With that still fresh in my mind, I saw the headline NFC: Technically Viable, but is It Desirable? pass through my RSS reader this morning, and clicked through. The general gist of the piece is that yes, NFC works, but there’s not much consumer demand for it, despite a lovely survey from Visa that says “61% of Americans aged 25-34 would want to use their cell phones to make payments.”

NFC has two big problems. First, nobody can agree on how to make money for it. It’s red ink for handset vendors to include NFC chips in phones, unless they get a cut of the payments that pass through it. Operators don’t see much point in pushing NFC, unless they get a cut of the payments that pass through it. Credit-card companies and banks don’t want to give up a cut of the processing fees they’ll get from NFC payments, and don’t want to subsidize the devices. And retailers certainly don’t want to have to pay for new POS equipment to accept NFC payments, or pay for them through increased processing fees.

Second, what’s the real benefit of NFC payments for consumers? Using your phone to pay for stuff offers a marginal increase in convenience, at best, over existing payment methods like credit and debit cards, and can add significant inconvenience if users are required to maintain some sort of prepaid account to pay for said stuff. Furthermore, as credit cards themselves gain contactless technology, that marginal convenience benefit declines even more.

Simply put, NFC, and nearly every other mobile payments platform, faces a very bleak future. But if the focus shifts to NFC as a transaction platform, things aren’t so bleak. Take, for instance, the Oyster card system used in London for public transport. The Oyster is an RFID-equipped card that replaces normal bus and tube tickets. The existing card offers tremendous benefits for users — not the least of which reduced fares over cash — and for Transport for London, which runs the city’s transport, as well. Building the Oyster functionality, or ticketing for public transport in general, into mobile phones (which TfL is apparently exploring) adds a lot of value for users. It negates the need for a standalone card, for starters, and it offers the potential to add additional functionality, such as balance lookups, from the handset. (Before you jump in and say that NFC payments can replace credit cards, let’s be realistic — we’re a really long way off from people stopping carrying wallets.)

If NFC can be a transaction platform that allows enables all sorts of applications, and not just credit-card replacement payments, it will have more value. With mobile payments the only visible application, of course operators and handset vendors are going to want a cut before they support NFC. Their reluctance to support a feature that’s only going to make other people money is to be expected. But adding non-payment applications could lessen that resistance, and make NFC worthy of their support, even if they’re not getting a cut of the payments. An NFC-equipped phone then isn’t just a credit-card replacement, it’s a tool to deliver all sorts of non-payment transactional services. An NFC-equipped phone becomes more desirable to consumers, which holds value for handset vendors and operators selling them — and they can also be used to deliver services these parties can control and profit from.

So when payment enabler, Valista¬†(PR-led survey bias alert) questioned penguins delegates at Mobile Content World¬†last week about operators’ cut of PSMS revenues, surprise, surprise, 65% of respondents believed that it should fall to less than 20% in less than 3 years. And a further 18% felt it should fall to less than 5% – which would be in line with credit card payments, for instance. Currently, it’s around 40- 50%.

I assume that the other 17% of the respondents were operators, or maybe some killer whales snuck in – did anyone notice?

Of course, just because the outcome of this survey was patently predictable, doesn’t mean to say that its conclusion is invalid. As I wrote earlier this week, the current share of PSMS is unfair and needs to fall if operators are to maintain a place in the mobile payments value chain. While their huge slice of the action can perhaps be justified¬†while they are both payment enablers and the principle marketing channel, they might be able to get away with this. But with the rise and rise of off-portal, the marketing role is no longer going to necessarily be valid, making it increasingly difficult to maintain these kinds of margins for payment provision.

This leaves them very vulnerable to another payment system launching, bypassing operators entirely, leaving them with no role in mobile payments. This will be a great shame as, in my view, the mobile is poised to take over the role of cash, dwarfing today’s already huge mobile payment ecosystem.

Surely, mobile operators need to be thinking about pre-empting this inevitability and start getting competitive now.

News just in: Turkeys vote to abolish Christmas.

 

During SXSW, I ran into Scott Dudelson, who’s putting on premium SMS-based fundraiser for the Sweet Relief Musicians Fund. Justin over at MoPocket has a thorough rundown on Scott and the project, so check that out for more info on what he’s doing, but the basic idea is that people text “HEAL” to the shortcode 50555, and get a message back confirming they want to donate the $4.99 via their phone bill, and they’re then entered in the “Sweepstakes of Swag”, a drawing for some music memorabilia. Nothing revolutionary to our global readers, but it’s one of the first initiatives of its kind here in the US.

