Visa and Fundamo up the stakes in the Mobile Wallet battle

The announcement today of Visa’s acquisition of Fundamo signals the drawing of the battle lines in the face off between Mastercard and Visa in the mobile payments stakes. While I understand that a wallet is much more than just an NFC enabler, the announcement of Google’s NFC trial around their ‘wallet’ last month put some pressure on Visa to make a strong competitive statement against the Android positioning. But what does this mean for the mobile payments landscape?

There’s only room for a few wallet standards
While everyone would like to ‘own’ mobile payments and the mythical m-wallet, the fact is that the recent failure of ISIS to successfully launch a competing payments backbone means that in all likelihood the current card issuer networks will remain at the core of the mobile payments infrastructure for the time being. This gives Visa and Mastercard a fairly significant advantage in owning the plug-in or API that enables access to the backbone. The wallet effectively acts as that plug-in functionality.

The challenge that Visa and Mastercard have at this point is not technology, but getting partner banks enthused enough to start aggressively rolling out solutions around mobile payments with their proprietary “wallets” plugged-in. The problem is that today you can count on just two hands the total number of banks globally who’ve enabled broader P2P payments as part of their mobile App strategy – such as Chase, Hana, ING Direct and ANZ – and that is an appalling legacy mindset hurdle to get over.

The fact that banks have been so slow to embrace mobile P2P enablement does not bode well for broader bank-led adoption of the mobile wallet. It means that Fundamo and Visa will have to rely on consumer take-up, or integration at the handset level for broader adoption. In this respect, the Google Wallet still probably has an advantage here, but if Visa gets a deal with MSFT/NOKIA or with APPL then all bets are off.

The other opportunity and challenge here is the pre-paid debit card market. With some 50 million+ underbanked in the US alone, with the increasingly strong debit card market in the EU and with China and India ramping up rapidly in respect to smartphone adoption, perhaps the greatest opportunity to be tapped will be integrating pre-paid mobile accounts and pre-paid debit cards in the same handset. It makes sense doesn’t it? What’s the difference between a pre-paid debit card enabled via a mobile wallet, and a pre-paid phone account? They are both value stores…

In that environment, Visa could do with some independence from the issuing banks – perhaps issuing their own pre-paid debit cards as part of the wallet proposition. Given their relationship with the banking community, however, I don’t expect a rapid independent solution to this problem.

The good news is, that Fundamo already has a strong financial inclusion play, so my view is that overall this move is going to be very positive, especially in emerging markets.

Visa’s acquisition of Fundamo is a smart move in the battle for the Mobile Wallet

Circumventing the backbone might still be possible
The dark horse here could still be Apple (or someone else – PayPal perhaps), leading with a P2P solution that circumvents the traditional networks. Apple has just taken a shot across the bow at Telcos with their iMessage component of iOS 5, which circumvents traditional short-message-system networks, so they’ve shown their willingness to use their broadly adopted platform to challenge services that are redundant in the cloud world. In the world of payments, you only need large-scale adoption of IP-enabled handsets to start challenging this space and creating a new service framework. ISIS couldn’t do this because they didn’t have a way to get their service ubiquitous. Apple already has 250 million cardholders plugged-in to iTunes, so they have massive momentum already. Could they turn that into a P2P backbone?

Sure. Apple will still need to plug in at the back-end in someway, but a cloud-based competitive backbone to the traditional payment networks would be even more pressure on the current interchange environment.

Long-shot? Maybe, but it won’t be long before the pressure on interchange fees, modality of payments around mobile wallets and the changing role of the POS (mobile becomes the POS ala Square and NFC) makes cloud-based alternatives viable. Certainly within the next 5 years this is likely to happen.

It’s still about context
While owning a wallet that has a rapid path to NFC and P2P enablement is a great start, I still believe the real trick with mobile payments is around the context of a payment. The big difference between mag-stripe/Chip and PIN interaction and that of a mobile NFC payment is that I can contextualize the interaction before, during and after the payment. That might be as simple as updating your account balance in real-time, or it might be about integrating offers and loyalty into the payment experience. Square is obviously counting on that as a driver for cardcase.

The challenge Visa faces right now is building context. The wallet is just a plug-in for payments. Where Google (Offers), Apple (iAd), Groupon, Foursquare and others are threatening is the context of those payments.

