Ok this is getting kinda sad. . . I was just doing some research on the payment industry on Google and came across the most blatant abuse of search engine spam by a venture funded company EVER . . . especially one with as high of profile as OboPay. Other companies have done much more, but this really takes the award for being tactless and stupid.

Check these links out (I wont hyperlink them for obvious reasons) . . .

https://www.obopay.com/resource/household-mastercard.html

https://www.obopay.com/resource/student-credit-card-visa.html

and look at all the links on the footer too . . .

Obviously made for search engine pages . . . with absolutely useless content stuffed with keywords for search engines. Even worse, they are violating other banks (HSBC’s Household division) copyright just to get some traffic.

The sad part is that these guys are obvious SEO amateurs . . . if they do some homework, it could have been done a lot more subtly . . . and not get caught by me.

PayPal officially launches on facebook!

Because a huge percentage of freshman gets their first bank account and first credit card in college, there is huge potential for financial institutions to leverage facebook as more than a advertising channel but also a point of integration. Paypal (amazing how fast they got this out given what I know of their dev process) surprisingly jumped in first before the likes of obopay and kushcash. Of course the app is a little low on utility but I’m sure a Paypal PM somewhere is using it to learn more about user behavior and other potential applications (wesabe clone?).

Last week, I hacked (I repeat, hack!) together a pilot/test website to explore the online acquisition channel for what traditionally has been a retail sold product. Green Dot (my company) sells Prepaid Visa and MasterCard to the underbanked community. The product is commonly called (however a misnomer) a “prepaid credit card” or “secured credit card” . . . The card is mainly targeted at immigrants, teens, and people with bad credit records. (So its not really for you so please dont click on anything! )

(ok you caught me, I’m just trying to redirect some of my rank juice to increase my natural search results for the pilot site. . . )

The point of the post is actually to compare google and yahoo’s search engine advertising efforts. I tested Yahoo and Google’s system a few month back and now again. The Yahoo CTR is definitely better. Furthermore, my conversion rate is also better on Yahoo (new click fraud algo?). . . However Google is still driving 3x the traffic that Yahoo has been able too. . .

Another gripe against Yahoo. It appears to me that Yahoo has gone way too Web2.0/Ajax happy. . . to the point of decreasing the customer experience. At first glance, the advertiser’s interface is really really slick . . .but dammit its just way too slow (like most ajax apps) and not very intuitive. because the huge amount of data flowing between the browser and the server in the background, there is a half second delay on almost every thing I click on. People expect page refreshes to take some time . . . but not ajax elements . . . if you want to be like the desktop, you better BE like the desktop. . .

It also has Ajax pop-ups everywhere . . . even places where it shouldnt (for example, show me my ad copy right on the page, not in a popups). 3 years ago, popups (browser based) almost compeletly disappeared because of pop-up blockers and because people hate them. Now I see them everywhere . . . as if just because its a Ajax popup its suppose to be any less annoying or less disjointed than before . . . please, someone invent a ajax popup blocker . . .

Anyways, just a cautionary tale for UI designers to not to get Ajax happy . . .

Not now . . . but it will get there. Last week, Skype launched the long rumored/ expected/ in development Skype Prime service(via TechCrunch). Using Skype Prime, users can charge to recieve a call.

Even before the skype acquisition, (aug 2005) I recognized the impact of Skype on payments, but this development was headed off by the acquisition (Paypal was a huge benfitiary of the acquisition eventhough Wall Street did not recognize it). This development, however, could potentially be more revolutionary.

The key to the why Skype Prime is so much more than a “1-900″ service. It is the product strategy of useing Skype Credits as the payment mechanism:

your Skype Credit is deducted by the appropriate amount that then goes to the receiver’s account. The provider does not get the call fees directly as Skype Credit — rather, they go into a special holding “box”. The provider then receives the revenue via PayPal.

As is, skype credits are associated directly to the funding currency and thus are automatically converted into real money for the reciever. However for cross currency conversions, (caller bought skype credits in US$ and reciver is charging Euros) it does not appear that this transaction could be consumated.

Because skype credits are essentially pegged to a local currency AND there is no cross border transactions, Skype credits are only fungible as part of a transaction. However if Skype begins to enable cross currency calls, and begin denominating Skype Credits in MINUTES, a liquid market for trading these minutes will likely occur. Skype will have essentially created a virtual currency/economy. (I pay you in skype minute and you charge using skype minutes, and convert them to local currency in an as needed basis)

Of course, for a Skype economy to appear, there need to be a market for skype minutes. There are one very obvious applications: Sex. And second even more brilliant suggestion by Tom Evslin - as a method to self-monetize leads.

