Increasingly large businesses forming in China to serve the needs of increasingly smaller businesses

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After Alibaba successfully floated a record-breaking $25 billion IPO one of it’s first initiatives is consolidation of a number of its financial services initiative under an umbrella private bank set up in China. The business is to focus on serving the needs of small businesses. MSME business is a largely unserved and promising area, but how will large groups such as Alibaba balance innovation as they scale to address this segment?

 

 

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While a lot of focus has been rightly given to the unbanked and the under-banked, I believe not enough has been done to address the needs of businesses that have are growing increasingly smaller and have distinctive requirements. When Square brought out the Square reader in 2011 it opened the floodgates to a whole new set of MPOS services and rapidly commoditised that market. Yet businesses such as my own struggle to effectively take small payments in multiple currencies without the help of a massive organisation behind us with dedicated functions for this. Alipay spotted this opportunity and grew very rapidly, supporting such businesses in acquiring payments and managing the complexities that innovative entrepreneurs in China faced.

 

In China there is now a new trend towards the formation of private banks. Alibaba has recently received a license from CBRC, as one of three recently established private banks. This development stems from the Communist Party of China pledge in November 2013 to increase the competition in the Chinese banking sector.

 

Now Alibaba’s Ant Financial Services Group (rebranded this month from Ant Small and Micro Financial Services Company) will bring together it’s diverse financial services businesses, focussed on the huge opportunity from businesses that are growing progressively small. These include:

  • Alipay, their main payments service provider
  • Yu’e Bao, a money market fund
  • Zhao Cai Bao, a financial services platform
  • Ant Micro, a micro-loan provider
  • Huarui: Shanghai-based newly formed private bank addressed as MyBank but English name still pending

Alibaba helps companies in the US find and use the services of really small merchants in China, and caters to their needs for payments, escrow services, P2P lending and more.

Along with 249 other businesses (from across sectors and including China Mobile), Alipay received a license as a payments service provider. It has initially focussed on adding mobile and offline channels to it’s popular Alipay online digital wallet. Now it is pulling ahead of the pack with it’s own bank MYBank, and consolidation of six different businesses that will together focus on the MSME Opportunity.

 

To my mind this raises a number of questions that we answer in our Digital Money in China and other recent reports:

  • Will Alibaba succeed to keeping the dynamism that allowed it to grow, as it grows into such a large business, and how will it cope with the responsibilities of being a bank and still adapting and growing to meet the unique requirements of MSMEs?
  • So far China had one private bank, China Minsheng Bank. Alibaba’s main competitor Tencent has also set up a banke, Webank. Which of the other 248+ recently licensed PSPs are likely to follow suit, and how will being a bank help or hinder them?
  • As Chinese companies increasingly go international, how can global brands be protected? In Europe MyBank has just been investing heavily in setting itself up as a pan-European initiative. MYBank is not yet finalised as the English name that will be used by Alibaba, but are there sufficient deterrents to prevent it from using this existing brand name? I see this as yet another example of how consumers may be confused as they seek to use services from increasingly global players.
  • Where does this leave PayPal as it leaves the protection of EBay and must compete with the likes of Alibaba and Tencent?
  • And most important of all, perhaps – are the needs of increasingly small businesses best met by increasingly large conglomerates, rather than community co-ops and MFI institutions as in the past?

Will Open-to-SMEs continue to be Alibaba’s Open Sesame?

 

For more about developments in China see: Disruptions in Digital Payments in China - What does this mean for you?

Contact us at contact@shiftthought.com for details on our Digital Money in China Viewport and other recent research.

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The White House announces BuySecure initiative to address payments security concerns

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Over the years, the fact that Americans had not switched to Chip and PIN impacted both US customers and the world. Now as part of a BuySecure initiative, President Barack Obama has signed an Executive Order yesterday to attempt to improve security for digital money. Implications from associated regulations and new spend must be considered to inform project priorities both in America and world-wide.

 

Why now?

uschipandpinAfter the recent breaches there have been renewed calls for the Congress to act on Data Breach Legislation.

  • What remedial measures can consumers expect in case of data breach?
  • What steps should companies take to notify customers?

Cybersecurity Legislation is also required, to protect Federal networks and balance the need for sharing with the right for privacy and personal liberties.

 

What’s proposed?

The President has outlined a raft of initiatives including his Cybersecurity Legislative Proposal.  His executive order requires US federal government to use Chip and PIN on all its cards, and the government is to begin replacement in January 2015.

The Private sector has been commended to take steps including the following:

  • American Express to launch $10 m program to help in MSME POS upgrade
  • Home Depot to transition 85,000 POS to support Chip and PIN.
  • Target has completed Chip and PIN for all 1,801 stores and from 2015 will reissue over 20 million Target-brand cards, and enable PIN acceptance
  • Visa is to invest over $20 m to educate consumers and merchants on Chip and PIN
  • Walgreens has converted all 8,200 that begin C&P acceptance by 2015
  • Walmart’s 5000 stores will have been upgraded by end of month.

Why the difference between the US and Europe?

The Economist puts forward two main reasons for America being slower to adopt EMV than Europe:

(1) During the 1990s American card companies grew better at managing POS fraud than European counterparts

However, my thoughts on this are that as Visa and Europe operate across both territories, surely learnings cross the Atlantic fairly well.

