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Research Brief

Musings about Mobile Payments 2009
Interviews and Observations U.S. Market Perspective

Carol Coye Benson
Glenbrook Partners

December 2009

© Glenbrook Partners LLC, 2009. All rights reserved. Allr company and product names mentioned herein are the trademarks or registered trademarks of their respective owners. Information in this research brief is based on best available resources. It is distributed on an as-is basis, without warranty. While every precaution has been taken in the preparation of this report, Glenbrook Partners shall have no liability to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by the advice or recommendations contained in this report. Opinions reflect judgment at the time and are subject to change. All citations must be accurate, quoted verbatim, or duplicated without being manipulated, adapted, paraphrased, or summarized. All citations must be sourced “Glenbrook Partners, 2009.”

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Preface

Preface
During the summer and fall of 2009, Glenbrook’s Carol Coye Benson conducted a series of interviews with executives of some of the key players in the US mobile payments market. All of her interviews were posted on Glenbrook’s PaymentsViews.com website as they were completed. This document brings together Carol’s interviews in a convenient book form. You’ll find the originals at:
http://paymentsviews.com/author/carol/

About Glenbrook
Trusted relationships. Deep experience. Unusual insights. Out of the box thinking. Founded in 2001, Glenbrook is a payments strategy consulting firm that delivers a unique combination of specialized skills in electronic and mobile payments, years of hands-on operating experience in executive roles, and an extensive network of trusted relationships to payments clients, merchant treasury, corporate finance teams and investors in financial services and financial technology. Our unique expertise in mobile payments, global eCommerce payments acceptance and fraud risk management helps our clients improve the profitability of their payments-related businesses. In concert with our primary strategy consulting practice, we focus on the needs of payments professionals for knowledge and insight with Glenbrook's Payments Education series - including our Payments Boot Camps, Private Payments Workshops, daily Payments News blog, the Payments Jobs career center, and our individual writings which we share on PaymentsViews.com.

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Contents

Contents

Blinging it Home? A Look at Bling Nation .....................................................................5 The Phone is the Wallet: A Look at mFoundry .............................................................9 Decoupled Mobile? A Look at mPayy ............................................................................13 Getting the Garden Ready: FDC and Mobile Payments at the Point of Sale ......15 It’s Not Just Games Anymore - A Look at Payfone ....................................................19 A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting ............21 Carriers United - A Look at Zoompass ..........................................................................25 Wallets and Stickers and Phones, Oh My! - A Look at Blaze Mobile .....................27 Digital Content & Mobile Phones – a Look at Zong ..................................................29 Mobile Payment Gateway? - A Look at Billing Revolution ......................................31 Money In The Bank? A look at CashEdge’s POPmoney...........................................33 Beaucoup Bucks? - A Look at Boku.................................................................................35 About the Author.................................................................................................................37

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Blinging it Home? A Look at Bling Nation

Blinging it Home? A Look at Bling Nation
by Carol Coye Benson Originally posted October 19, 2009 One of the good things about having a really odd company name is that people do remember it.! We mostly heard skeptical laughs when Bling Nation first emerged from stealth.! But lately we’ve been getting more questions…. I spoke recently to co-CEO and founder Wences Casares. Wences and co-CEO Meyer Malka have an interesting background, having worked together in a series of successful financial services and telecom investments in Latin America.! They’ve taken venture financing from Lightspeed Venture Partners, added former Bank of America Vice-Chairman Luke Helms to their board of directors and have pulled together some impressive advisors – including John Reed (former CEO of Citicorp), Carl Pascarella (former CEO of Visa USA) and Jeff Stiefler (former President of American Express).

m e r c h a n t s ( m ov i e s, p i z z a , d r y cleaners…).! The banks provide customers with a payment sticker (cobranded with Bling and the bank’s brand) and instructions on how to enroll their phone in the service. The merchants are given a stand-alone device (called a “Blinger”) for payments acceptance.! At time of purchase, the c o n s u m e r t a p s t h e B l i n g e r, t h e transaction is processed and the consumer and merchant both receive confirmation of payment – the consumer to their mobile phone and the merchant on their Blinger. ! Bling also supports a variety of merchant rewards, loyalty, discount, and couponing programs, all tied to mobile phone messaging. Sounds like any debit card or open loop network-branded prepaid card, right?! Wrong!! There is no network brand on the sticker or the Blinger.! Transactions are authorized by the consumer’s bank – Bling looks like a foreign ATM to the bank.! Settlement in batch is done at night, between Bling and the banks, as a private, not network, settlement.! The merchant doesn’t have to submit any clearing transactions – as long as they got the Blinger confirmation, they know their account will be credited that day. Bling is finding that the operational management of this is pretty straight forward – and, significantly, that the processors which are serving many of their target banks are willing and able partners.

Bling has their eyes firmly on the prize – point of sale transactions and the huge payments industry revenues associated with that. Their approach, however is unique.

What They Do
Bling has their eyes firmly on the prize – point of sale transactions and the huge payments industry revenues associated with that.! Their approach, however, is quite unique. Bling is creating a series of communitybased local payments networks.! The mobile phone is a piece of the puzzle, but not the defining one – instead, think of the mobile form factor as an enabler of the core payment service. Bling targets a small community which has a decent population and financial asset size, and which is served primarily by local community banks.! They sign up one or more of the banks, and an assortment of frequently-visited local

The Pitch
The pitch to the consumer is “coolness” and convenience – and the ability to access merchant rewards programs.! The pitch to merchants is primarily cost – transactions are about 50% cheaper than traditional card acceptance.

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Blinging it Home? A Look at Bling Nation

But a secondary, and very strong, part of the pitch is the ability to deliver rewards based on things like the frequency of visits to a merchant – which the consumers can redeem instantly as they pay.! Neither the merchant nor the consumer needs to keep track of anything – and, says Wences, “merchants love that.” The pitch to the bank is the opportunity to get local merchant POS business – a business that many community banks have given up on as much of that business has migrated to large, national acquirers.! When compared to a transaction where the consumer uses the bank’s own traditional network-branded debit card, the bank’s revenue can be three to five times higher. This higher revenue is made possible because the middleman – Bling in this case – is taking significantly less from the merchant discount fee than is taken, in aggregate, by the many players in the traditional bank card value chain.! As the community network grows, a bank can also earn money if their consumer shops at a merchant served by another Bling partner bank, but this is not a significant piece of the economics currently. For both the bank and merchant, the “stay local” aspect of Bling is highly attractive.! In fact, Wences said they were surprised by how strongly the “local” aspect of the pitch resonated with local merchants.! Frankly, I’m not at all surprised – in my small community there is a terrific energy around several community programs promoting support of local merchants – but my community’s banking needs are served primarily by local branches of national banks.! Bling is staying away from those communities – for now.! I asked Wences how they were dealing with the local branches of big banks in the communities they are serving.!! “Right now,” he said, “we’re not approaching them.”

So just how big an opportunity is this?! It often amazes people from outside our industry – or outside our country – that t h e U. S . b a n k i n g m a r ke t i s a s unconcentrated as it is. Our estimates show that the “big three” banks – Bank of America, Chase, and We l l s Fa r g o, e v e n a f t e r r e c e n t acquisitions, account for only about 25% of bank de posits (consumer and commercial, bank and credit union) and only about 35% of debit card transactions.! There are over 8,000 credit unions and over 5,000 community banks out there, serving local retail customers.! Bling is betting that a lot of these smaller institutions will be interested in a new payment service that gives them a shot at playing a new role in their community’s merchant business. Common sense tells us there is a lot of volume in local purchases.! I remember seeing statistics years ago about what percentage of phone calls were made locally – I don’t remember the number, of course – but it was very high!! If anyone has seen an analysis of what percentage of POS transactions are done in the cardholder’s home town, I’d love to know about it – I’m sure it’s very high.! Then just factor in the percent of transactions done in small communities – certainly seems that it is a big enough number for Bling to pursue!

