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Lydian Journal
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Issue 8 – January 2012
Making Consumers Pay More for Cards Will Dampen Payments Innovation David S. Evans
Handicapping PayPal and Google in the Mobile Transaction Platform Race
Addressing Card Skimming at the Point of Sale—PCI and EMV Chip Technology
Karen Webster
Cynthia Merritt
Mobile Payments: Time to Consider the Regulatory Landscape
Mobile Payments in the Philippines: Future Opportunities for Growth
Mobile Financial Services and the Emerging Global Middle Class
Sarah Starcevich, Sharda Caro-del-Castillo
Salah Goss and Clara Veniard, Bill & Melinda Gates Foundation
Margaret Weichert
C u tt in g - E d g e C om m e n ta r y f rom the Wo rl d ’s To p F in a nc ia l T hink e rs in Pa y me n t s
In this issue 4
ECONOMICS
Making Consumers Pay More for Cards Will Dampen Payments Innovation David S. Evans
9
TECHNOLOGY
Handicapping PayPal and Google in the Race to be Mobile Transaction Platform Competition Karen Webster
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RISK AND SECURITY
Addressing Card Skimming at the Point of Sale—PCI and EMV Chip Technology Cynthia Merritt
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REGULATION
EDITORIAL
Editor in Chief
David S. Evans (Founder, Market Platform Dynamics)
Managing Editor
Jenn Rubin (Managing Editor & Site Producer )
Editor, Business
Tim Attinger (Managing Director, Market Platform Dynamics)
Editor, Developing Countries and Mobile Payments
Ignacio Mas Ignacio Mas (Deputy Director, Financial Services for the Poor program at the Bill & Melinda Gates Foundation)
Editor, Economics and Consumer Studies
Scott Schuh (Director, Consumer Payments Research Center of the Federal Reserve Bank of Boston)
Editor, Law and Regulation
Tom Brown (Partner, O’Melveny & Myers)
Editor, Risk and Security
Ellen Richey (Chief Enterprise Risk Officer, Visa)
Editor, Social Commerce
Mobile Payments: Time to Consider the Regulatory Landscape
Karen Webster (CEO, Market Platform Dynamics)
Sarah Starcevich, Sharda Caro-del-Castillo
Patrick Gauthier (Head of Market Intelligence, PayPal)
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DEVELOPING COUNTRIES
Mobile Payments in the Philippines: Future Opportunities for Growth Salah Goss, Clara Veniard
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BUSINESS
Mobile Financial Services and the Emerging Global Middle Class: Margaret Weichert
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Contributors
Authors & Editors Bios
Editor, Technology
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Special thanks to
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Making Consumers Pay More for Cards Will Dampen Payments Innovation By David S. Evans
A famous American philosopher by the name of Yogi Berra once said that it’s tough to make predictions—especially about the future. And of course any economist worth their salt knows that you should never make forecasts that can be disproved in your own lifetime. (I call this the Romer Principle, after the Obama economist who predicted that unemployment would drop below 8 percent.). Nevertheless, this article makes some predictions about how imposing price caps on interchange fees will affect payments innovation. I hope both that my predictions are proved wrong and that I live long enough to apologize. The price caps that are being implemented in the United States on October 1, 2011 or proposed around the world are not just shaving a few cents off of interchange fees. The Reserve Bank of Australia reduced credit card interchange fees by about 80 percent; in the US, the Federal Reserve Board has reduced debit card interchange fees by about 45 percent; and the European Commission’s settlements with MasterCard and Visa have resulted in reductions of about 60 percent so far. Those aren’t just haircuts. In fact, these drastic reductions will turn the business model for payment cards on its head. When the regulators cap fees paid by merchants, the payment card schemes have only one other place to 4
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look for revenue and profits – and that’s the consumer. Now, of course, looking mainly to the merchant to fund their activities is what got them into trouble with regulators in the first place— merchants have complained bitterly about paying these fees. But, this inversion of the business model—from merchant pays to consumer pays—isn’t only a matter of how profits are derived. It is likely to have a significant effect on innovation in this sector. Let me now walk you through the business model mechanics of payment cards
Generally consumers don’t pay to make transactions, don’t pay much for the card, and especially in the US, even get rewarded for using them. to help you understand why I believe flipping to a consumer pays model will reduce investment and innovation. Ever since their introduction some 60 years ago, consumers have generally gotten a pretty good deal on payment cards. The mother of all payment cards is the Diners Club Card. This innovation was first introduced in 1950 in Manhattan. Diners
Club signed up a dozen or so restaurants and a few hundred cardholders at the start. That was the first time people could use the same card at lots of independent merchants, defer payment until sometime later, and get a single monthly bill. This was the big bang. Everything since has grown from these humble beginnings. Diners Club charged the restaurants a 7 percent commission for letting consumers pull out that card instead of using cash or checks. Consumers ended up paying a small annual fee, but that cost was pretty much offset by the fact that they didn’t have to pay right away and so got a couple of weeks of free float when using the card to pay. That’s essentially the same business model that most payment schemes, most everywhere, have adopted ever since. There are exceptions of course. Sometimes the merchant doesn’t pay. Or doesn’t pay much. Sometimes the merchant even gets paid. But usually the merchant not only pays, but is the main source of revenue, since consumers usually get a break. Generally consumers don’t pay to make transactions, don’t pay much for the card, and especially in the US, even get rewarded for using them. There are some nuances to this and I don’t want to push the “consumer gets it for free” point too far. Issuers, of course, also make money Lydian Journal
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from extending credit, which is bundled in with payments for credit cards. Banks sometimes charge for checking accounts that include debit cards and so forth. But, by and large, the pricing balance in the payments card industry has historically been tipped towards the merchant who pays the most and away from the consumer who pays the least. This really shouldn’t surprise us, as it isn’t at all unusual. Payment networks act as an intermediary between consumers on the one side and merchants on the other. They help facilitate transactions between those two sides. Many other platforms act as intermediaries between merchants and consumers too. Shopping malls like Westland outside of Brussels provide a way for bringing shoppers and retailers together in one convenient location. E-commerce sites like Amazon do the same thing on the web. Advertising-supported media help merchants reach consumers. Those range from search engines to newspapers to free television. As far I can tell, almost all of the businesses that provide consumermerchant intermediation services secure most of their revenue and profits from the merchant side. Shopping malls charge the shops not the shoppers, e-commerce sites do the same, and media mainly live off of the advertisers. And, even new companies that have introduced innovative ways of bringing consumers to merchants together continue to rely on the merchant pays model. Groupon, the daily deal providers for local charge merchants a 50% commission on the value of the deal they sell to consumers. And, then there’s OpenTable, a free online service that helps consumers make online reservations at restaurants. They charge restaurants a dollar or a pound or a euro for patrons they send the restaurants’ way. The pricing balance tips toward merchants and away from consumers for all of these merchant-consumer intermediaries. The payment card industry seems pretty normal by comparison. 6
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So, let’s get back to interchange fee regulation. Drastic reductions in these fees invert the business model from merchant pays to consumer pays. For better or worse you’d expect that turning this business model on its head would have pretty significant effects on how companies, new and old, behave in this sector.
need for entrepreneurs to fix it too. After all, keeping energy prices lower through regulation puts a damper on the market opportunities for selling heavy sweaters. In fact, I think the ISIS example shows how price caps can distort the market. Imposing price caps eliminates a tool new payment systems use for getting a critical mass of merchants and consumers. And price caps eliminate an important source We already have two good data points. of differentiation. They can therefore lead Last year the three major mobile carriers in to less entry and innovation. Let me give the United States—AT&T, T-Mobile and you two old examples from the US. Verizon Wireless—formed a joint venture to launch a mobile payments network. It The Discover Card entered the was called ISIS. For those of you who’ve US market in 1985. They had a lot of forgotten your ancient mythology, ISIS cardholders already because they gave was the goddess of fertility. Just like any Discover Cards to the millions of people new payments network, ISIS had to get who already had Sears store cards. But both consumers and merchants on board. they didn’t have any merchants. So, to get Now, the goddess could probably have merchants, they charged lower merchant used her feminine charms to get things fees than MasterCard, Visa, or American ignited, but the joint venture, being Express.
from merchants, it would have had to charge consumers. It isn’t at all clear that consumers would have been willing to try a new online payment service if they had to pay for it. And especially when PayPal, in its early days, was all about buying low cost goods on eBay. Could PayPal have gotten off the ground with price caps on the merchant side? Not so clear. The pricing structure is an important source of differentiation for the payment card industry. With this differentiation comes innovation. Discover introduced cash-back rewards and other innovations for consumers. PayPal introduced a very successful open software platform called PayPalX in late 2009. They’ve gotten thousands of developers around the world working on innovations. And with differentiation comes competition. PayPal really has the traditional networks worried. Moreover, we know from the
The Discover Card entered the US market in 1985 composed of mere mortals, decided that it would charge lower interchange fees than the incumbent networks to attract merchants to its network. Then the Fed announced that it was considering a reduction of debit card interchange fees by around 80 percent. ISIS would therefore be competing against very low cost debit cards, which merchants were already set up to take, and consumers already had in their wallets. That killed the plans for a new payment system. ISIS announced that instead of competing against the incumbent card systems it was going to collaborate with them. One of its executives was quoted as saying, “As transaction fees were limited and things were changed, it kind of changed the business model.” Tempo—one of the leading decoupled debit schemes— completely closed its doors citing the debit card interchange fee reductions as the main problem. You might dismiss this example on the grounds that when the government fixes a problem of course it is going to reduce the
Consider the counterfactual. Suppose there were low price caps on merchant fees in 1985. It isn’t clear that Discover would have been able to make the economics works. To undercut the incumbents enough to get merchant acceptance, it might have had to actually pay merchants to take their cards. But that would have been financially very risky. ISIS actually faced this problem and after looking at the numbers decided not to develop an independent payments network.
economics literature that differentiation is one of the main reasons positive feedback effects don’t drive two-sided markets to monopoly.
Consider the counterfactual. If PayPal hadn’t been able to make as much money
But here’s the innovation point. There was essentially no innovation in
The checking business in the US provides some additional insights into the effect of price caps on innovation. Two things happened in the early part of the 20th century in the US. The Federal Reserve Board outlawed interchange fees for checks. As a result merchants got the right to collect the face value of the While Discover tilted pricing towards check. At the same time, the Fed took lower fees for merchants, PayPal tilted over the clearing and settlement process pricing towards higher fees for merchants. for checks. That evolved into one of They started their online payment system the most massively inefficient payment in 1998. They decided not to charge systems the world has ever known. It consumers anything for using PayPal reached a crisis during 9/11. With planes and they’ve stuck with that ever since. grounded, there was no way to transport But merchants pay more for a PayPal tons of paper checks for clearing. After transaction than they pay for a traditional that the Fed started focusing on ways to card transaction. About 50-100 basis at least provide for the transmission of points more in the US. digital images of checks.
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how checks were used for point of sale transactions for an entire century. Think about paying with a check at a department store in 1900 versus 2000. The main difference was that in 2000 the clerk could ask you for your driver’s license. The Fed essentially eliminated most of the ways to make money off of checks so there were very limited incentives for innovation. The Fed focused mainly on figuring out ways to keep up with all the paper checks being written as the economy grew during the 20th century.
have relatively inelastic demand. That seems right looking at the situation of merchants and consumers. Payments cards help merchants get additional sales, the margin on retail sales is around 30 percent, and the cost of taking a payment card is a small portion of the overall cost. Economists have known since Alfred Marshall’s work in the late 19th century that these circumstances imply inelastic demand. On the other hand, consumers have very low cost alternatives for paying and therefore have more elastic demand.
Another American philosopher of sorts, Mark Twain, on seeing his obituary posted a bit prematurely, remarked that the reports of his death had been greatly exaggerated. The same could be true for my suggestion that price caps are the death knell of the merchant pays model. If merchants really are the inelastic side of the market, and the ultimate source of revenue and profits for payments intermediaries, then we would expect that clever entrepreneurs will figure out some way around the caps.
The checking experience points to another risk from price caps on interchange fees. It isn’t clear that the payment card schemes are going to be able to charge as much for transactions with price caps on interchange fees. And transactions are, after all, what the payments business is all about. Price caps on interchange fees limit what the payment card industry can get on the merchant side. Consumers seem to be pretty resistant to transaction fees since they can pay with cash and checks pretty much for free, thanks to the government, in most countries. In the US, it seems likely that with the price caps debit cards will just become loss leaders for checking accounts. If payment card schemes can’t make money from charging for transactions then it is hard to see how they would have much incentive to invest in things that increase the velocity of transactions when those transactions have an effective price cap and won’t generate profits.
A price cap on the inelastic side of the market reduces total revenues and profits. The two-sided platform can’t raise prices enough on the elastic side to recoup those losses. That has a direct implication for innovation. The modern theories of innovation find that incentives for investing in innovation tend to be proportional to industry revenue and profits. We would therefore expect a price cap on the merchant side of the payments business would result in an overall decline in investment and ultimately innovation.