(2) Regulatory : European Card companies pay most of the cost of fraud while American ones pass off the cost to retailers and even consumers.

This may explain some of it but I think the reasons are more complex and this justifies a more detailed post that discusses the nuances of payments in the two regions. Would love to hear from experts on either side of the Atlantic, to add to the findings from own discussions with payments experts – What do you feel caused this great divide? Do add your thoughts on this in our discussion at LinkedIn.

 

Who benefits?

As identity theft becomes America’s fastest growing crime, these moves are directed towards protecting American consumers and their financial data. However, the need to manage payments for American customers who had not yet adopted Chip and PIN has also caused problems in Europe and elsewhere around the world, where systems had to have exceptional processes to cater to less secure magstripe card payments.

The NRF, the world’s largest retail trade association, applauded the announcements within the BuySecure initiative and has pledged to work closely with merchants to support this.

The announcements made yesterday and the initiatives from CFPB and across the American ecosystem are likely to increase spend in the US and could be good news for the European Security and Payments industry as well as providers around the world.

 

What’s the knock-on impact on digital money projects underway?

Payments projects involve a long gestation period. Now changes in legislation and newly proposed payments priorities will affect spend priorities for the US as well as providers around the world.

Now that the long overdue Chip and PIN issues has been resolved, and some dent has been made on this across the major retailers in the US, we expect a lot of focus and investment can now be placed on downstream security initiatives and set the scene for innovations that can cross the major international markets.

For a full analysis of the entire background, regulations, players and the over 232 initiatives we currently monitor in the US, and how your business is likely to be affected drop us a line at contact@shiftthought.com and we’ll let you know more about how you can gain instant online connected and contextual knowledge on all of this, as well as our soon to be published “Digital Money in USA 2015” Viewport.

 

Insights on how to succeed in Mobile Money from Gemalto, a world leader in digital security

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Today I have great pleasure in speaking with Naomi Lurie, Director of Marketing for Mobile Financial Services (MFS) at Gemalto. From this key position at the world’s leader in digital security, Naomi is very well placed to share with us about GMPP (Gemalto’s mobile payments platform) and the work Gemalto is doing around the world in the extremely fast moving payments arena, both in developed and developing countries. Naomi shares with us some of the key initiatives in which Gemalto has been involved, and explains the importance of perseverance in achieving mobile money adoption goals.

 

Naomi could you kindly set the context for us, with a bit background on Gemalto and your leadership position in mobile financial services?

Gemalto OfficeGemalto is a leader in digital security, and a technology enabler for mobile network operators, banks, governments, enterprises and retailers. We work behind the scenes to ensure that each time their customers, employees and citizens want to transact, connect or identify themselves, they can do it safely and easily. You may not realise it, but if you put your hand in your pocket and take out your wallet or mobile phone, chances are it has a Gemalto security component – in your SIM card, your bank card, your driver’s license or your government ID.

One of our important growth areas is mobile payment services, and I look after Marketing for these solutions. Specifically I’m responsible for our Mobile Money and Cloud Based Payments offers. In our Mobile Financial Services marketing team we also offer Trusted Services solutions, including TSM and a Trusted Services Hub business service, and we are NFC experts. It’s exciting work in exciting times, especially as we are a global player with 44 sites and customers in 190 countries.

And with the coming of tokenisation there is yet more work for you?

Yes, certainly. As the leading TSM provider, we’ve been provisioning credit cards onto the mobile device for the largest mobile payments initiatives in the world. Emerging standards for cloud-based payments and tokenization require secure provisioning services for cards, tokens and keys. So, our assets and expertise in provisioning, mobile security, and authentication all come into play.

We’ve recently announced our Trusted Services Hub, a turnkey business service that enables issuers, enterprises, transport operators and digital service providers to easily deploy their value-added and mobile payment services across smartphones and mobile networks around the world. So with one connection to the Hub they gain access to over 1.5 billion mobile users worldwide already covered by our solutions.

Please give us some background on the Gemalto Mobile Payment Platform (GMPP)

GMPP is our comprehensive, field-proven, secure, flexible platform for issuers, mobile operators, retailers and banks that wish to launch mobile payment services. It supports emerging market use cases including stored value accounts, agent networks, P2P transfers, bill payment, airtime top-up, merchant payments, government payments and more. GMPP also powers developed and semi-developed market use cases relating to payments, usually from smartphone devices, such as in-store and online payments, loyalty and couponing.

We work across many different channels: USSD, STK, mobile apps, web and more, and we offer strong security across all these. We authenticate customers and manage risks relating to repudiation, fraud and more. We integrate into mobile operator, issuer and retailer environments and manage diverse requirements based on the nature of the ecosystem, which ranges from simple to very complex.

How has GMPP been used around the world?

Our platform is deployed around the globe. In Europe we work with Telefonica Spain and Telecom Italia.

