Mobile Payments Pilot Plans and Schemes
“So if money is the root I want the whole damn tree.” Dr. Dre
The recent announcement by Bank of America that it would conduct a mobile payment test in New York City followed the recently over-covered joint venture between Verizon, T-Mobile, AT&T, Discover and Barclays. While these heavily funded examples of innovation and cooperation between ecosystem players seems like giant progress steps in the slow to develop mobile payments story, there are some questions as to the how things are structured and the motivation of these players i.e., who’s really hustling to get consumers to adopt vs. who is just trying to find a way to wall up the garden without a concern for consumers.
I recently had a discussion with a successful bank executive about a key learning for me in the transition from corporate officer to startup builder: ambition in a big company revolves around self promotion and individual success with company value being generated as a byproduct. In a startup, you do everything possible to get operators who willingly link their success to the company’s success. When I look at how MUCH the payment ecosystem has to change, given regulatory, consumer, technology and competitive pressures, the actors in these mobile payment pilots have to act like it’s a startup. Not unlike 1966 when the Interbank Association joined with HSBC to become Master Charge and Bank of America franchised their card network to become Visa. No that was hustle!
The Big Joint Venture: Who owns the user experience? For consumers and merchants? Are the investors really aligned? Which one of them is going to get f-cked?
The fundamental issue around the success of this JV is who makes the user comfortable with this new fangled product? Telcos have not exactly done a phenomenal job on the customer side of their business; let’s not get into the banks. Historically, banks and card issuers have never even considered merchants to be “users”: The relative size of investment in merchant services vs. consumer marketing is testament to that. So the JV has to not act like a bank or a telco, while pulling a management team from those organizations.
“No matter where you go, you are what you are player
And you can try to change but that’s just the top layer
Man, you was who you was ‘fore you got here “ –Jay Z.
I am also not convinced that these companies can be a useful board of managers for this joint venture business. Corporate investors, especially banks and telcos, tend to exhibit qualities that really suck for the CEO of the Newco:
- Groupthink: I have a growing theory that groupthink actually was invented in the consumer banking world. How else could everyone’s card product do the exact same thing and cost exactly the same. Every time. Groupthink is useless to the manager of a new business attempting to create new customer behavior.
- Experience: Good VCs have done 100 to 1000 times the deals that any of these corporate operators have done. They have seen and experienced analogous development in other industries that are underwritten by technologies. Score another for new payment startups.
- Courage: It takes big balls to start a new payment system. Real courage, not false powerpoint bravado. As I’ve advised others, be prepared for your business to nearly fail once a quarter. That kind of fortitude is hard to find in these big companies.
As far as which of the investors here is going to get f-cked, we can save it for another post, but there are obvious signals in the size of the companies at play. Also for fun, everyone should Google which banks do treasury, M&A advisory and other such activities for AT&T, Verizon and T-Mo.
Bank Of America: A shot at success? Don’t bank on it.
The B of A test seems more about form factor change rather than an actual system change. DeviceFidelity themselves refer to their technology as a bridge to integrated NFC. This suggests that B of A is simply trying to measure customer reaction. But a handful of employees and consumers in New York? Welcome to the upper west side, circa 1998:
“And in New York, after a dismal start, Chase Manhattan Bank–Mondex’s New York trial partner–simply gave customers living in the area a new debit or credit card equipped with a Mondex chip in it. It also put at least $5.00 of its own money on each card. More than 40,000 local residents received a card, yet the smart card remains as unpopular in New York as it is in Guelph. In both places, after an initial flurry of interest, card use has dropped to near zero.”
–Forbes, July 1998
In the end though there are some key characteristics that need to be exhibited by the winners in consumer mobile payments, whether big or small:
Understanding the changing consumer: Fundamentally, this is where banks fail over and over again. Beaten up by government at regular intervals, they simply cannot manage inertia to modernize at pace with the consumer. For example, smartphone payment means smart ass consumers. That means the solution will need to be inherently smart.
Treat the merchant like a customer: This is a big one that nobody seems to get. They didn’t get in 1998 and they still don’t get it. Retailers continue to pay the ever increasing vig on card transactions because they are addicted to that crack. They aren’t going to try your new NFC crack unless it is better or cheaper. Incentivize them instead of selling them some no rational line about increased basket size. Pay for the readers and throw some money at them for participation.
Let people mess around with it: Yes it’s risky to put beta product out in financial services, but you need to get real people to try this to read behavior. Then listen to the users and get the right functionality in the next revision. And tell the CTO it should be released in 6 weeks instead of 6 months.