The card industry has been the primary source of payments innovation in the last 60 years. It’s the main reason consumers and merchants worldwide have been moving to digital transactions rather than using cash and checks. It has created tremendous value. Virtually all the businesses behind this payments revolution have relied on the merchants pays model, or at least one that doesn’t load all or most of the costs on to consumers. Regulators around the world should be very cautious about killing a business model that has been so successful at shifting the world from paper to electrons.
I want to emphasize that I’m not predicting the death of innovation in the payments business. I’m just saying that under price caps there’s probably going to BIO FOR ECONOMICS SECTION be less than there would have been over the long run. Moreover, I think what we’re David S. Evans actually going to see in the near term is is the founder of a flurry of innovation. For the simple Market Platform reason that when you blow up a business Dynamics. He is model, there’s a huge demand to come up also the author with other business models for making of “Paying with money. In the US everyone is scurrying Plastic: The Some basic economics predicts that around trying to figure out how to make Digital Revolution price caps on the merchant side will money if debit card interchange fees get in Buying and reduce the overall level of innovation cut to the bone. A lot of that thinking Borrowing,” which and investment in the payment business. is being directed towards prepaid cards is the definitive source on the payments The theory of two-sided markets finds and credit cards that aren’t subject to industry. His more recent work is that platforms tend to charge lower the caps. So, in effect, innovative efforts “Innovation and Payments,” which prices to the side of the business that has are being diverted from the regulated describes the how the combination of more elastic demand and higher prices product to the unregulated ones. No big data-driven marketing, cloud-based to the side of the business that has more surprise there. It is important to focus computing, and mobile telephony will inelastic demand. The theory suggests that on the counterfactual though: but for transform the payments industry. intermediaries between consumers and the reduction interchange fees and the merchants have adopted the merchant- inversion of the merchant-pays model we pays model because consumers have would have more and better innovation. relatively elastic demand and merchants
David S. Evans
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Handicapping PayPal and Google in the race to be mobile transaction platform competition By Karen Webster Ah, September! It’s the beginning of fall: back to school, football, sweaters here in Boston, and now apparently, the race to the physical point of sale – mobile payments style. PayPal let the world in on its mobile payments vision two weeks ago at an invitation-only forum in Rancho Palos Verdes, Calif. Google launched its mobile payments scheme for real (sort of ) a week later in San Francisco. Their approaches couldn’t be more different, in spite of sharing the mobile phone as the
enabler of the experience for merchant and consumer.
that leverage PayPal’s core assets – namely, its digital wallet – to deliver a frictionless experience for merchant and By now, I am sure that everyone has consumer: cardless (phone number + read up on what PayPal is doing, so I PIN), card (but PayPal branded + PIN) won’t lay it all out here. Suffice it to say and line-busting options that enable bar that they have channeled their inner John code scanning and checkout in aisle. As Donahoe, who has been reported as saying everyone knows, Google’s mobile wallet NFC really stands for “not for commerce.” solution is NFC-enabled and leverages There is nary an NFC element to be MasterCard’s PayPass (and soon Visa found in their solution. What can be payWave) capabilities at merchant POS found is a series of clever experiences that take contactless (more on this later). Lydian Journal
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The blogosphere is filled with comparisons of one over the other, so I’ll not do that here. I’d like to pull back though and focus on the bigger question of how the transition to mobile payments will be won in the United States and who is best positioned to pull it off. Having PayPal’s Vision freshly revealed to the public makes that discussion much less hypothetical at this point.
extra-special goodies along the way (offers from merchants that are much easier to get and redeem since they are on the phone). At the same time, merchants have to be convinced that this new consumer experience will drive more spend – maybe even more incremental customers and spend – and that the cost of accepting something new (technology and/or tender type) won’t cost them an arm and a leg.
Let’s start with the basic fact of the matter. Solving for mobile payments in the United States means dealing with a complicated chicken-and-egg problem: consumers with mobile devices that can talk to compatible merchant POS devices. In the United States at least, that also means improving the experience that exists today for both merchants and consumers (or at least not making it seem like either party has to take giant steps backwards just to enable a mobile payments experience). The little complication is that the industry, at least in the United States, has spent the last four decades perfecting the experience at point of sale so that whipping out a card to pay for stuff works easily, safely and quickly for both consumers and merchants. Making the move to something new then means convincing consumers that they’re not losing anything either (as in being able to use their preferred payment type at their favorite merchants, safely and quickly) but that they might even gain some
So, that means that anyone with They have 100 million aspirations of playing to win in the mobile active registered accounts payments space has to successfully solve the simultaneous equations of consumers in total worldwide and say and merchants (enough of each to matter), they are adding about 1 tender types accepted by consumers, the technology solution that enables million more every month. acceptance today and projected time to ramp in order to get critical mass, and Merchants: Well, that’s another the value-add that makes the trade off to matter. Their penetration at major something new worth making for both merchants online is still very low. This is consumers and merchants. due to pushback over merchant fees, the challenges of getting into the merchants’ In my mind, what really makes the technology queue and the reality that discussion now of mobile payments at the probably not many sales are being lost at point of sale so interesting is that no one major merchants, because PayPal is not has successfully solved those equations accepted. On the other hand, PayPal’s and are all approaching its resolution in Bill Me Later acquisition gives them very different ways. access to some primo multichannel merchants who might be game to try a Let’s take quick look at Google and mobile POS experience. Stats shared PayPal from the standpoint of who has in a recent interview with STORES what and how that may influence their magazine report that PayPal drove $56 future (and ours) in this space. First, I’m billion in payments for retailers in 2010, going to give you my thoughts on PayPal. which is up significantly (42 percent) from a year earlier suggesting that (a) the picture is improving, but (b) there is still a lot of work to be done on the merchant acceptance side of the equation. Consumers: On the consumer That is perhaps the biggest challenge, side, they certainly have a decent start. not to mention getting merchants to They have 100 million active registered change anything whatsoever at the POS accounts in total worldwide and say they (especially in this economic environment) are adding about 1 million more every without the prospect of a big return month. As I’ve written before, that means and soon. that they have a lot of digital wallets that could be used at merchant locations Preferred/accepted tender right out of the gate. They’ve also seen type: It is reported that PayPal is the the number of their transactions driven second most popular way to pay online by the mobile phone exceed even their (after Visa) in the United States, so most aggressive estimates lately – some consumers like using it and trust it. That
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$3 billion by the end of the 2011, which suggests that people are using PayPal now to transact via mobile phones. They also scored very high in the “mobile payments are secure” category. [See my prior writings on this subject.] That’s all important since a lot of the concern that consumers have today about using their phones to pay is that the experience is that it is not secure.
should scare the living daylights out of MasterCard and AmEx but probably Visa, too. Limitations, as stated above, are places to use it online and obviously offline. The important point here is that consumers already have their digital wallets and know how to use them. And their solution is not operator or handset dependent.
Technology and ramp time:
This is where it could get interesting. From what has been revealed so far, it appears that the heavy lift is in the cloud, via IP-enabled devices that may not entirely solve the technology queue problem but doesn’t involve the installation of new gear at the POS either. Leveraging their existing devices and enabling new ones, like tablets, are far less cumbersome for the merchant. At least one of their solutions does not require any more than a phone number and a PIN to work, and others leverage the devices that most people carry around today or soon will – smartphones and those that merchants already have on their counters. The card solution, which reminds me of the Revolution Money proposition (anonymous mag stripe card), would require a channel strategy of some kind to get distribution. So, it seems more of a slog (but presumably one that Don Kingsborough’s experience at Blackhawk might help them remedy). That said, it strikes me that the ramp time to enable merchants for any of these solutions is much faster, since it is less about hardware refresh cycles and big budget line items at multiple national locations and much more about integration with POS software in the cloud that can be activated at the POS in a much less intrusive way.
Value Add: PayPal has a bunch
of assets that enable it to play as well as anyone in the deal space– driving geotargeted deals, serving up coupons/info/ price comparisons/discounts based on items in the basket or seen elsewhere, etc. Where things could get interesting is the notion of extending instant credit based on customer profile and items being
purchased via their BML capabilities and primo risk management infrastructure.
accessed via a Sprint Nexus S phone, which sort of narrows the funnel and a lot. Sprint in the United States actually has a Bottom line: Theirs is a versatile decent share of the Android OS market, approach to solving POS acceptance for so the addressable market could be OK. consumers and merchants, leveraging But at least at the outset, the number of what consumers and merchants have the people running around with Google available to use today, including 100 Wallets will be small, and until the app is million (and growing) populated wallets. available with other carriers/handsets, it Their solutions are also handset and carrier will likely have trouble igniting. agnostic, which is a big plus. There are already too many moving parts in the Google is the largest search mobile payments space to orchestrate. engine on the planet, Eliminating this one is pretty huge. All has ~200 million email that said, the big gap to fill for PayPal is on the merchant side, which is not accounts and the largest insignificant and is also quite tied to the share of smartphone business model that will underpin these solutions. And we will all have to watch operating systems. and see how they get merchants on board: will they focus on the big guys or leverage Merchants: Google has millions their DNA in the small merchant category of merchant relationships today via their and enable those “main street” merchants online advertising platform. Clearly, they and others who drive everyday spend? will leverage that asset as best they can. Their card network and issuer channel Here’s my take on Google. partners, though, provide powerful access to merchant relationships, too. As mentioned, since they are leveraging MasterCard’s PayPass technology, there are more than 140k merchant locations Consumers: There are a couple of that accept the Google Wallet today. And important things to look at here. First, they are really good merchants, too – drug Google is the largest search engine on the stores, department stores, restaurants, planet, has ~200 million email accounts clothing stores, etc. That, however, is but and the largest share of smartphone a pin dot of merchants in the United operating systems. So, Google brings States today – like 1 percent of them. a ton of assets to the mobile payments Merchant acquisition moving forward, starting line. Second, their launch partner then, becomes a little more complicated, is Citibank and Citi’s MasterCard credit since saying yes to Google Wallet also product. Citi is the 4th largest credit means saying yes to buying and installing card issuer in the United States and new POS gear. made news recently when they literally flooded the post office with millions of Preferred/accepted tender credit card solicitations. Clearly, they are type: Google has embraced an open looking to move up the ladder. At the platform and wants to enable all cards jump, they also bring a decent number of in an effort to make their solution more consumers to the party. Third, their launch scalable more quickly, given the ubiquity partner is MasterCard, and their PayPass of Visa and MasterCard acceptance on infrastructure that gets them acceptance both the consumer and merchant side. right out of the gate at those merchants. MasterCard/Citi is already on board. Visa Fourth, for the solution to work at least just announced that they have signed on, for now, it has to be via an app that is so it stands to reason that other issuers Lydian Journal
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will fall into place very soon. That is a big advantage, since it does not require anything more of the consumer than stuffing her electronic wallet with account numbers that already exist in her leather one and that she uses today at all of her favorite merchants. That is a big plus – technology issues notwithstanding.
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the President’s latest stimulus plan about subsidizing merchant terminal installation.
That means that, as I written many times, the biggest risk to this entire scheme is the end-run that IP-enabled solutions, like what PayPal, Starbucks and others still in stealth mode are devising that make for a great consumer experience without the
space. They have assembled a bunch of powerful channel partners who bring consumers and accepted payment types – that is a big advantage over PayPal. Their digital wallet enables the existing accounts that people have in their physical wallets today. Their big Achilles heel is the current technology platform. NFC introduces a lot
I have handicapped PayPal and Google in their race with each other and potential players to grab a big share of the emerging mobile transaction platform ecosystem. Now, I’m going to share some final thoughts. One thing that I think that the
just so you are covered) will be acceptable to interact with those merchants. It may to consumers and what it will take for also be that mobile payments ignite first them to trade off lack of ubiquity for in larger merchants where the notion of other goodies that will help drive mobile “store cards” becomes easier for consumers payments usage at the physical point of (since fat wallets in cyberspace is a nonsale. We know that what drove Starbucks issue) and more attractive for merchants adoption (4 million users in less than three who can see better economics from those months) had nothing to do with making a propositions and offer different things to their customers. The future propositions for everyone pursuing the mobile payments vision seems to hinge on which of these forks in the road are pursued. And as always, the devil is in the details. For sure, it’s still too early to know any of this, because there are still many, many unknowns. But at least we’re getting closer to the day when we’ll all have the benefit of real consumer and merchant feedback on real solutions. That will make mobile payments arena a whole lot more interesting and tangible. Can’t wait!