India Post

India PostThe Gemalto Mobile Payment Platform is running in India with India Post for domestic remittance, since November 2012. India Post’s domestic money transfer service was a traditional paper-based service that took around 5 days to arrive at the destination. India Post wanted to modernise the service, to compete with the new mobile money systems coming from new entrants such as mobile operators. Since India Post has close to 90% of their branches in rural areas, they decided to modernize their money transfer service using mobile. It’s an interesting over-the-counter service. The agents at the post office are equipped with a mobile device that runs an app that collects information about the sender and recipient, amount and pickup location. Immediately both sender and receiver get SMS notifications about the transfer and how to pick it up. And the transfer happens in minutes!

 

Transfer in Mexico

Transfer1In Mexico, the GMPP is at the heart of the Transfer Service, which is brought to market by Banamex (Citi’s Mexican subsidiary), Telcel (America Movil’s Mexican mobile phone subsidiary) and Banco Inbursa. Telcel provides the channels: SMS, USSD and CRM. The banks hold the accounts and create the use cases, as well as manage network integration with Point of Sale and ATM networks. In Transfer users can get a companion card as well, to access the balance in the prepaid stored value account for POS payments. GMPP hosts all transactions and the customer wallet. The service went live in April 2012.

GMPP is also installed with NetOne in Zimbabwe, for their OneWallet mobile money service. This is your classic service, with P2P, cash in, cash out, airtime top-up and bill payment.

Gemalto provides the SIM Toolkit (STK) and Secure Access Gateway for MTN Group in Africa, Vodafone Qatar and elsewhere.

GMPP obviously solves some key needs for the unbanked. Could you please tell us what makes your implementation uniquely compelling?

I think what’s unique is the way we can address a very broad spectrum of use cases in a highly secure manner.

If we rewind to 5 years ago we thought we knew the recipe for mobile money. Just provide the standard set of expected services, follow the formula and deploy. However services have gotten more diverse. There are specific needs and requirements when we deploy in semi-developed markets. And emerging markets also have diverse customers – some with smartphones and others with very basic phones. Take Mexico for instance, the aspiration is to bank the unbanked and offer a new kind of account to the masses, but they must also appeal to urban users. There is a need for a combination of scenarios. We therefore feel well placed as we can offer the limitless combinations, while maintaining security across all the channels. That’s the strength Gemalto has.

Also we build our platforms to scale. We see mobile money as mission-critical services and can affordably scale up and ramp up as the usage grows.

What do you see as some of the challenges faced in bringing services to market?

There is no magic. You can’t just deploy technology and expect the service to be a success. It has to have all the right elements – in go-to-market, organization, and budget. You really must do your homework and take care of buyer personas, marketing strategy and back office support. You need a lot of CXO attention and need to continuously attract investment and management attention.

I think it is really important to be able to correct yourself. Of the over two hundred mobile money deployments, only a few have reached scale. If you give up and just let the offer die down, that is a waste. As in case of any product launch, it’s important to be able to correct yourself.

Another challenge can be regulation, meaning what type of services the regulator allows and what kind of limiting factors will the regulator impose. Often you need a strong lobby on both aspects.

When you look at mobile driven and bank driven initiatives which of these have a better chance of succeeding?

It seems that mobile operators (MNOs) have been more successful, but this is quite dependant on the region. MNOs seem to have the lion’s share of deployments quantitatively, but we do observe a trend for more issuer-led services.

MNOs seem to have an advantage on the marketing side; they know how to market to the unbanked masses, while banks are more comfortable marketing to their traditional clients. To launch a service for the unbanked requires a real transformation for the banks. However, in semi-developed and developed markets where most of the population is banked, the banks are at an advantage.

What are the major changes you’ve seen in the last year?

One change in the emerging market space is the launch of more consortium-led initiatives, and also Central Bank led initiatives. There are some new models coming up along these lines, with an attempt to put the entire set of domestic transactions on a single platform. Within that setup, individual service providers can offer branded services and compete with each other. These types of initiatives aim to address the question of interoperability from day one.

We also observe a much higher interest in enabling payments – in-store and POS payments in addition to mobile P2P between buyer and seller.

What major goals do you look forward to in terms of 2015?

Our goal is to continue to be the trusted partner of our clients and to help them operate successful mobile payment services. We aim to help our clients bring their mobile business strategy to life, while providing all parties confidence in the robustness and security of the service. It promises to be quite an exciting year with the advent of emerging tokenization standards, the new Gemalto Trusted Services Hub, the launch of major new initiatives, and the evolution of existing services.

Naomi thanks for sharing the very interesting work you do around the world and I wish you and Gemalto the very best of success for the future!

 

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Naomi has a proven record of driving product and market excellence for products in the mobile, financial, retail and enterprise sectors.

Naomi joined Gemalto in 2010, where she drives marketing and strategy for the company’s mobile payment and mobile wallet solutions. She is an expert on the mobile money use cases emerging across the globe and is involved in some of the most ambitious and large-scale mCommerce services in both developed and developing markets.

Previously, Naomi was a product manager at Verint, which specializes in enterprise and security intelligence. Naomi was responsible for the global introduction of analytic software solutions for workforce-enterprise optimization, as well as the execution of product launch and rollout plans to sales, support and professional services.

Digital Money in India – a path to better governance

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This article is part of our Focus on India Series through which we share our findings from our recent research in India. Our studies lead us to believe India to be the most complex and promising market for Digital Money in the world. Our Digital Money in India 2014 Viewport was published this week, to reflect our latest findings. In this post, I highlight a few of my own thoughts from my visit to India and my assistance in preparing the report.

