Exploring the Future of Money, Banking and Philanthropy

When he rolls into a gas station to fill his tank, Barkhad Dahir doesn’t get out of his car. He punches a few buttons on his cellphone and within seconds he has paid for the fuel.

With the same quick keystrokes on his phone, he pays for virtually everything he needs: groceries at the supermarket, a few oranges from a market stall, a shoeshine on the street, a cup of sweet milky tea from a café, and even, if he wants, an afternoon’s worth of khat, a mild drug favoured by many Somalis.

“Everyone here has his own bank, with easy access and no restrictions,” boasts Mr. Dahir, a local journalist. “Even lying in bed, you can be paying your bills.”

Here in one of Africa’s poorest countries, where illiteracy is high and traditional banks are almost non-existent, a mobile revolution has created an informal electronic banking system with more efficiency and convenience than anything in Canada.

In the cities of Somaliland, the future has arrived: cash is disappearing, credit cards are unnecessary, and daily shopping is speedy and digital. Almost every merchant, even hawkers on the street, accepts payment by cellphone.

It’s an innovation that could transform the continent. Africa is already leading the world in the use of mobile money, and its growth is accelerating. In countries such as Kenya, Tanzania and Uganda, mobile-money accounts have become much more widespread than bank accounts. More than 17 million Kenyans (two-thirds of the adult population) are using mobile-money services, mainly to transfer money to family members or business partners in distant locations, but increasingly for bill payments and small loans.

Somaliland, a region in northwestern Somalia that has broken away and declared independence from Mogadishu, has one of the world’s highest rates of digital transactions. Most transactions are on Zaad, a service of the biggest mobile-phone company, Telesom. A survey last year found that the average customer made 34 transactions per month – a higher rate than almost anywhere else in the world.

“I don’t even carry money any more,” says Adan Abokor, a scholar and democracy activist in Somaliland.

“I haven’t seen cash for a long time. Even small payments, like a bus ticket, can be made with Zaad. When my kids are at school and they want a sandwich, I send them the payment by Zaad. It’s immediate – there’s no waiting for it, no counting of cash.”

The system is impressively simple and secure. Subscribers give an occasional lump-sum payment to Telesom and then use this balance to pay merchants digitally. To make a purchase, they dial a three-digit number, enter a four-digit PIN and then enter the merchant’s Zaad number and the amount of the payment. Every merchant – even street vendors – keeps their Zaad numbers prominently displayed. Within moments, the customer and the merchant both receive text messages to confirm the payment and the transaction is done.

Mobile money has also drastically reduced the cost of crime and security for consumers, private companies and government offices. The Coca-Cola branch in Somaliland, for example, is the only cashless Coca-Cola company in Africa. About 80 per cent of its sales to its retail distributors are done through Zaad, while the remainder are done by electronic bank transfers.

“We never handle a single dollar in cash,” says Moustapha Osman Guelleh, chief operating officer of Coca-Cola’s licensed bottler in Somaliland. “We don’t have any issues of having to keep cash in a safe.”

Many companies use Zaad for all of their salary payments to their employees. “It has made life easier for our people,” says Khader Aden Hussein, general manager of the Ambassador Hotel in Hargeisa, who uses Zaad to pay all of his 300 employees and almost half of his suppliers. “What amazes me is that even illiterate people have learned how to use it.”

Of the 3.5 million people in Somaliland, more than 500,000 subscribe to Telesom, and more than half of these subscribers are using Zaad.

via How mobile phones are making cash obsolete in Africa – The Globe and Mail.

While consumers may be happy enough with their payment options, they certainly aren’t 100% happy with the shopping experience as a whole. And mobile payments done right could transform that experience dramatically for the better.

So what exactly about the modern shopping experience needs improvement?

Fixing Coupons and Loyalty Programs

One problem with the current shopping experience is that, while merchants are generally eager to offer customers incentives in the form of loyalty programs, discounts and rewards, many of these offers are handed over at the wrong time: at the register. Instead, these benefits should be communicated early and often, with a personal touch. A good time to inform customers of a deal being offered on, say, a pint of ice cream, would be right when they walk into the grocery store on a hot July afternoon. Even better if the coupon could pop up as they stand in front of the freezer case making a decision. Location-based services embedded in mobile payment apps could put the offers that consumers actually want in their hands at just the right time.

Loyalty and rewards programs also tend to be very generic and rarely provide coupons and deals for the things that customers are actually interested in. For every CVS coupon I get for something that I actually need, I get a yard of paper coupons for things I have no interest in. Mobile payments apps with effective data collection and high-tech targeting capabilities could eliminate this problem (and as a side bonus do away with the paper trail altogether!)

Merging the Online and Offline Worlds

There is no seamless way to move from online browsing to offline shopping, even though many of us do this regularly. Barcode scanners and the like make it fairly simple to showroom items we’re interested from inside a store. And there are a few apps out there (Nordstrom’s comes to mind) that allow customers to quickly select an item for local in-store pickup. But for the most part, once you find an item that you want online, the only way to be sure that a store will carry it is to call around. That’s, frankly, a huge pain. It isn’t even close to the seamless shopping experience that most of us want.

But let’s say you want to locate and buy a particular pair of Ray-Ban sunglasses – pronto. In a perfect world, you’d be able to search a map on your phone and pins would pop up to indicate local stores where you can visit, try them on and buy them right away. Mobile payments apps, designed to connect customers with products, could do exactly this.

Personalizing Shopping

Shopping has become very impersonal. Few people have a relationship with a salesperson who knows their style and preferences and can direct them to the right items at the right prices as soon as they walk in the door. But wouldn’t that be nice? Preferable, certainly, to wandering cavernous stores, fending off pushy salespeople who don’t even bother to learn our names, much less our favorite colors and fabrics.