What struck me about Scott’s plan — apart from how widely it could be used — is the cost element. With content providers always complaining about how much of their revenues they have to give up to operators for reverse billing, a percentage-based system could hit charitable programs like this especially hard. What makes the problem more glaring is that the operators’ costs don’t scale in line with the consumer cost of the SMS. While one might argue the risk involved in fronting a consumer the $1.99 for a ringtone until their bill is due at the end of the month is less than the $4.99 from the Sweet Relief fundraiser, I’m not sure how much I’d agree.

This is where new mobile payment systems like PayPal come into the frame, exploiting the need for a more equitable revenue-sharing system. As I’ve said before, the impact will either come from PayPal making headway in the space, or by forcing operators to lower their cut. It seems especially egregious in this case since it’s a charitable offering — is there anybody out there than can speak to how non-US operators deal with this sort of thing?

[tags]paypal, sweet relief, shortcodes[/tag]

Today, MocoNews point out a study that predicts huge growth in the mobile content market through 2010. The wild prediction isn’t remarkable, but rather its sponsor — PayPal. A PayPal exec is quoted as saying, “As new wave services such as wirelessly-delivered music files, movie clips and mobile TV are delivered to handsets, the levels of spend are likely to be spurred once again. The challenge will be in creating payment mechanism that means businesses can monetise their content without being entirely beholden to the mobile networks.” As Mobile Europe says, he’s talking about PayPal.

So no huge news or anything, just affirming that it’s a matter of when, not if, PayPal launches its mobile content offering.

As you’ve probably noticed, PayPal launched its long-awaited mobile service today, ready to bring down the pain on all other pretenders to the mobile payments crown.

Or is it?

There’s little doubt that PayPal will make a big splash in the US’ nascent market; after all, that’s what big brands do. It’s got a huge base of existing users, including both consumers and merchants to draw from, and it’s got a proven, successful business. Those factors might be enough to overcome the awkwardness of its initial efforts.

There are two parts to the service: the mobile extension of its standard person-to-person payments, which can be initiated via SMS or an IVR call, and PayPal then calls back with an IVR prompt asking for a PIN number to confirm the transaction before notifying the recipient. The other is called “Text to Buy”, and as advertised, it lets users buy stuff via a text message. It works in the same way: users SMS an item code to PayPal, which then calls back to confirm, then the item is shipped to a user’s home address.

The P2P payments stuff is pretty basic, and it’s hard to see it gaining much ground — it doesn’t seem to really address a market need that’s not already answered by existing products, whether it’s currency or PayPal’s Web service. Do people really have that great a need to send each other money in a manner other than what’s currently available?

The Text to Buy side is more interesting, as it’s not hard to see how it could become a very popular payment method for some merchants. Interestingly, it doesn’t seem geared at all towards mobile content, which is where many people said PayPal could make a huge initial impact, given the large share of revenues operators take for reverse billing. It also seems geared toward payments that don’t happen face-to-face, perhaps because of the speed of the system — one reader wrote in and said it took him six minutes to complete a transaction. That’s a long time to stand at a cash register. I do think this is a fairly cool system for buying products from ads or at events, for instance. But for real-time, face-to-face transactions, it’s still too slow.

So does PayPal do better according to the rapidly-getting-famous Buckley’s First Law of Mobile Payments, which says “If the transaction process is any more complicated than using a credit card or cash, it will never succeed” than other companies like Mobile Lime or TextPayMe? Not necessarily — particularly for users that don’t have credit cards and have to keep refilling their PayPal accounts and tracking the balance, which at this point it sounds like you can still only do from a PC. The Text to Buy stuff is getting there, though.

The problem with PayPal is that by trying to be more than just a payment mechanism, they’re adding complexity in to payments. Their separate accounts and systems adds in an additional layer between users’ credit cards and bank accounts and the people they’re trying to pay. That’s why paying via reverse billing is so popular with consumers — it’s incredibly easy. No new account, no extra bill, they just pay.

The breakthrough this market is waiting for isn’t PayPal — sorry, folks — at least not in this incantation. It’s still a touchless IC platform that supports both physical and online purchases. What’s holding back mobile payments currently, for the most part, is that operator revenue share. But that’s not a technical issue or even a societal one, just a flawed business model. PayPal’s real impact in mobile, rather than its actual product, may be to force that onerous revenue share down to more acceptable levels. But any mobile payment system can’t ignore mobile content, and that’s where the biggest opportunity is. But it’s also the one place where a system will butt heads with operators — so you have to wonder if PayPal’s avoided it intentionally.