That’s where I can influence a payment based on location or a trigger.

That’s where I can steal you away using a competitor’s wallet.

That’s where I can circumvent a traditional payment interaction and avoid using the traditional POS all together.

That’s where I OWN the customer.

Visa has made a great start with their acquisition of some very solid tech in the form of Fundamo, but they’re not there yet. My greatest concern is they’ll wait for banks to add the context, and banks are even slower at doing this stuff than visa is…


What the Finance sector has to look forward to in 2011…

In 2010 we had a bunch of innovative ideas become mainstream and start to impact the banking arena (for a full coverage see my post in Huffington.) However, 2011 promises to be more disruptive because as the economy finally starts to warm up, we’ll be seeing a lot of new private equity investment into start-ups in the finance arena.

A new dot com boom?

The intersection of interaction design, mobile technology, mobile payments, social media interactions, geo-location technology and augmented reality is producing a land grab for innovative new start-ups. We’ve already seen quite a few investments in new banking start-ups in 2010, which are the early stages of a new boom in the mobile tech space. Right now we’re not yet in the bubble, obviously, but as start-ups grow revenue, as investments start seeing huge multiples, and as the success of start-ups generate even more new business ideas, then this zone appears ripe for an emerging boom. Add into the mix the dissatisfaction en masse with the finance sector, one area where there is sure to be heady action is in the alternative banking and finance game.

Already we’ve seen start-up investments in peer-to-peer lending (Zopa, Lending Club, Prosper, Kiva, etc), payments alternatives (i.e. Jack Dorsey’s Square), Personal Finance tools (Geezeo, Mint, GreenSherpa, Blippy, etc), and even in Banking itself (BankSimple, MovenBank).

In September of 2010, Think Finance secured $90 million in start-up funding for their Elastic web-based bank account replacement. Elastic’s services to the underbanked will somewhat overlap with BankSimple’s approach to online banking. But, the CEO of Think Finance, Ken Rees, doesn’t see BankSimple as competition.

“We celebrate all of the innovators in the space that use technology for banking purposes. They [BankSimple] are more focused on the needs of prime consumers. We’re focused on the underbanked and unbanked — the estimated 60 million people who are not well served by traditional banks,” says Rees.
As reported in Mashable

Jack Dorsey at Square is catering for a gap in bank service performance demographics also. Dorsey is aiming Square at 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 that can currently accept credit card payments, this shows there is huge growth potential for thinking outside of the box in respect to banking and payments models.

The growing innovation and infrastructure gap

The problem for the finance sector with the current level of investment in infrastructure, and old stagnant business models built largely around physical distribution paradigms, is that increasingly we’ll be dealing with start-ups and innovators from outside the traditional banking arena. This will increase the gap between customer experience or in real terms, customer behavior, and the actual state of play in the industry.

While the sector as a whole tries to deal with the devastation of the global financial crisis, and uses this as an excuse to hunker down and resist strong investment in technology and so forth, this opens the gate for innovators who are prepared to invest to take customer mind share, and capitalize on both the wholesale dissatisfaction of the industry in general and capturing the imagination of customers through the use of technology and better interface processes.

The 3 Phases of Disruption - Impact to Finance Sector

For those of you who have read BANK 2.0, you may recall the “3 Phases of Behavioral Disruption” which identify the emergence of Internet, the take up of mobile smart phones and “app” phones, and finally the integration of payments technology and services into the handset. There are two broad opportunities within these 3 phases of disruption for adverse impact to the traditional financial services space.

The Infrastructure Gap

The first opportunity lies in the inability of banks and financial institutions to invest in customer facing technology ahead of the curve, which creates a considerable lag in capability. Banks keep looking for ROI, but at the rate that new technologies are being adopted these days, if you wait for ROI you’re already 2-3 years behind the competition. Banks have to make bets on a number of emerging technologies, experiment and adapt through iteration, rather than wait till a dominant player or platform emerges (which is unlikely in any case) before making strong investments.

In this gap we have players like PayPal, cloud services, direct banks (e.g. ING Direct, UBank, Jibun) and other platform opportunities who are doing it better on a technology platform basis than the traditionals. The opportunity here is for start-ups to leap ahead of banks who are straddled with outmoded legacy systems which simply are not robust enough to work in an always on, superconnected space that customers live in today.

