Category Archives: Platform

Payments: The More Things Change…

There have been a number of interesting pieces on payments in the last few days. Farhad Manjoo wrote a thought-provoking piece on PandoDaily about how new innovations in payments are really just a thin veneer on top of the global credit card infrastructure. The front-end might be changing but the pipes are still the same. Erik Hersman piled on pointing out that while things may be business as usual in the US and Europe, those parts of the world without credit card infrastructure (especially Kenya) are seeing real innovation. And Tim Harford one-upped them both by reminding us that cash is still around and won’t go peacefully into the night on an ice floe.

These pieces serve as an opportunity to step back, to take a look at where payments are today and where they might be going.

First I would like to take a look at Manjoo’s post. His core premise is that credit cards are incredibly efficient and ubiquitous today and that supposedly-new payment technologies are really just new customer experiences built on top of the existing credit card infrastructure. Fair enough. But let’s break this down – first, what value exactly does the credit card infrastructure provide? Why is it a platform that has become so ubiquitous?

  • For Purchasers:
    • Security – carrying less cash leaves less to be stolen.
    • Short-term loan – credit lines enables you to spend money you don’t yet have.
    • Convenience – carrying less small change is nice and you don’t have to worry about carrying sufficient cash for large purchases.
    • Rewards – credit cards can earn you miles, cash back, points, etc.
  • For Merchants:
    • Security – having less cash in the till to be stolen.
    • Agency – less cash handled by employees results in less internal loss; with credit cards there are receipts and records to track each payment.
    • Data – rich customer and sales data, probably not very well leveraged today.
    • Basket size – credit cards might encourage customers to spend more.
    • Parity with other merchants – very few merchants are willing to lose a sale because the customer wants to pay with credit, so they feel compelled to offer it as an option.
  • For Banks:
    • Scale – credit card networks eliminate the need for bi-lateral agreements between banks everywhere.
    • Settlement guarantee – credit card networks provide certainty that the merchant bank will receive payment.

That’s a lot of value that credit cards bring to the main 3 constituents in a purchase transaction. And each of those items is probably worthy of a post on their own.

But for now, let’s move to the main point of Manjoo’s article – that new payment innovations are mostly just superficial front-ends on top of the credit card infrastructure. That’s true – today. But it doesn’t mean that will necessarily be the case tomorrow. The big question here comes down to: where will the store of value exist? Today, it’s largely in two places – bank accounts and credit cards. Bank accounts we’re all familiar with, but they’re not optimized for payments – they’re optimized more for savings. Credit cards, on the other hand, are really just post-paid stores of value – Visa gives me $2500 of value to spend with my commitment that I’ll pay it back at some point[1]. The big question is whether there is room for a new store of value in our lives. Paypal has tried and succeeded to an extent – but I’m not aware of data showing how much money people actually load into their Paypal account for easy (and cheaper) spending elsewhere[2]. Dwolla is trying to do essentially that same thing – by encouraging you to load your money into their store of value account from your other store of value account (bank account) so that you can use it to pay for things (with more security). Likewise, Square (Card Case) could do this as well. Same with Apple (iTunes), Amazon (Amazon Payments) and Google (Google Wallet).

Interestingly, in the US, Starbucks may be the farthest along in creating a new store of value account.

Looking outside the US, M-Pesa in Kenya is perhaps the most successful new stored value account the world has seen since credit cards. It’s enormous: 14.9 million registered users[3] out of a population of roughly 40 million people. To put that in perspective, that level of penetration would represent 115+ million people in the US, more than Paypal and probably in the neighborhood of Apple and Amazon – but as an entirely new stored value account, not as a simple credit card front-end. That’s massive.

All this to say, Manjoo’s right that credit cards are by far the biggest source of stored value for payments in the US today (next to cash that is). And he’s right that today’s payment innovations are more about new front-ends that leverage that credit card store of value – which is a valuable thing on its own[4].

But I’m more optimistic than Manjoo that there’s potential for change and innovation in stored value accounts in the future. M-Pesa has showed us that it can be done. Getting to critical mass is definitely a major challenge and so riding the credit card infrastructure until you have good penetration is an efficient approach – and one that most of the major players are taking today. Once that critical mass is obtained, the potential for bigger disruption is ripe – but they’ll have to deliver more value than the trusty credit card infrastructure does today.


[1] Pretty genius, actually. Instead of making me load my credit card with value from my bank account, credit cards let me spend, spend, spend and then have me transfer value from my bank account after the fact.

[2] A lot of Paypal’s payments are just facilitated credit card payments, as Manjoo points out.

[3] Latest official statistic as of November, 2011 has 14.9 million registered users (http://www.safaricom.co.ke/fileadmin/About_Us/Documents/Half%20Year%20Results%20September%202011.pdf).

[4] Credit cards leave a lot of untapped value on the table. Information is perhaps the biggest – it took a service like Mint for us to be able to get that information into a format amenable to analysis and visualization.

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Platform Spotlight: Obopay

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  We’ve already had a look at Fundamo and Square; this week, we take a look at Obopay, one of the leaders in providing mobile money platforms especially for mobile operators (MNOs).

