[Dave Birch] Earlier in the year, Jacqueline Chilton from Glenbrook had a nice write up from CTIA and I remember making a note of it because of one particular point that she made. She reported on a mobile payments panel session, saying that:

In the end, there was general agreement that someone would make a big bet investment and turn the tide.

[From Glenbrook Partners: Report from CTIA – Mobile Payments Eventually]

I’m sure she’s right, because that’s the way of these things. Someone needs to be the American Express, the Apple or the Walmart that animates the new business models made possible by the new technologies. But who? If I actually knew, naturally, I wouldn’t be doing this job, but I think that some of our recent experiences might allow us to do better than random guesses or non-commital management consultancy blandishments. So here’s a bit of informed speculation. If it’s going to be a big bet investment, then it has to be a game changer, not simply the shift of some existing payment instruments over the handset.

Could banks themselves be the game changers? Other people are starting to wonder what the world might look like if banks started breaking off from the international payment scheme networks and becoming their own networks. Banks like HSBC, Citi, Bank of America could simply operate their own payment schemes: they have enough customers. If WalMart took Citi cards, that’s a lot of volume. But it’s also a different basis for competition. As the literature tell us, “two-sided” payment networks have to balance the interests of customers, retailers and banks to work. In practice, this means that the banks (who owned the networks) structure the business. One of the effects of this has been to send a portion of the merchant service charge (MSC) levied on retailers back to the issuers in the form of interchange. Banks then use some of this interchange to incentivise customers (I’m happy to say: my Barclaycard Paypass card is currently giving me 2% cashback on petrol and supermarket transactions). This is the source of a great deal of friction between retailers and issuing banks (not to mention legal action and regulation around the world).

But if a network isn’t competing to sign up issuer banks, perhaps the incentives change. This might lead to the development of real value-added services for merchants (data mining, e.g.) or to more meaningful product differentiation (not just variations in rewards programs) for consumers. In short, shaking up the structure of the payments field might encourage payment companies to do a little more thinking outside the box.

[From Credit Slips: The Visa IPO]

It seems to me, though, that banks have a quite enough on their plates at present and this kind of big strategic decision must be hovering around bottom of the list of strategic decisions that need to be made real soon now. So who else could be the game changer?

There are a few candidates that spring to mind. The processors in Europe are consolidating, so the volume of “on us” transactions must be going up steadily, and some of them must be starting to think about becoming the much-talked about “third way” themselves, while the banks might be happy for them to step in and take away all the costs associated with SEPA, SCF, PSD, PCI-DSS, EMV and who know what else.

Then there are the mobile phone operators. These have always been seen as prime candidates for the provision of alternative mass market payment services. Consumers certainly don’t seem to have a problem connecting mobiles and money.

While contactless cards have faltered in the United States, mobile-phone banking has taken off. At the end of 2007, 1 million people were using mobile banking. That number is now more than 5 million, and it’s expected to reach 42 million by 2012, according to TowerGroup.

[From Cash, Credit, or Cell Phone? – CFO Magazine – October 2008 Issue – CFO.com]

Incidentally, if you don’t think that mobile operators might see mobile payments as a game changer from their perspective, go take a look at Vodafone’s most recent set of accounts.

But what’s really odd is that for Africa & Middle East, data revenues now exceed messaging , by £127m to £107m. That compares with £48m vs £88m last year. Given that number is mostly made up of Egypt, South Africa [Vodacom] and India, I guess that indicates a huge ramp-up of 3G modems at Vodacoms, possibly aided by mobile payments… Strong growth in data revenue was driven by the increased penetration of mobile PC connectivity devices… and the launch of Vodafone M-Pesa/Vodafone Money Transfer service in Tanzania

[From Dean Bubley’s Disruptive Wireless]

Now, one of the objections that is put forward when discussing the potential for mobile operators is that mobile operators don’t want to become banks. This may well be true, but on the other hand banks don’t cost as much as they used to, so operators could simply buy banks if they wanted to (let’s call it the DoCoMo option), but there’s also the impact of the Payment Services Directive (PSD) to be considered. If mobile operators can provide decent payment services without having to be banks, they why bother with the overheads that come from being more tightly regulated?

I think a more realistic block is that payment services simply aren’t profitable enough to interest operators because transaction margins are so thin. They make sense for operates when they leverage data traffic, reduce churn, attract new subscribers or have some other impact on the balance sheet.

If those assumptions are reasonable, then It has to be the retailers, doesn’t it? They are the people with the most to gain from a significant cost reduction, they are the people with the networks in place and they are the people who want value-added services around the payment transactions.

the biggest concern for convenience retailers remains escalating credit card fees, which surged $1.0 billion, or 15.2 percent, to reach $7.6 billion. Meanwhile, industry pretax profits dropped by roughly the same amount, $1.4 billion, falling to $3.4 billion. The net effect is that the industry’s credit card fees are now more than double the industry’s pretax profits,

[From Payments News: Convenience Store Sales Up But Rising Credit Card Fees Hit Profits – April 10, 2008]

At a time when bank innovation is being squeezed as the organisations “retreat to the core” and when retailers are looking to add margin on lower sales, it may well be that the temptation to create a retailer-driven payment system becomes overwhelming. My Coffee Republic e-purse comes with a built-in loyalty scheme: I wish they took it at Bagel Factory.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. I wonder how hard/expensive registering a completely new bank would be? If, say, you agreed to only invest customer despoists in commercial paper and/or short duration gov. paper…

  2. Hi, Dave
    You were talking about Retailers but you didn’t notice the specific and very rapidly growing category of retailers – the digital distribution chain (music, games, downloads). The biggest pre-paid “third way” payment service for today is not the PayPal money transfer service it is TenCent’s Qcoin.
    Btw, maybe you consider joining the ‘Game Payments’ group on LinkedIn: http://www.linkedin.com/e/gis/1192457
    [Dave Birch] Thanks for the invitation Alex but I’m not sure I’m an expert on game payments.

  3. Hi I work online and am always interested in making money by working at home. It gives me an opportunity to be my own boss. Off lately, I’ve been pointed to the “work from home” website:

    Does anyone know anything about this site. Can I really work from home and make money with this particular forum site? Or is this a big scam? All answers are surely appreciated, and I hope I’ll be making some money soon. Any other sites of course are also welcome 🙂 Thanks

  4. Frank Trotter in a presentation in 1998 in Anguilla said that the game changers in the digital payments world would be: Telcos, mass transits and couriers.
    Game companies weren’t on anyone’s radar then. Banks were, but Frank worked at a bank, doing digital cash (!) and I guess that was the inside tip 🙂

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