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Technology and ramp time: This is where it gets tricky. As mentioned, there are 144k locations today where Google Wallets can be used. Another 180k will come online soon. Visa’s announcement of the Google Wallet partnership will bring on all of its payWave locations too, upping the ante slightly. But there has to be much more than that to get to critical mass on both the consumer and merchant side. Yes, Google is said to be subsidizing installation, and yes, Visa has suggested that it will also create an incentive scheme to drive installation of NFC-enabled terminals as part of their EMV initiative, but that will take time. I simply don’t believe recent analysts forecasts of a 50 percent penetration of NFC terminals by 2014, unless I missed the bullet point in 12
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technology hassles.
of moving parts: (a) handset manufactures and manufacturing cycles, (b) POS systems Value Add: Google Wallet will and refresh cycles and (c) operators and support Google Offers, which is the their business models. Google’s acquisition Groupon-killer that Google is launching of Motorola makes them less dependent full-on. Offers is enabled in a number on (a) in the long run, their deep pockets of ways and linked to Places, which will presumably less hamstrung by (b) but certainly include primo offers from the nothing gets them away from (c), at collection of players that Google is buying least for now. They also have to persuade to support these propositions, like Zagat. consumers to install the app (and likely The Offers proposition for merchants buy the phones or switch carriers), which is pretty compelling too and makes the is not impossible but still a hurdle. Of business model that Google is putting all of the players who could pull off an forward both interesting and attractive: NFC solution, I believe they can be the no transaction fees, plus I’ll drive traffic to one, given the assets that they bring to your storefront. this space. But it is still a slog, and their big risk is the (by comparison) easier lift Bottom Line: Google is a serious, associated with enabling mobile payments well-funded player in the mobile payments via an IP-enabled solution.
Karen is the CEO of MPD and has worked extensively with some of the leading players in the payments, B2B and technolog y sectors to Starbucks mobile experience has shown payment transaction but rather solving for architect, ignite, us is how willing consumers are to adopt a problem that was more relevant to them and commercialize mobile payments solutions that only work and their customer: providing information in limited locations, like one store. The big on the available balance on their prepaid innovation. She also serves as a member of question for all of the mobile payments cards. Transacting was bolted to the ability the board for several emerging companies solutions though is whether, how and of their customers to more easily manage in the payments, mobile, and technology for how long, consumers will tolerate a prepaid card balances via the mobile phone. sectors, including PaySimple. Her work patchwork payments experience at the is focused on helping these innovators physical point of sale. It may come down to the fact that what develop and implement sustainable drove adoption of plastic cards (speed and business strategies. Karen is a frequent Yes, mobile phone penetration is to the ubiquity) may not be as important, at least speaker and author of numerous articles point that just about everyone who wants initially, in the mobile payments arena for on the sources of innovation, strategy, a phone has one, which, of course, is an either merchants or consumers (or the loyalty, product design/bundling, and important step number one. But everyone consumers standing behind the mobile pricing and platform strategies. She is a also carries around their plastic cards now, payments user in-lane). It may be that frequent keynote speaker on these topics too (and more so today than they do cash). mobile payments ignite first where they, and, for example, has moderated or spoken What we don’t know yet is for how long in some sense, ignited last – local Main at CTIA for many years. Karen also served the “belts and suspenders” approach to Street merchants that account for every day as an adjunct faculty member at her alma mobile payments (mobile wallets + cards spend where consumers want a better way mater, John Hopkins University.
Karen Webster
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Addressing Card Skimming at the Point of Sale— PCI and EMV Chip Technology By Cynthia Merritt
“This article assesses the value of the
payment card industry’s security guidelines (PCI) in the wake of the increased
incidence of debit and credit card data
breaches in the United States. Card skim-
ming schemes are increasing because the
magnetic-stripe technology that enables our card payments today is increasingly
vulnerable to fraud, unlike the more
secure chip-enabled cards adopted in other
developed countries. As payment meth-
ods continue to evolve and fraud schemes
become increasingly sophisticated, the
payments industry should augment PCI
compliance guidance with other risk miti-
gation alternatives,including a migration to chip-enabled card payments.”
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TECHNOLOGY
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Handicapping PayPal and Google in the race to be mobile transaction platform competition By Karen Webster Ah, September! It’s the beginning of fall: back to school, football, sweaters here in Boston, and now apparently, the race to the physical point of sale – mobile payments style. PayPal let the world in on its mobile payments vision two weeks ago at an invitation-only forum in Rancho Palos Verdes, Calif. Google launched its mobile payments scheme for real (sort of ) a week later in San Francisco. Their approaches couldn’t be more different, in spite of sharing the mobile phone as the
enabler of the experience for merchant and consumer.
that leverage PayPal’s core assets – namely, its digital wallet – to deliver a frictionless experience for merchant and By now, I am sure that everyone has consumer: cardless (phone number + read up on what PayPal is doing, so I PIN), card (but PayPal branded + PIN) won’t lay it all out here. Suffice it to say and line-busting options that enable bar that they have channeled their inner John code scanning and checkout in aisle. As Donahoe, who has been reported as saying everyone knows, Google’s mobile wallet NFC really stands for “not for commerce.” solution is NFC-enabled and leverages There is nary an NFC element to be MasterCard’s PayPass (and soon Visa found in their solution. What can be payWave) capabilities at merchant POS found is a series of clever experiences that take contactless (more on this later). Lydian Journal
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Introduction Have you received a call recently from your credit or debit card issuer asking you to verify suspicious transactions, only then learning that your card data was compromised and used to make payments that you didn’t authorize? Or, even worse, have you found strange-looking charges on your card statement from merchants you’ve never heard of in locations you’ve never visited? If these scenarios are familiar, you are likely one of the growing number of victims of card skimming fraud. Card skimming occurs when the customer data contained in the magnetic stripe on a card is read through the use of special equipment that replaces or is attached to a merchant’s legitimate point-of-sale (POS) terminal. Once your information is extracted from the card, it is then electronically transmitted to criminals for illicit use. PCI security compliance guidelines are designed to help merchants protect and secure customer card data. However, as illicit schemes such as hacking and card skimming become increasingly sophisticated, these guidelines will likely become less and less effective. The time has come for the payments industry to recognize the risk to the U.S. card payments system and the need to migrate to more secure and sophisticated card technology.
Visa’s Announcement to Accelerate EMV Chip Migration A move to EMV1 chip-enabled card payments could help the merchant community battle against payment card fraud. On August 9, 2011, Visa announced plans to accelerate chip migration and the adoption of mobile payments. The move to dual-interface chip technology is expected to create a more secure payment environment, which effectively reduces a criminal’s ability to harvest card data for making fraudulent card payments. Because the chip technology introduces dynamic values for each transaction, as opposed to the static data embedded in a magnetic stripe, the data is unusable even if compromised and replicated in a counterfeit card. It is important to note that some cardholder data in an EMV
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environment will be vulnerable in certain circumstances and will still require protection. Nevertheless, a move from magnetic stripe technology represents a quantum leap in the payments industry’s collective interest in combating payment fraud. Discussions surrounding a U.S. move to EMV chip payments have been going on for some time as merchants, issuers, and the card networks have tried to sort out the challenges of such a migration—namely, the technology investment required for new card reader infrastructure and new card issuance. Visa’s announcement may well be a watershed event for managing the risk of card data compromise at the merchant’s POS.
Growing Incidence of Skimming Schemes Cybercrime is a global problem today, contributing to a thriving black market for the exchange of cardholder data by large criminal organizations. Cybercrime takes many forms, but more recently criminals are shifting to card skimming as a means of perpetrating identity theft and payment fraud. Skimming fraud is considered by the U.S. Secret Service to be one of the most significant problems facing the credit card industry today. The past two years in particular have seen a dramatic upswing in the incidence of skimming breaches by international crime rings. The proliferation of illegal skimming equipment and the continued use of outmoded magnetic stripe card technology have created an environment in which harvesting card data is a commoditized illicit activity. Black markets exist on the web for the sale of equipment and exchange of harvested data. Many of these schemes are difficult to detect until they’ve already wreaked considerable damage in the form of countless fraudulent transactions. Criminals can use the data to make purchases right away over the phone or the Internet in card-not-present transactions, or they can use it to make counterfeit cards, or they can sell the information on the black market.
1 - EMV, the acronym for Europay, MasterCard, and Visa, is the global standard for interoperable chip payment card security and authentication. 16
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Card skimming can happen in a number of ways, typically at an ATM or other unattended POS terminal. Fuel dispensers are common crime sites, and so are stand-alone or hand-held terminals in the store. One of the simplest of these schemes occurs in restaurants when someone on the wait staff takes the customer’s payment card to execute the meal charge—and makes an illegal swipe of the card data for sale to an outside party for illicit use. More sophisticated and complex schemes are emerging as fraudsters take advantage of more advanced technology like wireless communications to transmit the skimmed card data to remote crime ring operatives. In many cases, the fraud involves tampering with the retailers’ POS terminals using hardware components that mimic or overlay existing card acceptance hardware that is used to read the card data during the transaction.
scheme as a result of terminal tampering. Several hundreds of legitimate POS devices were replaced by illicit equipment designed to skim and transmit the card data. The case, which is under investigation by the Secret Service, has resulted in litigation against the retailer. A similar retailer skimming case involved Hancock Fabrics. In this instance, criminals stole the legitimate PIN pads in August and September 2010, replacing them with visually identical— albeit fraudulent—units that were used to intercept information on the card and capture the PIN as it was entered during the transaction.
The rise in reports of skimming at fuel terminals led to an announcement on August 12, 2011, by the National Association The problem, ultimately, lies in the fact that the U.S. payment of Convenience Stores (NACS). NACS reported that the theft card systems use magnetic stripe technology, which is inherently trends of debit and credit card data at pay-at-the-pump tervulnerable to skimming. minals have grown to epidemic This sad truth becomes proportions. Again, PCI guidance Card skimming can happen in a number especially clear when we for controls for gas pumps— of ways, typically at an ATM or other compare the numbers to such as tamper-evident labels chip-based card technolo- unattended POS terminal. Fuel dispensers to mitigate and detect criminal gies. The United States is interference—is somewhat effecare common crime sites, and so are stand- tive but certainly not fool-proof. the last developed country to consider the migration alone or hand-held terminals in the store. Criminals find the weakest link by to a chip technology-based looking for the merchant with the payment card system, well weakest control environment. Still, behind the United Kingdom, Canada, and other countries. PCI-compliant merchants are not necessarily fully protected Payment fraud in these countries dropped precipitously fol- from terminal tampering. lowing implementation of the chip-based technology. Data contained in the magnetic stripe on the back of the payment Magnetic-stripe Fraud a Global Problem card is much easier to compromise than the data contained in a semiconductor chip The vulnerabilities inherent in magnetic-stripe technology are expected to contribute to ongoing skimming attacks in the According to the Identity Theft Resource Center, the bulk of near future, not to mention the associated credit and debit card banking-related data breaches in 2010 were attributed to insider losses. Other countries, including Canada and many in Europe, theft, cyber attacks, or card skimming schemes. Of all of these that have converted to the EMV chip technology standard have illicit activities, card skimming schemes are proving to be the effectively mitigated skimming.The incidence of skimming in most common, as evidenced by several recent high profile cases. the United States exceeds that in the rest of the world2. Payment In general, fuel dispenser terminals and ATMs are the most frauds like this have become a mainstay of global crime rings frequently attacked because of the absence of human interaction. that recognize the United States as one of the last holdouts on more secure chip-enabled card payments. In some cases, inadequate oversight or employee collusion may introduce the risk of terminal tampering. For example, in May New security issues are likely to emerge while the United 2011, the Michaels craft-store chain reported that stores within States continues to rely on magnetic stripes. We could see stolen a 20-state region had fallen victim to a payment-card-stealing credit and debit card credentials, which are available on black
2 - http://blog.gemalto.com/blog/2011/07/21/who-is-to-blame-europol-shuts-down-skimming/.
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market websites, funding terrorist operations, for example.
data in the magnetic stripe and the PIN data. Criminals use a combination of increasingly sophisticated software and hardware What is more, the United States may be culpable in exporting to manipulate payment terminals and compromise that data. fraud overseas as foreign card issuers retain the magneticThe skimming device equipment is generally hidden within stripe technology along with the EMV chip on the card to accommodate customers who use their payment cards during U.S. the payment terminal so it cannot be detected by merchants or travel. Likewise, overseas merchants may prolong the acceptance consumers. In some cases, the skimming equipment is embedded of magnetic stripe card payments to accept transactions from U.S. in a bogus PIN-pad device. These devices can both access the travelers. However, many merchants in European countries are data embedded in the magnetic stripe and record the keystrokes. already beginning to refuse acceptance of magnetic stripe card These PCI guidelines have promoted advances in how the payments, especially at POS terminals. industry addresses card data security. But, unfortunately, in many Many consumers, who face the uncertainty of having their ways the PCI guidelines are necessary because of the continued cards accepted abroad and who understand their vulnerability to reliance on outdated, static magnetic-stripe technology. Chip card fraud and data compromise when traveling, have demanded technology that enables either contact or contactless card chip-enabled payment cards from their bank issuers or purchased payments, near-field communication (NFC), or payments in prepaid chip cards such as those issued by Travelex. In fact, many the mobile channel all introduce dynamic data that is difficult U.S. banks have begun to issue chip cards to customers who for criminals to skim and clone. travel frequently.