The Future
Bling clearly has its work cut out.! Just pursuing the many small banks and communities that fit its profile will take time and resources.! They are active in four communities right now, and expect to be in ten by year-end 2009. At Glenbrook, we’re always interested in studying just how these new payments propositions are likely to evolve in the future.! One development, of course, might be the move to NFC-based

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Blinging it Home? A Look at Bling Nation

contactless payments built-in to the mobile phone – rather than the use of contactless stickers.! Wences was pretty philosophical about that.! “We are not,” he said, “waiting for that to happen….I expect non-financial applications will lead the way for NFC”. Longer term, it is extremely interesting to note that while Bling is taking a community-by-community approach in its initial market development, they are also building a larger infrastructure.! If my community bank issues me a Bling sticker and I travel to your community…. that sticker works when presented to the Blinger of your local merchant!! A new network is born?

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The Phone is the Wallet: A Look at mFoundry

The Phone is the Wallet: A Look at mFoundry
by Carol Coye Benson Originally posted September 28, 2009 Last week, Starbucks announced a raft of new mobile capabilities, with iPhone apps to enable consumers to use their phone as their card in a variety of ways, including seeing a balance and reloading.! For the payments industr y, however, the announced test of a usable-for-purchase prepaid card on the phone, using 2d bar code technology, is big – very big. This piece is enabled by mFoundry, an early leader in mobile banking; who, it appears, is again moving to the forefront, this time in a new category of mobile payments. I spoke recently with CEO Drew Sievers.! I w a s p a r t i c u l a r ly i n t e r e s t e d i n understanding his new initiative, and also to understand his thoughts on the connections – real and potential – between mobile banking and mobile payments.

Looking Back: Mobile Banking
We started with a retrospect on mobile banking. ! A lot has happened in three years!! If you recall, three years ago most banks were worried about deciding among competitive delivery technologies – the phone browser (pretty awful at the time), SMS, or an application on the phone. ! The application required carrier p a r t i c i p at i o n . S o m e l a r g e b a n k s (including Citi, working with mFoundry) went forward with an application in order to ensure an attractive user experience.! Other companies (including Firethorn, later acquired by Qualcomm) moved even more aggressively to provide preinstalled applications with deep carrier involvement.! Sievers thinks the financial services industry collectively had a bad experience with these applications, and par ticularly with the carriers: it “established an adversarial relationship between carriers and banks… if we fast forward, it became very clear that mobile operators had no real role in mobile banking.” The obvious game changer was the iPhone, and the whole concept of an open environment for apps on the phone.! Regardless of who wins and loses on the question of app stores, Sievers thinks it is clear that open ecosystems are how consumers are going to get apps for their phone through open ecosystems! – i n c l u d i n g m o b i l e b a n k i n g a p p s. mFoundry and other providers are now merrily creating iPhone, Android, and other lightweight apps for banks to offer consumers, as well as solutions via WAP and SMS. The marketing challenge for mFoundry and other mobile banking companies is reaching the many banks in the United States; that’s why mFoundry’s strategic partnership with bank processor Fidelity National is so important to them. I questioned this, pointing out that the cross sell between bank core processors
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Some people assumed that mobile payments would simply be a logical next step after mobile banking.! That was naive – in the U.S. in particular, many people make payments through cards that are not provided by their banks.!

Background
When the whole topic of “mobile” came to boil for the financial services industry about three years ago, there was a lot of confusion about the difference between mobile banking and mobile payments. Some people assumed that mobile payments would simply be a logical next step after mobile banking.! That was naive – in the U.S. in particular, many people make payments through cards that are not provided by their banks.! And we’ve seen the various person-to-person, digital content, and NFC/POS mobile payments plays emerge and evolve separately from the evolution of the mobile banking environment. (We’ll discount, for the moment, bill payment – which is included in most mobile banking offerings.)

The Phone is the Wallet: A Look at mFoundry

and online banking is pretty low (e.g. a bank using Fidelity for core processing may well use another provider for online banking and bill payment.) ! Sievers acknowledged this but thinks that the cross sell between core processing and mobile will be much stronger – partly because the real time alerts that mobile solutions support (and demand!) require deeper integration with the core than is the case for online banking. And there is a need to serve all of a banks customers, not just the ones who use online banking,

which he is a veteran, having been a “Mad Man” at Ogilvy-Mather and other agencies in the 1980s) has “been talking about this promised land for decades… in reality”, he says, “we are not really drastically closer to that than we were 30 years ago.” He thinks that even if the marketing applications of NFC become real, they won’t necessary be tightly coupled with payments. Despite what sounds like some pessimism about mobile payments, Sievers is actually quite optimistic about consumer use of phones for payments and identity management. In the short-term, the killer app for mFoundry will be frequent-use, closed-loop stored value cards – delivered not by NFC but by the use of 2D bar codes. The Starbucks test announced last week is the first of what Sievers claims will be multiple announcements coming from mFoundry in the near future.! With this approach, consumers will be able to check their balances and reload using light weight apps on their phone, and then simply display a bar code to the store clerk for payment. This solution typically does not require new software for the merchant – since most merchant optical readers come with this capability (reading a 2D bar code and generating card payment data) “baked in.” mFoundry’s role is writing the client software for the phone and generating the barcodes based on the consumer’s profile and account balances. ! They also manage the security of the system. The back end prepaid functions are not provided by mFoundry but by a prepaid processor. mFoundry’s business model is as a managed service provider – not a transaction processor. We closed by talking about the future for payments innovation – a topic that we at Glenbrook are always interested in discussing! ! Sievers thinks that the most exciting element of the open app environment is that it enables innovation
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Looking Forward: Mobile Payments
The mFoundry team has been thinking hard about what this new app environment means for payments, and most importantly, the question of how purchases at the point of sale – presumably using NFC technology – will roll out. The common wisdom is that doing these kinds of transactions requires a level of security beyond that supported in the open apps environment. This leads banks and other payments providers to rely on phone SIM card security, and thereby drops them back in the laps of the carriers, who control the SIM card. ! Payments providers are fighting hard against the notion of sharing their payments revenue with carriers. (One of my partners here at Glenbrook, Bryan Derman, is fond of pointing out that when you aren’t creating new revenue, but rather trying to re-allocate existing pools of revenue, the water gets bloody pretty quickly.) Sievers sees no quick resolution to this battle, and is generally skeptical about the short-term promise of NFC payments. The convenience argument isn’t enough for him: “it’s not materially faster or easier than swiping a card.” And he is particularly doubtful about the whole set of marketing arguments, which revolve around ideas such as providing real-time couponing. The marketing industry (of

The Phone is the Wallet: A Look at mFoundry

from a broader ecosystem, rather than relying on one or a small number of companies that control a technology to provide it. He is optimistic that over time “external innovators” will figure out how to use the NFC chip for payments, and more importantly for identity and access management, without forcing payments providers to share revenue with the carriers. We talked a bit about the ongoing industry discussion on mobile wallets – what are they, who provides them, etc. !Of course, everyone agrees that “the wallet” will hold multiple payments instruments and identity documents. Interestingly, Sievers said “how it actually happens is less relevant than the content”. “The phone”, he said, “is the wallet”. This would mean that a consumer might have multiple payments related apps on their phone – with no particular integration or organization of them. Before dismissing this (”of course consumers would want to go to one place to see their mobile payments”), keep in mind that many products that have as their premise the organization of consumer finances find very limited markets – think of the personal financial management systems and bank aggregation offerings.! Consumers tend to value convenience, and discount organization, when it comes to their finances – so this is one prediction that merits careful thought. In the meantime, I’m waiting for the Starbucks test program to expand in the Northwest from Seattle – one of their test cities – to my (small) home town of Ashland, OR.! I’ll be the first in line for my latte!

