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February 23 2012

Commerce Weekly: The mobile payment system that's ready now

Here are a few stories that caught my eye this week.

Three reasons why direct billing is ready for its close-up

In a sign that direct billing is gaining credibility beyond the realm of online games and media, WorldPay, a payment network for sellers, said it would add Boku as a method of payment to its system. Direct billing companies like Boku, BilltoMobile, and Bango let people buy things by entering a mobile number online and replying to a confirmation SMS text; the charges show up on their cell phone bills. Execs with these firms often describe them as "banking for the unbanked," but the reality has been that in practice, many of the "unbanked" are online game players who are too young to have bank accounts.

But that seems bound to change. Direct billing has at least three things going for it that make it an attractive option right now for mobile payments.

Boku graphic

The first is the potential user base. The graphic above, from Boku's site, shows the numbers that these services pin their ambitions on. There are two billion credit card accounts in the world, but more than five billion mobile phone accounts. Each of those mobile numbers is a unique identifier that the carrier can identify anytime, anyplace in the world. Compare that to the experience many of us have had where your credit card issuer puts a hold on your account because it is suspicious that you paid for a taxi in Chicago on Tuesday but are now buying lunch in Puerto Rico on Thursday.

Second, PayPal is about to train its millions of mobile customers to pay for things by keying in a mobile number. Its real-world retail pilot at 51 Bay Area Home Depot stores allows users to do just that (or use a PayPal card) to pay for hardware and other real-world goods. PayPal bought Zong, a direct-billing leader, for $240 million in July 2011. It has woven that technology into its suite of customer payment methods, though the process now taps your PayPal account rather than showing up on your mobile phone bill. And that's probably a good thing: One of the things that has held direct-billing back has been the reticence of mobile carriers to go along with a scheme that threatens to anger their subscribers when they open their monthly bills to see totals that are hundreds of dollars more than they spent on telecom services. The direct-billing companies have helped the carriers get over their hesitation by offering them a cut of the charge, much higher than the few percentage points that credit card companies charge for transactions.

The third great thing that direct billing has going for it is that it could allow people to pay for real-world goods now, no matter what kind of mobile phone they have. We've written a lot about NFC wireless as a tap-and-pay solution coming "soon." But so far in the U.S., only a handful of Nexus G users on the Sprint network are able to pay for goods using NFC and Google Wallet. Verizon's decision last December to lock Google Wallet out of its rollout of Samsung's Galaxy Nexus due to "security concerns" made the advent of universal NFC a little less certain. Direct billing, however, works on any mobile phone that supports text messaging. As Boky co-founder Ron Hirson pointed out in a column on Venture Beat last year, the more advanced benefits of a mobile wallet accompany direct billing, and no NFC is required. As Hirson wrote, the real advantage to mobile payments isn't the supposed convenience of tapping your phone compared to swiping a plastic credit card; it's the integration with other apps on the phone for record-keeping, bargain hunting, rewards tracking, financial planning, and the option to go social.

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Is social commerce not commercial enough?

A Bloomberg story published late last week said Gamestop plans to shutter its Facebook store after disappointing results. The article also noted that over the past year, three prominent retailers — Gap, JCPenney, and Nordstrom — have all opened and closed stores on Facebook, too. The report quoted Forrester Research analyst Sucharita Mulpuru explaining the disconnect that's leading to disappointment:

"There was a lot of anticipation that Facebook would turn into a new destination, a store, a place where people would shop. But it was like trying to sell stuff to people while they're hanging out with their friends at the bar."

The report was noticed, and widely reposted and linked to. A counter-point published by Forbes on the same day appeared to get less attention. In that piece, Wade Gerten, CEO of 8th Bridge, which makes social shopping software, suggested these companies failed because they didn't understand what social commerce (or Facebook commerce) really is. Gerten wrote that it's not about setting up your Facebook page as a checkout stand; that's what your website does. It's more about tapping Facebook's best qualities — sharing, bragging, and asking — to help people discover what you're offering. He cites Ticketmaster and Delta Airlines as two successful practitioners of the art. Neither company attempted to replicate its website's transactional activity within Facebook's walled garden, but each organization used that channel to promote their offerings. So maybe it's not exactly F-commerce but F-marketing?

Meanwhile, with Facebook's ability to push merchandise now slightly tarnished, we look for a new champion. Pinterest is barely on the radar screen, but Forbes' Jeff Bercovici writes that it's already a better place for social commerce. "Pinterest isn't a bar," Bercovici writes, referencing Mulpuru's quote in Bloomberg's story. "It's more like a craft fair where people go to exhibit their wares, check out other vendors' offerings, or do a bit of both."

How to dial a telephone (again)

Our smartphones are so capable, and we're so adept at using them to manage our lives, that it's funny to look back and see that people once needed instruction in the most basic of phone operations: how to dial a number and place a call. But an ancient 10-minute black and white film on AT&T's Tech Channel (embedded below) shows the lengths that "the Bell network" went to in preparing their customers for the switch from operator-assisted calls to dialing systems. Rows of nerdy guys in white shirts and pocket protectors line up to yank out the fuses at the stroke of 12, while other white-shirted guys in another room at the same moment yank out strings that activate the new systems. A model who might have been Lucy's Connecticut neighbor explains some of the basics, like what a dial-tone and busy signal sound like, how to look up a number in the directory, and even how to dial a rotary phone.