The Behavior Gap

The behavior gap, however, is where the really interesting stuff is happening on a business model front. The gap in behavior is defined in anticipating the ways customers work with new technology and reinventing both the user interface, the interactions and the processes and rules that support the engagement or journey. Banks are enamored with their existing, stagnant model of banking – they find it difficult to imagine a world where mobile applications and internet banking are more popular access methods than branches, where checks no longer cut it because I can SMS or bump money to an associate, and where I am not penalized because I don’t want to follow some archaic risk model. Companies like Square, BankSimple, even Apple and Google who are reinventing the interface to the customer are capturing the hearts and minds of customers everyday, while banks continue to frustrate customers with old models, outdated rules of engagement, and with broken processes and channel support mechanisms.

Conclusion

The biggest risk to the finance sector today is not from other banks, nor related to the inability to apply Basel III risk controls or standards. The biggest risk to the finance sector today is the growing gap between the institution and the customer. The rate at which this gap is opening up is increasing rapidly, as the adoption of newer technology increases too. This is where we are going to see an explosion of start-ups and new businesses who aren’t afraid to reinvent the bank customer experience. This is where the banks who do get customer and try to reinvent the journeys customers are taking will win.

It’s also where banks who wait for ROI, or wait to understand the impact of social media, mobile, near-field contactless payments and other such technologies before investing, will lose out massively.


SME Banking in the Cloud

I met Friday with Mike Hirst, CEO of Bendigo and Adelaide Bank, one of the top banks in Australia today. As we discussed the need for community banks to get better at servicing SME business needs moving forward, we had a really interesting brainstorming session on where to go next. Mike is an easy going guy and I think he’s created a really positive, open culture at Bendigo that will pay dividends as they take market share away from the majors in Australia.

I guess it’s an obvious statement, but for small to medium size businesses, banks provide a logical partnership as an enabler for a range of bank services. Mike explained that Bendigo and Adelaide Bank has, in recent times, been providing a range of services to small businesses beyond the traditional merchant, trade finance and credit services including extended services such as cash flow and accounting analysis, SME advisory, website/minisite development, telecommunications deals as a reseller, and similar services. Recently ANZ launched The Small Business Hub, as a way of extending more services to their SME clients. American Express has gone one step further with their Open Forum platform as an attempt to engage the broader business community in actively sourcing solutions. Bendigo Bank has tried to facilitate community involvement through their PlanBig portal.

As Mike Hirst and I discussed Bendigo’s wish to provide a better platform for SMEs to grow their business, it occurred to me that almost all the services we were discussing were candidates for the cloud. Here are a few that came to mind:

Accounting, Cash Flow Modeling and Credit Services:
Plugged into an SME’s basic accounting package (think MYOB, etc) the ability to provide some intelligent tracking of cash flow, help businesses to think about aged receivables and rightsizing a credit or overdraft facility is a very valuable tool. A plethora of these are being introduced into Internet Banking facilities this morning, but extending a basic accounting facility with cash flow analysis tools that is an extension of your banking relationship is not a stretch. Ben May, MD of OnlineFactor, recently showed me a new tool they had been playing with called Imagineering Profit which allows users to plug in their basic financial statements and get some great analysis on break-even, cash flow, and various what-if scenarios.

If this could be married with basic account information, accounts and invoicing data, etc – this could give SMEs a nice tool embedded within banking to start to look at a basic overdraft facility, factoring, inventory financing and a whole range of complementary services.

Easier Merchant and P2P Enablement
E-Invoicing is becoming increasingly important as part of the SME toolset for commercial banking. RBS recently has launched a range of services including e-Invoicing and electronic accounts receivables/payables management. HSBC Net for some time has offered Accounts Payable Integration which allows for e-Invoicing, better cash-flow projections and management, etc. The name of the game here is simplifying processing, improving the likelihood of rapid payment and better bank integration into your payments and receivables process.

By 31st October, 2018 the UK Payments Council has mandated that central cheque clearing will be phased out. The decline of cheque use in the UK has been widely documented. In 2000 cheques represented 25% of all non-cash transactions, but by 2008 they accounted for less than 10%, this year they will be less than 5%.