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Decoupled Mobile? A Look at mPayy

Decoupled Mobile? A Look at mPayy
by Carol Coye Benson Originally posted September 21, 2009 At Glenbrook, we’re fascinated by the topics of mobile payments (in general); the potential for new ACH applications; and the continued growth of eCommerce.! So it was great to talk to Conrad Sheehan, CEO of mobile payment startup mPayy – who has moved his company right into the center of all three topics. To start with, Conrad is no slouch – he is an industry insider, having built his payments skills as a consultant to banks and Viewpointe during those early check image days, and then later as head of Chase’s consumer payments group during the early growth days of POS debit. mPayy, which was started in 2007, is interesting today because of the platform it has built to support eCommerce and P2P (person to person) payments.! It might be even more interesting in the future – at the point of sale – more on that later.

All of this, of course, requires some sophisticated risk management on mPayy’s part – to ensure that the consumer is properly authenticated; that the bank account information they have provided is valid, and that there are sufficient funds in the account to pay for the purchase.! The mPayy platform handles this through a complex set of back-end processes. You can think of mPayy as a PayPal-like platform, but Sheehan is quick to point out that there are some important differences.! First is that credit card funding is accepted only as a back up (if the DDA funding fails), not as an upfront option for the consumer.! That m e a n s t h at v i r t u a l ly a l l m Pay y transactions run on the more profitable half of PayPal’s business model.! This also enables mPayy to pass some of the savings (from avoiding card funding expense) on to merchants. Secondly, the consumer identifier is the mobile number, rather than the email address, as in PayPal’s case (making PayPal sound “so 1990’s” in this respect!).

Merchants & Consumers
Like many payments startups, mPayy faces a “chicken and egg” problem of signing up both merchants and consumers. Sheehan’s starting point is merchants, where he feels he has a “very compelling proposition”.! The elements of the merchant appeal? • Acceptance costs “materially below that of cards”. • The management of ACH risks. Once a payment is authorized, mPayy guarantees settlement and absorbs any fraud-based charge-backs and NSF’s. • Rapid set-up process – mPayy can open up a consumer account and

The Platform
The mPayy platform is a “secure debit platform”.! mPayy, says Sheehan, is a “decoupled debit provider” using mobile as a key channel. A consumer sets up an mPayy account and authorizes a transaction on the merchant’s or biller’s website or mobile site.! For billers or any invoicing merchant, mPayy can send a mobile invoice and collect payment from the consumer’s cell phone. ! P2P transactions can be done on the mPayy website, by mobile, or on the major social networks. mPayy then manages the process of drawing funds out of the consumer’s account, by an ACH debit transaction, and sending money on to the recipient.

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Decoupled Mobile? A Look at mPayy

execute a transaction all in one session • Checkout support – the merchant can opt to have mPayy populate the address page, etc. mPayy is signing merchants up by the now-established route for payments startups, of making deals with acquirers – “the usual suspects”. What about the consumer half of the chicken and egg problem?! The best route to getting consumers, Sheehan feels, is through merchants: “anything else just isn’t cost-effective for a startup”.! He recognizes the challenge here, but thinks mPayy can benefit from lessons learned by other start-ups that have had a hard time taking this path. ! ! Of course, he says, the consumer proposition is “easy, secure, and free”. Easy sign-up and the mobile interface, he hopes, will help drive consumer use of mPayy once they are signed up.! A basic WAP capability for the consumer is of course already in place: iPhone and Android applications are coming soon.

a shot at this because they control the SIM chip that (in the base case scenario) needs to be provisioned with card data for security.! But a debit platform such as mPayy’s could work directly with carriers on an NFC solution.! Rather than being c o n c e r n e d ab o u t l o s i n g e x i s t i n g interchange, mPayy (or any other similar debit platform) would see it simply as an opportunity for new revenue – which (and this is my speculation) they would presumably be more than ready to share with a carrier. What do you think the chances are that a scenario like this could interest a carrier in getting started with NFC?

Looking Forward
Sheehan is also enthusiastic about mPayy’s ability to support social networking and payments; they already have secure widgets available for installation on Facebook – but he admits “there’s been very little usage”.! He thinks the work they have done there will find better applications in supporting digital content purchases – in particular for newspapers. We closed with a very interesting discussion about how mPayy might play in an NFC world.! Sheehan, like the rest of the industry, is watching the carriers and the card issuers battle out the question of how payments revenue – now in the issuer’s pocket – might get shared with carriers in the future.! Carriers have

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Getting the Garden Ready: First Data and Mobile Payments at the Point of Sale

Getting the Garden Ready: FDC and Mobile Payments at the Point of Sale
by Carol Coye Benson Originally posted September 2 2009 While the list of start-ups focused on mobile payments for digital content, eCommerce physical goods and/or person-to-person transfers continues to grow, another part of the industry is biding its time, with an eye on what may be a much larger prize. What’s at stake are point-of-sale, inperson payments – what Glenbrook estimates to be roughly $4 trillion and 107 billion payments each year in the U.S. market.! Some of these today are done by card; some by cash and check.! All are targets for the companies looking at using the phone to make those payments.

but the good news is that the same terminals that support contactless cards (MasterCard PayPass, Visa payWave, etc.) work for NFC phones as well.! (Contactless cards and NFCenabled phones both use RFID technology to communicate with terminals.) • Contactless cards in the U.S. are either (pick one point of view): • On a roll – initially implemented at f a s t - b u y l o c a t i o n s, r a p i d l y spreading to other merchant categories, consumers love the convenience • Stalled out – have found their market at fast-buy locations; won’t go much further, consumers find little incremental value in waving vs. swiping with no signature • The key issue about the “when” of NFC (and even the “if ”) is the carrier’s place in the economic model.! Provisioning card data onto a phone requires security, and the most likely candidate is the carrier-controlled SIM chip.! Carriers will undoubtedly charge issuers for provisioning and maintenance – but will they also get a share of transactional revenue? • Stickers containing a contactless chip may help bridge consumer adoption issues; consumers who do not yet have an NFC-enabled phone will put these stickers on their phone.! These are either (pick one point of view): • A key transitional offering – consumers will get used to “paying by phone” and make an easy transition to NFC when their phone is enabled • A market-confusing distraction, which may slow the rollout to full NFC capability

Background: Conventional Wisdom on Mobile @ the POS (Glenbrook’s Perspective)
• NFC (Near Field Communications) technology is seen as the key enabler.! Think of this as a “modem chip” on your phone (actually, an antenna) – that can communicate with appropriately enabled terminals. • NFC-equipped phones aren’t in the U.S. market yet – but may become prevalent in new phones in the 2010-2012 time period (estimates vary); someone is going to have to pay the incremental cost of putting the NFC chips in phones.! (This could be the carrier, a payments provider, or a marketing company – NFC chips are also going to enable a slew of POS couponing kinds of applications.) • Merchant terminals need to be capable of interacting with chips –

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Getting the Garden Ready: First Data and Mobile Payments at the Point of Sale

