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!

Let’s, as we did with AmEx, review some of Visa’s key acquisitions, investments and partnerships:

1) Monitise   

In June, after several years of continued cooperation, Visa and Monitise have entered a five-year global strategic alliance agreement to develop a suite of mobile services, including payments, money transfers, transaction alerts and marketing offers. Per terms of the deal, Visa will acquire a 14.4 percent stake in Monitise valued at $13 million. Monitise services enable customers of multiple banks and mobile operators to perform banking and payment transactions directly from their handsets--the firm offers live services in the U.S. and the U.K. in partnership with Metavante (now part of FIS Global) and VocaLink.

This alliance has two main initial focuses:

1)  Introduction of new mobile services to existing Visa account holders outside the US that enable electronic payments on the go to meet consumers' daily needs, including mobile top-up, utility payments, and transit ticketing.

2)  In addition, the partners will launch a mobile banking solution in the US for clients of Visa DPS, Visa's debit and prepaid processing platform. This new service is designed to enable Visa clients and processing partners in the US to quickly and efficiently offer their customers a suite of services, such as mobile payments, person-to-person payments, mobile transaction alerts and mobile marketing offers.

In the words of Tim Attinger, Head of Global Product Innovation at Visa Inc:  'In aligning with Monitise, we expect to expand the delivery of Visa mobile services to consumers around the globe, enabling them to seamlessly use their mobile phones to purchase goods and services, make payments, receive valuable information and offers, and transfer money between accounts, in a safe and secure manner.'

2) Fundamo  

At the same time Visa entered its global strategic alliance with Monitise, it acquired Fundamo - a specialist mobile financial services provider to network operators and financial institutions in developing economies - for $110m to spur its global push into the payments space to enable transactions across cards, computers and mobiles.

This means, in particular, that Visa will reach Africa’s, Asia’s and Latin America’s unbanked and under-banked population with P2P payment, bill payments and branchless banking services.

Fundamo has over 50 active mobile financial services deployments across more than 40 countries, of which 27 are in Africa, Asia and the Middle East alone, serving 5 million registered subscribers

In an official statement, Visa explained the dual action with Fundamo and Monitise in the following way:  'The combination of acquiring Fundamo and expanding the relationship with Monitise will enable Visa to deliver best-in-class mobile financial services and payments capabilities to consumers across the full spectrum of uses, geographies and mobile environments from basic services on simple handsets to more advanced services for smart phone owners.'

3) PlaySpan

In February of this year, Visa acquired PlaySpan, a mobile payment company that enables the purchase of digital goods in the online space, providing online merchants with tools to monetize their digital content such as in-game credits, premium memberships and digital goods. The transaction cost Visa approximately $190 million in cash with additional consideration for performance milestones.   
  


PlaySpan’s flagship product UltimatePay is a ‘Monetization as a Service’ platform for apps, games, videos and digital goods. Based on the user’s location, the payments platform draws from over 85 different payment options. The company also recently launched a mobile version of UltimatePay, which gives smartphone developers a way to deliver a one-click payment experience to mobile gamers, and provide a comprehensive payments offering. The mobile focused platform allows players to view their balance and transaction history, while allowing them to purchase items in-app without ever having to leave the game.

4) CyberSource  

This has been Visa's largest acquisition in the mobile space to date for a total of approximately $2 billion.  CyberSource is an established industry leader that plays a role in processing approximately 25 percent of all eCommerce dollars transacted in the United States. The company serves more than 295,000 merchants through its CyberSource and Authorize.Net branded solutions. CyberSource clients include British Airways, Home Depot, Facebook, Google and many small businesses.

CyberSource is a gateway, a sort of 'middleware' that stands between the merchant and the processor / acquiring bank and that allows retailers to interact with a single interface independently of geography, processor and bank.  Basically gateways: 


1)  Encrypt payments and personal data 


2)  Communicate between the customer, business and financial institutions 


3)  Participate in the process of authorising payments 



In addition to simplifying the payment process, gateways can also provide value-added services such as tools to: 


1)  Automatically screen orders for fraud and calculate tax in real time prior to the authorization request being sent to the processor 


2)  Detect fraud including geolocation, velocity pattern analysis, delivery address verification, computer finger printing technology, identity morphing detection, and basic AVS checks

Many in the industry do not believe that it makes sense for visa to enter the gateway business.  Some of the reasons why it does make sense could be: 


1) Truly enhanced fraud prevention tools - Visa and other payment system providers see much more data at the macro level than anyone else, but thus far have been largely absent from offering merchant-centric fraud prevention tools 


2)  The ability to provide a packaged offering to merchants around the world that would streamline their path to eCommerce sales 


3)  The ability to support 'end-to-end' encryption from physical POS devices versus current 'point-to-point' 



In addition, and just as interstingly, this acquisition allows them to be more directly involved with merchants and retailers since, many of them, were not dealing with the credit card processors directly but rather via the gateways.  In the process of developing and extending their reach within mobile payments and mobile commerce, the strength of these relationships will be extremely beneficial. 