This is also where the mobile device and P2P platforms come into play. While debit cards have had big success in recent times, as credit and debit cards are integrated into your mobile phone for contactless payment capability, it is obvious that the use of cheques and cash will further decline. With the introduction of Square and Verifone PayWare it is becoming increasingly simple to provide merchant type services to accept payments.

But Person-2-Person is the big innovation for SMEs and businesses. In 2009, financial institutions including Bank of America (BAC), ING Direct and PNC Financial (PNC) rolled out so-called P2P technology that lets customers use the Web or a mobile phone to transfer money from their account to any other account. Within the next 3 years our phone will become the payment device of choice for paying SMEs who work in the service arena. This makes cloud services even more viable as SMEs will increasingly rely on virtual platforms to effect and receive payments. The ability to augment basic banking services to capture the need for virtual P2P and payments capability is a no-brainer.

SME Community Building
There are hundreds of thousands of groups currently active on LinkedIn, many dedicated to SME forums and the like. Ecademy is an social networking site based in the UK, but active globally with more than 17 million members. A survey by O2 in the UK showed that more than 600 SME businesses were joining Twitter everyday, and that 17% are already actively using Twitter to support their business.

SME community building is a great way to empower businesses and is a logical extension of the already powerful network that banks have with their customer base. Banks don’t use their community of clients to encourage interactions, but as a trusted intermediary it makes absolute sense for bankers to utilize their community to encourage internal business between their SME clients. The cloud and online communities such as LinkedIn, Ecademy and others seem like the perfect partner to kick this off.

Conclusions
The cloud is increasingly critical for SMEs not only for facilitating business, but also for enabling closer connections with partners, integrating shared services, improving payments and cash flow and marketing their services. Banks have a huge opportunity to be not just a trusted partner for banking services, but extending their platform to help SMEs build their business.

There’s one key problem with banks extending platform for SMEs. To illustrate, the current e-Invoicing and Accounts Payable Integration services banking provide today, a process designed ostensibly to reduce paperwork for an SME and improve cash-flow, is saddled with an antiquated, compliance heavy sign-up/application processes that mean the initial onboarding for such services is erroneous and time consuming. The benefits aren’t there for SMEs if the application process takes more effort than the benefits.

By better integrating customer learning and moving SME accounts management to the cloud, a bank could provide a range of great services that really help SMEs manage their businesses and cash-flow more economically, but to do so they are going to have to think differently about engagement.


If you're my bank – you better get moving…

Mobility in banking and payments is not a fad. This week I gave a keynote address at the 3rd Mobile Commerce Summit Asia (Manila) and meet with global players in the mobile payments and commerce space. Apart from the fact that half-way through the second day we experienced a 6.1 magnitude earthquake, the entire conference confirmed my view that banks are under massive pressure on mobile innovation – and the majority of them are not moving anywhere near fast enough.

The core proposition of mobile banking is two fold. Firstly, the device is already ubiquitous with 80% of the world’s population already owning a mobile phone. With only 20% of the world’s population having access to a bank account, it is patently obvious why mobile is the enabler for mobile wallet, payments and bank facsimile. WIth PayPal, Facebook, Square, Verifone and others launching themselves into the mobile payments arena, there is a great deal of interest in this space. Secondly, convenience has always been the core driver for the success of Internet Banking, so with mobile internet the convenience factor is even higher because you carry your “internets” with you.

“If I leave my wallet at home, I may not notice it for the whole day. But if I lose my cellphone, my life will start stumbling right there in the subway.”-21 year-old Kim Hee-young, Sookmyung Women’s University
NYTimes Article May 2009[1]

The fact is that once people start getting used to receiving and making payments from their mobile phone, whether it is via SMS initially, or via contactless (NFC) applications in the near future, the convenience element will drive adoption rapidly. With natural social media (tribes) implemented into mobile devices too, adoption would accelerate even quicker as social media creates a member-get-member effect for mobile wallets. If a few banks were to enable cash-in and cash-out via ATMs from your mobile wallet, this would add to the viability and push competitive innovation. The point is – you already have a mobile phone, if someone sends you some mobile money – you are converted into a customer right there and then. No need for fancy marketing, advertising or infrastructure. Then the more merchants that accept payments from mobile money whether online or in-store, the faster again that average spend/utilization will climb and non-participating merchants will hop on board.