Here’s my prediction: many people will set up Skype Prime based call services. They’ll put information in their profiles which attracts telemarketers. Telemarketers will learn who the best prospects are both from the profiles (some of which will be lying) and by accumulating lists. You’ll adjust the rate so that you’re pleased, not annoyed when you get a telemarketing call.

Of course, given the rise (and probably proliferation of virtual economies like 2nd life) , Skype Minutes could easily become the currecy of choice for these smaller vitual worlds. (and as any gamer will tell you, Skype is the best thing (IM + Voice) to ever happen to a raiding party.

I dont write about payments much since lots of my work and research are somewhat confidential (for my job) and; more importantly, I’m really a student of the industry than a guru (not that it ever stopped me from BS’ing before) . . . However as I read and talked more to people in the industry it was clear to me that the future of mobile payments in the US is in somewhat of a holding pattern.

There are several architectural issues that needs to be resolved before wide spread adoption by consumers can take place. Even more importantly, without the emergence of a dominant architecture, the current consumer experience for mobile payments is not a marked improvement over what is the current “NON-MOBILE” payment experience . . . without a magnitude imrpovement in convenience or a catalyst (aka killer app), mobile payment adoption will be hard to realize.

What many entrepreneurs and VC’s fail to realize is that EXISTING payment methods are already “mobile.” What Mobile Payments really should stand for is MOBILE PHONE PAYMENTS as well as what happens to digital payments when ubiquitous real-time connectivity becomes a reality. IP connection and the browser used to tether computer users to the desktop, but not anymore with advent of IP/browser/applications on mobile phone. This is a quantum leap improvement in accessibility and context. However, cold hard cash as well as the good old Visa/MasterCard never tethered the end user to anything in the first place. The wallet is as mobile as it get! . . . Mobile payment’s value proposition will never be mobility, but the increase value through better acceptance, authentication, and control.

There are really two major mobile payment architectures in competition for the future. (Hybrids are possible but harder analyze.)

Scenario One

NFC technology matures (its very close). The payment card (Visa/Master) merges into the cell phone at the physical layer - ie your payment card sim chip is in the mobile phone.

1. Customers buys something
2. Customer “waves” his phone at a terminal
3. terminal asks customer to type in PIN at terminal (or not)
4. terminal uses its existing connection to association rails to authenticate and authorize payment
5. payment complete/fail

This is almost embarassingly simple. Besides step 2, there is almost no difference between this use case and the existing use case for payment cards. And there lies why this architecture will gain the most traction DESPITE the fact that it got a late start. The incremental value proposition is simply speed . . . and the incremental disruption to existing pratices & infrastructure are almost none. And thus the barrier to adoption are the lowest - new terminals and new cards needs to be distributed but the associations have allocated huge budgets to make this happen. Under this architecture, the opportunity for startups to disrupt incumbents are low. The banks, associations, and merchant networks will retain most of the value created.

The only evolution I can see is that Carriers gets in the game and create applications and sofwares that integrate the sim chip at the system and application layer, not just the physical layer. Thus, you can check your balance/credit limit in real time, keep a history of your transactions, etc.

Scenario Two

Almost all independent mobile payment companies are taking this route (Paypal, OboPay, MobileLime etc). Instead of relying on merchants, their terminals, and thus the existing VISA/MC association rails for authentication and payment, they route the transaction through the mobile phone, OTA IP connection, and the Carrier back onto their own merchant processing network (circumventing the association).

Here is the customer experience

1. Customer buys something
2. Phone recieves merchant ID via a few possible methods
- text message using merchant phone # as ID
- NFC gathers merchant ID from a passive terminal (no connectivity whatsoever)
- customer enters ID via an application interface
3. Phone requests/customer PIN
- dial back
- text message
- application prompt
4. The mobile uses its IP connection to authenticate and process the transaction

There are a huge amount of infrastructure that needs to built here. BUT even more important, the change in customer behavior is HUGE. . . . The odds of this architecture winning in the short term are low . . .

BUT I can see why this is a much more exciting vision of the future and a broader set of value can be created. For one, payment connectivity is no longer enaslaved to the merchant. Anyone with a mobile phone can accept payments. ACCEPTANCE (not payment) mobililty for digital money moves from “store to store” to “people to people” (Its like payment cards finally became like cash , ie it is fungible at the people level) Furthermore, the integration of the authentication through the phone opens up creative applications for controling spending, savings, and any financial activities.

