tailored to their own customers, which will be based on the open platform infrastructure provided by the JV."
Although the partnership will certainly speed up development and adoption, it also raises issues around competition. Specifically, on September 7th, Three UK asked the European Commission to block the joint venture. Mr. Lerner, Three UK regulatory affairs director, expressed his concern
that, given their size, the partners could impose high transaction fees on consumers and set a difficult precedent in Europe.
It needs to be noted that Three UK, the fourth largest wireless provider in the UK with 6.9% of the country’s subscribers, was not included in the agreement. It may have been because its profile differs from that of the main provider: It is an aggressive, low-cost seller of phone and Internet services and a relatively new competitor in the UK (launched in 2003).
And indeed, this is an important battle both for the future of NFC payments in the UK as well as across Europe. Wireless carriers are developing similar initiatives in, among other countries, Denmark
, the Netherlands
– in this case the telcos would by-pass card networks and banks using their own banking or e-money license. A thumbs-up or thumbs-down decision from the European Commission would be a very strong signal to the providers in each of these countries.