Overview: Obopay is based in the United States and was founded in 2005 by Carol Realini after she saw people carrying “bags of devalued cash” during a volunteering stint in Africa.  Like Fundamo, Obopay is a mobile money solution platform primarily targeted at MNOs but also appropriate for some banks.  Obopay provides back-end technology as well as customer-facing applications that enable for a full-range mobile money product (see below for features).  Obopay currently operates in 4 countries: India, Kenya, Senegal and the US.

Key Features: Obopay’s Mobile Wallet platform enables the full range of mobile money basics, including:

  • P2P transfers (local and international)
  • P2M merchant payments
  • Airtime purchases
  • Bill payments
  • Balance inquiries
  • Card and PIN management

Notable Clients/Partnerships: Because Obopay’s is a partner-led model, it has significant partnerships in each of its 4 deployment locations.  In India, Obopay has partnered with Nokia and an Indian bank called Yes on a combined solution called Nokia Money.  It’s a pilot initiative for Nokia and is an attempt for the Finnish phone maker to make money from services in addition to its traditional hardware business.  The Nokia Money application is pre-loaded on new phones and can be installed on existing phones through Nokia’s distribution network; it provides a good customer experience for low-end phones given it’s an integrated and native application.

In Kenya, Obopay partnered with an MNO called Yu (which is owned by the Indian conglomerate Essar) to create a product called yuCash[1].  Given the popularity of mobile money in Kenya, this was an important opportunity for Obopay to demonstrate its technology and solution; unfortunately for Obopay, Yu is the smallest MNO in Kenya and is struggling to survive.  In fact, there are reports that Essar is trying to sell Yu.  It’s a tough situation for Obopay and one that will not improve unless Yu unexpectedly gains market share or Obopay can strike deals to interoperate with both other MNOs and additional banks.

In the US, Obopay has many partners.  With STAR, Obopay enables instant P2P fund transfers regardless of the banks involved as long as the accounts are STAR debit accounts.  Additional partners have included MasterCard, Verizon, NYCE and FIS Global.  All of these partnerships make for a compelling story – but it’s unclear if any of the initiatives have gained any traction.  Despite much searching, I haven’t been able to find any evidence of substantial take-up or any usage numbers.

In Senegal, Obopay is working with Societe Generale on a product called Yoban’tel to offer its mobile money solution.

Competitors: Obopay competes with other mobile money technology platforms, chiefly Fundamo which was recently purchased by Visa.  Banks are also natural competition for Obopay to the extent that they recognize the opportunity of mobile-based financial services.  And if the card associations (chiefly Visa and MasterCard) continue to move in the direction of mobile based payments and transfers, they will be prime competition.

Future: In the short to medium term, Obopay must prioritize customer adoption in all of their major partnership deployments.  Prior to being acquired, Fundamo had strong success with MTN – demonstrating that their solution worked in the field and that it could scale.  Obopay needs to find its big wins to demonstrate the same.

In the long term, just like I said with Fundamo, I believe that MNOs will lose their closed-loop and proprietary grip on mobile wallets.  Before that happens, Obopay needs to figure out its role in the mobile payments ecosystem – either selling a customer-facing solution to financial institutions or providing an interoperable back-end system for both smaller banks and major MNOs.  Time will tell if Obopay is able to make the transition and gain serious usage.


[1] yuCash and Equity Bank have created a link enabling transfer of funds as well as withdrawal from yuCash via Equity’s ATMs.

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Platform Spotlight: Square

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  Last week, we started by looking at Fundamo; this week, we take a look at Square, a much-hyped mobile-based credit card processing platform focused on the US.

Overview: Square is perhaps most famous for being founded by Jack Dorsey, also the founder of Twitter.  But Square’s momentum and success is noteworthy on its own.  Square was perhaps the first solution that made use of the iPhone’s headphone jack to swipe and charge a credit card; it also enabled people without merchant accounts to accept credit card payments.  Since those two innovations, Square has been on a roll and now processes over $3 million in transactions per day.  It’s a private company based in San Francisco, has about 100 employees and recently raised funding at a reported $1 billion valuation.

Square enables everyone with a smartphone to take credit card payments.  While in principle this could include every person selling something on Craigslist, its sweet spot is small businesses.  Small businesses have a sizeable amount of transactions but paying for a traditional POS device and managing a full-fledged merchant account are often beyond their reach.  With Square, there’s no need to bother with either a POS device or a merchant account.

Key Features:

  • Universal credit card acceptance: Square accepts Visa, MasterCard, American Express, and Discover.  Credit card information can either be entered by swiping the card through the Square dongle or by manual entry (a “card not-present” transaction).
  • Inventory tracking: Square’s recently launched “Square register” app for the iPad enables merchants to enter inventory information.  This makes transaction information easier to enter and gives the merchant great insights into their business.
  • Consumer application: Square’s recently launched “Square card case” app enables consumers to establish a link with a particular merchant that stores their payment method for quicker paying as well as keeping an electronic version of their receipts.
  • Secure payment processing: Square has Level 1 PCI-DSS compliance.