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Going online in a labour-rich environment

India is the second most populous nation on Earth, but unlike many other large nations it still has a strong population growth rate. Finding work for such a large and growing population has led to a rather unique model of business in India. The labour intensity of almost any form of business in India is considerable compared to economies of the West. The degree to which this reflects on financial services as they go digital was one of the most noteworthy findings from our market visits to India in 2014.

The combination of relatively low labour costs and the desire to deliver a highly personal service has led to a distinctive form of labour intensive business practices in India. A good example of can be found in the ‘cash on delivery’ model offered by the online retailer FlipKart. This model allows FlipKart to serve consumers who do not have access to payment cards or other online payment methods. This allows buyers to change their minds after physically inspecting the goods rather than simply trusting the supplier. These features are extremely attractive in an economy that lacks widespread participation in the banking system and that is yet to completely trust online retailers. On the other hand, FlipKart must contend with the drawbacks of this scheme, in the form of high labour costs, in order to deliver goods and collect payment and incurs the risk that some buyers will refuse to accept and pay for goods once the initial impulse that motivated their purchase has faded.

Another good example of labour intensity is that of MobiCash India. They use a phone call to an operator as part of their login process as shown in the figure below.

 

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It is not a unique feature of India that high employment by a firm leads to better relations with both the public and the government, but it is nonetheless a strong motivator for businesses to employ more people than they might otherwise choose to. Finding productive work for these employees has led to many of the models of business we see today.

The consequence of this for firms entering the Indian market is that they have access to an entirely new degree of freedom, since the availability and cost of labour is so low. This can be a great advantage if done correctly, but it may pose a problem for many Western firms. These firms have spent decades attempting to reduce the labour intensity of their operations, and finding innovative new ways of increasing employment while still making a larger profit may be difficult given their traditional mind-set.

 

Digital Money in the fight against corruption

The other feature of doing business in India that I would like to highlight is the continuing struggle against corruption. India is currently the 94th most corrupt nation on Earth. The growing middle classes and the freedom of the press in recent years has fortunately brought corruption more and more under the spotlight, and politically the reduction of corruption is high on the agenda of the Modi government.

Nevertheless, corrupt and rent-seeking behaviour is still rife in the country compared to many other major economies. The relationship between corruption and digital money is an interesting one. By using digital money methods such as online payment, mobile payment and cards, transactions become visible to the wider economy. This runs contrary to the cash-based ‘dark’ economy that corrupt and criminal elements prefer. When transactions go unrecorded, it is much easier to evade taxation or arrest.

Consequently, transforming the economy into one that is predominantly non-cash could improve governance by making corruption and criminal money transfers more visible and easier to punish. Recent progress towards a non-cash economy in India has been good. A noteworthy effort is the Pradhan Mantri Jan Dhan Yojana (PJMDY), which resulted in the addition of over 53 million new accounts by end September 2014.

We saw unique services that now cross online, mobile and offline environments. But the distinct “Assisted Model” of service through which services are developing seemed to us to be a double-edged sword. On the one hand it has the potential to build more secure and convenient services and guide consumers in using these for the first time.  On the other hand, these human checkpoints could potentially be subverted if certain risks are not anticipated from the very start.

Looking ahead 

The move away from cash holds a great deal of promise for India’s future. At the same time it is important that the new systems put in place in countries such as India are architected to be resilient against any possibility of the emergence of a parallel, informal digital economy. Such developments would subvert the existing achievements in digital money. The bullying practices of the past that result in corruption or criminal activity could be replicated in the new digital world if sufficient safeguards are not put in place. Digital transactions must also be encouraged to become an everyday part of people’s lives. People who get access to the new mobile-enable bank accounts must have a reason to use  the money online, rather than cashing their receipts and allowing accounts to go dormant.

This combination of responsible oversight and public interaction will make it harder to conceal illicit activities. There may also be a backlash against the spread of digital money in India by corrupt or criminal elements. These will not be the only objectors to the changes that moving towards a digital money economy will attract, but due to their powerful positions in the current economy, these elements may be better placed to disrupt the activities of businesses and users, especially in isolated or rural areas.

 

In summary, firms looking to enter the digital money market in India face a unique business environment, in which labour is cheap but high employment is necessary and where digital money is in demand but could find itself in conflict with powerful opponents. The promise of India lies in its vast and growing population, but accessing this market will require inventive solutions to inimitably Indian problems.

 

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We invite you to join us in our campaign to celebrate India’s progress in going non-cash. To learn more, register on our portal or just drop us a line at contact@shiftthought.com.

Neeraj Oak

Chief Analyst, Digital Money

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Co-author of The Digital Money Game, Author of Virtual Currencies – From Secrecy to Safety

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Join us to explore ideas at The Digital Money Group on LinkedIn

Amazon makes strategic moves in the Indian market in time for the Diwali online shopping boom

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The Indian $2-$4 billion market for E-Commerce heats up with new launch from Amazon

In the run up to Diwali Amazon has just made some major moves in their race to win over Indian consumers from the Cash on Delivery (COD) model to the Cash Before Delivery (CBD) model.

