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Price War To Benefit Mobile Micro-Merchants

May 3, 2011 by Leave a Comment
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Intuit follows Square, by dropping the 15 cent transaction fees for its GoPayments micro-merchant solution.

GoPayment’s pricing for low-volume merchants (~ $1,000 or less in card volume per month) card present transactions is now 2.7% and 3.7% for higher risk card not present transactions. For higher-volume merchants, the fee is 1.7%, and 2.7% for card-not-present transactions. Intuit retained its $12.95 monthly fee for higher-volume merchants.

Sepharim POV:

Companies like VISA are very interested in this merchant segment because of the large potential conversion of cash and cash equivalent transactions that could expand the value of card-processing sector. 
However, micro-merchants have been shown to be a fickle group who has high attrition rates and low overall transaction value/volume ratios. To make this business profitable companies must do three things:

  1. Continue to look for ways to drive down merchant onboarding costs.
  2. Develop improved real time risk management and fraud techniques.
  3. Continue to be creative in terms of offering new features and lower pricing.
  4. Drive improvements in system availability and lower latency.

Item 4 appears to be a growing concern as some merchants in busy markets (NYC, SFO and Chicago) have indicated issues that appear to be related to wireless network congestion.

Many of the lessons learned in these days early of mobile payments, that leverage existing magnetic card technology, will be applicable to Near Field Communication (NFC) payments as that market emerges. 
Mobile micro-merchant solutions should be considered an important evolution in alternate payment methods for at least two other reasons:

  1. Gaining a better understand about how comfortable consumers will be with alternative mobile payment solutions.
  2. How will theft and fraud evolve and be remediated?

For merchants, not having a mobile payment solution within 5 years, will be as antiquated as a brick and mortar retailers not having an online presence 5 years ago.
Its not a matter of if, but when mobile payments will become the next growth hormone of electronic payments.
With Intuit and Square lowering transaction pricing, can we expect to see VeriFone and Apriva follow?

 

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Why Visa Picked Square and Ignored Other Options

April 27, 2011 by Leave a Comment

Had Visa invested in Intuit or VeriFone, both vocal competitors of Square, it appears they may have been investing into marketing mediocrity.

Consider the options that Visa had in front of it.
First there is Visa’s own competing service with Square called In2Pay. There are others: Intuit‘s GOpayment and VeriFone‘s PAYware.

Face it, all these solutions seek the same Holy Grail: Convert the ~27 million small business who transact with cash or cash equivalents to electronic card payments. Converting a majority of these cash and cash equivalent (mostly checks) business to take Visa card payments would be a windfall.

All of these solutions pretty much work the same way. Some are considered more secure and more mature than others. It may even be logical to suggest that Intuit had edge because the visibility the company has into the small business arena though its accounting, payroll and invoice products. In the end, it may just be that Visa’s choice comes down to who is doing the best job of creating market mindset.

Figure 1: Google Trends comparing SquareUP, GoPayment, PAYware, and In2Pay

Visa’s own In2Pay appears to have zero market visibility. Square has the most. And if Google Trends is a valid indicator, it appears choosing anything other than Square’s solution would mean Visa could be investing in an also-ran.

Square seems to be on a roll. This investment by VISA comes on the heels of Square cutting a deal to sell its credit card readers in Apple stores.

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Free Webinar: The Future of Mobile Payments

April 25, 2011 by Leave a Comment

WHEN

April 26, 2011

WHERE

Toll-free Dial-In Number: (877) 273-4202
International Dial-In Number: (213) 289-0155
Conference # : 8060636

WHAT

Join us for our roundtable teleconference on April 26th, 2011 at 12pm PT / 3pm ET with Bob Egan, Thomas Noyes, David Schropfer and Drew Sievers where we will discuss the future of mobile payments.

This roundtable will explore issues such as:

1.) Sustainable business models and industry tensions:

  • Are carriers, banks and merchants on a collision course?
  • Will incumbents like VISA and MasterCard see their business model cannibalized?
  • Do business models look different in industrialized economies and emerging markets?

2.) Technology and tactics:

  • Near Field Communication (NFC): Big impact or big flop?
  • Mobile phones and the future of point of sale: Big sales or big mistake?
  • The mobile wallet: Will you leave home without it?

