From The Ground Up

Fwd: Engineering, startups and life

Show Me The Money

with 4 comments

The evolution of the mobile ecosystem as a platform mirrors that of the online space. In its simplest form the Internet evolved over three stages:

Communication –> Gaming –> Commerce

On top of these pillars of the online space, social context has fueled further growth. This evolution reflects the maturation of technology, business models, and people’s comfort with new things (value of time, ideas, technology, privacy, etc).

The mobile ecosystem was built from the beginning around communication — calling and messaging have been the killer apps for the mobile platform for more than a decade and will continue to play the central role. But now, with the advent of iPhone and Android devices, the mobile ecosystem has finally been able to take the next step in its evolution. The smartphone experience now centers around applications, the majority of which are games. Mobile gaming is still in its infancy and will continue to power advancement in GPU technology, pixels per square inch, and see expansion into other markets such as education. Features such as interactivity, social context, and location will continue to be added and improved upon over the next few years. The iPhone and Android devices have the usual suspects within the gaming industry rolling up their own sleeves.

The ability of a platform to securely support C2C, C2B, and B2B transactions is a great sign of maturity. This most exciting stage of the mobile evolution, commerce, is coming to our doorsteps. To date much of mobile commerce has involved online transactions. Facebook has powered the rise of online of games, many of which use virtual currency and virtual goods to monetize applications. Startups like Zong and Boku have taken advantage of this by allowing gamers to very quickly pay for virtual goods by entering his/her mobile phone number. Zong and Boku confirm the transaction over the SMS network and the transaction shows up on the gamer’s phone bill. In order to avoid the hefty transaction fee demanded by carriers, Zong now offers users the ability to link your mobile number to a credit card account or a prepaid account. Zong alone processed payments for more than 10 million users last year.

Startups Obopay and Venmo continue to drive usage and growth of mobile as a commercial platform. These companies have moved away from the online space and allow users to send and receive payments over SMS. Each user’s account is linked to a bank account. Although transfers are currently capped (usually around $1000), people’s early acceptance of these applications portends minimized visits to the bank, decreased use of checks (which costs banks millions annually to process), and a different set of expectations around the availability and ubiquity of “money”. David Schwartz, Obopay’s marketing chief, has a great sound bite:

There’s now four billion people in the world who have a cell phone. But there’s only about a billion and a half people who have a bank account today or any access to financial services.

This underlines the significance moving forward of the mobile platform in our online and offline lives, across the world. Much as content has become on-demand, anytime, anywhere, the ability to access, use, and share money will only become cheaper and easier across the world. In fact the line between online and offline will begin to blur — these ostensibly discrete states will be more interactive and continuous.

Payments online and user to user transactions are only a slice of the mobile payments pie. One of the most ubiquitous points of transactions is the cashier register, at the grocery store, at the mall, at the retail outlet. Billions of dollars are spent here annually in the US alone. Various solutions are already in play, both startups and heavy hitters. Most ideas center around replacing plastic with the mobile phone: the mobile phone is waved in front of a POS reader, and money is transferred. One of the barriers to entry here is the hardware requirement, namely the POS scanner. One likely needs to broker deals with national brands in order to get their scanner placed at the POS. Below are companies looking to disrupt this space:

  • Square (iPhone) has taken a shot at solving part of the problem by using the iPhone itself as the POS device. The application is targeted towards SMBs looking to accept payments faster and more conveniently. Millions of people have credit cards, but less than 5% have the ability to accept credit card payments.  Others, like FaceCash, Facebook, and Foursquare have hinted at introducing contactless payment services.
  • FaceCash (iPhone, Android, Blackberry) deploys an application and a piece of software that sits on the cashier’s computer. The only requirement here is that the cashier has a web-connected computer and a standard barcode scanner.
  • Foursquare (iPhone, Android, Blackberry) has hinted at integrating with barcode scanners,

While the ultimate responsibility rests with the merchant, we want to make sure they have the tools and documentation necessary to teach everyone involved about our programs. As technology advances and Point of Sale systems get smarter, this responsibility can move from humans to barcode scans, loyalty card integrations and other means, thus reducing the potential friction.

It is still too early to confirm what role the latter two truly play in the respective roll-outs, and neither are necessarily involved in the transaction process, possibly placing themselves more in “competition” with Swipely and Blippy.

In addition to the startups, there are the heavy hitters that cannot be ignored in the mobile payments space. Carriers (Verizon, AT&T, Deutsche Telekom AG), credit card companies (Visa, MasterCard, American Express), and banks (Bank of America, CitiBank), and software giants such as Apple and Google, all have the ability to disrupt mobile commerce. It is a space ripe for innovation and the stakes are high. Today Verizon and AT&T announced an equal-share partnership with game-changing potential in deploying contactless payment technologies, beginning with pilots in three stores in Atlanta. Contactless payments rely on RFID chips, a technology that still faces questions around security, partly due to its wide broadcast range. Near field communication (NFC) technology, a subset of RFID, is restricted to four inches, and thus may enjoy better community acceptance. Again, in these scenarios, the efficacy of the distribution of the POS scanner will be critical for any traction.

While consumers have learned to keep their plastic cards close at hand, the convenience and ubiquity of the mobile device will ensure growth of the mobile commerce space. NFC technology will almost certainly be deployed in iPhone and Android devices within the next 2 years. Customers and businesses will rely ever more heavily on the mobile device to execute cheap, secure, fast, and numerous transactions on the go.

[Update 08/17/10: Indeed Apple is moving towards this feature]

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Written by Girish Rao

August 2, 2010 at 17:17

4 Responses

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  1. Great post. I agree: the arena is ripe for innovation, and the applications for mobile devices still have much room to grow.

    It’s intriguing and a little scary to think of how liquid money has become, but this unavoidable path seems like it’s been in the making since the beginning. It’s trust that determines the value of money anywhere. I feel like eventually, this liquid nature of money will turn to gas, and vanish, leaving only our words and trust determining value and transactions–maybe not in our lifetimes, but it looks like we’re headed in that direction.

    Vivek Patel

    August 5, 2010 at 09:42

    • Very post-apocalyptical Vivek! We are surrounded by content and for better or worse our identity is also increasingly being pushed into this cloud. In turn, moving forward, it will be increasingly important to secure trust and identity.

      Girish Rao

      August 5, 2010 at 17:18

  2. […] small sample size. Nevertheless, the data points plotted in the chart above are worth reviewing. As stated here, gaming is the second stage in the evolution of the mobile ecosystem (communication, calling/SMS, […]

  3. […] an earlier post I talk about the evolution of the web. Facebook has undergone a similar evolution, and is in fact […]


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