PCI Guidelines for Mitigating Skimming The PCI Council has continued to advance security standards for preventing data breaches and protecting consumers. The council’s primary mission is to safeguard payment data and the systems that process that data. Recognizing the need to guard against the increased threat of skimming incidents, the PCI Security Standards Council issued in August 2009 an information supplement titled “Skimming Prevention: Best Practices for Merchants.” This guide provides information on how skimming schemes are perpetrated so merchants are better armed against them. The “Best Practices” supplement notes that cards offer criminals two primary sources of information: the account
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Among the guidelines and best practices the supplement offers for preventing skimming are advice to merchants to assess the physical security and operational controls supporting their retail locations and POS environment. Also included are suggestions for protecting terminal environments, including vendor controls, access controls, and monitoring equipment such as cameras, recording equipment, and lighting. The PCI Security Standards Council has developed guidelines for retailers to protect POS card readers from card skimming, including how to detect device tampering. As schemes become increasingly sophisticated, however, these guidelines will likely become increasingly less effective—a possibility that should give the industry even more reason to migrate to chip card technology.
The mobile channel as a use case for EMV chip payments In March 2011, the Federal Reserve released a position paper titled “Mobile Payments in the United States: Mapping Out the Road Ahead.” This document represents the collective views of the mobile payments industry in identifying the fundamental components of success for establishing a secure and interoperable mobile ecosystem. Specifically, it says that the mobile infrastructure would likely be based on NFC contactless technology and that some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program. The paper envisions that the mobile channel will be accessed by a mobile wallet permitting all forms of retail payments. However, the near-term inevitability of mobile card payments coupled with the critical need for better security in card payments is creating momentum for the adoption of mobile payments.
Conclusion The large number of card networks and payment card issuers in the United States has challenged efforts to establish a coordinated migration to EMV chip-enabled payments. Because merchants bear the financial burden of investing in terminal infrastructure, their needs further complicate industry migration. The merchant community understandably wants a future-proof investment strategy for POS technology. A number of issues will no doubt stir debate, including the option of signature or PIN authentication and whether other card networks will even follow Visa’s course. Still, the recent Visa announcement represents a move beyond the status quo and, we hope, in the right direction.
BIO FOR RISK AND SECURITY SECTION
Cynthia Merritt is the assistant director of the Retail Payments Risk Forum at the Visa’s announcement of its move to EMV contact and Federal Reserve Bank of Atlanta, where contactless technology is intended to encourage adoption so she is responsible for managing research the United States can be better prepared for the arrival of initiatives focused on emerging risks in NFC-based mobile payments. By catalyzing the merchant and legacy and alternative retail payment card-issuing community to migrate to chip-based payments and systems. Cynthia helped launch the build the infrastructure necessary to accept and process chipRetail Payments Risk Forum as a new based transactions, the industry hopes to push consumers into department and special initiative at the adopting secure, interoperable mobile payments more quickly. Atlanta Fed in 2008 in response to the recognized growth in electronic payment adoption and new Visa’s Plan Provides PCI Validation Relief innovative payment schemes. She is responsible for managing staff research initiatives on a variety of payments topics, with a Visa’s plan states that it will “eliminate the requirement strong focus on mobile banking and payments. Cynthia is also for eligible merchants to annually validate their compliance editor for the Retail Payments Risk Forum’s Portals and Rails with the PCI Data Security Standard for any year in which at blog, as well as a major article contributor. least 75 percent of the merchant’s Visa transactions originate from chip-enabled terminals.” Further, the merchant terminal Prior to assuming this role, she worked as a senior bank policy infrastructure must be able process the additional data included analyst in the Policy and Supervisory Studies Group in the in chip transactions versus magnetic stripe. The plan institutes Atlanta Fed’s Supervision and Regulation Division, where she a liability shift for counterfeit card transactions from the card was responsible for research and analysis of trends affecting the issuers to the merchants. Currently, the United States is the only banking industry. Prior to joining the Federal Reserve in 2004, country that has not agreed to a liability shift associated with Cindy worked in various capacities for the Comptroller of the chip-enabled payments. Currency as an analyst and a senior national bank examiner. Her career with the OCC spanned 14 years and included extensive Merchants will still be responsible for fully complying with work with problem and complex national bank organizations, the PCI Data Security Standard, in the sense that they should with a specialized focus on commercial credit, wealth managenot store sensitive data authentication codes or PINs. The ment, and capital market activities. She received a BS degree prospect for improved protection from card skimming schemes in finance with a banking concentration from the University and the associated reputational risk along with the reduced of South Carolina. She also completed the ABA’s National PCI compliance validation costs should be welcome benefits Graduate Trust School at Northwestern University. to merchants.
Cynthia Merritt
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REGULATION Lydian Journal
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The global mobile payment market is poised to explode over the next few years. One report predicts it will quadruple by 2014, reaching $630 billion in value. i According to this report, the growth across all market segments is being driven by the wide adoption of smartphones and the increased use of app storesii. In the first quarter of 2011, worldwide smartphone shipments grew 83 percent to 101 million unitsiii, and global smart phone sales are projected to hit 468 million units in 2011, a 57.7 percent increase from 2010, according to Gartner, Inciv.
R5., / %-5),*8]-5') #& 5*3' (.5**65 the merchant could not provide this by which customers may pay for in-store receipt physically to the customer (other purchases with select smart phones. than with the goods themselves) because the parties were not in the same physical The demand for mobile payments location and thus the ability to deliver a in the United States is clear from the receipt electronically via the computer number of these recent announcements. terminal combined with a receipt What is not clear, however, is whether accompanying the goods was deemed existing regulations should be applied to legally sufficientix. these mobile payments or how the newly created Consumer Financial Protection The payment model is changing once Bureau (CFPB) will exercise its regulatory again with the introduction of mobile authority over the emerging industry. payments, which can occur either While laws on the subject exist, they fail remotely or at the physical point of to address the degree to which technology sale where either the consumer or the The United States has the largest has outpaced regulations. For example, merchant uses a smartphone to effectuate number of smartphone shipments paper receipts and certain disclosure payment. In this new model, consumers among all countriesv. As of December requirements simply do not work with may pay by bumping their smartphones 2010, 43.6 percent of U.S. mobile phone the technological reality of payment via with someone else’s phone or by launching owners browse the mobile Internet, use mobile devices. Legal clarity for mobile an app that logs into a digital wallet. applications, or download content (up payments is needed. But in providing Alternatively, the merchant may accept from 35.7 percent in December 2009)vi. legal clarity, regulators (including the payment by using its smartphone as a Meanwhile, the number of people who are CFPB) must not impede innovation point-of-sale terminal. So what do we do using their mobile phones just for voice and efficiencies; they must acknowledge with legal requirements that made sense has declined 16 percent year-over-yearvii. that because mobile payments are in the physical world, where merchants Despite the fact that the United States fundamentally different, they do not could provide paper receiptsx and hand leads in terms of smartphone adoption, neatly fit the prior regulatory mold. consumers a coupon or promotion, and until now it has lagged behind other the Internet world, where everything was regions—such as Latin America and The mobile phone as an access device delivered at a future point in time? South Asia—when it comes to mobile or point-of-sale terminal changes the payment paradigm of the past. payments. That, however, is changing. Existing laws must be updated.
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Mobile Payments: Time to Consider the Regulatory Landscape By Sarah Starcevich Sharda Caro-del-Castillo 20
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Recently, numerous new mobile payment ventures have been announced and various players—including mobile carriers, financial institutions, alternative payment providers and Internet companies—have thrown their hats in the mobile-payments ring. These new ventures include, among others: R5#-]-5*&(5 ),55 #!#.&51&& .65- .5.)5 launch this fall; R5 655') #& 5*3' (.5( .1),%5$)#(.5 venture formed by AT&T, T-Mobile USA, Inc. and Verizon Communications Inc.; R5+/, 65 ( 865(5 & .,)(# 5*3' (.-5 service that allows consumers to use their smartphones or tablet devices to accept card charges; and
As technology has evolved, the fundamental elements of a payment have changed. Twenty years ago, consumers walked up to the physical point of sale, pulled cash, a check, or a card out of their wallet, made a payment, and received their goods or services and the associated paper receiptviii. In the late 1990s, with the advent of the Internet and the subsequent growth of eCommerce, we saw consumers take the same behavior online, except that payment was made via a computer and goods were subsequently delivered to the customer at an agreedupon time and location. The receipt was presented electronically to the consumer on a computer at the time the transaction was completed and the consumer had the ability to print that receipt wherever the consumer was located. It was clear that
For starters, existing consumer protection laws need to be updated so they take this new payment model into consideration. Merchants using slick new technologies like Square, which allow them to accept payment via their smartphones while standing in front of the customer, may not be able to print a receipt while selling pickles at the farmer’s market or flowers at the train station. One assumes they will have the ability, through use of the software underlying the new hardware, to generate and send an electronic receipt to an email address provided by the customer. But this immediately raises two questions: 1) Is the payment transaction initiated using a mobile device covered by Regulation E? and 2) If the transaction is subject to Regulation E, is the provision of an Lydian Journal
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electronic receipt without a paper option legally sufficient? Specifically, it is important to note that the definition of an electronic terminal in Regulation E currently excludes transfers initiated via telephonexi. A smartphone is a clearly a telephone, but did the drafters contemplate the ability to initiate payments or receive payments via
a smartphone when they wrote this law? And are regulators and participants in the payment system treating the smartphone as exempt from Regulation E? This certainly does not appear to be the case; to the contrary, it seems expected that a
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mobile phone used to initiate electronic fund transfers from consumer asset accounts will be subject to Regulation E. But this is an obvious area where clarity would prove beneficial.
provided if customers elect to receive one (but they must be available if customers so elect) and that receipts that are not furnished due to the terminal running out of paper or due to a mechanical jamxii. This requirement and the associated Assuming that Regulation E does commentary have traditionally been apply to mobile payment transactions, viewed as requiring that a paper, not just Section 205.9 of Regulation E requires an electronic receipt, be made available at that a financial institution make a receipt the point of sale. Compliance with this
There is also the issue of unauthorized transfers under Regulation E xiii. For example, under the mobile payments paradigm, how do we deal with situations where users have logged into devices and asked to be “remembered” so they don’t have to authenticate before making payments from the associated device? Is a transaction by a family member or friend using that device without permission
user makes financial transactions from the original user’s account) would appear to be considered unauthorized use because the second user did not have actual authority to transact using the original user’s account. While the original user may have acted negligently, Comment 2 in the official staff commentary to Section 205.6(b) of Regulation E makes clear that negligence does not increase the
available to a consumer at the time the consumer initiates an electronic fund transfer at an electronic terminal. In the official staff commentary to this section, the Federal Reserve Board goes on to explain that receipts need only be
considered unauthorized? Or should the customer who asked to be remembered on the device be responsible for setting up the device so others could not use it without permission?
consumer’s liability for unauthorized use. mobile device) makes the consumer But is this the appropriate result? liable for payments associated with the device until the customer notifies the Consider a credit or debit card. If the underlying financial institution(s) to cardholder were to hand the card to a stop any payments using the device. Any third party but not specifically authorize other result would put a disproportionate the purchase of a specific item, Comment amount of risk on the merchant and 2(m) of the official staff commentary to issuer community. Regulation E provides that the party furnishing the access device is in fact But these are not easy issues. liable unless it notifies the financial Consumers use mobile devices in a way institution that use privileges by the third different from how they use traditional
requirement would, however, stifle the business models and limit the ability of many merchants to actually do business. It would also limit the convenience that mobile payments can offer millions of smartphone users.
Specifically, it is important to note that the definition of an electronic terminal in Regulation E currently excludes transfers initiated via telephone. 22
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Using the “actual authority” standard for unauthorized transactions under Regulation E, providing someone with a computer or mobile device from which the original user has not logged out (resulting in a situation where the second
party have been revoked. Should the same be true for a mobile phone? In the same way that users were previously instructed to safeguard their PIN numbers and not write them on their cards, should we allow users to authenticate via mobile devices and then hand them to someone else? Arguably, the law should be updated to clarify that authenticating via a mobile device (but failing to safeguard that
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access devices. Playing games, watching movies, and reading the news are but a few examples where users may log into an account to make payments related to their consumption of digital goods. Of course, there are an equal number of cases where consumers use the mobile device for payments in brick-and-mortar settings (using near field communication (NFC) or other available technology). In each of these scenarios, however, it is feasible that the user would log into a payment account or electronic wallet and ask that they be remembered based on their device identifier. Yet phones are passed around to our children, our spouses, our friends and sometimes even strangers in a way that we don’t pass our wallets or other payment forms in our wallets around. This is something that the law needs to contemplate to strike the right balance.