EVEN MORE IMPORTANTLY from the business model perspective, this architecture gives startups an opportunity to disrupt the incumbents and create/launch their own merchant network where they can make 50-200bps on the transaction volume. Who wouldnt want to be the Visa/MC/Amex of the next millennium?

Eventhough the 2nd architecture has gain a lot of funding and publicity, I believe the first architecture will be the first to gain adoption. It is certainly not ground breaking, but its the neccessary next step. A version 2nd architecture (which enables breakthrough accpetance and ubiquity) will come but only with the blessing of the existing payment associations and not in its current form as implemented by the existing slew of startups. Paypal is the only player with an outside shot of pulling this off because of their existing merchant relationships and consumer adoption. All others needs to revaluate their architecture and give up the hope to create a merchant network. (atleast not in the first 5 years). Instead, they need to learn to play better with the payment associations, embrace NFC, focus on building mobile applications, and earn the trust of carriers. They need to learn to leverage the hundreds of millions Visa/MC/Amex have earmarked to upgrade its terminal, network, and cards instead of fighting an uphill battle.

In that model, a modified scenerio 2. Mobile phone will become payment as well as a acceptance tool . . . it will be able to act as a terminal as well as a authorization ID. (through NFC/RFID/Infared/bluetooth or whatever communication device method is out there between two phones). Visa/MC/Amex etal will not go away, but a startup might gain enough traction (Paypal) to join them. Their rails/processing systems will migrate to the handset with the help of Carriers who controls the physical layer (mobile phone hardware + airwaves). Applications will be written for the mobile phone to transform “mobile phone + payments cards” beyond simple identification tools (what is a credit card if you take out the plastic?) into innovative method for controlling spend, evaluating credit, managing savings, and whatever entrepreneurs can think of next. . .

Back in the good old dot-com days, companies runtinely uses its balance sheet (more specifically its ability to raise money and put it in the balance sheet) as an competitive advantage to acquire companies that has either better traction or revenue but not the access to cash. This strategy is often used by buyout shops to roll up companies without the sophistication to know how much they are worth or the ability to put together a business plan and financial model to pitch to PE shops. As much as we would like to believe capitalism is without friction, the VC or buyout circle is small and requires specific language, behavior, and access.

A classic example of “tail wagging the dog”, by virtue of raising a ton of cashing, the cash rich venture has essentially “sucked up” all the cash that VCs are willing to dump into a space. Even if a competitor comes along and achieve better traction, VCs are loath to invest because of the cash hoard that the original company has amassed. (its like competing against MSFT vaporware in the early nineties)

Well today, Obopay acquired BillMonk. A cool little app that seemed to have gathered a small but loyal group of users. Not to take anything away from obopay, (its succesfull in its own right), this is a case book study on “throwing your weight around” to gain (additional?) traction.

The majority of mobile subscribers in Europe has a prepaid mobile account - as opposed to mostly underbanked customers having prepaid accounts here in the U.S. As much as it is a coincidence or prescient segmentation, the majority of first general MVNO (or just sub-brands like Boost) here in the US are prepaid focused giving the MVNO market an apparent high growth trajectory where it was really “prepaid” that was driving growth in the US. (confounding variable)

As a result, most of the second generation MVNO did not fare too well given that the prepaid market is beginning to saturate like the post paid (Disney, ESPN, AMP’d, Helio and a dozen more). Some are still hanging on through technical innovation and blanket mass marketing (AMP’d + Helio) . . . but steadfastly refusing to release sub #’s.

Well . . . long story short. . . easyMobile, the MVNO of the Richard Bronson wanna be, Stelio (first name only, like Madonna), is about to fold after only acquiring 80K customers (another rule of thumb for me, you gotta have user # higher than the total people in any given superbowl to be considered “impressive” growth).

This is scary given the amount of runway left for mobile innovation is unlimited, but MVNO’s who can potentially push incumbents forward are fading like flies. As a result, the “walled garden” of the mobile platforms might persist much longer than the IBM monopoly on the PC BIOS (the last time the PC platform was “closed”).

It used to be that economies of scale in the mobile business comes in the capex (network buildout, spectrum acquisition); right now it looks like economies of scale in distribution & marketing is equally big too . . .

Only companies that has already achieved economies of scale in marketing and distribution can really leverage the MVNO model to some degrees of success . . . (read Apple). . . lets hope