Tuesday, January 31, 2006

Is It Time To Say Goodbye to Paper Money?

- Top Tech News
January 30, 2006 7:00AM

Creating a cashless society in the U.S. with either mobile phones or smart cards would require enormous effort by players in several industries, said the Yankee Group's Joe Levine, including credit-card companies, mobile-phone service providers, manufacturers, and retailers.


Since the late 1990s, when the expansion and adoption of the Internet created a bona fide Mecca for retailers and shoppers, people have looked forward to the day when physical cash would no longer be the mainstay of payment transactions.

When the Internet boom came to a screeching halt in 2000, some experts believed that it also marked the end of efforts to establish digital currencies.

But the continuing success of the online payment service PayPal, as well as the recent adoption of so-called e-cash by 15 million people in Japan, has bought the electronic-money movement new momentum.

Money from Nothing

The push for electronic money became an integral part of the digital revolution during the mid to late '90s. It was based on the premise that consumers would balk when asked to submit their credit-card numbers when making a purchase.

Giving online customers a way to convert physical cash into digital coin seemed like the solution. This "e-money" would be stored offline on cards embedded with a chip -- smart cards -- or within a computer's hard drive, and it could be used to make any kind of purchase.

A bevy of private digital currency start-ups hit the Web. But these currencies amounted to little more than digital Green Stamps. Designed for use online only, the currencies that were created by companies such as Beenz.com, Flooz.com, Goldmoney.com, and others were not connected to any government or central bank.

While some promoters and consumers found the lack of government involvement a plus, most shoppers and merchants were hesitant to jump in to these online money schemes. Many companies folded as the dot-com boom began its downturn in 2000.

Konichiwa, E-Money

Today, however, for 15 million Japanese, paper money is a thing of the past, according to the Japan Research Institute. No longer solely used for online purchases, e-money, accessed via a smart card or mobile phone, has become a way of life for many consumers in Japan.

The e-money trend began there roughly four years ago as a service for busy, on-the-go train commuters. Today, specially equipped mobile phones and smart cards are used to purchase items from convenience stores, department stores, restaurants, newsstands, supermarkets, and other retailers. The Japan Research Institute estimated that by 2008 some 40 million Japanese, roughly one-third of the country, will be using electronic money.

Technologies such as FeliCa, from Sony, use integrated chips that enable devices to receive and emit electronic signals. These "contactless" or near-field communication (NFC) devices include mobile phones, transit cards, and prepaid e-money cards.

Japanese Economic Monthly reported last year that NTT DoCoMo, the country's leading mobile-communications company, had sold some 3.34 million handsets equipped with the FeliCa technology through April 2005. In 2005, the number of digital-money transactions more than doubled, averaging around 15.8 million each month, according to statistics from the two largest electronic-money providers in Japan. Some Japanese supermarkets have reported that up to 40 percent of all purchases now are made with e-cash.

Other countries, notably Hong Kong and Canada, also have implemented electronic-cash systems that have seen some adoption. But if you are waiting for similar technology to become the norm in the United States, you might want to hang on to those greenbacks.

Coming to America

Joe Levine, a senior analyst at Yankee Group, is skeptical that U.S. paper money or coins will fall by the wayside anytime soon. Creating a cashless society in the U.S. with either mobile phones or smart cards would require enormous effort by players in several industries, he said, including credit-card companies, mobile-phone service providers, manufacturers, and retailers.

Japan is so far along because companies like DoCoMo are the heavy hitters in their industries, Levine said, and have made significant investments to develop e-cash technologies. DoCoMo, for instance, invested some $900 million to acquire a 34 percent stake in Sumitomo Mitsui Cards, Japan's second-largest credit-card company.

After that deal, announced last April, the credit provider started developing point-of-sale terminals and ATMs for use with DoCoMo's mobile-wallet handsets. Levine said he has not seen anything like that type of commitment in the U.S., as American service providers do not seem as focused on e-money as an opportunity.

"We're more fragmented here [than in Japan], with a larger number of tier one [mobile companies] and a portion of the country that is served by tier-twos," Levine said. "There isn't the same sort of dominant player [like DoCoMo]. There isn't a single wireless company that if they got behind a standard, it would become the standard. And that's a significant difference, that we have a larger, less-consolidated market."