 

Launch of Pay with Amazon

A year after their payment processing service first launched in the US, Amazon has extended ‘Pay with Amazon’ to India this month, as the intense competition with Flipkart and snapdeal intensifies in the rapidly growing Indian E-Commerce market.

This allows Indian customers to store their card details and delivery address details for use on Amazon partner sites. This payment method is now available for Amazon, Junglee.com, Fommy.co.un, Shopyourworld.com and will be available at more e-retailers shortly.

Merchants pay a fee of 1.95% for credit cards and net banking, and a lower 0.75%-1% for debit cards.

However with India experiencing some of the highest online fraud threats, I believe Amazon will need to build in checks and counter checks of a far superior nature to anything they would have used before. Barely a year after launch Flipkart withdrew it’s Payzippy, no doubt in preparation for a more robust service that I expect we may hear more about soon.

Sell with Amazon

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While a lot is being said about how Amazon is trying to get people to buy,  what is less understood but very important according to me is what they are doing to allow the 1.2 billion Indian population to sell in an easy way. This Diwali, Amazon has announced contests to win over sellers, offering rewards for Super Sellers and Star Sellers.

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Partnership with Biyani’s Future Group

While the small merchants will come on board over time, some big partnerships are having a more immediate effect this season. Kishore Biyani is known as the father of India retail. His Future Group controls some of the largest retail chains in India: Big Bazaar, eZone, Home Town, Brand Factory and more. Now online retailing of the 40 brands are to be exclusively through Amazon, launched in India in June 2013 and now engaged in head-to-head competition with Flipkart and Snapdeal.com, the top 2 incumbents in the Indian market.

 

It’s all happening in India! In celebration of what we expect to be the largest move to non-cash anywhere in the world, we’re launching our FOCUS ON INDIA SERIES . In it we share our latest research on India through Webinars, whitepapers and more. Make sure you don’t miss out! Our unique Digital Money in India 2014 Viewport has just undergone it’s fourth revision this year, with inputs from our 3 market visits. Drop me a note at contact@shiftthought.com to find out how you can get immediate access to it, and to our portal that so perfectly complements it, or to sign up to our free research.

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How the PayPal/eBay split affects The Digital Money Game

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As news of the upcoming split between PayPal and eBay sinks in, it is worth asking if this is the right time for such a move, how it may affect the Digital Money Game and what we may expect to happen next.

 

Why now?

The intense competitive pressure makes it imperative to be part of a larger enterprise, and a breakup leaves both parties intensely vulnerable at a crucial point where commerce and payments markets are experiencing a meteoric rise, especially in Eastern markets such as India, China and South-East Asia. However the answer is not that simple, and there are layers to unravel before one can predict possible outcomes.

 

In the past, PayPal and eBay formed a symbiotic partnership, with PayPal receiving exclusivity on eBay and eBay benefiting from the convenience and consequently additional customers that working with PayPal provides. However, as competition intensifies in commerce and payments, it is no longer enough for each to have a single preferred partner. Consumers demand to pay as they like on EBay, and PayPal certainly cannot cater to EBay alone.

 

Also, the balance of power between the two organisations has changed since the early days of their partnership, with PayPal having increasingly been in the ascendancy in global payments whilst eBay struggled with large, strong competitors in the online retail sector. Now though, PayPal too must face strong threats and find a way to survive and grow.

 

As the news was announced ahead of Apple Pay’s contactless payments launch this month, for one person this was a “no brainer”. Carl C. Icahn released an unequivocal statement that the split was a better late than never move. The payments industry is ripe for consolidation. Hence he sees PayPal’s future either through acquisitions or merger with another strong player in the payments industry. With strong competition from the likes of Apple Pay this had to happen sooner rather than later.

 

It is worth raising the question of how this move may have been precipitated by factors other than the onslaught of Apple Pay and the fortification of Alibaba’s Alipay in recent months. In that case could we see other similar breakups, such as for instance Alipay leaving the Alibaba nest, with an adequate part of the IPO? Is PayPal just the first of a new “teen generation” ready to leave home?

 

Possible impact on the Digital Money Game

Whatever the reasons for the split, the companies intend to go their separate ways by the end of the second quarter of 2015, leaving the oldest ubiquitous digital wallet to adapt to its new leadership and facing an increasingly competitive payments marketplace.

 

As with all such splits, factors discussed behind closed doors often carry more weight than the reasons that are given in public. No doubt the management of eBay and PayPal have a greater visibility than the media and market commentators of their own operating model. Nevertheless, it is worth noting that, however much these firms stress their continuing synergies, such a move is an open admission that the two firms are willing to accept a future in which their interests drift further and further apart.

 

Once the paperwork is signed and the two part ways, it is inevitable that market forces and the interests of their respective shareholders will create differing objectives for the management of each firm. There is a very real risk that these objectives will make any agreements signed today less and less relevant in the future. Remaining together would mitigate the risk of loosening the bonds of the eBay/PayPal partnership. By choosing to part ways, it is clear that the management of these firms have accepted that risk, and are willing to let the world see it.

 

What happens next?

PayPal currently faces many rivals in the payment space, including Google, Apple, Facebook, Amazon, Microsoft and various other regional banks, card issuers and telecoms companies.

