Google Checkout for Mobile?

Picking up where the last post left off, the ideal market for mobile payment systems should have three characteristics:

• Rapidly rising income levels (demand is high)
  
• Small internet footprint, and even smaller e-commerce footprint (supply is low)
  
• Large mobile penetration (potential is large)
  

Countries like India and Brazil provide great markets to test products before moving them more broadly to other markets.

The basic requirements for mobile payments systems include:

• Ease of use. No-hassle account setup and configuration.
• Wide device support. In developing economies this means not required data-enabled phones to provide the service.
  
• Built-in security. Specially important if service is provided on non-data-enabled phones.
• Flexible payment options. This includes support for different credit/debit cards, links to bank accounts and stored value (pre-paid) options.
• Localization. Gaining wide user adoption will require localization features, including language support and tie-ins to local payment processing (regional banks, microcredit organizations).
• Leverage existing infrastructure. Critical to building a large merchant base quickly is to make it as easy as possible for them to accept the new payment form factor using their existing technology investments, where possible.
  

The key shift is to use mobile payments as a "leapfrog" technology rather than a substitute technology. In other words, move the market from online last-click replacement to physical store retailing, or TV-based retailing.

There are two small entrants into the market, recently VC-funded, that I'm aware of:

• Paymate: Kleiner Perkins invested $5M. Broad device coverage (works on SMS), but only for Citibank customers.

• Ji Grahak: Helion Ventures invested $2M. Broad financial institution coverage, but requires a credit card and requires a GPRS java-enabled phone.

How far off do you think Google Checkout for Mobile is? And where do you think they will launch?

Mobile Payments: Where's the opportunity?

There's been a lot of buzz at the Consumer Electronics Show in Las Vegas this week about mobile payment systems. See here and here for product announcements. Let's take a step back and look at two different, but related, questions:

• How important is a mobile payments solution to you, the consumer?
• What are the requirements for an effective solution.

First, how important is the problem? Let's look at this question in terms of supply and demand. If you live in a part of the world that has a large base of sophisticated consumers, demand for a solution is high. If you live in a part of the world in which the payment infrastructure is already quite sophisticated, then good quality supply is also likely to be high. When demand is matched with good quality supply, then the bar for a solution will be correspondingly high (factoring in switching costs). In the US, this explains the lack of take-up with mobile payment solutions. The problem that mobile payment providers are trying to solve in the US is really not a major pain point for most consumers. The low hanging fruit is clearly where high demand is not matched with enough high-quality supply. This is precisely the definition of an developing economy that has developed a large mobile subscriber base (which happens quickly) but does not yet have an efficient payment processing infrastructure (which happens slowly).

What does this mean for entrepreneurs? In my view, it means that if you have a mobile payments solution, you need to enter the market where the need is greatest. No matter where you are located, you will need to enter emerging markets like India, Brazil, South Africa and others. Build a product that meets the needs of those consumers and learn how to build a successful mobile payments product that gains wide distribution. Once you can successfully do that, the offering will be of sufficiently high quality to surpass the switching cost hurdle in more mature markets like the US. At that point, you're ready to market your payments solution in these markets. But you have to start with the consumer who does not have alternatives today, otherwise you'll be struggling to jump over the high (and still unknown) switching cost hurdle.

Place thumb here for your money

Interesting article in the Financial Times about Citigroup introducing fingerprint-based ATM's in India. From the article:

"The machines will recognise account holders' thumbprints, eliminating the need for a personal identification number, and will have colour-coded screen instructions and voiceovers to help guide them through transactions."

Seems like an interesting innovation that could be extended to other developing economies as well. How serious is Citigroup about this? The article goes on to say that Citigroup currently has two such ATM's installed (in Mumbai and Hyderabad) and plans to expand to "25-35 machines within 18 months." This seems like an extraordinarily low growth target! If the new systems is not going to be material to their operations in India even in two years, what's the big deal?

C.K. Prahalad first identified the "Fortune at the bottom of the Pyramid." It's far better to treat the world's poor as consumers to be served with specific, unique needs, not with paternalistic earnestness. There's a lot of innovation still to come in the financial sector for the "unbanked" population. Microcredit. Mobile payment systems. Stored-value ("prepaid") cards. What else?