Charles Goldfinger, a consultant who has advised the European Commission on e-finance and smart-card-based financial applications, agreed that DoCoMo's relative dominance in its industry and its base of some 50 million subscribers helped digital money become successful in Japan.

"In the U.S., the telcom situation is very different," Goldfinger said. "The fact that the U.S. has several major mobile services providers as well as several leading financial institutions will hinder the effort to achieve a digital-money standard."

Adapting Dinosaurs

Some technology prognosticators, including Microsoft Chairman Bill Gates in 1994, have gone so far as to say that banks are "dinosaurs." When cash disappears, the argument goes, banks become extinct.

But banks as well as credit-card companies are already involved in developing contactless cards and other electronic-cash technologies. In Japan, for instance, said Goldfinger, the Central Bank in Japan was pushing for e-money, in particular through DoCoMo.

"Banks," said Goldfinger, "are adaptive dinosaurs and anyone who writes them off is crazy. I say that because they will still continue to run the payment business and ultimately [digital money] is a payment business."

According to Levine, the digital-money movement will be driven by credit-card companies, not mobile-service providers, which will have to find a way to work with the credit-card companies that already have hundreds of thousands, if not millions, of merchant relationships in the U.S.

"Credit-card companies are already involved in digital money," said Levine. "Credit-card companies have been pushing hard to increase their share of small-value transactions. It's one of the last areas where credit cards are not used that widely."

Technological Baby Steps

Although Levine and Goldfinger both said that the U.S. is likely to be one of the last countries to make the shift to digital funds, they also said that some change has begun already.

Cingular, for example, is currently conducting a trial e-money system at Phillips Arena in Atlanta, home of that city's Hawks and Thrashers sports teams. The service, which uses Nokia mobile phones equipped with Phillips NFC chips, currently is available only to 250 season-ticket holders who have a Visa account with Chase bank. The fans use the phones to purchase concessions inside the arena.

Credit-card companies also are rolling out contactless credit cards. Blink by Chase, PayPass by Mastercard, Contactless by Visa, and Express Pay by American Express are the newest frontier for credit issuers. The NFC-based cards do away with swiping and signatures. Instead, consumers simply hold their card up to the reader and the transaction is complete.

The push in the last six months to launch the contactless cards is the second such effort by credit-card companies, and should be much more successful, Levine said.

"One of the keys this time around is that [the credit providers] have actually succeeded in getting a few major merchants to sign on," Levine said. "[Contactless cards] are supported more and more by major merchants and that's one of the big keys -- merchant acceptance."

Upgrading the point-of-sale payment system will cost merchants a significant sum, Levine said. It is a chicken-and-egg problem. Merchants are reluctant to make a significant investment in a technology that is not in the hands of consumers, and those same consumers are reticent to use a new technology that is only narrowly accepted.

One selling point of the new contactless cards, however, is that they still have the familiar magnetic stripe, so people can use them at any store.

"You're not going to have a person using something that is not accepted by a number of stores," Levine said. "That advantage here is that [for] the merchants that are enabled to do the contactless payment, you can wave [the card] and for those who are not, you can swipe it."

The Correct Change

So, what would get the U.S. to the day when cash becomes obsolete? According to Levine, we are still far enough away that trying to foresee a turning point is difficult.

In the same way that cash was still on the scene after the introduction of checks, so will it eventually coexist following any adoption of digital money, Goldfinger said. Nor will e-cash eliminate credit cards and debt, he said. People still will be reluctant, he pointed out, to use a prepaid card to buy something like a computer.

The move by wireless-communications companies to deploy third-generation (3G) broadband wireless technology could push the U.S. closer toward digital money, said Goldfinger, because then the country would at least have the necessary infrastructure Relevant Products/Services from MessageLabs to support widespread mobile-phone payment transactions.

"There is a lot of talk about digital money, but, in terms of what is actually happening on the ground, the U.S. is way behind," Goldfinger said. "This may change because the U.S. is jumping ahead of the queue with 3G and [other next-generation] technologies."

Another potential catalyst: the behavior of 20-somethings.

For those born after 1985, credit- and debit-card usage is much higher for day-to-day purchases than for older Americans. Many college students, Levine said, lead an essentially cashless lifestyle, carrying very little money and relying heavily on their debit cards in conjunction with a few credit cards.