If it is to find a payments firm to join with, which will it be? So far one of the hardest things has been for it to gain an entry into the China market, as also other large Asia Pacific domestic markets. An alliance with a business in the East may address this, but so far few of the Eastern players cross countries as well as they do in Europe, for instance.

 

As for eBay, the old rivalry with Amazon continues, and an Alibaba richer by $25 billion poses a looming threat. The now-mature online retail space of the Western world looks set to be dwarfed as growth rates soar in an increasingly competitive space as one looks east.

 

PayPal has so far still managed to be one of the very few digital wallets with truly global reach but has struggled to compete with the raft of new entrants, and to make the much-needed breakthrough into offline payments. Also, regional retailers are asserting themselves more, especially in developing economies.

 

PayPal is currently growing at twice the pace of eBay, and is seen by some analysts as having strengthened its position through this split. Now both companies are in a position to raise IPO or indulge in M&A as needed.

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Neeraj Oak

Chief Analyst, Digital Money

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http://digitalmoney.shiftthought.com

Co-author of The Digital Money Game, Author Virtual Currencies – From Secrecy to Safety

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Join us to explore ideas at The Digital Money Group on LinkedIn

E-Commerce in Thailand – Building a unique Omni-Channel Retail Experience

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Today I am delighted to be speaking to Parin Songpracha (PS), who has been an important change agent in the Thailand payments scene. For the last 7 years, as Head of E-Commerce at 7-Eleven, Parin led important transformational changes to enable e-commerce and an omni-channel retail experience. Parin remains an advisor at 7-Eleven for E-Commerce, as this month he undertakes a new challenge as Director of eCommerce at DHL. He paints a picture of how people pay in Thailand, how this is changing and the key drivers for this change.

 

Parin, thank you for your time today. I am excited to hear your story. As a pioneer in the e-commerce scene in Thailand, could you please give us some background about your role and your achievements?

 

My journey in e-Commerce started in 2008 when I founded the e-Commerce business for 7-Eleven, starting from scratch. At the time I looked at the unique needs that people faced and designed solutions that used the ubiquitous 7-Eleven stores.

Today I continue to hold key roles in promoting e-Commerce in Thailand at the Thailand e-Commerce Association (THECA) since 2008 and the Thai Webmaster Association (TWA) since 2010. At THECA I am in charge of cross-border collaboration between Thailand and E-Commerce Associations in other ASEAN countries. We hope to launch an ASEAN Association next year.

 

How do people pay in Thailand? How have you seen this changing, and what are the needs addressed?

 

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ShopAt7.com is the 7-Eleven e-Commerce portal. This barcode payment on mobile is currently being implemented, with an expected time to market of the next 2 months. This is part of a journey that we began in 2009, and it has helped to transform the way people pay in Thailand.

The main needs regarding online payment stem from the fact that there is a low card penetration in Thailand. So firstly, as there is just about 12% card penetration this makes it difficult for shoppers. Secondly customers face a problem with transport and infrastructure that makes it hard to collect goods from far off places. Shipping to home addresses is very costly for merchants as well.

At 7-Eleven we were able to introduce a major innovation to let people pay online. Having selected their items, they now receive an SMS that they can use in-store to make payments. This unique SMS-based payment service was introduced by us as far back as 2009. At the time I visited other countries to look at Best Practice. Other 7-Eleven stores, including those in Japan had not yet started supporting the features we designed into our Thailand stores.

At the time we had roughly 3,500 stores nationwide (today we have around 8000). We offered free in-store pick up delivery and this made us very successful in e-commerce. This year we’ve achieved break-even and we expect profits next year.

From an external point of view, since 2011 the daily deals business such as Groupon further changed payments. Rocket Internet’s Lazada group has invested heavily in transforming and expanding e-commerce in Thailand.

 

How did you make changes to allow people to pay in 7-Eleven stores?

 

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I looked at how people pay card statements by coming into store with paper bills. The problem is they may forget to bring the bill and then payment gets delayed. How could we improve bill payments in store? I had the idea of using the mobile phone. But the code was too long at 32 digits. We first had to reduce this to 16 digits. We then made changes to ensure that both the store manager and the customers became fully comfortable with the new method of payment.

The other main improvement was in pickup. Once people order and pay in-store, goods are available for collection within 1-2 days in the Bangkok area, 4-5 days in the more remote areas, and up to 9 days for very remote islands.

 

That is a very inspiring story of innovation Parin! So what are now some of the main opportunities in the market?

I think the challenge is in bringing in innovations in stages. At first people require some hand-holding. After a few years they want the ability to do it themselves. This is how we have built and designed services, and I continue to think of ways to improve on how we do e-commerce here.

 

With the recent announcement of Apple Pay, how has E-Money and contactless payments progressed in Thailand and what have been some of the challenges?

True Money did support contactless payments through a mobile phone trial but so far proximity mobile payments have not really taken off. However, the launch of Apple Pay has made people very interested in NFC again. Although Apple does not have a large share of the market, they have the higher income big-spenders.

The low card penetration remains a problem. While direct bank payments are a solution, refunds for that method of payment take time. Imagine when a person buys an item such as an iPhone from a store and for some reason faces an issue and must ask for a refund. This could take as long as 49 days. Meanwhile he does not have the amount available to go to another store and make the purchase.

 

What are some of the main changes you expect to introduce in your role at DHL over 2015?