[tags]paypal, mobile, mobile payments[/tags]

I wrote about Mobile Lime before in the context of a pretty thorough analysis of the mobile payments sector. I was pretty damning in my conclusions about the product’s usability and therefore chances of success. I explained that Buckley‚Äôs First Law of Mobile Payments is that if the transaction process is any more complicated than using a credit card or cash, it will never succeed.

The trouble with Mobile Lime is that it’s a awful lot more complicated than that. Not a bit more. An awful lot more. Like, you have to phone Mobile Lime to pre-approve a purchase.

Can you imagine having to phone MasterCard every time want to spend some money?

The usability was then tested “in the wild” by a journalist. And he showed that my predictions were pretty much spot on.

In both posts I concluded that Mobile Lime must “change or die” and I see nothing to dissuade me of that. So I wonder what the investors know that isn’t public? Or are they just throwing in more money hoping to rescue their original funds somehow?

At some point Mobile Lime and their investors will come to the same conclusion I’m afraid because “change, die or keep getting more investment” isn’t much of a long term strategy.

By the way, I know that a lot of VCs read MobHappy. I know an entrepreneur who is just in a funding round at the moment who has a much better system – it really is as easy as using cash or a credit card and thus has the Buckley seal of approval. Let me know if you want an intro to him. And no, it’s not me

The first is a little similar to the one about if God had intended us to fly, she’d have given us wings. In other words, we don’t use our mobile to make payments now, so why on earth would we in the future?

Others (and this is the group I lean towards) think that it’s pretty inevitable and it’s not a question of “if” but “when”. And who will win, of course. I write this with the BIG proviso that the payment methodology must be as simple or easier to use than paying by credit card. All too often hopefuls enter the market and ignore this basic point and make their systems ridiculously cumbersome for payer and payee.

Here’s a longer piece on mobile payments I wrote a few months ago, in case you missed it.

So it’s fascinating to read Business Week’s (via Emergic) look at payments in Korea, an obviously more advanced and sophisticated mobile market.

About half of Koreans use one of the 5 mobile payment competitors’ services, charging up $1 billion a year (up from $290 million in 2002). This is also in the context that merchant charges are about 8.5%, as opposed to a more typical 3.5%, so it really looks like it’s driven by user demand than merchant push.

Most sales seem to be online, as opposed to the real world, and the process involves inputting your mobile, National ID number and then a confirmation code that subsequenty arrives by sms. It’s marginally more cumbersome than using a credit card, it seems, so there must be a genuine user need to use their mobile like this.

Of course, just because something works in Korea, doesn’t follow that it will work in other parts of the world, notably Europe and the US. But in my view, it’s a pretty good bet that it will.

MocoNews points out that PayPal is advertising open positions in “PayPal Mobile, signaling its intent to get into the mobile payments space. The listings describe PayPal Mobile as “a dynamic, young ‘start-up’ business unit within PayPal dedicated to bringing value-added mobile payment services to consumers and merchants.” Of course, this is the same unit they pointed out in November 2004, and PayPal’s WAP service is still hanging on.

So many mobile payment companies described themselves as “like PayPal for mobile”, and it was always assumed that eventually PayPal would come in and own the space. The thing is though, most mobile payment systems are still a product in search of a market. Who needs PayPal-style mobile payments, really? The idea of using your phone to PayPal a merchant for purchases really isn’t that compelling when you’ve got credit and debit cards and good old cash, and reverse billing to a mobile phone bill works pretty well for mobile content.

Some of the contactless IC payment systems, like the ones used in Asia, are pretty interesting — but the payment stuff there is really just a sideline to all the other applications enabled by the robust and powerful platform carriers there are using. There’s a reason why the history of the mobile industry is littered with failed mobile payment companies. It’s got nothing to do with technology, marketing or implementation (though that often leaves something to be desired), it’s because there’s really little value in it for people in mature markets. There are plenty of existing payment mechanisms that satisfy people’s needs; mobile payments don’t promise to simplify things, or offer much benefit over them.

In emerging markets, however, there’s a huge opportunity. People are already using airtime as currency in some places, and Globe’s G-Cash system in the Phillippines is probably the best example of a mobile micropayment system. The opportunity for this type of m-banking, whether it’s “official” and run by a bank, or a more de facto or improvised system is huge. Several companies are already working in these areas, and they’ll find much more success than PayPal, or anybody else, pushing mobile payments in Europe and North America.