There is little reason, Levine said, to believe that those college students will shift back to using cash in the same way that their parents' generation uses cash today. These young adults, he said, are the first generation over the last 10 to 15 years that has grown up with easy access to electronic payment.

"It will be interesting to see how those people mature in terms of their payment behavior," Levine said. "It is logical to expect that the people who [use debit and credit cards almost exclusively] today will continue that in their 30s and 40s."

Tuesday, January 24, 2006

Cashless Society

Momentum Building Toward 'Cashless' Society

TowerGroup has released new research concluding that, while futurists have spun predictions of a "cashless" society since the middle of the last century, momentum is gathering that may turn this vision into reality in as little as 10 years. The report says that a combination of market- ready and emerging technologies is aligning to drive a majority of consumer payment transactions from cash toward other payments "form factors" - including the Internet, mobile and contactless payments.

"By 2015, a substantial share of consumer payments globally will have moved from cash to other payment mechanisms," said Theodore Iacobuzio, managing director in TowerGroup's Executive Research Office and content lead on the European Banking & Payments practice at TowerGroup.

"Many of these new form factors are already being tested in broad consumer settings in countries around the globe - from contactless payment terminals and fingerprint recognition payments, to mobile and micropayment roll-outs."

Highlights of the research include:

  • Over time, TowerGroup believes payments will move increasingly toward a "pay-as-you-go" model, where consumers buy what they want wherever they are. But while payments will be made increasingly through clicks and texts rather than cash or even traditional plastic, the majority will still be fueled by traditional bank relationships and run through established payments networks and infrastructure.
  • TowerGroup expects the total market for micropayments in the United States to reach US$11.5 billion by 2009, with almost US$5 billion of that amount transacted via mobile phones. The global mobile commerce market is expected to become a major industry with revenues of US$50 billion to US$75 billion by 2009 - with global micropayments generating about US$40 billion in revenue.
  • As payment mechanisms shift away from cash and traditional card forms, stronger authentication methods will become increasingly critical - particularly to move beyond micropayments in the mobile realm to allow the purchase of high-value items. TowerGroup expects to see aggressive movement in the financial application of biometrics authentication technology over the next 10 years, fueled in part by government adoption.
  • TowerGroup notes that financial institutions dismissing evolving payments models as quirky or meaningless to their current business strategies risk being supplanted by more nimble and far-sighted competitors. They must also consider the impact of non-traditional payments players, such as telecommunications companies looking to grow their share of the nascent mobile payments space.
"Ultimately, control of the payments network itself will be more important than changes in the form factor of payments," said Iacobuzio. "While certain non-traditional players may make headway in taking share of new payments mechanisms, TowerGroup believes that the payments network as a whole will remain firmly in the grip of financial services institutions - though the definition of what constitutes such an institution is currently in flux. The nature of payments form factors should ultimately be irrelevant to financial institutions, as long as they are willing to engage in innovative partnerships to keep up with both technology and consumer desires. If they ignore the issue, however, they could lose the ball."

Click & Buy in the US - from Payments News

Click & Buy is Europe's leading online payment system used by more than 5 million consumers on 4,000 merchant websites. The company opened a New York office in 2004. Webpay International has plans to further expand into other markets in the U.S., as well as expansion plans for Canada, South America, Asia and Eastern Europe with the support of 3i.

For the U.S. market, Click&Buy sees a major opportunity for digital commerce in the publishing, games and online music industries and will use 3i's funding to target those and other areas. Click&Buy's eCommerce software allows merchants to partially or completely outsource complex billing of content, services and physical goods and processing of local currency and credit cards to Webpay, an expert in the field. Webpay is a critical enabler of digital commerce, offering a complete digital commerce supply chain, which includes delivery, customer service, data reporting, cataloguing & merchandising, billing, payment and rights management.

In the last six months alone, Webpay has won many well-known brands as customers, including Apple iTunes and Microsoft Music, who deliver music downloads across Europe. Click&Buy will soon announce the availability of Skype and EA to consumers in the U.S. Other major clients include The Financial Times, The Discovery Channel and Disney Toontown (UK) in Europe and Kiplinger and iVillage in the United States. Furthermore, the company plans to penetrate new payment platforms, such as the mobile payments industry sector. Most recently, Click&Buy/Webpay signed a deal with SanDisk to distribute the Rolling Stone's "A Bigger Bang" for mobile and portable devices.

