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A little bit about me

Hi. While this blog is a part of Seed Catalyst’s website, I realised over the initial few weeks that a lot of you are first introduced to the firm via the blog rather than our home page.

So to introduce myself - I’m a business consultant working with early stage technology firms to help streamline their strategy and go-to-market approach and support them for fund raising. 

With this blog, I aim to capture key market trends that I see in the industry, the ecosystem and cross-plays in some of the more interesting and upcoming sectors, as well as cover interesting companies that I meet. 

I will also be addressing vexing and interesting valuation and deal/term-sheet structures that would be of interest to technology start-ups at various stages of their growth.

So let’s get started...

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Payment service providers fight back PDF Print E-mail
Blog - Mergers Acquisitions
Friday, 18 February 2011 14:59

I have been meaning to write a paper on the mobile payments industry for a very long time but for some reason or the other the task kept getting postponed. And now I find FirstPartner has done an excellent coverage of the market space. So why re-invent the wheel. For those interested, a visit to their website is certainly warranted (http://www.firstpartner.net/research-releases/downloads-market-maps/).

The topic is all the more sujet du jour thanks to all the talk from major handset vendors about all phones being NFC enabled over the next few years. The Samsung Nexus S is NFC enabled as will be the next Apple iPhone. RIM too will be launching their NFC enabled version by the end of the year. A previous look at the NFC growth (http://www.seedcatalyst.com/joomla/market-trends/mobile-payment-arrives-finally)

I was once asked what mobile payments encompassed and how it was different from m-commerce. Well, m-payments would be anything ranging across fund transfer, over the counter proximity payments, bill payments, account check, ticketing, mobile purchases and now even virtual good payments...the list is long. M-commerce is one sub-set of this world.

FirstPartner has split mobile payments into the various sub-categories of

-        digital content, app stores, social media

-        m-commerce and utilities and finally

-        physical retailer and transit.

They have listed these as individual categories but I have grouped them such because the service provider will tend to vary according to these sub-categories. The first bullet is addressed by micro-payment providers linked to banks or operators. The second i.e. m-commerce can be bank transactions, utilities payments, online ticketing and can be provided by banks or platform providers linked to these banks. Finally we have NFC-based mini-payments which would include transport, the morning cuppa at Starbucks or supermarkets. The players here are diverse because the service overlaps across banks, handset vendors and platform providers. Operators and SIM card vendors are the one category which could be eliminated from the value chain but they are trying their best to remain relevant!

So that brings us to the common element across all - platform providers. In most cases, account check, bill payment and fund transfer (m-commerce) are being provided by banks with a downloadable mobile application from a provider e.g. Monitise. If the service is bill payment, mobile purchases and fund transfer but not integration with the bank account, the scope of participants increases to include operators tied up with emerging payment service providers such as Obopay, Paypal, Bill2Mobile etc.

Emerging markets have operated slightly differently due to the maturity of a different set of players i.e. banks and operators rather than platform vendors.  In terms of services, mobile enabled fund transfer and mini-payments take on a significant role due to the financial exclusion of a significant proportion of the populations. We have looked at the sector before (http://www.seedcatalyst.com/joomla/new-developments/mobile-banking-the-multi-dimensional-opportunity) where local operators have tied up with banks enabling banking transactions as well as transfers. However the platform vendors are also gradually maturing. For mobile purchases, there are home-grown payment service providers such as Eko Mobile (http://www.seedcatalyst.com/joomla/market-trends/financial-innovation-shades-of-emerging-and-developed-markets-in-mobile-banking) and Obopay. In fact, not to get outdone, recently Western Union has signed an agreement with State Bank of India, one of India’s largest banks with 100 million subscribers, enabling a WU mobile transfer from anywhere to an SBI account via a mobile transaction.

I think the significant development we need to see is that the traditional payment providers are not left behind in the battle for the mobile handset. We are gradually beginning to see the two worlds merging together. A recent transaction which exemplified this trend was the acquisition of Playspan by Visa. Playspan is an online game monetization-as-a-service provider. A leader in the micro-payments market, they will further drive Visa’s presence in the m-commerce and digital payment domain. There are still a number of players like Bango, Boku et all in this space waiting for Mastercard to wake up.

Another sub-sector which needs integration is enablement of mobile payments at physical retail outlets aka proximity payments. There has been recent news of Visa showing an interest in start-up Square. The firm has created a small device which enables any mobile device to accept credit card payments. Will there be an acquisition? It’s hard to believe that Visa would acquire a hardware manufacturer. However that is a sector which certainly needs closer integration.

Perhaps a way forward for them would be with a firm like Obopay. Doubt they are up for acquisition though?

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