Bob Egan, Founder, Chief Analyst, Sepharim Group

  • Thomas Noyes, Managing Partner, Starpoint LLP
  • Drew Sievers, CEO & Co-Founder, mFoundry, Inc.
  • David W. Schropfer, Founding Partner, The Luciano Group and author of “The SmartPhone Wallet – Understanding the Disruption Ahead”
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ISIS Wisely Looks at Transit, Fast Food, and Groceries

February 18, 2011 by 3 Comments

The mobile payment consortium ISIS has signed initial merchants and says the company is focusing on the quick service retailer (QSR’s) market. Isis is looking at adding capabilities to handle private-label retail cards and gift cards. Jim Stapleton, head of sales and account management at Isis, made these remarks during his keynote Wednesday’s at the Smart Card Alliance’s 2011 Mobile and Transit Payments Summit in Salt Lake City.

Isis is a joint venture of mobile carriers AT&T Mobility, Verizon Wireless, and T-Mobile USA. Transactions will flow on Discover Financial Services payment network and Barclaycard, the U.S. credit card unit of London-based Barclays Bank plc, will initially offer consumers Isis accounts. See my earlier thoughts on ISIS: The ISIS Mobile Wallet: Are Visa, MasterCard and PayPal Under Siege?

What we think:

A focus on QSR’s is a wise move for ISIS. Despite much of the hype around mobile payments, and in particular around NFC, sexiness and convenience, not technology, is what’s needed to get this market off the ground.

Case in point is what Starbucks is doing in its own retail stores. Starbucks recently reported one million transactions via its mobile payment application in just fewer than 30 days. For reference see: One Percent of Starbucks Transactions Now Mobile. While the Starbuck application is very primitive (it displays a barcode on a your handset which is scanned) its newness has some sex appeal, and its cool. And if the early momentum is any indication, consumers seem to appreciate speedier check-out (50% faster than cash) and the elimination of the need to dig for debit/credit card or cash. We think that the early success of Starbucks is a positive indicator for ISIS at QSR’s – if you build it they will come. But ISIS must do more.

ISIS must navigate two hurdles: QSR sales are a commodity game. Profits are all about volume. The challenge is how do you make a $10 transaction attractive to everyone from an economic standpoint. PayPal and others have already adjusted their rates for low value payments. ISIS fee structure remains elusive. The second is getting consumers to use the solution. Contactless plastics, which also targeted QSR’s has not seen wide adoption, largely we think, because the majority of consumers don’t even realize the card they are carrying has the capability. Unlike contactless plastic, which is “pushed” to consumers, mobile payment solutions are more likely to require consumers to opt-in. The Starbucks momentum may indicate that when a consumer opts-in by downloading a mobile payment application, they are more likely to use the application capability at the retail point of sale. That may be good news for ISIS.

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U.S Remains In Gridlock While 50 % of Finns Do Mobile Payments

December 20, 2010 by Leave a Comment

50 % of Finns Use Mobile Phone for Bookings, Tickets and Payments

You have to like the do more with less simplicity of some folks outside the US.
Case in point, the Finns. A company that started out as a Ferry ticket operator has evolved into a high tech innovator. Why not, Nokia use to make tires. I digress.

BookIT has patented a “secure” messaging technology that uses the existing SMS text messaging transport in cell phone networks. iSMS technology establishes a secure session with the user and manages the flow of SMS messages between the application and users so that right responses are linked to the right application. The authentication is transparent to consumers who have do not have to remember user names, passwords or special authentication procedures.

The iSMS technology has been wrapped inside a product called eMobile by Luottokunta who manages the payments system. Open networks like MasterCard and Visa are supported, as are closed and sovereign payment types. Luottokunta is responsible for data protection – no word on PCI compliance yet.

Why banks, operators and investors fiddle with experiments, some people just get it done.

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The Future of Payments

September 29, 2010 by Leave a Comment
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Image via CrunchBase

Two questions are posed on LinkedIn about the future of payments.

They are;
1. Will alternative payments ever take over the majority of payment transactions? Alternative in my mind means phone companies, cash alternatives or any other form of payment which bypass MC and V.
2. Will MC and V issuers have to rethink what they charge as interchange fees?

I though i would share my comment and i am anxious to here your thoughts.

Clearly alternative payment mechanism will continue to gain share. That said its likely to be a very long time before there is significant cannibalization of plastic transactions, expect in emerging economies where plastic penetration is low today anyways.

As you might expect MC, Visa and Amex have significant vested interesta to get on the offense here on several fronts. They include; the slow death of the four party model, the VC $$ being thrown into alternative payment models like mobile, regional interchange pressures from regulatory in Europe and elsewhere, PayPal and of course thee telco’s.

In direct answer to your 1st question, alternative payment systems will not completely supplant incumbent payment systems in our life time and 2 – MC/VISA/AMEX all need to re-think interchange

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