First Data and Contactless Payments
First Data Corporation is a pivotal player in POS payments – a key provider of processing solutions to both the merchant and the issuing sides of the business.! So it was particularly interesting to speak last week with Barry McCarthy, President, Mobile Commerce Solutions for First Data McCarthy sees mobile payments at the POS as an eco-system that is being built, piece by piece – and that a giant tipping point will occur once all of the pieces are in place.! The four key pieces are the terminal base, the NFC-enabled phones, issuer participation, and consumer education. He’s very optimistic about the terminal base.! (He should know, as this is First Data’s core business!)! In other words, he’s squarely with the “on a roll” point of view on contactless readers.! He thinks most analysts looking at terminal deployment have missed a central point.! If you look at the absolute number of terminals in the U.S. market, about 300k to 400k out of maybe 7 million are contactless enabled – that’s still pretty low.! But if you look by categories, the penetration is impressive.! Almost all QSRs (quick service restaurants), almost every drug store and convenience store chain have installed contactless readers.! Fur ther more, contactless-enabled locations in those categories represent over 40% of card transactions in that category – a very impressive number. What’s more important, McCarthy says, is how quickly contactless is moving to other classes of trade.! He’s seeing “some name brand mall merchants” and big discounters moving “pretty aggressively”.! Smaller merchants, he thinks, will still lag, but will end up adopting as terminal providers start incorporating contactless capabilities into standard terminals, or

introducing integrated peripherals (which handle contactless, PIN and mag stripe cards), as First Data recently did. In terms of phones, McCarthy thinks that 2011 will see large-scale introductions, with essentially all new phones in the U.S. market being NFCenabled by 2012.! “All it will take is one”, he said, “if RIM or Apple or Palm introduce an NFC phone, the rest will follow”. Card issuers, he believes, will be heavily influenced by the “top of wallet” factor.! This is particularly true with contactless stickers, which by definition have only one card: true NFC phones can easily support wallet software giving consumers a choice of cards to pay with.! A n i s s u e r a l r e a dy s u p p o r t i n g a contactless card program will (assuming satisfaction with the carrier-negotiation issue discussed below) have no problem in supporting an NFC program.! I asked McCarthy about his views on the relative interest of banks in provisioning their signature debit cards vs. credit cards on contactless stickers and NFC phones, but he (diplomatically) declined to comment.! (Personally, I can imagine some pretty heated debates around the old paymentscouncil table at a bank!) The $64 million question (actually, that’s probably pretty low – given POS card interchange of maybe $30 billion a year in the U.S.!) is consumer adoption.! “It’s no secret”, according to Barry, that overall consumer adoption of contactless cards – in terms of actual use – is in “very low percentages”.! There is a “fundamental consumer education issue” – although there are 50 to 60 million contactless cards in distribution in the U.S., many consumers aren’t even aware that they have the capability. The contactless sticker is, he believes, the key to solving this problem.! Consumers will want to use their phone for payment,!
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Getting the Garden Ready: First Data and Mobile Payments at the Point of Sale

and a sticker will let them do that.! For many consumers, he thinks, a phone they often have in their hand will be much more convenient than digging out a card and using it for a fast purchase. First Data’s “Go Tag” sticker is getting enthusiastic response.! Right now, the sticker is available just in prepaid form.! This will continue – in fact, he sees contactless prepaid stickers as being a hot “J Hook” item – but First Data will also be providing Go Tag’s to support issuer’s credit and debit card programs. On the key question of economics between carriers and issuers for NFC payments, McCarthy was quick to say “we’ re not involved in those negotiations”.! His opinion is that carriers will end up content with revenue for provisioning and maintenance, and will leave the transaction revenue for the issuers.! This is particularly true if carriers want to avoid taking transaction liability.! But, as he says, “it’s early days yet”. So what’s First Data’s play in all of this?! Terminals and stickers, of course – but a much bigger piece is their planned role as a TSM – or Trusted Service Manager – for NFC payments.! This concept is just beginning to be fleshed out within the universe of concerned carriers and financial institutions.! Basically, the idea is an intermediary, who would separately contract with MNO (mobile network operators, or carriers) and card-issuing financial institutions.! The intermediary would manage the secure provisioning of the card data onto the phone, and conceivably perform a wide range of value-added suppor t i n g s e r v i c e s, including billing, customer service, reporting, etc.! According to Barry, the role is “exactly analogous” to the role First Data plays today in creating and personalizing cards on behalf of issuers.! The key attribute for a TSM, he believes, are neutrality, security, connectivity, database management savvy and the

ability to operate in scale with integrity.! I asked about who their competitors would be in the TSM world.! Other processors, he thinks, and maybe software platforms.! Banks, card networks, and carriers are all considering it, but may be too neutrality-compromised to be successful. Of course, phones are going to be able to do a lot more than make payments.! In fact, one way to look at the emerging world of phone applications is to see a battle of sorts between applications downloaded by consumers onto phones from “app stores”, and applications provisioned by TSMs onto secure chips on the phone.! Common wisdom, again, says that card purchases will have to be supported through the latter model.! But this could all play out in a number of ways.! One view might find that there would be a lighter-weight way of securing card purchases – potentially eliminating or invalidating the whole TSM concept.! Another view is that the TSM role would be of value for a wide r ange of applications outside of payments – creating a much larger world of opportunity for First Data.

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It’s Not Just Games Anymore - A Look at Payfone

It’s Not Just Games Anymore - A Look at Payfone
by Carol Coye Benson Originally posted September 1, 2009 Among other recent interviews on mobile payments, we took a look last month at two companies (Boku and Zong) that are focusing on bill-to-carrier models for digital content purchases in the online gaming arena.! Fascinating, but surely (for my demographic, at any rate) a niche market – after all, how many times have you spent $1.25 for a super-sword to vanquish a foe in an online game? So it was particularly interesting to interview Rodger Desai, CEO of startup Payfone.! (Disclaimer: my fir m, Glenbrook Partners, although not this writer, has an advisory relationship with Payfone.) Payfone is also focused on digital content and a bill-to-carrier model, but with some big differences. Instead of using SMSs and short codes like ringtone merchants and existing billto-carrier payment providers, Payfone operates within the carrier signaling network, a global network that allows carriers to communicate and exchange information between each other. What’s important here is the implication for the mobile carriers, merchants and developers hooked into Payfone’s hub.! Today, merchants and developers wishing to implement mobile payment as a checkout option, face a number of challenges, according to Rodger: fixed price points, high transaction failure rates, 90-120 day settlement periods, oppressive carrier fees and significant exposure to charge-backs and fraud. Mobile carriers accepting bill-to-carrier mobile payment have been wary of the practice given the high customer care costs it has historically generated. Rodger

says that Payfone’s intense focus on user experience and merchant needs has led it to build features like variable pricing, single-click/zero-SMS, guaranteed settlement, rapid payout and robust fraud prevention that will drive merchant choice.! In fact, rather than sharing a hefty percentage of the gross revenue with the carrier, Payfone will enable something that will look “more like a card economic structure than a ringtone structure”, Rodger says. Desai is betting that merchants and developers are going to love Payfone. Unlike SMS-based mobile payment m e t h o d s, w h e r e “ u p t o 2 0 % o f transactions fail” according to Desai, Payfone has built a “zero-failure architecture for mobile transactions that rivals credit card networks and offers rapid payout and guaranteed settlement f o r m e r c h a n t s a n d d e v e l o p e r s ” .! According to Desai “the SMS billing infrastructure was not built to support merchants and developers, rather is an architecture established to support the delivery of ringtones” and thus relies entirely on the delivery of low-priority messages to effect billing. In addition, Rodger says, “the system is plagued with fraud related problems – carriers, merchants and developers pay the price for this through high customer service costs and charge-backs.”! Which Rodger says is unacceptable for a scalable payment system. “When we think about online payments, we think of the seamless experience of a credit or debit card.! Merchants like Amazon and Apple have mastered the checkout UI to the point where you can complete a transaction with a single click. Why can’t users with value locked in their mobile account have the same experience?! We think they should and we are going to show the world how.” Payfone’s strategy is to “bank the rest”.! According to the GSMA, an international association of mobile carriers, only about
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It’s Not Just Games Anymore - A Look at Payfone

1 billion of the 4 billion mobile subscribers across the globe have credit cards.! Merchants attempt to reach “the rest” through clumsy techniques like scratch cards. One “major global music merchant”, says Rodger, “makes about a quarter of their revenue from scratch cards, but just can’t get these distributed widely enough”. What these merchants need, he says, is a ubiquitous payment system and “luckily, mobile carriers have already built the infrastructure to support this globally, which is exactly what Payfone is bringing to the payments world”. Payfone is getting close to launching their product, and the purposely clandestine company promises you’ll be hearing much more from them in the coming months as they prepare to enter the market. I’m already beleaguered by my teenager, who demands that I put some extra cash he has dug up into iTunes, so he can buy that movie he wants.! Maybe with Payfone he’ll be able to do that himself !

