Cracking Ubiquitous Payments

What the heck happened to mobile payments?

My (Rough) Agenda

1. Scope of the discussion2. Credit card industry overview3. Mobile phone industry overview4. Implications for mobile payment businesses5. How those models have played out6. Why it ain’t working7. Why it works elsewhere8. Staggeringly brilliant insights and takeaways

SMS + e-commerce

Technologically feasible since 1995!

• SMS, part of GSM protocol, approved in 1985• First text message in history sent in 1992– The message: “Merry Christmas”– Later messages less cheerful

RFID + cell phone saturation

Real market since 1997

So what happened?

Scope of the discussion

Mobile Payments: Not Really All That Rare

1997!

?

10%

~ 1%

~ 2%

So now we ask: what happened in the US?

And what was different about Asia, and now Europe?

We need to understand the two pertinent markets

Credit Cards vs. Mobile Phones

The US credit card industry

… by which I mean “cards with magnetic stripes you pay for stuff

with”*

*I’m not going to argue with you about actual credit

“Invented” in 1888

Eddy Bellamy: Interesting dude

Used in the 20’s as a gas card

Reached ubiquity by the late ’50s

Many moving parts

Customer Merchant Payment Gateway

Acquiring Bank

Credit Card Network

Issuing Bank

Value chain is split across function

Credit Card

Network

Visa

MasterCard

American Express

Banks

Merchant Bank, e.g. FirstData

Retail Bank, e.g. Chase

Payment Gateways

"Point of Sale" units

Web and mobile commerce

End Users

Merchants

Consumers

Card Networks

The alphas of the group

Retail banks

Split beta duties with merchant banks

Merchant banks

Like retail banks on the merchant side

Payment gateways

The nerds who make it work*

* and consequently are overlooked and undervalued

Merchants

Getting the short end of the stick since the ‘70s

Consumers

Getting the short end of the stick since day 1

The US mobile industry

… by which I mean “phones you can carry around”

Launched in 1983

Analogue network

2G (all digital) in 1991

GSM: set the stage for scalable networks

Telecommunications Act of 1996

13,550% growth once interoperability enabled

Side effect: massive consolidation

Today, only three nationwide networks

Nice simple value chain

Hardware Manufacturers

Tower technology

Handset technology

Carrier Networks

AT&T, Verizon, etc.

Consumers

Software Vendors

Hardware Manufacturers

Tower technology

Handset technology

Carrier Networks

AT&T, Verizon, etc.

Consumers

Right?

Standards Boards

App Stores

3rd Party Services

Content Providers

Software Vendors

Hardware Manufacturers

Tower technology

Handset technology

Carrier Networks

AT&T, Verizon, etc.

Consumers

Right, guys?

Standards Boards

App Stores

3rd Party Services

Content Providers

FCC!

Handset Manufacturers

Increasing power in high-demand markets

Carrier networks

Pretty much run the commodity handset manufacturers and the poor

consumer

App stores

Successfully maneuvered out of carrier control

SMS gateways

More nerds, beholden to carriers

Consumers

*Still* getting the short end of the stick

Technology Solutions

Like technology alone ever solved a problem…

1. SMS powered

Digital wallet or carrier billing

2. Mobile internet powered

Free from direct carrier intervention

3. Hardware powered

Awesome, but require cooperation

Four distinct business models

Bank Centric• Payments

processed directly through bank

Collaborative• Joint venture

between carriers and banks

Independent• Payments

processed independently from bank or carrier

Carrier Centric• Payments

processed through carrier contract

High

Low

High

Low

Carrier’s Involvement

Bank’s Involvement

Banks vs. Telecoms vs. Hardware vs. Software

Telecoms losing the fight

Security vs. Ease of Use

i.e., banks vs. independents

What needs to happen?

Collaboration on a massive scale

The Road to Collaboration

• Leverage mobile standardization

• Leverage bank security

• Leverage independent innovation centers

Will it work?

Theoretically…

La Caixa, Movistar, Visa

• Perfect coordination between the players

• Utilizing NFC!

• Under way now

So what about the US?

Thanks guys!