Notable Clients/Partnerships: Square’s highest profile partner and investor has been Visa[1].  In April, 2011 Square announced that Visa had made a strategic investment and that the two companies would be collaborating to improve the Square experience, especially for Visa cards.

While some may think Visa and Square are competitors in the mobile payments space, the investment/partnership makes a lot of sense for both parties.  For Square, Visa brings credibility; for Visa, Square is building and pushing a solution that enables more people to use Visa cards.

Competitors: Long term, Square’s competition is principally makers of POS devices.  VeriFone, who has partnered with Google to push NFC, and Ingenico are two of the biggest.  Intuit and Rev also make a smartphone-enabled credit card reader.  As a maker of the popular accounting software Quickbooks, Intuit can offer merchants an integrated solution to manage their business while Rev is focused solely on the mobile payments space.

Future: In the short to medium term, Square has a big market for continued growth – COO Keith Rabois estimates that there are 27 million small businesses that cannot accept credit card payments[2] and in developed countries like the US and Western Europe, credit cards and debit cards will remain the dominant form of payment for some time.

As credit card payments shift to mobile-based payments, Square will need to offer technology to support NFC.  How it fits in with Google’s Wallet and competing NFC-based wallets remain to be seen.  Also, from an emerging market perspective, Square’s reliance on smartphones for its customer-side mobile application is limiting for the next 3-5 years.  Finally, moving beyond small merchants to larger merchants will require Square to introduce a POS-like device beyond the iPad.

Long term, Square has a chance to build a merchant solution that eases the transition from credit cards to mobile payments.  If it succeeds in doing so, it will earn a valuable slice of the transaction pie.


[1] The very same Visa that just purchased Fundamo.  Visa is getting very active in this space.

[2] Rabois mentioned this in an interview although I am guessing he got the data from another source.  More here: http://techcrunch.com/2011/04/27/visa-makes-a-strategic-investment-in-disruptive-mobile-payments-startup-square/

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Platform Spotlight: Fundamo

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  This week, we’ll start by looking at Fundamo, likely the largest mobile money platform targeting mobile network operators (MNOs).

Update: On June 9, Visa announced that they were buying Fundamo for about $110 million in cash.  There has been much coverage of the purchase (here, here, and here) so I will just say that I think it was a very smart purchase by Visa.  Fundamo has expertise in working with mobile operators and a back-end that’s robust enough to work with banks – Visa now has a great platform especially for emerging markets.

Overview:  Fundamo is a private company based out of South Africa and builds mobile financial service products primarily used by MNOs.  Its deployments have focused largely on emerging markets where the MNOs have a strong distribution network and banking services are mostly serving an elite few.  Its mobile wallet and financial services infrastructure provides a full-range mobile money product (see below for features).  Founded in 2000 by Hannes van Rensburg, Fundamo has grown to be a respected leader in the mobile money space.  Van Rensburg has prior experience working in the financial services industry which definitely bolsters Fundamo’s credibility in delivering robust financial solutions.

Key Features: Fundamo’s Mobile Wallet platform enables the full range of mobile money basics, including:

  • P2P transfers (local and international)
  • Airtime purchases
  • Bill payments
  • Balance inquiries
  • Card and PIN management

Notable Clients/Partnerships: Fundamo boasts working in more than 20 countries on over 50 successful deployments.  Their strongest regions of deployment are Africa and Latin America with coverage in India, North America, Middle East and Western Europe as well.

Fundamo’s selection as the mobile platform of choice by MTN is by far the most public and notable deployment.  MTN is a large mobile operator also based out of South Africa with over 140 million subscribers in over 21 countries.  MTN selected Fundamo’s Mobile Wallet product to serve as the backbone for MTN Mobile Money in a deal worth ~$10 million.

Competitors: As a provider of mobile money services to MNOs, Fundamo’s main competition is Obopay which will be covered in a future Platform Spotlight post.  Fundamo also competes with banks and MNOs that attempt to offer their own, in-house mobile financial services platform.  Fundamo (and Obopay) provides compelling value for those banks and MNOs that do not want to endeavor to create their own solution from the ground up.

Future: In the short to medium term, we can expect Fundamo to continue to grow and prosper as MNOs around the world continue to look for a turn-key, white-label mobile money solution.  With M-Pesa’s growth and success as a beacon of hope, MNOs will continue to look to mobile money as a potential value added service that holds up profitability despite competitive pressure in voice sales.  That thirst for an M-Pesa-like financial success will drive MNOs toward mobile money and Fundamo will be one of the leading options they embrace.

In the longer term, as MNOs lose their closed-loop and proprietary grip on mobile wallets, I believe that Fundamo will need to transition into an interoperable mobile payments[1] platform that both MNOs and banks can plug into with merchant aggregation and management as a core competency.  Time will tell if Fundamo can make the jump into mobile payments.  It will be interesting to see the role they choose to play.


[1] By payments here, I mean payments at retail merchants for physical goods such as groceries or clothes.  I distinguish payments as something distinct and separate from P2P transfers.

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