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A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting

A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting
by Carol Coye Benson Originally posted August 6, 2009 Mobile payments company Obopay is in the interesting position of being the ‘grand old man’ of U.S. mobile payments – they’ve been around the longest – and with the same basic product offering, for person-to-person payments. I spoke last week with Michael Diamond, Senior Vice President of Business Development at Obopay, about their current status and future plans. Obopay’s solution allows consumers to make payments to other consumers, by sending an SMS message with their mobile phones.! Obopay operates on either a prepaid basis (you fund an Obopay account, and then send funds out of that account) or on a transactional basis – each outbound payment is separately funded.! In the prepaid case, funding can be either by credit or debit card, or by an ACH transaction “pulled” f r o m yo u r b a n k a c c o u n t .! The transactional basis requires credit or debit card funding. Obopay has always positioned itself as “technology neutral”, and there are multiple ways to use the phone for a transaction – using either a browser, an Obopay application on the phone, or by sending an SMS message.! Obopay introduced a Blackberry app last year.! Obopay was also ahead of the pack in recognizing the connection between prepaid and mobile P2P: their original product offering gave customers the option of getting a prepaid card linked to the Obopay balance, and today, a new customer is offered the option of a MasterCard prepaid card.

Obopay charges the sender of funds – the current price is 25 cents – and it is free to receive or withdraw money.! Funding the account – or an individual transaction – is another story.! Not surprisingly, Obopay has been able to refine the details of how the funding works – and what the economic model is – after having been in the market for several years.! Credit or debit card funding is more expensive, as Obopay incurs a merchant discount fee to tap those accounts – they pass this on to their customer as a 1.5% fee.! ACH funding is free, but, since it presents NSF and fraud risk for Obopay, takes longer to be credited to the consumer’s account.! The current lag on ACH funding is 5 days when a customer first signs up.! As Obopay gets more experience with that customer, they will shorten the lag. Similarly, Obopay has been able to refine their risk management practices, and has established different procedures for customers sending instructions by text message, for example, than for customers using a thick client application.! “We’re pretty settled”, Michael said, “in that we do multi-factor authentication for transactions – we just vary what and how we do this depending on the situation”. Obopay entered into an alliance with Citibank a few years ago, and has done extensive work to establish a “deeply integrated” variation of their product for Citibank customers.! The alliance allows Citibank customers to either fund an Obopay account from their Citibank checking account (without the time delay), or (and this is the most interesting part) use Obopay to directly send money out of their Citibank checking account.! The wiring of this is as follows:! a consumer sends a payment instruction to Obopay; Obopay sends it directly to Citibank – coming in looking very much like a non-Citibank ATM.! Customers enroll in the Obopay service through a stand-alone portal, using the bank’s authentication: this establishes the key
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A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting

account-to-phone number link to secure the relationship.! Citibank’s financial difficulties don’t seem to be impacting the rollout of the service: “they are still fully engaged”, according to Michael. Obopay recently established a partnership with Fidelity Information Services, which supplies online banking software to banks; this is particularly interesting given Fidelity’s pending acquisition of Metavante.! The deal, according to Michael, is a “distribution deal” – which allows Fidelity to provide a branded service to their bank clients. Fidelity would enable the customer Obopay account setup through the bank online channel – but after that, transactions would be “normal” Obopay transactions, and not, at least in the early stages, the “deeply integrated” version that is now in place with Citibank.!!! They aren’t yet in a position to announce any banks that are adopting the service. Perhaps most significantly, Obopay and MasterCard recently announced that a partnership formed last year was ready to go – to enable P2P transfers between MasterCard accounts, using Obopay as the front-end connectivity to mobile networks.! At first, customers will be able to get a MasterCard prepaid card and use this to send money – but the home run s c e n a r i o i s c l e a r ly w h e n ( o r i f ) MasterCard issuers in the U.S. sign up, and enable cardholders to send money from and to existing MasterCard accounts. So where does Obopay stand now?! They don’t disclose numbers – of customers or transactions.! But it was interesting to note that they recently closed on a venture funding round from investors including Nokia – for an undisclosed amount rumored to be in the range of $70 million – which certainly can be read as providing at least some evidence of traction.

Michael and I talked a bit about the typical use cases.! He makes the distinction between emergency use and routine use.! The emergency users, by definition, don’t often use the service and are therefore apt to fund a specific transaction by card rather than ACH.! Currently, card loads are roughly twice the volume of ACH loads, according to Mike, so this could be taken to imply that most users are doing emergency transactions.! Of course, it’s hard to build a business case on occasional transactions, so presumably Obopay is hoping to establish a base of customers who are using the service for routine transactions – but it is hard to tell, absent numbers, where they stand on this.

What’s Next
Obopay has a similar offering in India, and given the importance of the U.S.-toI n d i a c o r r i d o r fo r i n t e r n at i o n a l remittances, it certainly seems logical that Obopay expand their offering to enable this.! ! Michael agreed that it is a “clear opportunity” but said that Obopay is deliberately going slow – “there are a lot of different ways we could do this – we want to make the right choices”.! In particular, they want to make sure that the risk management model is right.! He mentioned that the active involvement of the Reserve Bank of India in mobile payment regulation is one good reason to proceed cautiously. It was particularly interesting to me to talk about the directions that Obopay is not taking.! They are not, for example, looking actively at expanding into the point of sale domain – a direction that many mobile payments companies are taking, especially given the sudden blossoming of NFC stickers.! They see, rather, their immediate expansion opportunities in the U.S. as being deeper into the P2P domain – particularly to tap into cash based merchants – the “pay your nanny” scenarios.! “We certainly expect
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A Look at Obopay: Mobile Payments Pioneer is Sticking to Its Knitting

to go there”, Michael said.! They are also very interested in opportunities enabled by social networking and the new classes of transactions around digital content purchases.! Michael thinks this will be huge:! “Pay me on my Facebook page.” Obopay is also not talking much about wallets.! Michael was skeptical, in fact, about the concept of a single mobile wallet for a consumer – especially if that wallet is directly or indirectly under the control of a carrier. Obopay also had “no comment” on a recently circulating rumor about a payment product by their new investor Nokia.! One blog described “Nokia Money” as an “attempt to establish a ‘new platform’ (for) making purchases through the mobile Internet”.! Certainly is interesting to speculate on what an Obopay behind-the-scenes role in this could be!

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Carriers United - A Look at Zoompass

Carriers United - A Look at Zoompass
by Carol Coye Benson Originally posted October 19, 2009 Zoompass is a carrier-centric service recently announced in Canada.! The three major carriers there together formed a company (EnStream) to offer the service to their customers.! At launch, this is positioned as a cash substitute in the person-to-person domain – a way to send money to someone else, knowing only their cell phone number. As a nice touch, Zoompass also includes a “request for money” feature. (I can only assume they have some kind of velocity monitoring to avoid cash harassment!)! I interviewed Robin Dua, President at EnStream. Funding is pure simplicity.! You can link a credit card to the account, and use it to send money to any mobile subscriber on a participating network.! The mechanics are similar to PayPal in the United States. Zoompass does a credit card transaction (where they are the merchant), and then a separate transaction, using the Canadian ACH, to credit the receiving customer’s bank account.! Alternatively, a customer can fund a Zoompass stored value account from their bank account, using either a preauthorized ACH-type debit, or by using their online banking bill pay service:! Zoompass is set up as a payee on all the major banks services.! There is also an optional prepaid MasterCard available.! Interestingly, the balance of this account is linked to your Zoompass balance, so if you have $100 in your Zoompass account, and then sign up for the prepaid MasterCard account, that prepaid card automatically has $100 on it. If a consumer is sent money, and does not yet have a Zoompass account, they receive a text message and are asked to set up an account.! Viral marketing at its purest!

