Wednesday, July 15, 2009

Does Zoompass represent a well thought out assault on Canadian Banks?

Is Zoompass the first of a sea change in mobile payments? For years, the mobile operators have been striving to proove that they add value to NFC based mobile payments. NFC really just turns the cell phone into a fat credit card and beyond the distribution of handsets, the mobile carriers don't add any value to the actual payment transaction as it uses the existing Point of Sale network.

So why not just create a mobile payment service where it is your card that is used to make the payment?

Consider the following.

1. The user experience, similar to all stored value mobile payment solutions is less than perfect......6 or more days to get set up.

While the registration experience is slow to fund the Zoompass account with a user’s existing bank account, this doesn’t stop them from using the service immediately with their credit card while they wait for the bank account registration process. The Zoompass client is quite user friendly and once the user has completed the initial registration, the service becomes much easier to use and very convenient.

2. The user still has to manually initiate a transfer from their bank account to their Zoompass account which is inconvenient due to the 2-3 business day wait for settlement.

This will likely change when they are granted Interac status. Then they will be able to offer a service similar to PayPal in which you do not have to pre-fund your account, it is done dynamically when you make a payment from your Zoompass account. When this happens, Zoompass will automatically debit the attached bank account making the service much more convenient for the consumer.

3. After several years Paypal is still minor in terms of volume in and out of Canadian Banks.

While volume out of the Canadian banks is relatively minor, it tends to be a one-way transfer. The largest eBay users are merchants who tend to keep their money in their PayPal account thus the money stays outside the bank and payments are made from their PayPal account without ever having to come back into the bank. One thing is for certain, both Zoompass & PayPal are accruing all of the fees associated with these payments and the banks receive nothing.

In addition, PayPal as a P2P payment mechanism is marketed directly to people that purchase on eBay with the benefit that they have some recourse in their transaction. There were approximately 8.4 Million eCommerce consumers in Canada in 2007. At best, PayPal represents 15% of those payments. Thus their ability to market their mobile payment service is hampered by the small audience that they address being approximately 1.26 Million people. Note that PayPal fees average 3.66% which is higher than existing credit card revenues for issuers.

CONTRAST THIS WITH THE FACT THAT ZOOMPASS HAS DIRECT ACCESS TO 20.7 MILLION MOBILE SUBSCRIBERS IN CANADA and they are very good at marketing to them. This is more than any single bank. Once Zoompass moves out of the Beta stage, they can simply send a FREE TEXT MESSAGE TO EVERY SUBSCRIBER with a compelling reason to sign up with Zoompass.

4. The mobile carriers have entered the space but banks likely won't react until proven scale.

If the banks wait until Zoompass has achieved scale, it will be too late to counteract the momentum.

5. The banks own the vast majority of interchange revenues.

Interchange represents 4.5+ Billion dollars in fees annually to Canadian card issuers. When contactless payments become prevalent, there will be a new revenue stream from payments that were formerly made with cash thus creating additional interchange revenue. Zoompass has a clear strategy on how to participate in the existing revenue stream as a card issuer, but also in the new revenue stream created by cash replacement transactions with NFC enabled mobile payments. This puts a chunk of the existing $4.5 Billion at risk as well as a chunk of the new revenue.

6. Email Money Transfer (EMT) remains the big 5 banks competition to Zoompass domestically.

While EMT is a completely viable service which will retain its niche in higher value transfers, this service is not offered through the mobile phone. The service is only convenient when you are on-line and, in addition, it is significantly more expensive than the Zoompass service. It is also limited to participating banks. Other than registration time lag, Zoompass brings significantly more convenience to a person-to-person transfer.

When Zoompass moves out of Beta the likely chronology is:

1. Offer automatic funding of registered Zoompass accounts from bank accounts
2. Increase daily, weekly and monthly limits (to compete directly with EMT and to increase the market for transfers)
3. Issue PayPass enabled, Zoompass branded, contactless MasterCard credit cards and market to all subscribers, likely with some loyalty program tied to the Zoompass payment service (i.e. sign up for your new card and get 20 transfers for free)
4. As a free service, move the Zoompass branded MasterCard information to the new NFC enabled mobile phones, effectively moving the Zoompass credit card to “top of wallet” for all purchases. This means that Zoompass controls the new primary mechanism.

In summary, why not take all of the fees for remote mobile person to person payments, take a chunk of the existing interchange fees and position yourself to take a chunk of new interchange revenue?

Never have the Canadian banks faced a more formidable competitor.

It seems simple.... but will the banks mount a response?

No comments:

Post a Comment