When we started I mentioned the logistics problem in reaching goods to people. DHL is very well positioned to support the growing number of businesses that wish to go online. We can support them for multiple solutions and I am very excited to be part of this major transformation over the next years.

 

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Thanks very much for this insightful interview Parin. I take this opportunity to congratulate you on your achievements and wish you the very best for your new role! I greatly look forward to trying out both the mobile payment and e-commerce services when I am next in beautiful Thailand!

 

parinParin Songpracha is currently Director eCommerce at DHL Thailand. Parin is an e-Commerce and Omni-channel expert from the largest retailer in Thailand. He plays a leading role in the development of E-Commerce in Thailand and in the larger ASEAN region.

Parin has a key role in promoting e-Commerce in Thailand at the Thailand e-Commerce Association (THECA) since 2008 and the Thai Webmaster Association (TWA) since 2010.

 

 

Have you got an interesting story to share about the difference you and your company are making to the way people pay around the world? If so do drop us a line at contact@shiftthought.com .

 

Charmaine Oak is Practice Lead, Digital Money  at Shift Thought

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

 

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Disruptions in the smartphone market take a toll on Samsung results

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Samsung announced their Q3 2014 earnings shows a substantial Q-on-Q decrease due to decline in their mobile business caused by intense competition in the smartphone market. Further to my post on How Apple play affects the Digital Money Game, as China Mobile starts to eliminate $2 billion smartphone subsidies, the cost of high-end devices is impacted and affects both Samsung and Apple, benefiting low-cost manufacturers like Xiaomi.

 

Headquartered in South Korea, The Samsung Group operates through over 150 subsidiaries, including 73 domestic affiliates as of June 2014, having been first established through Samsung Electronics Industry Co. Ltd back in January 1969. The company manages 3 divisions: CE (Consumer Electronics), IM (Information Technology & Mobile Communications) and DS (Device Solutions.

 

Anticipating consumer desire to interact with the Internet, Samsung focused early on smart TV sales, leading the market in 2011 with the launch of smart TVs and hub-based apps.

 

In 2014 the mobile phone market is expected to reach 1.8 billion units, with 1.2 billion of them being smartphones – this represents a growth of 7% since 2013. However Fitch Rating expects Samsung shipments during the period to remain flat.

 

Samsung has maintained a No. 1 position in the smartphone global market, with strong take up of the Galaxy S series and the Galaxy Note. However with Apple’s release of iPhone 6 (4.7”) and iPhone 6 Plus (5.5”) compared to the previous 4” models, these phones now represent a substantial threat. Low cost Xiaomi (low-cost devices) was already resulting in tough competition, especially across the Asia Pacific region. The figure below shows the impact on first half performance in 2014.

 

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Samsung’s share in the global smartphone market dropped from 31% in 2013 to 25% in H1 2014. They announced mid to low-end shipments were down due to weak demand in the EU and lower 3G demand coupled with intensified price competition in China.

 

Samsung expect that in the second half of 2014, strong seasonality will help to boost smartphone and tablet demand. At the high-end, they expect growth to be led by TD-LTE expansion in China and lower inventory level in Europe. At the mid to low end they expect growth led by emerging markets, and this is where we are likely to see the competition heating up with new product launches expected.

 

Meanwhile Samsung Electronics plans to build a $14.7 billion semiconductor plant south of Seoul, in an attempt to make up for touch competitive pressure on its smartphones with new growth in its most profitable semiconductor division.

Remittances remain buoyant but cross-border mobile remittance still less than 2%

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World Bank’s recent reports on remittances indicate a welcome continued buoyancy. India remains the largest receiver, as growth in 2014 is led by East Asia and the Pacific, South Asia, Latin America and the Caribbean. However MENA flows are affected due to disturbances in the region, and ECA countries traditionally receiving inflows from Russia are badly affected. While mobile money has been adopted for domestic money transfer, 7 years on it has yet to make the inroads into cross-border remittances that was originally expected.

 

Good news as global cost of remittances falls from 8.9% to 7.9%

The global average cost of sending $200 fell from 8.9% in 2013 to 7.9% in Q3 of 2014, as remittances go online and digital. Account-based money transfer (cash-to-account is the lowest-cost method today). However although mobile money is being used for domestic money transfers, and is making an impact on sending money from urban to rural areas, its use for cross-border transactions remains limited. Less than 2% of remittance value took place through mobile phones. Yet with global remittance flows at $542 bn this even now represents a flow of $10 bn.

However Bill Gates believes that even with all the regulatory compliance it should be possible for pure digital to digital transactions to be moved at less than a percent. We are still far from achieving this goal. Is it a case of further enablers or something else that is needed to make this this possible?

 

Global remittance flows to developing countries are projected to reach US$435 billion in 2014

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At a much welcome 5% increase over last year, the growth is expected to continue into 2015, though at a reduced rate of 4.4%. Total flows are expected to rise from US$582 billion in 2014 to US$608 billion in 2015.

 

Forced migration is at an all time high with 73 million forced to leave home

The main message from the latest World Bank report on migration is that forced migration due to conflict has reached the highest level since World War II. Of the 73 million who had to leave their homes, over 51 million were forced to move due to conflict, and 22 million moved due to natural disasters.