The consumer is charged for sending money – a business model which we have previously noted has proven problematic, in the U.S., at any rate, for P2P payments.! But simplicity and ubiquity (Zoompass covers 95% of Canadian cell phone subscribers) may create enough value to overcome this obstacle.! Robin expects the model to continue, but the actual prices to change as they learn more about the market. Robin thinks the opportunity is huge, simply because “people are mobile”.! He sees the phone as a virtual appendage for many.! All of their research also indicates that people want to do a lot more with their phone, including eliminating the need to carry cash.! And, he notes, it is important to realize that many people are phone-centric rather than computercentric -! something that developers still working on online payments may be tempted to overlook. I’m fascinated, of course, by the banking angle on this.! When I recently lived in Canada, I was a big fan of the banks’ shared Interac debit network, and particularly the email money transfer service that let me effortlessly transfer money to someone else (I paid my son’s piano teacher this way), knowing only their email address.! So why weren’t the banks able to convert this model to mobile?! If any country can summon the collective energy of bankers to work together, it’s Canada – so what happened? According to Robin, the most !important issue is the phone software itself.! To begin with, “it’s not easy” to develop software that works on a large set of target handsets – you need phone-savvy developers.! The carrier relationship that EnStream has gives them access to handset technology, even before the introduction of the phone in the market.! Furthermore, “we’ve done things that are proprietary – that only a carrier or someone owned by a carrier can do”.! For
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Carriers United - A Look at Zoompass

example, Zoompass allows you to synchronize your contacts within the phone address book with the application.! The application also detects if a phone number you are trying to send money to is a cell phone or not, because it has access to carrier databases.! This allows them to create a more friendly user experience. Although banks have been relegated to a behind-the-scenes role (as the passive recipient of ACH transactions), Robin is anxious to work with them, and partnering discussions have already begun.! One possibility, of course, is that banks could offer this service to their customers, and integrate the transactions more smoothly into the mobile online banking experience. Another potential next step would be to take the Zoompass wallet to the point of sale, again possibly with the cooperation of banks.! This would be “the first step in a convergence of wallet and phone”.! Dua notes that the carriers expect a few handsets to be NFC capable by the end of this year, with more following in 2010.! He thinks the tipping point won’t occur until 2011.! They are actively looking at bridging technologies, such as contactless card stickers and micro SD (which can enable the full NFC experience) to enable POS functionality before NFC chips are broadly available in phones. Other potential expansion plans involve enabling digital content purchases, other sources of funding, and international licensing.! They are in discussions with some carriers, including in the U.S., on this possibility. At the end of our interview, Robin returned to the question of phone software.! He thinks we are moving towards an environment where there will be fewer device platforms – probably four dominant platforms.! Application developers will therefore find it easier to

build something and get ubiquitous.! The wallet application, from a payment instrument standpoint, will have to be open – that is, support multiple payments types and brands.! But it looks like the Canadian carriers are clearly banking on the wallet itself being under their control, and being branded Zoompass.

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Wallets and Stickers and Phones, Oh My! - A Look at Blaze Mobile

Wallets and Stickers and Phones, Oh My! - A Look at Blaze Mobile
by Carol Coye Benson Originally posted July 15, 2009 Blaze Mobile is a wallet-centric offering in the U.S. market.! CEO Michelle Fisher spoke with me last week. Rather than focusing on payments per se, Michelle’s focus is on enabling the consumer’s mobile life.! In her earlier career at Microsoft and Telco SBC, she always took “the approach of the consumer” – focusing on segmentation schemes around the needs of sets of consumers. Given this, Blaze Mobile is not concentrating on a single payment domain, but r ather suppor ting transactions across a number of domains.! The early use cases are P2P payments and point of sale payments.! She wants the consumer to be “completely mobile”.! Her approach is to narrow in on segments and deliver what they need in the way of mobile financial transactions. I downloaded the iPhone Blaze Mobile wallet and set up an account.! I ordered my Blaze Mobile contactless sticker, but don’t have it yet.! On the phone, the top level menu lists (in order) “Movies”, “Money”, “Rewards”, and “What’s Nearby”.! So what can I do? Once a consumer sets up a Blaze Mobile account, they can do P2P transactions (Michelle !wants people to say, “Blaze me the money”), and, if they opt for a contactless sticker, ! POS transactions at locations that accept contactless cards.! The mechanics of setting up the account, funding it, etc. are the basics of any prepaid stored value transaction.! Today, the sticker is limited to a single funding source (a prepaid MasterCard).

There is a specific focus on buying movie tickets – a key purchase category for Blaze’s target demographics.! Blaze will compete with Fandango et. al. in allowing consumers to browse, purchase, and use movie tickets. ! Consumers can register various cards and bank accounts with their wallet, and choose the instrument to use for buying the movie ticket. Blaze also incorporates a “PFM Lite” – the ability to see bank and other account balances (such as rewards programs) from the phone.! She thinks the wallet approach to PFM will be more attractive than going to each account’s site individually – the average person, by her reckoning, has about 8 active accounts that they might want to access by mobile phone.! Earlier users are enthusiastic about this – 63% are using the feature. Blaze has three target segments at this time.! The first is 18 to 25 year olds – their research shows that these people particularly like contactless technology for POS purchases.! (It is fun to watch their video demonstration, done at a variety of stores – often, the clerk hasn’t seen a sticker-on-a-phone used for a contactless purchase.! It is abundantly clear that everyone in the video thinks of it as “paying by phone” – even though it is just a sticker – which could just as easily be stuck to your paperback novel!)! The second target segment is college students – who are heavily into social networks and need P2P transfer capabilities.! This segment also buys a lot of movie tickets.! The third segment is parents with kids at home, who need digital allowance management and P2P transfer capabilities. The P2P capabilities currently allow transfers from one Blaze account to another, or from a Blaze account to a specific bank account.! Blaze has a banking partner who does this piece for them: it is a simple ACH credit transaction.! They are planning to
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Wallets and Stickers and Phones, Oh My! - A Look at Blaze Mobile

enhance this by the 4th quarter, to enable bank to bank transfers. In the future, Blaze will enable consumers to choose payments instruments for point of sale purchases – this will be made available for NFC enabled phones. The Blaze team is also anxious to alleviate consumer security fears.! No financial data is stored on the phone.! There is a “wallet PIN” that provides permission to access! the wallet, and which is enabled by default (although a consumer can opt-out of this feature). If the phone is lost or stolen, the consumer c a n r e m o t e l y c h a n g e t h e P I N .! Consumers can also establish a “payment limit PIN” for purchases.! Finally, Blaze is enabling a “transaction PIN”.! This is a bank-provided PIN that may or may not be demanded by a merchant at the POS. Finally, consumers are able to remotely lock their phone at any time – this also resets the Wallet PIN. Blaze’s business model is still evolving.! Some pieces are clear: there is a transaction fee taken when a movie ticket purchase is made, and for P2P transactions. !Presumably, Blaze will also benefit from the interchange on POS transactions, although that part of the business model is not disclosed. The wallet itself, and the PFM capabilities, are free to the consumer. I asked Michelle about her view of the competitive environment going forward.! She thinks the most important piece of the puzzle – and the hardest – is getting the wallet software right.! This “isn’t trivial”, she says, given the number of handsets, platforms, etc.! Delivering an integrated, open (to multiple payments types), consumer friendly wallet demands “intense software”, and companies that win in this space will concentrate on supporting a mix of “rich client software development and hosted services”.

In some ways, Blaze is more confusing, to an industry insider, than some of the “pure play” products in the market.! But that’s because they are starting with the consumer, and following that lead.! The gamble, of course, is that they have that right – and that the consumer isn’t too distracted by the myriad other offers and products that are out there.! But in the meantime, my iPhone app is pretty cool, and I look forward to getting my sticker!