Fraud prevention systems play a key role in the development of the online payment market. Click & Buy has developed their own fraud prevention system, which protects both the customer and the merchant from misuse. In addition to the safety aspect, the speed and user-friendliness of the Click & Buy platform has considerably contributed to the rapid uptake of the service.

Robin Murray, Partner, 3i US, said: "Given strong broadband penetration and massive uptake of killer applications like online music downloads and gaming which will further accelerate growth of online payment systems, 3i is very excited about driving global development of the Click & Buy payment solution. We believe this will take Click & Buy's leadership position in Germany and Europe to an international level."

Norbert Stangl, founder and chairman of Webpay AG, which operates the Click & Buy system, said: "3i is the ideal partner for our European and worldwide expansion. In addition to a first class brand, 3i has a global network consisting of the top names in the Internet field - an advantage not to be underestimated when considering the rollout of Click & Buy."

Friday, January 20, 2006

European Mobile Music Sales - from Moco News

European Mobile Music To Reach 7.85 billion Euros
Related Topics: Mobile Music, UK/Europe, ResearchPermalink - Comments (0) [by james]

Frost & Sullivan has released a report about the mobile music market in Europe, predicting that the revenues in the region will hit 7.85 billion euros in 2011 (US$9.5 billion), with ringtones reaching 3.01 billion euros and full-track music sales likely to exceed this at 4.83 billion euros. The article also claims that “purchasing patterns of the older customer segments tend to be more consistent with regard to type of content and usage.”
“Despite certain hiccups, the European mobile music markets are likely to show immense revenue and growth potential. Their case is aided by the overwhelming cooperation from the music industry, technological advances that improve mobile networks and consistent demand for music from almost all age groups. In fact, the demand is expected to be so overwhelming that the mobile music medium may soon outstrip popular mobile entertainment media such as video and TV.”

Global Mobile Music Sales Numbers - from Moco News

The State of Global Mobile and Digital Music Market: Mobile Sales Cross $400 Million
Related Topics: Mobile VideoPermalink - Comments (0) [by rafat]

The International Federation of the Phonographic Industry (IFPI) has come out with a very detailed report on the state of the online and mobile music industry and 2005 figures. Too detailed to summarize, but some topline numbers related to mobile:
— Digital & mobile sales of $1.1 billion for record companies - up from $380 million the previous year, and making up 6 percent of all music sales.
— Mobile music now accounts for approximately 40% of record company digital revenues.
— Mastertones account for the bulk of their $400 million-plus mobile music revenues.
— Ringtones are the most popular digital music format, with 19% of internet users having downloaded a ringtone — three times the number that have bought a track online.
— In Japan, the most developed mobile music market, mobile sales reached US$211 million, representing 96% of all digital music sales, for the first quarter of the year.
— In Europe, ringtones are the most popular digital music format, with 19% of internet users having downloaded a ringtone - three times the number that have bought a track online. Almost half of file sharers (43%) bought a ringtone, compared to 26% of online music buyers and 19% on average (this is correlated to age with younger consumers more likely to have both shared files using P2P networks and purchased a ringtone).
— 3% of European internet users are frequently using their phones for music downloads.
— Master ringtones have rapidly become the largest mobile music segment by value, and will overtake polyphonic ringtones, in volume terms, by the end of 2006.
— In Europe and Japan, master ringtones already account for half the ringtone market. In the US master ringtones represent 60% of total ringtone revenues.
The full 24-page report is available for download here (PDF file) and a lot of related facts and figures are linked from the release page

Thursday, January 19, 2006

PayPal Revenues - from FeedBlitz

PayPal Revenues Exceed $1 Billion For 2005

PayPal's parent eBay announced fourth quarter financial results this afternoon. For the first time, eBay's payments revenues (including PayPal) reported full year revenues just a bit over $1 billion ($1,028.4 million).