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Yet another area of legal uncertainty is with the Bank Secrecy Act (BSA), which requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000, and report suspicious activity that might signify money laundering, tax evasion, or other criminal activitiesxiv .In addition, the U.S. Department of the Treasury has implemented a series of regulations that direct various financial institutions to implement the BSA’s Consumer Identification Program (CIP)xv. These covered financial institutions must collect certain information to verify the identity of each customer, customer being defined generally as a person who opens a new account. At a minimum, the covered institutions must obtain identifying information from each customer before opening the account, including name, date of birth for individuals, address, and identification numbers. CIP requirements do not apply to all financial institutions. Rather, CIP regulations cover only a specific set of designated financial institutions, including banks, savings associations, credit unions, broker-dealers, futures commissions merchants, introducing brokers and mutual fundsxvi. By contrast, while “money ser vice businesses” are obliged to report suspicious activity, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has made it clear they are not required to collect the same amount of information from their customers that banks are. Because collecting information imposes costs, chartered and non-chartered institutions can be expected to battle over how CIP obligations should apply to mobile payments.
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A key question facing this emerging industry will be whether mobile payment systems create BSA obligations. And if not, should they? What if a mobile payment technology provides the customer with the ability to load funds onto a mobile device without any underlying account? What information, if any, must these emerging payment systems collect from their customers under the CIP requirements? Should an institution that is hosting payment services offered by another in the mobile equivalent of a wallet be required to gather the same amount of data from the user as a bank that is settling transactions for its customers? Whether mobile payment systems are subject to the BSA and CIP requirements is unclear, with the answer likely turning on both the form of the payment system and the functionality it is enabling. In other words, what can you pay for and whom can you pay? As noted above, many types of mobile payment systems with different players, functions and forms are emerging. The analysis of whether BSA or CIP obligations are triggered would be different for each one.
The future may be closer than it appears. Given the ambiguity associated with the regulatory landscape for mobile phones and payments, the Consumer Financial Protection Bureau (CFPB), which was created under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has mobile payments on its radar as an area ripe for regulation. Based on prior publications on mobile payments, it appears that privacy and consumer protection issues will be central to the CFPB’s effortsxvii. Falling within this scope and included within the CFBP’s charter is the authority to prohibit acts or practices that are “unfair, deceptive, or abusive.” Specifically, the CFPB may prescribe rules applicable to a covered person or service provider that
identify certain acts or practices associated with any transaction with a consumer for a consumer financial product or service (or the offering of a consumer financial product or service) as unlawful, unfair, deceptive or abusive. While the CFPB has been given rather broad authority in this realm—including the authority to define, through rulemaking, unfair, deceptive, and abusivexviii practices—much remains to be seen in terms of how it will exercise this authority.
include a “model form” disclosure in any final rule it prescribes that may be used at the option of the covered person for provision of the required disclosure xxi. The enabling legislation leaves open how exactly the CFPB will exercise these new powers.
When issuing these rules, regulators must consider and address specific issues applicable to mobile payments. Disclosures on a mobile device are by nature different and necessarily Of note, the CFPB is not limited to more limited than in other contexts. the Federal Trade Commission’s 1983 Consider, for example, that disclosures definition of deception. Rather, the via a smart phone can be delivered CFPB is empowered to prevent practices to the customer when they are most that are deceptive “under federal law”— relevant—immediately before incurring an arguably more expansive standardxix. an obligation, liability or expense— Additionally, the new rulemaking rather than via a 30-page agreement at authority provides the CFPB with a single point in time. Specific disclosure significant new power to craft disclosure requirements such as font sizes or rules. Specifically, the CFPB has the proximity requirements will have to be power to prescribe rules to ensure that revisited to see what is possible given the the features of any consumer financial screen size of a smart phone. The CFPB, product or service—both initially and over in enacting the new rules and drafting the term of the product or service—“are model disclosures, should be mindful fully, accurately, and effectively disclosed of both the unique concerns as well as to consumers in a manner that permits consumer benefits presented by mobile consumers to understand the costs, payments, and seek to formulate rules that benefits, and risks associated with the protect consumers while also fostering product or service, in light of the facts innovation in this emerging industry. and circumstances.”xx The bureau may
B I O F O R R E G U L AT I O N ARTICLE
Sarah Starcevich is an associate in O’Melveny’s San Francisco office and a member of the Litigation Department. Sarah has represented a leading semiconductor manufacturer in complex civil antitrust litigation, including state law actions brought by a high-profile intellectual property firm designing computer memory interface technology and by a semiconductor packaging technology firm. She has also been involved in the representation of an individual under investigation for criminal price-fixing.
Sarah Starcevich Sharda Caro-delCastillo
Professional Activities: Law Clerk, US Department of Justic
Sharda Caro-del-Castillo is the Director, Legal Counsel at PayPal. Prior to PayPal, Sharda served as Senior Counsel at Wells Fargo and Counsel at Silicon Valley Bank. She is a graduate of Santa Clara University and received her J.D. from Case Western Reserve University School of Law.
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DEVELOPING COUNTRIES Lydian Journal
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Mobile payments in the Philippines: Future Opportunities for Growth
By Salah Goss Clara Veniard
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We often hear that M-PESA was able to scale quickly because it targeted an unmet need: urban to rural remittances. Safaricom based the initial launch of the M-PESA service on the “send money home” proposition because a large proportion of split families in Kenya needed a way to send money to relatives in rural areas but had few ideal options to do so. In many markets, however, such a clear unmet need does not exist. The Philippines is a prime example. Even though mobile money providers have been in the market for more than 10 years, they have struggled to gain market share in the face of well-known and well-established payment providers. Knowledge and usage of mobile money services are low, with less than 4 percent of users of all payment service providers reporting usage of mobile money services and awareness of four mobile money products ranging between 28 and 46 percent, even though more than 70 percent of users have access to a mobile phone
Our study focuses on the demand side of domestic payment services: bill payments and money transfers In 2010, the Bill & Melinda Gates Foundation launched a study with Bankable Frontier Associates to understand the demand for domestic payment services in the Philippines and to identify potential opportunities and unmet needs for mobile money providers to target. The study found the Philippines is an active and mature payment market with a myriad of payment providers, including payment centers, banks and pawnshops. Only 28 percent of respondents reported they make no payments; most Filipinos are aware of and using multiple service providers. In our study, we focused on three primary types of domestic remote transactions that mobile money has the potential to target: bill payment, 28
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money transfers and loan payments. Bill payments, which are most common, are used by 55 percent of the population. They are followed by transfers (used by 33 percent of the population) and loan payments (used by 16 percent of the population). We did not explore access to financial services, although 29 percent of respondents claim to be saving at home or in banks, or other potential drivers of mobile money that have had success in other countries such as public transportation and online purchases.
In this paper we use the results from the study to explore five alternative and almost equally used channels for bill payments or money transfers. In this paper we use the results from the study to explore five alternative and almost equally used channels for bill payments or money transfers. Pawnshops are the preferred channel for money transfers, with 29 percent of Filipinos citing the leading pawnshops (M. Lhuillier and LBC) as the main payment service provider in the last 12 months. Payment centers are used to pay bills by 21 percent of Filipinos while bank transfers are the preferred method for 17 percent of Filipinos for both money transfers and bill payment. Informal transfer options are the primary method for money transfers and bill payment for 15 percent of Filipinos. Alternatively, 13 percent of Filipinos pay their bills directly or are direct payers.
Existing payment channels are good but far from perfect For mobile money to take off in competitive markets like the Philippines, providers will not only need to identify a high potential target opportunity; they also will need to ensure their ability to effectively serve the market’s needs relative to the competition. We have identified user pain points in the following areas when paying a bill or conducting a money transfer: speed of delivery, trust and reliability, price and customer service. While consumers in the
Philippines have access to channels that may provide speed, trust or good customer service, none of them is ideal, leaving room for a service that gives customers more of what they value.
For bill payments, customers can pay in a bank or payment center. Both options have shortcomings: although banks are trusted (especially with large amounts), they suffer from long queues and unfriendly and limited staff. Payment centers are cheap and closer to home than a biller’s office, but also suffer from long queues and delays to credit customer payments at the biller. In addition, neither banks nor payment centers are widely accessible, especially in rural areas. In fact, 32 percent of users reported they would be willing to pay PhP 50 ($1.50 USD) for bill payment services that do not require them to leave their home. For money transfers, customers have the option of using banks, “big brand” money transfer services, pawnshops or informal channels. Pawnshops are the most popular given their ubiquity, trusted brand and speed (if picked up at the pawnshop), but the most popular pawnshops, M. Lhuillier and Cebuana Lhuillier, are not completely customer friendly. M. Lhuillier has long queues, strict verification and unsafe locations and Cebuana Lhuillier has high fees. The larger transfer companies like Western Union and LBC have high attrition
rates due to high fees and other problems. LBC, for example, offers door-to-door service; this service, however, can be slow and customers complain that their neighbors know when money is delivered. Consumers also complain about the stigma of entering pawnshops. Banks, which offer security, privacy and trust for larger transfers, are not always accessible. Although alternative channels are not perfect, mobile payment providers find it difficult to convince consumers to try a mobile payment service, as evidenced by low usage (4 percent) compared with other payment options. According to our study, users of one type of payment provider tend to be sticky. Our survey conducted among users of payment services found that fewer than 10 percent of one-time users have stopped using a service. They also tend to think their payment service is the best, providing high scores on trust, convenience, speed, security, fees and customer service. Users say they would utilize a new payment service in addition to their current service, rather than in lieu of it.
Some segments are still not served by formal providers Mobile payment providers have an opportunity to target markets segments not served by formal providers such
as personal direct payers and users of informal service providers. Thirty-three percent of the population still pays bills and loans directly at the biller’s office rather than using other intermediaries such as banks or payment centers. The majority of personal direct payers (75 percent) indicate they trust only themselves to deliver payments, although 57 percent agreed that paying bills would be easier to do via a third party. Perhaps by tackling the issue of trust, mobile money operators can convince these potential customers, who tend to be male, to try their services for the convenience they can offer.
deliverer). Similar to a country that does not have many formal payment options, such as Kenya pre-MPESA, providing an alternative to the existing options can meet a need that resonates strongly.
Lower-value transfers are an untapped opportunity
Mobile payment providers may also have an opportunity to facilitate lowervalue transfers between family and friends that occur informally and that higher cost channels (including pawnshops) cannot profitably serve. Our study found that 52 percent of Filipinos receive money from friends and family (either as a loan or a remittance) in the event they need to Users of informal service providers may make a purchase or pay a bill but do not also be a potential market niche. Twenty- have enough money. The rest seek money five percent of all users utilize informal from alternative sources: 15 percent service providers on a regular basis for will do something to earn the money smaller, regular transactions. These users themselves, 12 percent will wait for their tend to be rural and poor women who salary and 10 percent will go to an ATM generally make bill and loan payments to withdraw cash. Filipinos also regularly intraisland. In fact, these users in rural send or receive money for emergencies, areas rarely pay bills or loans through daily household expenses, education, bill formal service providers, and when payment or business expenses. Sweeping they do, they use the leading pawnshop. these low-value transactions through Although informal options are low cost, mobile money services would mean a they suffer from delays, the sender has significant increase in transaction volume no automated confirmation of when the and customers. In addition, 33 percent of money arrives, funds can be stolen, and all users said if they could make cross unanticipated costs may arise (such as tips payments between mobile money schemes, or paying for the food or petrol of the they might find this persuasive enough to try them.
Ne x t s te p s fo r m o b i l e money providers During the last ten years, mobile money providers in the Philippines have struggled to gain traction. They compete against an active payment market with numerous strong alternative channels for bill payments and money transfers. However, these alternatives are far from ideal, according to customers themselves, and there are niches in the payments market that have not been targeted.
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Mobile money providers have an opportunity to move customers away from existing payment options, to persuade customers to use their services in addition to their current payment provider, and to target segments not currently served by formal payment providers such as personal direct payers and users of informal service providers. In addition, they may have an opportunity to capture lower-value transfers. The challenge faced by mobile money will be to encourage customers to try their service and to convince them through early trials of the superior value of the service. The extent to which they will succeed in doing so will depend on the investment mobile operators are willing to make in strategic marketing and getting their fee structures right, in addition to creative partnerships with banks and others that may add value to the customer experience.
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BIOS FOR DEVELOPING COUNTRIES S a l a h G o s s i s Benchmarking Arab Microfinance 2006. populations and new initiatives to a n A s s o c i a t e Currently, in her role at the foundation, engage with commercial banks and large Program Officer she draws on her past experience as microfinance banks to deliver more savings in the Financial Grants Administrator for the West Africa services to the poor. Prior to joining the Ser vices for the Regional Office of the Soros Foundation foundation, Clara worked as a consultant Poor initiative at to use innovative grantmaking tools such with The Boston Consulting Group the Bill & Melinda as challenge funds and prizes. She is a in South America where she primarily Gates Foundation. graduate of The Paul H. Nitze School of advised retail and commercial banks S a l a h w o r k s o n Advanced International Studies at Johns across the region. She also worked on an m o b i l e m o n e y Hopkins University and is proficient in economic growth strategy for the Chilean government, leading an in-depth analysis projects, savings-led communit y French and speaks beginning Arabic. of the IT and business services outsourcing managed microfinance, and financial C l a r a Ve n i a r d and offshoring industries. Clara began sector deepening in Africa, South is an Associate her career as a Peace Corps Volunteer in East Asia and the Caribbean. Prior to joining the foundation, she worked Program Officer Nicaragua where she advised and launched on several financial service projects in the Financial consortia for small and micro entrepreneurs Services for the Poor in conjunction with the United Nations for Development Alternatives, Inc. initiative at the Bill Industrial Development Organization. As a Financial Analyst at Sanabel & Melinda Gates Clara holds a BA in East Asian History Microfinance Network of Arab Countries, in Cairo, Egypt, she supported Foundation. Clara from Dartmouth College and an MBA microfinance institutions from twelve works with financial from the Harvard Business School. institutions to deliver She speaks Spanish and French and is Middle Eastern and North African countries and contributed to The MIX saving services at scale to underserved conversant in Mandarin and Portuguese.