 

India remains largest recipient at estimated $71 billion

Highest receivers are India ($71 b), China ($64 b), the Philippines ($28 b), Mexico ($24 b), Nigeria ($21 b) and Egypt ($18 b). Yet these flows are not as high as they could be. The largest receiver, India, only receiver 3.7% of GDP in 2013.

 

Remittance flows respond to natural disasters

Remittances continue to offer a much-needed lifeline of support in times of natural disasters, rising by 16.6% for Pakistan in 2014, and 8.5%  in the Philippines in 2013 in response to destruction from the super typhoon.

 

Regional trends

Remittances are projected to increase by 7% in the East Asia and Pacific region (EAP) with China and Philippines being the largest receivers. Remittances to South Asia have rebounded strongly in 2014, expected to grow by 5.5% to over $117 bn in 2014, with very strong growth for Pakistan, Nepal and Sri Lanka.

Growth in remittances to Sub-Saharan Africa is picking up in 2014, expected to reach $33 billion in 2014. Nigeria continues to dominate in terms of inward remittances flow, with $21.3 bn forecast for 2014.

 

imageRemittances to Europe and Central Asia (ECA) are slowing as compared to 2013 affected by conflict in Ukraine and sanctions against Russia. The figure shows how receivers of remittances from Russia have been affected as remittances received continue to decelerate.

 

 

 

 

 

 

Another affected region is the Middle East and North Africa, but despite the volatility, remittances represent substantially larger and more stable sources of inflows. Remittances to the region are expected to grow by 2.9% to reach $51 bn. Remittances to Egypt are expected to stabilize in 2014,  after the 2013 decline of 7.3% in remittances to Egypt (biggest receiver in the region, 6th worldwide).

 

For the full World Bank report click here: Migration and Development Brief 23 

 

Charmaine Oak, Practice Lead, Digital Money

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

 

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3 reasons why a falling Bitcoin price is good news for virtual currencies

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In the context of the dramatic price changes faced by Bitcoin in recent weeks, Dr. Neeraj Oak explains why it isn’t all bad news for the supporters of virtual currencies.

With the price of Bitcoin continuing to fall from the dizzying peak of over $1100 in December 2013 to a current value of around $300, it is easy to assume that this is a very bad thing for the virtual currency community. In reality, it might actually be a blessing in disguise. Here are three reasons why:

 

Reason #1: High prices dissuade new users

The operating model of any virtual currency is to grow its user base to become as widely accepted as possible. However, if the price of the currency is too high, this can become a psychological barrier to new adopters, who may feel that they do not get a good deal when they exchange fiat money for Bitcoin. This is especially true when one considers that the price of Bitcoin in September 2014 was around 100 times greater than its price in January 2012. New users may find it unsatisfying to pay such a high price for a commodity that was so recently considerably cheaper.

A lower price for Bitcoin is helpful in this respect, but what is even more important is that the price becomes stable. This does not mean a stagnant price, but rather one that has a relatively predictable trend. Volatility and uncertainty are not attractive features for new adopters.

 

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Figure 1: Bitcoin prices (USD) since December 2012

 

Reason #2: Reducing the dominance of Bitcoin encourages the growth of newer virtual currencies

The price of Bitcoin towers above all the major alternative virtual currencies in the market today. A high price often brings the added advantage of greater visibility and prestige for the currency, making potential investors and adopters sit up and take notice. One of the problems of the dominance of Bitcoin is that many of the newer, smaller virtual currencies have struggled to find the limelight. With the price of Bitcoin falling, opportunities may appear for these currencies to garner more attention. Ultimately, this is beneficial for the virtual currency community; these alternative virtual currencies tend to be at the forefront of innovation in the field, and increasing their profile will help to spread ideas that could improve the prospects of all virtual currencies.

 

Reason #3: Deflation encourages speculation

Throughout the meteoric rise of Bitcoin stories have spread of the enormous fortunes made by early adopters. So long as the price of Bitcoin continued to increase, the idea that such price rises were somehow systemic became almost credible. When investors believe that the price of a commodity is bound to rise, they will often pay over the odds to acquire it, raising the price further. On the other hand, people using Bitcoin as a transaction method would be at a disadvantage, since the prices of goods and services that can be bought using Bitcoin often lag behind the headline Bitcoin price.

The result of sustained increases in Bitcoin prices is that it becomes a speculative vehicle rather than a transaction vehicle. This crowds out the true value makers in the currency: the consumers and merchants. Without these two groups of Bitcoin users, it is hard to conceive of a sustainable business model for Bitcoin- it would merely be a speculative bubble.

The recent fall in Bitcoin prices will do a lot to dispel the myth that short-term investments in Bitcoin are bound to pay off because it is a deflationary currency. With luck, this will help to drive away the types of speculators who drive the notorious volatility of Bitcoin prices.

To summarise, the recent fall in Bitcoin prices may have been painful for many of its users, but may help to create a healthier, more sustainable virtual currency. The Altcoin community too should take note; this could be their chance to assume the leadership position in the rapidly changing virtual currency domain.

 

Dr. Neeraj Oak, Chief Analyst, Shift Thought 

Author of Virtual Currencies – From Secrecy  to Safety, co-author The Digital Money Game

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