5) Square 

Visa has voiced in many occasions its interest in helping the consumers and retailers of all sizes move from cash and checks to electronic means of payments, including credit / debit / pre-paid cards.  Investment in Square – an app / dongle combo that allows users to accept credit / debit card payments on their iPad, iPhone or Android device –, as part of the $27.5 million round led by Sequoia Capital in February of this year, is part of this effort. 

John Partridge, the president of Visa, said: “Square’s early success suggests that using Square and a mobile device, new types of merchants will now be able to accept payment and help grow their business via Visa’s global network with the security, speed and reliability we provide.”   Jack Dorsey explained how Square planned to use the funds:  'The plan includes growing the team, both in engineering and design, and increasing the awareness of Square, which means expanding the user base to the plumber, the piano teacher and the dog walker. As for product innovation, we will do a lot with the receipt to make it interactive instead of something we throw away.' 

Although it was not planned, the new funding will probably also have to be used to counteract Verifone's allegations of lack of security within the Square dongle which, according to Square's rival, cannot verify it is connecting with the real Square application and not with some knock-off app that could be stealing the card-holder's information for future fraudulent use.  Square has defended itself from these acusations even pointing out that its high-profile strategic partner and credit card processor, JP Morgan Chase, continuously checks Square's security and capabilities and has not yet found any securities issues with the dongle or the software application.  The argument rumbles on as Verifone has now created a video explaining its concern. 

Conclusion  

Just as American Express, Visa is fully engaged in mobile payments and mobile commerce.  Although both companies have slightly different approaches to this challenge, they are developing strong capabilities that will allow them to adopt any wining strategies deployed by their peers and competitors fairly quickly.  Competition is heating up!

Despite of how inconvenient, cumbersome and archaic our banking system may be, many of us might find it difficult to move it away from the long-established and respectable institutions that we 'trust' today - even if we have seen how easily some of those institutions could crumble and collapse.

However there are a number of new startups that are trying to entice users to do exactly that.  A few of them, are coming up with truly innovative approaches that may very well, capture the hearts and minds of many people and give users enough comfort and transparency to entrust these start-ups with their money.  

Three such examples, among many others, are: 

1)  Think Finance with their Elastic web-based bank account replacement that targets, as their CEO, Ken Rees puts it:  '... the underbanked and unbanked - the estimated 60 million people who are not well served by traditional banks' 

2)  Square, who is targeting the approximately 30 million small business owners in the US that don't have a merchant account or credit card terminal.  With only 6 million businesses in the US accepting credit card payments, there is a large untapped market they are ready to serve. 

3)  BankSimple, a start-up still in stealth mode who wants to offer 'banking on-line' as opposed to the traditional 'on-line banking'. 

BankSimple has not yet launched but it is already making quite a splash with over 30,000 people having signed up to be part of the beta launch and over 50,000 ready to open accounts with them as soon as the business is fully up-and-running.   

What exactly is BankSimple?  

1)  BankSimple is not a bank.  It will partner with smaller banks who will hold the federally insured accounts.   

2)  What BankSimple will do is provide an on-line interface that allows users to combine all their credit, savings, checking and termed accounts into one banking card.   

3)  They will help you manage your money with their predictive money management model (part of their secret sauce).  While users only need to concern themselves with a single account, there are actually checking, savings and credit accounts tied to that one login.  Those will function behind-the-scenes with Banksimple automatically managing funds and transferring money between the accounts to ensure that the most money is yielding the most interest at any given time. 

4)  Because their focus is mobile design and usability (the first thing the company did was design its mobile interface), it allows you to do everything with just a few thumbs movements while on the move.  For example, it will provide real-time updates on spending via the web and through Android and iOS apps; they will help combat fraud by providing instant alert on purchases and by checking if a user's location matches the location of the transaction to monitor for fraud; they will allow you to deposit a check by taking its picture with your mobile device and to make quick and easy transfers to your Facebook and Twitter friends.  And they promise Zappo's style customer service so, if you run into any problems, there will be a expert at the other end of the line to help you out. 

5)  Finally they promise no fees.  Their full revenue is based on taking a percentage of the interchange fees (these are fees that businesses pay to credit card companies to process transactions) and net interest margins. 

This sounds like true customer-centric business and operational models.  Obviously, we still need to wait for it to launch to see if they do deliver on all fronts but, at the very least, I would say they have the right idea.  Perhaps one question mark is around their banking partners.  They plan to partner with about 15 institutions.  These will have to be smaller banks with no retail presence (similar to the ING Direct model) and with no aspirations of building brand awareness since everything will be branded BankSimple.  These banks will need to integrate their systems and products with and cede full control to BankSimple.  What banks will they have as partners?  Will they be robust even if small and not well-known?  For sure they will be FDIC insured but nobody wants to test federal insurance...  I trust they will overcome this hurdle - in fact, my understanding is that they already have these partnerships in place - and be able to offer to us the great banking experience that we all deserve and very few of us get! 

We all understand that banks could be doing all this themselves but, with their focus on ROI and the use of proven technologies and methodologies, have chosen not to do it.  Will they wake up in time to avoid damaging customer migration?