Salah Goss
Clara Veniard
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Mobile Financial Services and the Emerging Global Middle Class: How Mobile Technology Is Broadening Financial Access in Less-Developed Countries While Driving Business Opportunities for Global Companies By Sarah Starcevich Sharda Caro-del-Castillo
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Access to financial services is a major challenge for more than half the world’s population. In less-developed countries, 70 percent of the population has little or no access to financial services products of xxii any kind . Ultimately, this gap makes it extremely difficult for more than 2.6 billion people worldwide to conduct even the most basic financial transactions: xxiii payments, savings or borrowing . Many economists, public policy analysts and philanthropic institutions have come to the common conclusion that lack of financial access for this large segment of the planet’s population is a major barrier to further economic development in emerging markets. At the same time, growth of the global middle class in Africa, Asia and Latin America has accelerated, making it even more critical to identify opportunities to close the financial services access gap. With better access to basic financial service capabilities to make payments, save and access credit, this growing global middle class population will be able to play a more powerful role in shaping the future of economic growth over the next 10 years. Given the siz e and potential opportunity that this population— often referred to as the “middle of the pyramid”—represents, global financial services and telecommunications players are investing in capabilities to provide financial services to this group. Using mobile technology infrastructure as a platform, banks, technology companies and telecommunications players are starting to make investments in mobile banking services. Many of these investments have been tentative and limited in scope because few players have taken into account the full and important macroeconomic impact this growing middle class population will have on the global investment landscape over the next 10 years. In many cases,
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There are a variety of definitions of investments have been inconsistent, fragmented or targeted to niche “middle class,” with significantly different opportunities. However, in the last year, definitions depending on whether the a few global companies have started to description applies to populations in place bigger bets on mobile platforms that well-developed countries or poorer can provide expanded access to financial countries. For the purposes of this paper, services over the next 10 to 15 years we will use the definition from Banjeree xxvi throughout the world, with a particular and Duflo that is used by the World focus on emerging economies. Bank and International Monetary Fund when working with developing countries. As companies like Visa, MasterCard, This definition identifies middle class Vodafone, Telefónica and others explore individuals as people living between $2 opportunities to provide financial services and $10 per day, which would clearly to the “middle of the pyramid,” each is not be considered middle class in the searching for an optimal investment United States or similar developed strategy. This paper examines potential countries, but is closer to describing the approaches for global financial services vast majority f individuals worldwide who players to pursue in order to take are part of the middle tier of the global advantage of the possibilities of new economic pyramid. These individuals are technology and the potential of the “not deemed ‘poor’ by the standards of emerging global middle class. Major developing economies” even though they global players have a compelling and may fall well below the poverty lines in xxvii urgent opportunity to identify and more-developed countries . Ravillion serve the unique needs and aspirations uses a slightly broader definition of of emerging middle class segments middle class that reflects individuals with worldwide. If these global players can per capita consumption of $2 to $13 per tailor technology investments—especially day. mobile investments—to align with the needs and market realities of this growing Using this definition, evidence shows and underserved global population, they that the population classified as middle xxix have the potential to unlock an extremely class has increased by 1.2 billion people . promising set of new markets. Most of this growth has come from Asia, with approximately half of the middle II. B a c k g r o u n d o n class population growth coming from t h e E m e r g i n g G l o b a l China alonexxx. Nevertheless, evidence Middle Class of this trend outside Asia exists, with compelling data from the African O ver time, large midd le c lass Development Bank illustrating that populations have been associated with Africa’s middle class population has xxxi stronger economic growth and poverty tripled over the last 30 years . Currently reduction. Individuals who are no longer estimated at 310 million people, this living in absolute poverty have a greater middle class population is comparable ability to participate in economic activities in size to the middle class populations in xxxii that drive long-term economic value and India and China. drive growth. Banerjee and Duflo suggest that this growth power comes from Access to financial services for savings, entrepreneurial activity, accumulation transactions and borrowing activity are of human and financial capital and all critical contributing capabilities to the xxiv consumption power . Chun, Hasan growth potential of this group. However, and Ulubasoglu found further empirical access to these critical services is extremely evidence of the power of the middle class low in most developing countries. In most xxv to drive consumption growth . developing countries in Asia and Africa,
less than half the population uses formal xxxiii financial services . This population represents 2.5 billion adults who might be potential targets for financial services solutions that address the challenges of
Many mobile money solutions have AML exacerbated by illiteracy and lack struggled to achieve critical mass and of formal identification; achieve levels of sustainable growth R5*)),5#( ,-.,/ ./, 5B,) -65 & .,# #.365 due to a classic “chicken and egg trap” that faces many new payment solutions. etc.) to support branches and ATMs in rural areas
Table: Adults Who Do Not Use Formal Financial Services High Income OECD
8%
Arab States
67%
Central Asia & Eastern Europe
49%
Latin America
65%
Sub-Sahran Africa
80%
South Asia
58%
East Asia
59%
0
100
200
300
400
500
600
700
800
900
R5- /,#.35 )(-# ,.#)(-: R5 "&& (! -5) 5- ,0#(!5#&&#. ,. 5( I),5 multilingual populations;
% financially underserved
I. Introduction
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Millions of People Source: Honohan, 2008, Human Development Index, World Bank
“In order to grow, these systems must aggressively attract both customers and xxxv cash-in/cash out merchants.” A “subUltimately, this large, underserved scale trap” occurs if merchants do not gain market of middle class consumers significant transaction volume quickly represents an extremely interesting and then choose to drop the service, potential market for financial service while consumers may choose to abandon providers and technology players. Rapid the service if there is not a big enough mobile phone adoption and consumer network of merchants that accept the xxxvi durable purchase trends provide strong solution . examples of how global players can find attractive business opportunities in the Significant infrastructure issues developing world by serving the needs represent one of the largest historical and aspirations of this growing middle challenges to effective financial service class market. delivery in less-developed countries. Given the high fixed cost of infrastructure III. What’s Required to and other profitability considerations, Meet the Financial Services bank branch and ATM distribution in Needs of this Population? most developing countries is low.xxxvii These challenges are compounded in Clearly there are challenges in serving many less-developed countries by a range a mass-market that has the diversity and of other issues: geographical reach of this global middle class segment. Serving it requires a solid R5! )!,*"# 5 #-* ,-#)(: understanding of the major challenges R5 # # /&.35 #(5 " ,#(!5 .)5 #0 ,- 5 that may threaten successful and profitable operations in each environment. compliance frameworks around KYC/
R5 *, 0& ( 5 ) 5 ." 5 ()(., #.#)(&5 economy and cash payments; and R 5 ' # ( # ' & 5 & . ,)( # 5 * 3 ' ( .5 infrastructure or card acceptance reduces value of transaction accounts. Mobile telecommunications infrastructure has already addressed many of these challenges, leading to mobile phone adoption levels that exceed the levels of financial services adoption. As a result, mobile financial services
xxxiv
developing economies
.
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Over the last five years, a wide range of players have entered the marketplace for mobile financial services with offerings that target the global middle class. offer the promise of addressing many of these structural challenges. However, to adequately address the needs of this market, global players must assemble an impressive array of capabilities from a range of functional disciplines. 1. Core financial capabilities. The financial service needs of the global middle class are fairly basic. To date, most solutions have focused on five key service areas: money transfer, payments (both retail and bill payments), savings, insurance and credit. At some level, it would be possible to define and deliver a set of basic financial products tailored to meet the broad economic needs of discrete socioeconomic segments (e.g., low middle income $2 to $5 per day; “middle-middle” $5 to $10 per day; and high middle class $10 to $13 per day), regardless of country. 2. Mobile technology capabilities. Although many mobile operators are developing proprietary mobile financial services capabilities, with a few exceptions (e.g., Kenya), most countries are served by multiple mobile carriers, none of which have sufficient market share to establish a market-leading solution on their own. In nearly every model for financial services delivery via mobile phones, the local carriers must play a role in providing network access, customer acquisition and customer service, or the service does not have an opportunity to achieve ignition. Consequently, no single player has yet achieved sufficient credibility or critical mass across markets in providing mobile financial services. 3. Local Support Capabilities. Many factors must be addressed locally. Technology standards, mobile phone adoption differences and a host of business challenges all require local knowledge and local solutions.
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4. Interoperability capabilities. Third- geographically concentrated area, rarely party players can have a role in linking the extending beyond more than a handful mobile operators in each country to a basic of markets. set of financial services. Players like the recently acquired Fundamo (purchased Despite the broad level of interest by Visa) play that role, linking financial in providing services of this type, few services solutions to local mobile networks. business models have been successful or In this model, the local carriers handle the have come close to achieving critical mass, core mobile functions (network coverage, with many false starts and profitability customer acquisition and adoption and challenges for most players. Each of these customer service) while the technology players has struggled with a variety of player provides interoperability between challenges, including shared challenges of carriers and ser ves as a source for building critical mass for a new payments financial service products. In some cases, service as well as unique challenges international players may also have a role associated with diverse local regulatory, in providing services that require both structural and infrastructure issues. The global expertise and local customization, examples below highlight some case including risk management, credit studies that are instructive both in what underwriting, insurance services, etc. works and what does not.
IV. Emerg ing Mobile Solutions Over the last five years, a wide range of players have entered the marketplace for mobile financial ser vices with offerings that target the global middle class. Typically these solutions have offered a small set of niche products in a
M-PESA. Started in 2007, M-PESA may well be the most-studied experiment in mobile financial services. A mobile phone-based money transfer system run by Safaricom, Kenya’s largest cellular operator, M-PESA has achieved an astonishing level of adoption in a very short period of time. By September 2009, more than 8.5 million Kenyans had
Regulatory Challenges
Technology Adoption
These business challenges require local solutions Marketing
Customer Support
Language/ Literacy/ Numeracy
Distribution & Sales
registered for the service and transferred while it is clear the Safaricom solution has $3.7 billion USD worth of value using some unique elements that are difficult xxxviii M-PESA . This value was equivalent to replicate elsewhere—most notably to approximately 10 percent of Kenya’s Safaricom’s overwhelming leadership xxxix GDP . However, the high cost and market share in Kenya’s mobile of person to person money transfer arena—the M-PESA example provides combined with technology challenges has clear indications of the value that can be xl affected the profitability of this solution . harvested through a relevant service for Nevertheless, the M-PESA model is the global middle class. a useful example of a nascent firm that MT N Uganda’s MobileMoney. is beginning to operate like a financial services platform, bringing financial Although this service isn’t yet at the one services and mobile operators together million customer mark, it too has shown xli to create value for customers . a remarkable level of progress in the last two years with relatively low initial Given the rapid growth of the funding requirements and achievement M-PESA model, studies have attempted of positive cash flow within 14 months to assess the true impact of this solution of launch. Most of the profitability of this on economic activity and economic new venture has been driven by money development in Kenya. The results of most transfer fees and lower churn rates for xlvii studies, while preliminary, are promising. MobileMoney customers . Morawczynski and Pickens observed Mobile Initiatives in Tanzania. that the system resulted in smaller but more frequent remittances to rural areas, Although Tanzania doesn’t typically resulting in an overall net increase in spring to mind as a hotbed of innovation, xlii remittances to rural areas . Plyler et al. this market of 42 million people is home observed that M-PESA enabled small to four serious contenders in the mobile businesses to expand and grow while also money space. Vodacom, the market leader increasing monetary circulation in these (39 percent market share), has a Tanzanian xliii communities . Recent data from Mbiti equivalent of M-PESA that has more and Weil found that 26 percent of users than one million enrolled customers. It xliv reported using M-PESA to save money . is probably the most successful mobile xlviii Moreover, surveys of M-PESA users money deployment outside of Kenya . indicated that a significant percentage Three other mobile network operators— of users were interested in receiving their Zain (Zap), Zantel (ZPesa) and Tigo main income via M-PESA and paying (Tigo Pesa)— offer mobile money xlv bills using M-PESA . services that are vying to for customers in this vastly underserved market, which xlix Ultimately, the M-PESA service has only 500 bank branches nationwide. has been an overwhelming success for Safaricom to the extent that Safaricom Easypaisa in Pakistan is another continues to invest in and grow this telecom-led solution that is having some solution, most recently announcing success with its payment solution. A joint plans to add an interest-bearing effort between Telenor Pakistan and savings component (M-KESHO) to its Tameer Microfinance Bank, Easypaisa xlvi offerings . was launched in 2009. It has grown to include a network of 11,000 agents where Empirical evaluations of this service consumers can handle bill payments and suggest, via real-world examples, the money transfers. One unique aspect of tangible benefits of serving a relatively this solution is that consumers do not modest population of middle class need a Telenor account or even a mobile customers in an emerging economy. And phone to use the service at any Easypaisa
shop; they simply present cash to an agent who then handles the transaction via the shop’s mobile phone. This strategy has enabled Easypaisa to grow to more than one million transactions per month. Easypaisa believes that this volume will enable it to become a gateway to migrate customers to a suite of financial services based on an e-wallet. The leaders of Easypaisa also claim that mobile financial services in Pakistan help create jobs, stimulate GDP and increase savings rates l among the poor . Mobile Initiatives in India. The last three years have witnessed mobile experiments by both global and local players in India. Three of the most notable include 1) the partnership between Obopay, Nokia, Union Bank of India and YES BANK; 2) a joint venture between Visa and Monitise; and 3) bharti airtel’s mobile financial services offering.+ The Obopay/Nokia experience in India’s mobile financial services market has been challenging. After entering the Indian market in January 2008, the venture has struggled to get traction. Heavy regulatory challenges and other local country issues have affected the ability of the solution to ignite, despite Nokia’s position as the dominant mobile phone provider in the country. In December 2010, Nokia acquired Obopay’s India operations; it recently started shipping mobile phones in India preloaded with the Obopay applications, potentially giving the solution a new lease on life in that market. In addition, Nokia stores will facilitate service registration and cash-in and cash-out transactions, making it far more practical and convenient for many Indians to use the service. However, although the solution operates through partnerships with Union Bank of India and YES BANK, regulatory issues and customer adoption challenges are likely to continue to be issues because both banks are relatively small.