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Digital Content & Mobile Phones – a Look at Zong

Digital Content & Mobile Phones – a Look at Zong
by Carol Coye Benson Originally posted July 15, 2009 Zong is a mobile payments product from Echovox which enables digital content purchases on mobile phones.! A few weeks ago, I profiled competitor Boku, and commented on some of the benefits they offer digital goods merchants.! Last week, I spoke with Zong’s CEO David Marcus.! Like Boku, Zong offers consumer ease of use (leading to higher purchase completion rates – a key problem solver for merchants), simplicity of merchant implementation, broad global carrier coverage, and a strong four-letter consumer brand. From a payments system standpoint, Zong shares with Boku and others in this category the defining characteristic of using the carrier’s bill to the consumer as the means of payment.! Zong gets paid, and pays the merchant, only once the consumer has paid their mobile bill: there are different patterns depending on whether the underlying consumer phone account is prepaid or postpaid.! The carrier is an economic participant in the value chain, driving the total cost to the merchant, including Zong’s “slice”, to 30% to 50% of the gross purchase price. David discussed some of the additional aspects of Zong’s service that he believes give Zong a competitive advantage.! In the key area of consumer convenience, Zong’s “pin code based flow” is, he believes, superior to a “reply to text message” based flow, and drives a claimed 15% higher payment conversion rate. But the critical differentiating element of their product, they believe, is the nature of Echovox’s! relationship with global carriers.! Echovox has been working with

carriers for over nine years.! Rather than using an aggregator model (aggregators, who evolved to enable the ring tone market, are intermediaries standing between digital content or service providers and the carriers), Zong is directly connected to the carriers.! There are a number of important advantages to this, according to David. One advantage is that the payment from the carrier to Zong happens more quickly with these direct connections than with the aggregator model.! This enables Zong to pay the end merchant more quickly.! Secondly, simply having one fewer layer in the value chain means fewer parties to compensate, enabling Zong to charge lower rates to the merchant. Finally, digital content merchants working with aggregators are exposed to a number of financial and operational risks – aggregator failure is one.! Payments to merchants may also be delayed for sometimes staggering periods of times (many months). Finally – and this is pretty intriguing – David believes that by avoiding the aggregator model, Zong may be on track to establish a different type of economic model with the carriers in the future.! Today, no carrier is going to tinker with the highly profitable ring tone model that the aggregators enable.! But some carriers, David says, are open to establishing a new business model to enable payments transactions – as long as it doesn’t threaten that ring tone model.! The long term payoff ?! A separate transaction type, with much lower carrier “cuts”, could enable this model to greatly extend the market for mobile payment platforms.! Think of it this way.! Today, The New York Times (which has played with any number of digital content models) is not going to try a model where a subscription – or an article purchased – nets a carrier (or a payments service working with carriers) half of the consumer revenue.! But – who knows? –
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Digital Content & Mobile Phones – a Look at Zong

maybe they would if that cut were, for example, 10%.! More than a merchant discount rate, less than a digital content rate. David summarized his comments on the aggregator model by saying that “it simply doesn’t scale” to match the market potential.! Aggregators, in his view, are a bottleneck limiting the growth of the market. I asked David about the likelihood of Zong expanding into non-digital goods purchases, P2P payments, or funding sources other than carrier bills.! He thinks Zong has a “sweet spot in social networking and gaming”, but says “we do have broader ambitions”. In my view, although it is interesting to look at the competition between Zong and its closest peers, such as Boku, the far larger question is how these types of services will compete with other types of payments, including cards and ACH type bank network payments.! Three years from now, will most mobile, low-value, digital content purchases be made through carrier billing arrangements, or through mobile-enabled card and bank account payments?! I’m not sure I know which side of that bet I’d take!

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Mobile Payment Gateway? - A Look at Billing Revolution

Mobile Payment Gateway? - A Look at Billing Revolution
by Carol Coye Benson Originally posted October 19, 2009 Billing Revolution is an interesting emerging back-end player in mobile payments. I spoke last week with cofounder Mike Dulong. Billing Revolution’s helps eCommerce merchants establish a mobile presence: “like web checkout optimized for the phone”.! Once a merchant chooses to use Billing Revolution, BR then supports, behind the scenes, the process of capturing credit card information.! Another way to think of this is as a payments gateway for mobile online purchasing. BR prides themselves on having created a very simple product/process for the merchant – their goal is to enable the merchant to easily conduct mobile transactions. The approach is entirely based on browser access to purchasing sites.! When the consumer wants to buy something, they are presented with a screen asking for credit card data.! BR manages the process of collecting the data (it is encrypted and reportedly fully secure; BR is also “PCI Compliant”) and passing it on to gateways or acquirers.! (Most typically, they are not the merchant of record, although apparently there are some situations where they are.) After the consumer enters the credit card data, they are taken to a screen giving them what Mike referred to as “CRM Options” – canceling the order, getting a receipt, etc.! BR is invisible to the consumer; there is no consumer registration process or visible account with BR.

In contrast to many of the mobile payments products for online purchasing (usually of digital goods) , the operator is not a direct participant in the service and gets no revenue other than whatever consumer revenue comes from web access. BR has two pricing/service models – the first is for mobile merchants who do not already have a merchant account.! For these customers, BR handles the full payments process! The pricing in this model is 3.5% plus 50 cents per transaction, with no other charges. For mobile merchants who already have a card acquiring account, there is a second service model priced at 50 cents per transaction. BR has a “mobile single click” process.! If a customer clicks “remember me”, BR can identify them the next time they visit that site, saving them from having to re-enter their card data. Technically, they can enable this for a consumer visiting another site, as well – but Mike appreciates that there will be a need to support consumer options here (change card number, block certain sites, support multiple cards, etc) – exactly how will best be done is still evolving. BR is investing heavily in security & fraud management capabilities.! They can identify risky transactions, and apply additional control measures to limit risk. Their current customers are all selling digital goods. BR’s immediate value proposition is a very different pricing model than the current operator-centric pricing (40% to 70% of gross), as well offering merchants a fully secure, PCI compliant mobile payments platform.! Of course, they can’t compete with the operator-centric payments products in terms of marketing or consumer coverage.! As an interesting data point, their average purchase price is $11.

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Mobile Payment Gateway? - A Look at Billing Revolution

The current product can support physical goods as well, and Mike thinks they have a big opportunity with physical goods e C o m m e r c e m e r c h a n t s.! Many eCommerce merchants, according to Mike, “have not yet thought through the issues around mobile credit card payments”.! They are in discussions currently with several of the eCommerce platform providers, as well as some of the big physical goods eCommerce merchants. At Glenbrook, we’ve been fascinated by the gateway model for some time.! The word is used to mean different functions within different parts of the payments industry.! At an abstract level, you can say a gateway is a “front end to a front end” in the payments process – a highly specialized piece of value-added processing tailored to the needs of a particular merchant vertical, or, in this case, to a particular form of commerce.! ! What is generally true is that this is a profitable business model – which will make it particularly interesting to watch BR’s progress.

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Money In The Bank? A look at CashEdge’s POPmoney

Money In The Bank? A look at CashEdge’s POPmoney
by Carol Coye Benson Originally posted June 25, 2009 There are a lot of mobile payments companies – and a lot of prepaid/mobile combo products – that are focusing on person to person, or P2P payments. !It’s not surprising – this is a payment domain still dominated by cash and check. Introducing a new P2P product also avoids all the messy complexities of terminals and the point of sale. ! Of course, the challenge in this domain has always been the business case – particularly for domestic P2P transfers.! There hasn’t been a lot of evidence of consumer interest in paying to pay – or receive – payments from friends and family. So it was particularly interesting to see an important incumbent in the P2P arena, CashEdge, step into the mobile P2P arena with their new product, POPmoney. ! CashEdge is a behind-thescenes player that supplies banks with services to allow their customers to move m o n e y! e l e c t r o n i c a l l y. ! T h e Company! ! started by enabling transfers from a customer’s account at one bank to the same customer’s account at another bank – so called “me-to-me”! transfers.! They have since expanded!the offering!to handle third party transactions (“me-toyou”). Several hundred banks are currently their clients, including!seven!of the largest! ten! banks. ! CashEdge transferred over $50 billion for banks in 2008. The POPmoney product, which again will be offered to banks, is, from their viewpoint, simply a logical extension of their platform. ! I spoke with Neil Platt, SVP & General Manager, US Banking, about the launch.

