From the Financial Times by Elaine Moore:
Mobile phones will take over from plastic cards and cash as the principal method of payment before the end of the decade, according to new industry forecasts. But payment providers admit that concerns about the security of cashless transactions – heightened by this week’s software failure at RBS – may deter consumers for some time. Continued. Trish’s Comment:
Many companies have launched mobile payments initiatives ahead of London 2012 wanting to take advantage of the great showcasing and testing opportunities The Games provide. Moore lists some of them: Visa’s partnerships with Samsung promoting contactless cards and NFC-based mobile payments, Barclay’s PayTag
– a payment tag that sticks to the back of your phone and allows payments of up to £15 - and Pingit
– an app that allows you to send money to others using their cell number – and O2 Wallet
. Other interesting ones are PayPal’s inStore
– it is being trialed at the Auroria Fashions Group stores and it allows you to pay using a barcode that uniquely identifies your PayPal account – and QuickTap
– payment app launched by BarclayCard in collaboration with Orange for NFC-enabled phones.
Now that we are well into the second week of the London 2012 Games, the question is: Have all these initiatives been able to leverage the Olympics as expected? Have they gathered the attention and generated the hype that they may have been hoping for?
In my opinion, the answer is yes for Visa and its partnership with Samsung and no for the rest of them, at least not in the very short term. The focus is on what is happening in the Olympic venues, where Visa – as a key sponsor of London 2012, as of all Olympic Games in the last 25 years – has the exclusive rights to provide payments services. This leaves everybody else pretty much out of the game for these two weeks.
So, how are Visa and Samsung faring? Have they managed to make the best of this opportunity?
The answer may be yes from an ‘educational’ perspective. They have grabbed the opportunity to educate the public about contactless and mobile payments and clearly tied both to the speed and performance of the athletes. The commercial titled ‘Usain Bolt vs. London’
is a great example of this: It shows all three ways of paying with Visa – swipe (well, its European version with chip & pin), contactless using a card and contactless using a phone. All working fast and helping you keep life flowing.
Unfortunately this sponsorship has also brought some troubles for Visa. The biggest, and most publicized, issue took place on Sunday, July 31st, as tens of thousands of fans attended soccer games taking place in iconic Wembley Stadium
. Due to issues with the local IT system, debit and credit cards could not be accepted as payment. At the same time, because most of the cash machines at Wembley had been removed – they were powered by Link and not Visa – access to cash was extremely difficult. The long queues that formed in front the ATMs and then the refreshment stands were hot-beds for strong criticism of Visa, even if, as the company has repeatedly explained, the fault lays with the local IT Team as Visa’s network was up-and-running at all times.
From my perspective, it doesn’t matter whose fault it is. What matters is the learning we can take from it: Payments is such a vital activity that we cannot leave it to a single provider or accept just having a single method available. There needs to be two or more payment alternatives available at all times. Systems fail but life - and the transactions that fuel it - must go on!
The O2 Wallet launched
in the UK on April 26th. O2 described it as 'A seamless and secure digital wallet service that will deliver the benefits of mobile money to more UK consumers than any other product or service currently available.
' It is available to all UK consumers regardless of carrier or bank on iOS (iPhone and iPad), Android and BlackBerry.
The Wallet combines four functions:
- Money Message: Enables consumers to securely transfer up to £500 from a bank account or Visa pre-paid card to any UK mobile phone number as easily as sending a text. Both, the sender and receiver, need to have an active O2 Wallet.
- Shopping: A comprehensive barcode and search engine function compares the prices of millions of branded goods from more than 100 online retailers and allows the user to make purchases directly from their phone. This function includes daily discounts and deals.
- Phone as Wallet: It enables consumers to digitise their existing debit and credit cards making it quick and easy to pay for things via their mobile. Money can be loaded onto the Wallet via a debit card, by receiving a Money Message or with cash at more than 30,000 locations including O2 stores, PayPoint and epay retail outlets. Transaction history can help the Wallet owner keep track of spending.
- Money Account Card: The Wallet offers both a virtual and a physical card based on a Visa prepaid account. The cards are ideal for on-line and off-line transactions respectively.
The O2 Wallet can be used by any consumer with a number of mobile phones (iOS iPhones and iPads, Android and BlackBerry devices) regardless of their service provider. I have an iPhone running on the '3' network. As far as I could tell, I did not experience any constraint, limitation or additional burden compared to O2 customers.
Having said this, the setup itself was slow and complicated because:
- I needed to setup four different passwords - with different requirements - that I was then asked to enter multiple times during the setup process, making it rather a laborious task. One password is to access the wallet, another to 'keep it safe', another to access the Money Account and yet a fourth one to authorize transactions.
- Each credit / debit card entered was checked via 'Verified by Visa'.
- Each account entered was checked via a small money transfer made by O2 that included a unique code I then had to enter into the phone.
- Any error I made in setting up a card or account sent me back to the beginning of the setup.
All in all, setup took well over an hour although I did not enter all my accounts & cards. All the passwords and checks may be necessary to comply with security requirements set by banks and credit card companies and perhaps help customers overcome their safety concerns. At the same time, it would seem that O2, along with all other mobile wallet providers, will need to innovate in order to help customers get over this first hurdle in mobile wallet adoption.
Using the App
As shown in the presentation above, the app itself is very clean, well designed and very easy to use. It works exactly as advertised but the user will quickly realize its shortcomings:
- Lack of NFC is a major issue since it, effectively, precludes you from using your phone to buy off-line. O2 will include NFC capabilities in the wallet at a later stage, probably once it feels the infrastructure (contactless POSs and NFC-enabled phones) is in place. Meanwhile, the carrier mitigates this issue by linking a physical card (a pre-paid Visa card provided by O2) to the wallet. This card can be used to pay at stores and also to withdraw money from cash-points. Nevertheless, needing a physical card to buy at the high-street (even in those locations with contactless POSs) feels a bit clunky.
- Vouchers are a welcome feature but, until they are better tailored and personalized to each consumer, its essentially the same as offers you could get from Groupon. O2 needs to improve this capability in order to differentiate itself.
- The scanning function is a very good idea but the technical implementation is far from perfect: It has great difficulties pickup small barcodes and it often misreads the larger ones.
- 'Money Messages' are a good idea, although the same functionality can be achieved via PayPal and PingIt. The main drawback is that the receiver needs to have an O2 Wallet installed. This means that they will need to go through the painful setup described above to receive the payment.
- The O2 Wallet seems to be more of a service competing with PayPal transfers or with PingIt than a full-blown wallet. As much as I admire O2's determination to be first to launch a mobile wallet in the UK, it feels like a 'half-baked' product launched in a rush to have a presence during the 2012 London Olympics given that Project Oscar has been delayed due to the in-depth investigation being carried out by the European Commission.
How will O2 tie the Wallet to the Olympics? We are only a couple of days into this big event but, for the moment, I have not found the link.
- It is not yet clear the costs and fees associated with the wallet. For example, transfers expected to remain free for the first 6 months but then 15p will be charged to the sender for each transaction. Withdrawing money from cash machines with the physical card has a £1 fee associated.
- All information - passwords, credit card numbers, account numbers, transaction history... - is stored in the cloud, not on the phone. This, along with the four different passwords necessary to open and use the wallet, gives a high level of security to this payment method. From my perspective, they will need to finetune the number of passwords necessary to operate the wallet - four are just too many to remember and too cumbersome to use - but it is an aceptable starting point given the importance of security concerns.
London 2012 provides mobile players a fertile ground to test numerous payment initiatives. Let's see how this one fairs against the rest. Meanwhile, enjoy The Games!
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?
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.