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The Visa/Monitise joint venture was leverage airtel’s joint venture with the announced with great fanfare in May State Bank of India to provide banking 2010, with plans to “provide a platform for and financial services to unbanked financial institutions and mobile operators Indians across the country, providing in India to offer a range of mobile an extensive cash load network that will financial services,” including banking, combine airtel’s existing physical footprint bill payment, ticketing, mobile top up with partner merchants to enable cash and other services. However, since that loads/deposits. announcement, there has been little news from the joint venture, suggesting the South African Mobile Initiatives. As companies are struggling to find Indian the largest economy in Africa, South partners for their technology platform Africa has seen a variety of technology even as large players like State Bank of investments in mobile financial services, India and bharti airtel move forward especially because many global players on their own. One exception is a recent see South Africa as a critical gateway announcement from Standard Charter to the broader African continent. That India (which is admittedly a small player said, some of the most successful mobile in India) to leverage Monitise to provide experiments in South Africa have been a range of mobile applications for the homegrown, with Fundamo, recently Indian market designed to target the acquired by Visa, leading the pack. growing Indian middle class. Founded in 2000, Fundamo is a It is unclear what Visa will do in India. mobile banking and payments technology Its June 2011 acquisition of Fundamo provider that offers mobile financial of South Africa may provide a stronger services to unbanked and underbanked option for expanding its India business customers in Africa, Asia and Latin than the existing Monitise solution. America through partnerships with Nevertheless, Visa has reiterated its companies like Western Union, Accenture, support for collaborative activities with S1 and others. At the time of Fundamo’s Monitise; thus the ultimate solution recent acquisition by Visa, the company in India might represent a blending of had 50 deployments in more than 40 capabilities. What is obvious, however, is countries, providing service to more that lack of a local partner has affected than five million registered subscribers. the status of this joint venture. Clearly, Fundamo has been able to achieve Indian banks and Indian regulators are this geographic reach via a model that looking to partner with players that have provides modular and configurable a strong, on-the-ground presence in their technology services to both mobile lucrative market. network operators and financial services companies, enabling both to leverage their Airtel money, launched in January mobile wallet to provide payment services, 2011, is India’s first mobile wallet offered by a telecom operator. Under a license from the Reserve Bank of India to use the “Semi Closed Wallet,” bharti airtel provides capabilities for mobile bill pay (electricity, gas and financial services), mobile top up, ticket purchases and pointof-sale payments. Initially launched in a small footprint (Guragon, then expanding to Delhi), the solution includes discounts and offers for merchants as part of the network. The solution will ultimately
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It is unclear what Visa will do in India. Its June 2011 acquisition of Fundamo of South Africa may provide a stronger option for expanding its India business than the existing Monitise solution mobile top up, remittances, person-toperson payments, bill payments and account management services. WIZZIT, a subsidiary of the South African Bank of Athens ( Johannesburg), is a financial services solution provider for unbanked consumers in South Africa. It offers a transactional bank account, cell phone top up, payments, money transfer and person-to-person payment capabilities. Founded in 2004, WIZZIT is a solution with a close partnership with the World Bank’s Consultative Group to Assist the Poor (CGAP). Its mission is to provide access to financial services to underserved segments of the South African population. To date, they have experimented with a range of mobile financial solutions, including wholesale payments between small shop owners and their suppliers, debit card and ATM access solutions and other solutions. Perhaps the most unique aspect of WIZZIT is its unique direct sales model that uses young “Wizz Kids” to help
evangelize the solution directly with the target customer base.
and M-PESA are proving that it is possible to profitably serve the global mass market/middle class.
Finally, Standard Bank of South Africa, a pioneer in branchless banking services Most of the success stories to date in South Africa, provides an interesting have been in smaller countries, often with example of how traditional banks highly concentrated telecommunications can provide a solution to underserved and/or banking sectors. However, the populations via a mobile delivery model. potential represented by these early-stage liii As shown below, Standard Bank uses successes has led players like Visa and a network of merchants to facilitate MasterCard to cement significant deals cash deposits and provides a distributed (with Fundamo/Monitise and Telefónica framework of sales agents, area managers respectively) to serve these markets. To and service representatives to support the extent that these players can use their branchless accounts in the field. Account global expertise, scale and capital to help information and payment transactions can standardize and commercialize mobile be accessed via mobile phone, and a range financial services solutions in emerging of additional banking products (including markets, there is tremendous potential to savings and loans) are supported as well. create economic value for the global player and really change these markets.
V. Conclusions: T he Global Middle Class Is a Real Opportunity for Global Financial Players
Despite the challenges of serving the diverse and geographically far-flung populations that comprise the global middle class, this segment represents an impressive demographic segment. A wide range of players have already begun tapping into the potential market opportunities. Despite country-specific challenges, low volume and constrained spending capacity, players like Fundamo
Ultimately, however, these players each need to find unique, sustainable and differentiated ways to address the four core components of a successful mobile financial services model:
most cases a local banking partner will be critical. R5 ) #& 5 . "()&)!35 * #&#.# -855 Fundamo and others have found a way to work collaboratively with mobile technology operators, which is clearly a critical component to a successful market ignition and delivery strategy. Most of the existing success stories in the mobile money arena either are led by local mobile network operators or have a strong partnership relationship with them. R5 ) &5/**),.5* #&#.# -85Ļ#-5#-5 an area where different companies have shown great innovation and creativity in how to tailor sales, service delivery, support and other locally unique capabilities. R5 (. ,)* , #&#.35 * #&#.# -85" ." ,5 it is connecting solution capabilities within a country (mobile networks, ATM networks, etc.) or dealing with crossborder financial issues like remittance, interoperability is key.
R5), 5ŀ(( #&5 * #&#.# -85-5'(35) 5 As payments and financial transactions the case studies highlight, the needs of the around the world become increasingly global middle class are broad if somewhat electronified, it is critical to align less sophisticated. Consequently, a the payment and financial services successful solution will need to effectively infrastructure to support the most provide a range of products that likely significant demographic trend on the include remittance, payments, mobile planet: growth of the global middle class. top up, savings and affordable credit. In Failure to adequately address this issue not only has serious implications for the growth prospects of emerging markets; it also has material implications for revenue and profitability growth for multinational companies that face maturing financial service markets and slower demographic growth in the more-developed economies.
BIBLIOGRAPHY Area manager, community bankers and service bankers are full-time Standard Bank employees.
Sales agents are commisoned to Standard Bank.
Community retailers such as spaza shops.
Potential customers reached through this service.
Abhijit Banerjee and Esther Duflo, “What Is Middle Class about the Middle Classes Around the World?” Journal of Economic Perspectives 22(2): 3-28 (2008). Thorsten Beck, Asli Demirguc-Kunt and Soledad Martinez Peria, “Reaching
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Out: Access to and Use of Banking Services Across Countries,” Journal of Financial Economics (2007). Alberto Chaia et al., “Half the World Is Unbanked,” Financial Access Initiative Framing Note (October 2009). Natalie Chun, Rana Hasan and Mehmet Ulubasoglu, “The Role of the Middle Class in Economic Development: What Do Cross-Country Data Show?,” Asian De velopment Bank, ADB Economics Working Paper Series, No. 245 ( January 2011). Patrick Honohan, “Cross-country variation in household access to financial services,” Journal of Banking and Finance 32, May: 2493-2500 (2008). Isaac Mbiti and David N. Weil, “Mobile Banking: The Impact of M-PESA in Kenya,” National Bureau of Economic Research, NBER Working Paper 17129 ( June 2011). Olga Morawczynski and Mark Pickens, “Poor People Using Mobile Financial Services: Observations on Customer Usage and Impact from M-PESA,” CGAP Brief (2009), available at http:// www.cgap.org/gm/document-1.9.36723/ BR_Poor_People_Using_Mobile_ Financial_Services.pdf. Megan Plyer, Sherri Haas and Geetha Nagarajan, “Community-Level Economic Effects of M-PESA in Kenya: Initial Findings,” IRIS Center Report, University of Maryland (2010). Martin Ravallion, “The Developing World’s Bulging (But Vulnerable) ‘Middle Class’,” The World Bank, Policy Research Working Paper, WPS4816 ( January 2009).
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“The Middle of the Pyramid: Dynamics of the Middle Class in Africa,” African Development Bank Market Brief (April 20, 2011) [Note: The definition of Middle Class in this study is $2-$10 per day].
terminals, eCommerce solutions, prepaid, TeleCheck, mobile and a range of other services. In this role Margaret was also responsible for channel strategy, innovation and sales operations. Margaret also served as the Payments Strategy and Innovation Executive at Bank of America, where she led the enterprise in developing and implementing breakthrough, global innovations that leveraged the Bank’s payment assets. Specific innovations inc luded mobile banking, cash management, credit card, debit card and BIO FOR BUSINESS Check 21 solutions. In addition, while at Bank of America, Margaret led the Margaret Weichert is a Managing global strategy, innovation, and business Director at Market Platform Dynamics. development activities for eCommerce, Margaret is an experienced payments ATM and Mobile, including marketindustr y executive with a proven defining partnerships with Apple, RIM, track record of commercializing new Checkfree, Yodlee, and others. Margaret’s technologies in small start-ups, and professional career also inc ludes large multi-national corporations. An leadership positions at Accenture, and acknowledged leader and innovator The MorganWeichert Group. in payments and financial technology, Margaret has received seven US patents Throughout her career, Margaret and is an inventor on many additional has played a key role in defining and pending patents. An entrepreneur who implementing new product development has started two of her own companies processes, and has used these processes to and sold one to First Data, Margaret has successfully develop and commercialize also proven experience commercializing game-changing innovations that have game-changing technologies, including a driven hundreds of millions of dollars in range of mobile banking and eCommerce incremental shareholder value. Margaret’s capabilities, unique commercial cash experience as an industry executive and as management solutions, Internet Check a consultant has given her exposure to a and Checks by Phone solutions, fraud wide range of companies, business models and risk management solutions, new and geographic regions, that give her a point of sale technologies and many other truly unique, and global perspective on payments, risk management and financial payments innovation. services solutions. Margaret holds a B.S, Magna Cum Prior to joining Market Platform Laude from Georgetown University Dynamics, Margaret was the SVP, School of Foreign Ser vice, where Global Product Marketing at First Data, she focused on International Politics responsible for marketing all Retail and and Economics. Margaret received a Alliance Services products, including Postgraduate Diploma in Economics merchant credit and debit card acceptance, (with Distinction) from the University
Margaret Weichert
QUOTE
ix Id.
i Juniper Research, Press Release, Mobile Payments Market to Quadruple by 2014, reaching $630bn in value, although still only accounting for around 5% of ecommerce retail sales, May 4, 2010, available at http://juniperresearch.com/ viewpressrelease.php?pr=173.
x Id.
ii Id. iii Canalys, Press Release, Android increases smart phone market leadership with 35% share, May 4, 2011, available at http://www.canalys.com/pr/2011/ r2011051.html.
xi 12 C.F.R. § 205.2(h). xii Official Staff Commentary to § 12 CFR 205.9, comment 9(a)(5). xiii 12 C.F.R. § 205.6. xiv 31 U.S.C. § 5311-5332. xv 31 C.F.R. § 103.121-123 & 103.131. xvi 31 C.F.R. § 103.121-123 & 103.131.