Back in June I wrote a post exploring the mobile payments sector – or what I called the next billion dollar market.

In the post I used Mobile Lime as an example of a company who were getting it wrong, in my opinion. In fact, I concluded “Mobile Lime, in the nicest possible way; Change or Die” , so I wasn’t exactly sitting on the fence when I wrote it. I was therefore very interested to read an article on Seattle PI which tested Mobile Lime in the wild, in the Boston area.

Would my theories and experiences be validated?

The first and most important point about any mobile payment system is what I called Buckley’s First Law of Mobile Payments:

If the transaction process is any more complicated than using a credit card or cash, it will never succeed.

Note the “never” part.

Over to Seattle PI:

When you’re ready to buy something, you pull out the cell phone and call MobileLime. An automated voice greets you by name. You key in your four-digit PIN followed by the location code, a short number posted in the store. Then you give the cashier the last four digits of your cell number.

It’s pretty fast – though with all those steps it’s slower than cash, unless you begin the keypunching even before the clerk begins to tally your order.

90% of the success comes down to usability. This is not a good system.

The next point I made, which is kind of related, is staff training. It’s an area that is always overlooked and in fairness, almost impossible to tackle effectively. The retail industry is notorious for its high turnover and seasonal and part-time workers, so even if you try to visit every single store and every single staff member, you’re still going to miss someone. This means that your service has to be simple and intuitive to use for the staff, as well as the user.

Back to Seattle PI:

In my first attempt with it, the sales attendant at KaBloom insisted I couldn’t use MobileLime to buy things. She thought it was merely a way to record my purchases so KaBloom could grant me rewards as my spending increased. Paying with the phone? That would leave her register short at the end of the day, she said.

I persisted, and tried to explain, but she stood her ground, and quickly the situation became ridiculous. Someone behind me was waiting. Unwilling to make a flower-buying commuter late for her train, I dropped my pleas, plunked down cash, and left.

Hmmm.

Mobile Lime also suffer from the classic chicken and egg syndrome that I wrote about. You can’t get enough merchants on board until you can show that you have lots of potential users. And users aren’t interested until they know they can use the system with lots of merchants.

Unless a payment system can crack this classic conundrum, they’ll never succeed, even if the usability is sorted out. This is not a nice-to-have in the business plan, but essential to success.

I know how I’d do it. How would you?

On the plus side, Mobile Lime have built into their service a merchant discount and loyalty tool:

Most attractive are the discounts many MobileLime merchants offer in exchange for being able to track your spending. I got two freshly made smoothies for a total of just $1.09 thanks to the combination of two such deals.

This gives the potential user a reason to use Mobile Lime, though I’m not convinced it’s a strong enough reason to overcome the violation of Buckley’s Law. I’d guess that many of these discounts are funded by Mobile Lime themselves actually, though there’s nothing wrong with that, as a short term marketing cost.

Longer term, someone has to create, organise and co-ordinate all the stores’ local marketing programmes and that’ll become a problem in itself. My experience suggests that retailers will rely on Mobile Lime to do the running in the next 3 – 5 years, which will also be difficult to scale. If users are using Mobile Lime primarily because of the offers and the offers don’t happen…..you see the problem.

The other potential glitch was that the system itself didn’t work several times, which the company claimed was down to switching computer systems for 20 minutes. Now, please don’t get me wrong – I have worked with technology for many years and I know that systems crash, upgrades must happen and things do go wrong. I also know that you should avoid live demo’s.

But if you’ve got a live payment system, you need back up and contingency to make sure that this simply can’t happen. Imagine the chaos if this were a popular payment method and the system went down on a busy Saturday in December? I also think that loss of service on the very day that a journo was testing it and in a 20 minute window when he was trying to make a payment was either incredibly unlucky or symptomatic of a bigger problem than they are admitting to, but let’s give them the benefit of the doubt.

In terms of results, so far Mobile Lime have signed up 80 merchants (most of whom seem pretty small) and 10,000 users. You could argue that this is just a test phase and in fact, they claim to be about to increase this “dramatically” with several nationwide additions to the merchant network. But I guess they would say that, wouldn’t they?

However, unless the company can improve the transaction complexity and time, I have to say I’d be surprised if a large offline retailer would take this on. Their Ops people would never approve something that slows down shop throughput significantly.

So, is there anything here to make me move away from my “Change or Die” gauntlet? What do you think?

In fairness to Mobile Lime, this is an insanely difficult product offering to get right. But the prize for the winner in mobile payments is more than worth the effort.