Using Ping.Ping viral mobile wallet for payments via SMS/NFC

So if you’re a bank have you really got anything to worry about, or is it, much ado about nothing as some learned colleagues have posited in the past? (Although to be fair to The Finanser he did soften his stance the next day)

Banks like to think they’ve got a lock on payments because everyone needs cash, and to trade cash you need some form of a banking license. Well that doesn’t explain the unmitigated success of M-PESA, G-CASH and other mobile money implementations in developing economies where the unbanked have embraced such with both thumbs. In fact, developing economies with huge populations of unbanked are absolutely prime targets for fast adoption of mobile money transfers.

Bank’s might also argue that they’re not really interested in the unbanked, and ‘real’ customers are probably not going to adopt mobile money transfers as quickly as the unbanked because they’ve got a perfectly good credit card and/or debit card they can use. Well they may have a point, but only if those same banks can accelerate the integration of credit cards and mobile phones. Why? Because the name of the game here is mobility.

The reason mobile money is going to take off so quickly is that I already have to carry my mobile phone everywhere I go, and with mobile money I don’t have to go to an ATM, branch or physical location to get cash – because I can spend my moBucks at any participating retailer.

A great example of ubiquitous adoption of cashless technology is the Octopus case study in Hong Kong. Octopus is a contactless (NFC) smart-card that was introduced as a replacement to paper ticketing on Hong Kong’s transport system back in 1997. Within 3 months more than 3,000,000 (that’s 3 million) cards had been issued. Once ubiquitous merchants from McDonalds, Starbucks, 7-Eleven, Bookstores to Cinemas and Swimming Pools. Why? Because carrying around a card and paying by a contactless ‘swipe’ is still less hassle than going down to the ATM and using cash at the POS (point-of-sale).

Customer behavior is what will drive mobile wallets – the search for convenience. The same imperative is why customers are looking to check their account balance, transfer funds and pay bills through mobile internet banking.

As Chris Dadd from the UK Mobile Data Association and RBS said today at the Mobile Commerce Summit in Manila:

“If mobile-based banking or payments are easy to use, fast, cheap, social and in the cloud the growth will be unstoppable…”

I’m sorry to say, but most of the banks I talk to are only now just considering mobile enablement. So realistically by the time they develop their iPhone App or get their act into gear we are at least 6-9 months away from workable solutions. That’s too slow. End of story?

Banks can accelerate their involvement in the mobile, social boom by being open and collaborative. By partnering with every telco, app developer and retailer they can think of, by encouraging (or forcing) card issuers to upgrade POS technologies, and by helping customer awareness of mobile solutions, banks can play a vital role as integrators of mobile into commerce and payments. In fact, banks should work on publish a channel SDK and put a partner program on their websites right now for this stuff – building it on the go.

If not, my guess is they’ll simply become spectators in the next big thing.


[1] “In South Korea, All of Life is Mobile”, NYTimes May 2009
http://www.nytimes.com/2009/05/25/technology/25iht-mobile.html?pagewanted=all


Open Source Banking – the solution to lagging innovation (Huff Post)

See the original entry on Huffington Post

Since writing BANK 2.0 I’ve been meeting constantly with banks who either have such huge organizational barriers to rapid innovation or conceptually still don’t appreciate the need for rapid change around customer. In fact, this is a global problem. Banks know how to run banks, but as they are pushed more to be something more akin to software houses, design houses, and integrators, their organizations are just not built for new priorities.

Think of it this way, when Amazon first launched on the scene, other booksellers like Barnes and Noble were extremely resistant to the concept of online book sales because they were so heavily invested in a physical distribution model. So much so that B&N attempted to acquire the biggest wholesaler of books that Amazon used to put a halt to their success. The FTC and pressure from other independent booksellers scuttled that deal, and thus B&N were somewhat forced to attempt to mimic Amazon’s approach online to prevent further loss of market share. Having said that, today only 13% of B&N’s revenue comes from the online arena.