Actually, the instructions on how to use a rotary dial phone — "making sure your finger firmly touches the finger stop with each pull of the dial" — are as novel now as they were when this film was produced. My young kids found an old one in their grandparents' house (not in service) and had fun marveling at how this heavy, black analog beast was able to make calls.

Got news?

News tips and suggestions are always welcome, so please send them along.

If you're interested in learning more about the commerce space, check out DevZone on, a collaboration between O'Reilly and X.commerce.


July 14 2011

ePayments Week: Contactless payment (and zombie survival tactics)

Here's what caught my attention in the payment space this week.

PayPal demos tap-to-pay

PayPal demonstrated peer-to-peer payments using near-field communications (NFC) at this week's MobileBeat conference. They showed how two mobile users could send payment to each other by tapping phones and confirming the transactions in the PayPal app. Laura Chambers, PayPal's senior director of PayPal Mobile, wrote in a blog post that they expect to make the service available publicly later this summer. Right now, however, there's only one NFC-capable mobile phone in the U.S. market — the Nexus S — so both the payer and the receiver would need to have that device.

A PayPal video (below) shows the recipient initiating the transaction, requesting $10 and then holding her Nexus S up to someone else's. Both phones buzz and vibrate, and the recipient gets a request, which they can confirm. Both get an email confirming the transaction.

In practice, PayPal's system doesn't seem too different from what's already possible with Bump, an app that lets mobile users share images or music, or send money from one phone to another — although Bump sends the transaction over the network rather than via NFC. Bump says its app has been downloaded more than 40 million times on Android and iOS platforms, but it still lacks the reach of PayPal with is 94 million users. What's more, by launching its NFC capabilities now, PayPal will already have experience under its belt as more NFC-capable phones (and point-of-sale terminals) begin to appear later this year and next.

NFC tap-and-pay wasn't the only gesture PayPal made this week to show it's getting ready for the future. CEO Scott Thompson put out the challenge for five Bay Area employees of PayPal to try to live their lives for a week with only PayPal purchases, and apparently they've found five willing to give it a try. It'll be interesting to see how they secure necessities like food and gasoline (not to mention rent or utilities, if those are due that week). But that experience may serve them well if PayPal's other publicity stunt of the week transpires: the company produced a funny video that suggests PayPal's one-tap payment system could prove useful during a zombie attack. (The short video is worth watching not just for laughs but also to see PayPal's vision of how one-touch user clicks will be enabled on everything from soda machines to rental car windows.)

eBay buys Zong

In other eBay/PayPal news, eBay continued its acquisition trend, announcing it would pay $240 million for Zong, one of the leaders in direct billing via mobile phone accounts. Zong, Boku, and Bill2Mobile all offer services that let subscribers buy digital goods — often something in an online game — by entering their mobile number online and replying to an SMS text; the charge shows up on their cell phone bill. At times, these services have touted their capabilities as a form of banking for the "unbanked," though in practice many of the unbanked are social game players who are too young to have bank accounts.

Zong brings along its direct billing relationships with 250 telecom carriers around the world, and it's easy to imagine that users will be able to put PayPal payments on their cell phone bills. A spokeswoman for eBay, Sarah Lasky, told me the converse is already true in some countries such as Malaysia where, through a deal with telco Maxis, customers can use PayPal to pay their mobile phone bills.

Back in April, Zong competitor Boku announced a trial with Germany's Telefonica 02 to pay for online purchases of real-world (that is, non-digital) goods. Lasky said there are no plans so far to use Zong this way over at PayPal.

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The three types of social commerce

Oodle CEO Craig Donato has posted an interesting short essay on social commerce on ReadWriteWeb. Donato breaks social commerce into three elements: social shopping, social marketing, social trading. Social shopping is nothing new, of course. Shoppers have always traveled in pairs or groups and shared opinions about purchases. But as commerce has shifted online over the past 15 years, the social aspect is now racing to catch up. Social marketing can be seen as merchants wanting to join this conversation. Donato points out that, here too, this is a restoration of a traditional two-way conversation that has only become a one-way marketing monologue in the era of mass communications. Social media offers a return to the days when buyers had a direct voice to the merchants, one that helps them decide what and how to sell.

Trading, Donato points out, is the weakest area right now — a hyperlocal activity that's often managed through donations or trading goods with neighbors (sometimes with an assist from online services like Neighbor Goods or Freecycle). While there may still be opportunity here, it's clearly the most difficult to monetize, given the very nature of these money-less transactions.

Oodle, the world's largest aggregator of online classifieds, also powers Facebook Marketplace, which figures prominently in a new report from JWT on "The Rise of Social Commerce." Perhaps not surprisingly, the report finds the Millennial generation driving social commerce, especially on Facebook where "they spend so much time ... they might as well shop there, too." The report says Millennials are more interested in conducting commerce through Facebook than Boomers or Gen Xers but, paradoxically, Millennials are also more concerned about privacy issues, particularly when Facebook shares information with third parties. Even so, 59% of Millennials in the survey say they appreciate personalized recommendations that help them cut through the volumes of marketing information. Now, if merchants could only find a way to offer personalized recommendations without knowing much about you, they'd really be on to something.

Got news?

News tips and suggestions are always welcome, so please send them along.

If you're interested in learning more about the payment development space, check out PayPal X DevZone, a collaboration between O'Reilly and PayPal.


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