Understanding how POPmoney works means under standing their basic platform. ! CashEdge effects the P2P transfers by “doubling up” – doing two payments transactions: one an ACH debit to the sending consumer’s account, and one an ACH credit to the receiving bank account. ! (This doubling up is common with new payments products – for example, PayPal or Decoupled Debit).!As we all know, the ACH debit half is the tricky piece of this transaction. ! An originator of an ACH “ad hoc” consumer debit is exposed to both fraud risk and NSF (insufficient funds) risk. ! There are several components to the fraud risk.! CashEdge is nicely covered from the first major source of fraud: a consumer giving another consumer’s bank account information. ! Since the CashEdge transaction starts at the consumer’s bank, that bank in effect can vouch that an account belongs to the consumer in question. ! ! There are more complicated fraud schemes which can still be perpetuated, and the management of this is part of what CashEdge does for the banks. Interestingly, the consumer sending bank does not vouch to CashEdge for good funds in the consumer account (you’d think they could, but maybe it is too comple x to hook into the debit authorization infrastructure of the bank).! CashEdge offers options on its product to deal with this: one is a transfer which is not good-funds-guaranteed (in other words, CashEdge can reverse it) and one which is guaranteed, but where the second leg of the transaction (the ACH credit to the receiving bank) is delayed for a few days in order to manage that risk. So, back to mobile. How will banks offer this to consumers? ! Platt believes that most will make it a function of their mobile banking offerings. ! Some may create a stand-alone product. ! The very attractive feature is that the only thing
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Money In The Bank? A look at CashEdge’s POPmoney

the sending consumer needs to know is the email address or the! mobile! phone number of the recipient. ! The recipient will get! an email or text! message along the lines of! “you’ve received funds from (name),” and will direct them to go to their financial institution or the POPmoney.com hub to collect the payment. ! (There will be options for consumers who have accounts at banks who participate in the service, and also for consumers who don’t.) Consumer pricing, of course, will be left up to the bank. !Experience tells us that it is unlikely that most consumers will pay for this – but there are people that think that “mobile changes everything”, and in a mode of spontaneous, small-dollar purchases (can you say ring tone, anyone?) agreeing to pay some small transaction fee to send money might yet work. I think it’s likely that banks won’t be able to charge explicitly for this service, and will end up incorporating it into their basic account package. ! (That’s what happened to me, when I lived recently in Canada. ! The Interact P2P transfer ser vice was bundled – up to X transactions per month – into my overall Bank of Montreal account package.) ! So why would a smart bank provide consumers with yet another service with no incremental revenue? It could be that those smart bankers are getting very nervous about the non-bank mobile payments offerings - and think letting consumers send money out of the bank as a good way of keeping money in the bank over the long run!

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Beaucoup Bucks? - A Look at Boku

Beaucoup Bucks? A Look at Boku
by Carol Coye Benson Originally posted October 19, 2009 Boku announced a new mobile payments product yesterday, along with a set of acquisitions, new funding, and a new management team. The offering is ambitious, and dead-set against the emerging global market for spontaneous purchases related to online gaming. Niche, you say? I’m not so sure. There’s a lot to be interested in here. Of course, I may be biased – as a Francophile (at times openly, at times secretly), I like the wordplay. And strong, four letter payments brands seem to work… Here’s what caught my eye: Boku is drop-dead easy for the consumer. The online demo is stunning in its simplicity. Never, ever, underestimate the importance of ease of use for a consumer. Especially for spontaneous purchases. In my opinion, this is right up there with 1Click. It enables “new money”. While many new payments offerings are structured to provide consumers with alternative ways of paying for things they are buying now, Boku is primarily about enabling the sale of stuff that hasn’t been sold before – all those “extras” (costumes, awards, points, etc.) that the new class of on-line “free” games will allow users to buy. Those of us with long histories in the payments industry may well say “hmmm, sounds like micropayments to me”. Now, the term may cause you to twitch – there is a long and painful histor y of micropayments failures. But the lure of micropayments – what has brought investors and developers back to the concept time and again – was this very notion of enabling a class of commerce

that previously didn’t exist. The failure of most micropayments schemes to date can most simply be attributed to the basic “information wants to be free” concept, which proved to be the case with computer-centric consumers of information. But this isn’t about computers, and it’s not about information – right now, at least. It’s about phones, and entertainment. If “information just wants to be free”, remember that “kids just want to have fun”. The model here is ring tones – a market that is very much still alive (as evidenced in my life by a trip to the mall yesterday with three thirteen year olds – all playing their ring tones to each other in my much-too-small car). What else has Boku got right? Matching the drop-dead easy pitch to consumers is a pitch to sellers (“publishers”) that makes it simple to access a global market of c o n s u m e r s. T h e m i n d - b o g g l i n g complexity of cross border commerce and payments has already provided lucrative opportunities for companies and networks willing to step in front of the complexity and offer simple products. That is what the global card networks did so successfully for tourists, and what PayPal has done so successfully for online eCommerce. In an interview with VP of Product & Marketing Ron Hirson, he referred to this as “iceberg-ing”. A publisher will be shown exactly the fees for a given country and carrier, and (equally key) be given easy-to-use tools to set pricing and therefore control their available revenue. Boku will handle all the c o m p l i c at e d d e t a i l s b e h i n d t h at . Transparency plus simplicity – nice! So, you say – it still sounds like a niche? How big can online gaming be, after all? Even if I agreed with that, here’s why I’ll be watching Boku as it moves forward: It’s defining itself as a payment platform. Today, the platform has limited funding
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Beaucoup Bucks? - A Look at Boku

options (the purchase is billed to your phone bill) and a risk management approach that is obviously optimized for digital goods. There are inherent limits to these models. Larger dollar purchases will run into well-known problems with carriers extending and managing credit; non-digital goods have entirely different f r a u d m a n ag e m e n t a n d l og i s t i c s requirements. But platforms, once established, can support growth both horizontally and vertically. A Boku “wallet” of the future could easily offer consumers choices of funding, and make its way into other classes of goods. Perhaps not the purchase of plasma televisions (at least not right away), but certainly other forms of digital content – music, video and ebooks. This will take them straight into the Apple orchard – so it will be fascinating to see how Boku evolves and works (or doesn’t work) with the iPhone App store and its emerging competitors. As an avid ebook/Kindle user (making way too many spontaneous purchases of digital content!) I’m keeping my eye on Amazon in this market as well. Finally, there is the confusing, but intriguing, world of social networking, with hundreds of unanswered questions about how payments will be made and received among participants in a network. Boku has some of the pieces necessary to play. Let’s stay tuned!

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About the Author

Carol Coye Benson
Carol offers clients over 25 years of experience in product, marketing, and strategy development with leading financial services providers in both wholesale and retail banking. She has offered management direction to companies providing corporate cash management, security and authentication, and payment systems processing. Before founding Glenbrook Partners, Carol served as a managing director of the Global Institutional Services division of Deutsche Bank (previously Bankers Trust), where she oversaw marketing, client online services, and Internet development. At Visa International, she led a group conducting early work on the use of credit cards online, and a project that pioneered database marketing and related consumerprivacy issues. Carol also founded and managed Visa's European productdevelopment office, where she led a series of electronic-commerce and chipcard projects designed to bring European banks online. Prior to her career with Visa International, Carol spent twelve years with Citibank, where she managed the development and market introduction of new payments products. Carol began her career as a corporate lending officer for large multinationals at both Bank of America and Citibank. In addition to her work as a consultant, Carol is the Partner in Charge of Glenbrook's Payments Boot Camp program. This unique program provides executive training for professionals in the payments industry. Glenbrook Payments Boot Camps are held throughout the year both as public events and as customized, private sessions for clients.

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