The following highlights regarding PayPal's fourth quarter financial performance were included in eBay's results:
  • Payments net revenues grew to $297.7 million, an increase of 48 percent compared to the same quarter last year and up 23 percent compared to the prior calendar quarter.
  • PayPal's user accounts grew to 96.2 million accounts, up 51 percent year over year. Active accounts were 28.1 million, up 39 percent year over year.
  • Total gross payment volume handled by PayPal grew to $8.1 billion, up 45 percent year over year.
  • Total number of PayPal payments grew to 139.7 million, up 40 percent year over year. 69 percent of PayPal's payments were eBay-related compared to 71% last year.
  • PayPal revenues represented 3.67% percent of gross payment volume, up 10 basis points from 3.57% last year.
  • PayPal expenses included a transaction processing expense rate of 1.09%, down 18 basis points from 1.27% year over year. PayPal's expenses include the funding costs associated with card payments use to make payments via PayPal.
  • PayPal losses were 33 basis points, up slightly from 31 basis points last year and 24 basis points in the prior calendar quarter.
PayPal's results don't include the recently acquired (from VeriSign) payment gateway business.

UK Credit Card Spending Declines

UK: Credit Card Spending Declines

UK FlagRupert Jones reports for The Guardian on Visa UK data that shows a drop in credit card spending in the UK during 2005 as consumers appear to be shifting their purchase activity increasingly to debit cards.

Visa's UK arm yesterday said that the number of Visa-branded credit cards in the nation's wallets and purses had fallen by 3.2% to 42m. Total spending on credit cards fell by 3% to £85.2bn. The figures covered the 12 months to September 30.

Its data confirmed that debit cards are Britain's favourite way to pay. Over the same 12-month period, the number of Visa debit cards jumped 21.3% to reach 47m, while total spending on these cards hit £187.6bn - a rise of 30.5%.

Social Money

John Cook of the Seattle Post-Intelligencer blogs about BillMonk, his "startup of the week". - From Feedblitz

BillMonk's initial service, a hybrid of social networking and personal finance, offers the ability to track (via the website or using mobile phone SMS) what the founders call "social money" - informal debts between friends and family.

With respect to the company's business model, this comment from a recent BillMonk blog post provides some insight into how BillMonk intends to make money:

One advantage of informal debts is that you can use a past debt as an informal currency for a future purchase. For example, my girlfriend owes me $100 for a deposit on a ski cabin; since then, she’s been picking up all our restaurant tabs and has beat down the debt to $30.

That said - and this answers a key point of John’s article, about how we’ll make money - we fullly intend to collaborate with financial institutions to offer our users the ability to settle up with cash when they see fit. If the social money market is as big as we think, this offers a great business opportunity for us and our partner institutions.

Learn more about BillMonk here and on the company's blog.

Monday, January 16, 2006

Marketing info via SMS

Mobile Marketing Info - from Moco News

This little feature about MultiMedia Direct has some interesting figures on mobile marketing:

  • 3 million U.S. and 6 million European users have opted in or registered to receive marketing information over their mobiles.
  • Some 15 percent of the 350 billion text or SMS messages transmitted monthly are marketing messages, according to Yankee Group, an industry research firm.
  • Most of his opt-in subscribers are 18 to 34 years old and are interested in receiving exclusive news, coupons and content.

Wireless World Forum looks in detail at the UK mobile market.

In the first of a series of country-specific reports to be launched in 2006 Wireless World Forum looks in detail at the UK mobile market.

Mobile ownership in the UK, representing the number of unique mobile owners as opposed to actual accounts, has passed 43 million, or 82 % of the population.

Data and profit optimization, rather than subscribing the remaining 18% represent the long term growth scenario for the UK's mobile industry. With O2, Vodafone and Orange generating nearly 75% of the market revenues, pricing strategies combined with ongoing support for data services by these operators has averted the potential "race to the bottom" feared by market analysts as a result of an increasing number of new entrants.

To download the table of contents for this report please click here (link to PDF)

To buy this report please click here

Generation Plastic

From Feedblitz:

Michael Leidtke
reports for the AP on "Generation Plastic", the group of young consumers who consistently prefer debit and credit cards over cash.

Plastic payments -- including online commerce -- now account for 50.4 percent of the spending among consumers ranging from 18- to 24-years-old, with cash and checks making up 41.1 percent of their spending. Consumers 25 to 34 years old spend about 45 percent either way, while everyone older still uses cash and checks at least half the time, according to Visa, the nation's largest payment network.