In many ways the physical distribution model is even more embedded within most banks, dominating not only the organization structure, but even the way the manufacturer and positioning of product is carried out. With time to market for new products measured in months or years, and with a dominance of metrics still based around channel silos and their revenue performance, it’s going to be even tougher for most banks to adapt to a psyche of continuous customer experience innovation around the internet, mobile phones, new media, branch automation, and P2P payments. Thus, despite the shroud of regulatory protection that is afforded by a banking license, we see third-parties whose innovation threatens to disintermediate banks quicker than ever.

Take PayPal’s success. PayPal’s commercial launch in late 1999/early 2000 went largely unnoticed by banks. Bank’s believed that customers were unlikely to put in their credit card details for a non-bank online company due to the risk of fraud and abuse, but today PayPal accounts for between 27 per cent and 50 per cent of online payments. No bank would attempt to argue today that PayPal is not a competitor in the payments space, but card issuers and banks failed to garner the sort of momentum in innovating the payments

The need for innovation is rapidly speeding up, and to be fair some banks are scrambling to respond to interest in mobile banking and social networking, but most are finding the reality of innovation difficult to master. The key stumbling blocks to innovation in the customer experience remain the long-held metrics for business unit performance being based around channel silos and revenue gains within those silos, along with organizational structures that still favor ‘retail distribution’ over ‘alternative channels’. Are banks doomed to fail?

For banks, the key must be to utilize their unique platform for transactional capability, and to extend their products to be as pervasive as possible. However, banks just don’t have the bandwidth to be everywhere they need to be as quickly as they need to be. Is there a way banks can extend their reach, but not be solely reliant on their own organization.

Let’s talk about Apple. Apple iPhone launched in 2007, but already it has over 180,000 applications available, they’ve sold over 36 million units in the last 2 years and have more than 1 billion downloads annually from their iTunes platform. Yet Apple develops just a very small fraction of the Apps available for the iPhone – the developer community does by far the majority of app development.

In respect to channel innovation, why can’t banks take the same approach? If banks created APIs (Application Program Interfaces) to hook into their transaction and product sales platforms, as long as their APIs looked after the security and compliance requirements, then third-parties could actually create the new interfaces, applications, bundled product and cross-sell opportunities that banks need to create for their customers.

As so much of the interaction between customers and the bank these days is done through electronic interfaces, let’s open up the development of these interfaces to innovative developers and the community. Let’s build collaborative social networking sites that allow customers to define product parameters and benefits, but where the bank executes the actual product application through their back-office. Let retailers of big ticket items integrate personal loans directly into their sale experience, airlines integrate travel insurance into their booking engine, and real estate companies integrate mortgage product into their property search engines.

Developing point-of-impact opportunities where bank product or services are integrated into customer experience is going to take more than an innovative bank. It’s going to take an open capability, a library of APIs, automated credit risk assessment and straight through processing. Once in place, however, these tools will enable almost unlimited innovation of the customer experience without the constraints of a bank organization chart, channel silos or outdated financial metrics.


Mobile Apps Force Retail Banks to Rethink Their Roles…

As posted on Internet Evolution (http://www.internetevolution.com/)

Internet Evolution Blog


 

Bank of America has been in the news of late with some mind-blowing numbers on new adoption rates on their iPhone app. The bank says some 200,000 or more customers each month are subscribing to this new service.

When I recently posted on Twitter that banks were slow to innovate around mobile, I got a bunch of replies suggesting that mobile banking app deployment like BofA’s was evidence that my position on this was wrong. So I thought I should clarify.

Currently, the typical mobile banking functionality on an iPhone app includes an ATM locator, balance checking, transfers, and bill payment. These are all things I can do already on my phone without an iPhone app. Admittedly the App phone interface makes this interaction a lot easier, but it doesn’t give me a full suite of banking products or services.

I generally can’t apply for a personal loan, open a term deposit, apply for travel insurance, or trade stocks, but these are fairly typical Internet banking solutions already available today. This may be because if you added all this functionality to the one iPhone app it would just be too complex to navigate, thus losing a large part of its value proposition – it’s simplicity.

The solution to this richer functionality quandary will likely be targeted product recommendations and relationship offers integrated into our mobile banking experience with multiple, distinct apps from the same bank.

Continue reading my blog posting on InternetEvolution…


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