xxiii Jake Kendall, Nataliya Mylenko and Alejandro Ponce, “Measuring Financial Access Around the World,” World Bank Policy Research Working Paper No. 5253 (March 1, 2010). xxiv Abhijit Banerjee and Esther Duflo, “What Is Middle Class about the Middle Classes Around the World?,” Journal of Economic Perspectives 22(2): 3-28 (2008). xxv Natalie Chun, Rana Hasan and Mehmet Ulubasoglu, “The Role of the Middle Class in Economic Development: What Do Cross-Country Data Show?” Asian De velopment Bank, ADB Economics Working Paper Series No. 245 ( January 2011).
xvii See Suzanne Martindale and Gail iv STM Publishing Group, “Global Hillebrand, “Pay at Your Own Risk? Smartphone Sales to Hit 468 Million How to Make Every Way to Pay Safe in 2011—Says Gartner Report,” April for Mobile Payments,” March 15, xxvi Banerjee and Duflo, 3-28. 7, 2011, available at http://www.stm- 2011, Banking & Finance Law Review, publishing.com/?p=930. Forthcoming. Available at http://ssrn. xxvii Martin Ravallion, “The Developing com/abstract=1787587. On April 1, 2011, World’s Bulging (But Vulnerable) ‘Middle v Canalys, Press Release, Google’s Ms. Hillebrand was appointed associate Class’,” The World Bank, Policy Research Android becomes the world’s leading director of consumer education and Working Paper, WPS4816 ( January 2009). smart phone platform; Canalys reveals engagement in the CFBP. smart phone market exceeded 100 million xxviii Id. (Ravillion’s definition of “middle unites in Q4 2010, January 31, 2011, xviii Dodd-Frank Wall Street Reform class” uses 2005 purchasing power parity). available at http://www.canalys.com/ and Consumer Protection Act § 1031, pr/2011/r2011013.html. 12 U.S.C. § 5531, Pub. L. No. 111-203 xxix Id. (2010) (“Dodd-Frank”). v i C o m S c o re, We b i n a r, M o b i l e xxx Id. Ye a r i n R e v i e w 2 0 1 0 , M a r. 1 5 , xix Dodd-Frank § 1031(d). xxxi “ The Middle of the Pyramid: 2011, at p. 7, available at (http:// www.comscore.com/Press_Events/ Dynamics of the Middle Class in Africa,” xx Dodd-Frank § 1032(a). African Development Bank Market Brief Presentations_Whitepapers/2011/2010_ (April 20, 2011) (the definition of “middle Mobile_Year_in_Review_-_U.S). xxi Dodd-Frank § 1032(b). class” in this study is $2 to $10 per day). xxii Ignacio Mas, “Savings for the Poor: vii Id. Banking on Mobile Phones,” World xxxii Id. viii Receipts are required to be provided Economics Vol. 11, No. 4 (October– by a merchant to a consumer at the time December 2010). Ignacio Mas served as xxxiii Patrick Honohan, “Cross-country of an electronic fund transfer from the deputy director for the financial services variation in household access to financial consumer’s asset account. See 12 C.F.R. for the poor program at the Bill and services,” Journal of Banking and Finance § 205.9. Melinda Gates Foundation. 32, May: 2493-2500 (2008).
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xxxiv Alberto Chaia et al., “Half the World Is Unbanked,” Financial Access Initiative Framing Note (October 2009).
at http://www.fsaassessment.umd.edu/ publications/pdfs/Community-EffectsMPESA-Kenya.pdf.
xxxv Ignacio Mas and Dan Radcliffe, “Scaling Mobile Money,” Bill and Melinda Gates Foundation (April 2011).
xliv Mbiti and Weil, 17129.
xxxvi Id.
xlv Id. xlvi Id.
xxxvii Thorsten Beck, Asli DemirgucKunt and Soledad Martinez Peria, “Reaching Out: Access to and Use of Banking Services Across Countries,” Journal of Financial Economics (2007).
xlvii Paul Leishman, “Is there really any money in mobile money?,” presentation at GSMA Mobile Money for the Unbanked, Barcelona (February 2011).
xlviii “Tanzania’s Vodacom says M-PESA xxxviii Isaac Mbiti and David N. Weil, users hit 1 mln,” Mobile Money Africa, “Mobile Banking: The Impact of (October 29, 2009). M-PESA in Kenya,” National Bureau of Economic Research, NBER Working xlix Paul Leishman, “A Closer look at ‘ZAP’ in East Africa,” Mobile Money for Paper 17129 ( June 2011). the Unbanked (May 4, 2010). xxxix Id l “Shaping our financial future—Socioxl Jake Kendall et al., “An Emerging Economic Impact of Mobile Financial Platform: From Money Transfer System Services,” Easypaisa study (May 2011). to Mobile Money Ecosystem,” UC Irvine School of Law Research Paper No. 2011- li “Visa, Monitise tie-up to offer financial services on mobile,” Bank Finance in 14 (May 3, 2011). India (May 27, 2010) xli Id. liii Standard Bank website image, xlii Olga Morawczynski and Mark available at https://sustainability. Pickens, “Poor People Using Mobile standardbank.com/socioeconomicFinancial Services: Observations on development/inclusive-banking/ Customer Usage and Impact from accessible-banking-products. M-P ESA, ” CGAP Br ief (2009), available at http://www.cgap.org/gm/ document-1.9.36723/BR_Poor_People_ Using_Mobile_Financial_Services.pdf. xliii Megan Plyer, Sherri Haas and Geetha Nagarajan, “Community-Level Economic Effects of M-PESA in Kenya: Initial Findings,” IRIS Center Report, University of Maryland (2010), available
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Contributors Authors David S. Evans David S. Evans is the founder of Market Platform Dynamics. He is also the author of “Paying with Plastic: The Digital Revolution in Buying and Borrowing,” which is the definitive source on the payments industry. His more recent work is “Innovation and Payments,” which describes the how the combination of data-driven marketing, cloud-based computing, and mobile telephony will transform the payments industry. David is an economist, business advisor, and a recognized global authority on the design and implementation of complex business strategies and business models. He has more than 25 years of experience helping companies worldwide design business strategies in multi-sided markets to overcome the “chicken and egg” problem of getting multiple customer groups on board the same platform at the same time.
Karen Webster Karen is the CEO of MPD and has worked extensively with some of the leading players in the payments, B2B and technology sectors to architect, ignite, and commercialize innovation. She also serves as a member of the board for several emerging companies in the payments, mobile, and technology sectors, including PaySimple. Her work is focused on helping these innovators develop and implement sustainable business strategies. Karen is a frequent speaker and author of numerous articles on the sources of innovation, strategy, loyalty, product design/bundling, and pricing and platform strategies. She is a frequent keynote speaker on these topics and, for example, has moderated or spoken at CTIA for many years. Karen also served as an adjunct faculty member at her alma mater, John Hopkins University.
Cynthia Merritt Cynthia Merritt is the assistant director of the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta, where she is responsible for managing research initiatives focused on emerging risks in legacy and alternative retail payment systems. Cynthia helped launch the Retail Payments Risk Forum as a new department and special initiative at the Atlanta Fed in 2008 in response to the recognized growth in electronic payment adoption and new innovative payment schemes. She is responsible for managing staff research initiatives on a variety of payments topics, with a strong focus on mobile banking and payments. Cynthia is also editor for the Retail Payments Risk Forum’s Portals and Rails blog, as well as a major article contributor. Prior to assuming this role, she worked as a senior bank policy analyst in the Policy and Supervisory Studies Group in the Atlanta Fed’s Supervision and Regulation Division, where she was responsible for research and analysis of trends affecting the banking industry. Prior to joining the Federal Reserve in 2004, Cindy worked in various capacities for the Comptroller of the Currency as an analyst and a senior national bank examiner. Her career with the OCC spanned 14 years and included extensive work with problem and complex national bank organizations, with a specialized focus on commercial credit, wealth management, and capital market activities. She received a BS degree in finance with a banking concentration from the University of South Carolina. She also completed the ABA’s National Graduate Trust School at Northwestern University.
Sarah Starcevich Sarah Starcevich is an associate in O’Melveny’s San Francisco office and a member of the Litigation Department. Sarah has represented a leading semiconductor manufacturer in complex civil antitrust litigation, including state law actions brought by a high-profile intellectual property firm designing computer memory interface technology and by a semiconductor packaging technology firm. She has also been involved in the representation of an individual under investigation for criminal price-fixing. Professional Activities: Law Clerk, US Department of Justic
Sharda Caro-del-Castillo Sharda Caro-del-Castillo is the Director, Legal Counsel at PayPal. Prior to PayPal, Sharda served as Senior Counsel at Wells Fargo and Counsel at Silicon Valley Bank. She is a graduate of Santa Clara University and received her J.D. from Case Western Reserve University School of Law.
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Clara Veniard
Margaret Weichert
Clara Veniard is an Associate Program Officer in the Financial Services for the Poor initiative at the Bill & Melinda Gates Foundation. Clara works with financial institutions to deliver saving services at scale to underserved populations and new initiatives to engage with commercial banks and large microfinance banks to deliver more savings services to the poor. Prior to joining the foundation, Clara worked as a consultant with The Boston Consulting Group in South America where she primarily advised retail and commercial banks across the region. She also worked on an economic growth strategy for the Chilean government, leading an in-depth analysis of the IT and business services outsourcing and offshoring industries. Clara began her career as a Peace Corps Volunteer in Nicaragua where she advised and launched consortia for small and micro entrepreneurs in conjunction with the United Nations Industrial Development Organization. Clara holds a BA in East Asian History from Dartmouth College and an MBA from the Harvard Business School. She speaks Spanish and French and is conversant in Mandarin and Portuguese.
Margaret Weichert is a Managing Director at Market Platform Dynamics. Margaret is an experienced payments industry executive with a proven track record of commercializing new technologies in small start-ups, and large multi-national corporations. An acknowledged leader and innovator in payments and financial technology, Margaret has received seven US patents and is an inventor on many additional pending patents. An entrepreneur who has started two of her own companies and sold one to First Data, Margaret has also proven experience commercializing game-changing technologies, including a range of mobile banking and eCommerce capabilities, unique commercial cash management solutions, Internet Check and Checks by Phone solutions, fraud and risk management solutions, new point of sale technologies and many other payments, risk management and financial services solutions.
Salah Goss Salah Goss is an Associate Program Officer in the Financial Services for the Poor initiative at the Bill & Melinda Gates Foundation. Salah works on mobile money projects, savings-led community managed microfinance, and financial sector deepening in Africa, South East Asia and the Caribbean. Prior to joining the foundation, she worked on several financial service projects for Development Alternatives, Inc. As a Financial Analyst at Sanabel Microfinance Network of Arab Countries, in Cairo, Egypt, she supported microfinance institutions from twelve Middle Eastern and North African countries and contributed to The MIX Benchmarking Arab Microfinance 2006. Currently, in her role at the foundation, she draws on her past experience as Grants Administrator for the West Africa Regional Office of the Soros Foundation to use innovative grantmaking tools such as challenge funds and prizes. She is a graduate of The Paul H. Nitze School of Advanced International Studies at Johns Hopkins University and is proficient in French and speaks beginning Arabic.
Prior to joining Market Platform Dynamics, Margaret was the SVP, Global Product Marketing at First Data, responsible for marketing all Retail and Alliance Services products, including merchant credit and debit card acceptance, terminals, eCommerce solutions, prepaid, TeleCheck, mobile and a range of other services. In this role Margaret was also responsible for channel strategy, innovation and sales operations. Margaret also served as the Payments Strategy and Innovation Executive at Bank of America, where she led the enterprise in developing and implementing breakthrough, global innovations that leveraged the Bank’s payment assets. Specific innovations included mobile banking, cash management, credit card, debit card and Check 21 solutions. In addition, while at Bank of America, Margaret led the global strategy, innovation, and business development activities for eCommerce, ATM and Mobile, including market-defining partnerships with Apple, RIM, Checkfree, Yodlee, and others. Margaret’s professional career also includes leadership positions at Accenture, and The MorganWeichert Group. Throughout her career, Margaret has played a key role in defining and implementing new product development processes, and has used these processes to successfully develop and commercialize game-changing innovations that have driven hundreds of millions of dollars in incremental shareholder value. Margaret’s experience as an industry executive and as a consultant has given her exposure to a wide range of companies, business models and geographic regions, that give her a truly unique, and global perspective on payments innovation. Margaret holds a B.S, Magna Cum Laude from Georgetown University School of Foreign Service, where she focused on International Politics and Economics. Margaret received a Postgraduate Diploma in Economics (with Distinction) from the University of Sussex in England, and a M.B.A. in Finance from the University of California at Berkeley. Margaret is a member of the Phi Beta Kappa and Beta Gamma Sigma Academic Honor Societies. In addition, Margaret is proficient in Spanish and has a working knowledge of French and German.
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