Online, personalization mainly takes the form of heavy-handed algorithms that are ineffectual if not downright intrusive. Even the internet’s famously creepy retargeting ads, which follow you from site to site flashing the same three pairs of shoes you just looked at on Zappos, don’t really offer anything personal. They’re just showing you what you’ve already seen in the hopes that repetition will sway you to purchase. Sure, retargeting might work now and again, but it definitely doesn’t add up to a better consumer shopping experience.

Mobile could offer a powerful solution to this problem. Imagine if, when you browsed for items on your phone, it suggested similar items and indicated which stores near you carry them. Using sophisticated big data algorithms, smart shopping apps could learn everything from your favorite color to your exact measurements (bypassing the annoying problem of vanity sizing) and even capture your style and preferences with enough accuracy to actively suggest new pieces to add to your wardrobe at the beginning of the shopping season. These are just a few (clothes-focused) examples of how mobile tech could make our shopping experiences significantly more convenient — and fun.

Businesses Want the Same Things as Consumers

The strange thing is that merchants want all three of the things mentioned above — a more effective loyalty program, a successfully merged online/offline experience, and a personalized shopping experience. They know that all of these things will bring them new customers and keep existing ones coming back.

via Mobile Payments: Why You Can’t Live Without Them – Forbes.

via Mobile Payments: Why You Can’t Live Without Them – Forbes.

For some people—people who work for culture blogs, just to take an example—getting advance copies of books is nothing new. That’s how reviews are published right when books go on sale. But for book lovers who usually have to wait for a title to show up in stores, the chance to take an early look at the work of a favorite author is something to salivate over and to talk about.At least, that’s what the publishing company Penguin Group hopes.As part of their new and free program called First to Read, members will have a chance to download so-called “advance reading copies” of upcoming titles from writers like Elizabeth Gilbert and Richelle Mead, up to three months before they’re available to the public. Any member can enter the pool to win a limited number of digital copies—the first group of titles will be given out June 25—but it’s the other way of getting access, where First to Read gets interesting.  First to Read isn’t the first program to offer readers sneak peeks. Goodreads has a giveaway program with a similar sweepstakes format, and offers titles from many publishers. Penguin Group only gives away their own books, if you didn’t guess. But First to Read also reward members with “points.”Activity on the First to Read site—from sharing items to winning advance copies of books—will earn points for users, explains Suzie Sisoler, Penguin’s senior director of consumer engagement. Right now nobody has points, but in the future they’ll be redeemable for guaranteed access to galleys. The idea, Sisoler tells TIME, is that those who participate are likely to be big readers who the company hopes will talk about books and generate word-of-mouth buzz prior to publication.

via Read Books, Earn Points: A Publisher Unveils a Rewards Program | TIME.com.

Credit-card issuers are making it easier to use your rewards points to make purchases on the spot.

This summer, Citigroup began allowing cardholders to use rewards points to buy concert tickets directly through ticket-seller LiveNation.com. American Express  customers can use points for purchases made via Ticketmaster and Telecharge. Discover Financial Services, and American Express cardholders can use their rewards to shop on Amazon.com.

The deals add to the growing array of options available to rewards cardholders—and offer a chance to skirt the clumsy redemption process.

But the shopping power of the points varies significantly—from one cent per point to half that amount—and they don’t always provide the best rewards value. That makes it important to figure out how much your points are worth and how that compares to the value of other options before you start shopping.

Some deals carry restrictions. The Amazon offers don’t carry minimum point requirements, but consumers can’t use their rewards for certain items, such as Kindle downloads. American Express requires cardholders to redeem at least 2,000 points for a Ticketmaster or Telecharge purchase.

Card issuers such as J.P. Morgan and Discover say they are seeking additional retail partners. Consumers “see this as a real convenient way to redeem their cash-back bonus,” says Dana Traci, vice president of rewards at Discover, which introduced its Amazon offering last October. In July, it began allowing cardholders to use their rewards to make online purchases from Apple’s iTunes, Walt Disney’s Club Penguin and Facebook.

The deals are yet another sign of the stiff competition in the credit-card industry at a time when consumers are more cautious about spending, says John Grund, a partner at First Annapolis Consulting, an advisory firm focusing on the electronic-payments industry.

via The New Credit-Card Rewards Programs – WSJ.com.

More than a dozen big merchants announced Wednesday their plans to jointly develop a mobile-payments network that will battle similar services from Google Inc. and other companies.

Wal-Mart Stores Inc.,  Target Corp., 7-Eleven Inc. and Sunoco Inc. SUNare among the companies hoping to elbow their way into the burgeoning market that turns smartphones into devices for making purchases.

The push by merchants, called Merchant Customer Exchange, or MCX, is at an early stage, and the companies haven’t set a launch date or hired a chief executive. A CEO search is under way. It isn’t clear how much money each participating merchant is contributing to the network’s development.

Financial institutions and technology firms are pouring billions of dollars into the development of mobile-payment systems that operate as so-called digital wallets.

While few shoppers use their phones as mobile-payment devices, industry executives are convinced that consumers eventually will be just as comfortable buying with their phones as they now are when using credit cards and debit cards.

The technology relies on applications that a customer can download onto a smartphone and then make purchases in a store by tapping the phone against a reader placed by the cash register.

Mobile-payment transactions are expected to surge to an estimated $600 billion world-wide by 2016, up from $172 billion this year, according to market-research firm Gartner Inc. A Federal Reserve report in March said 87% of Americans have a mobile phone. Nearly half of those are smartphones, cellphones with computer applications and Internet access.

Among people with a mobile phone and bank account, 11% used mobile payments in the previous year, the survey found.

The new mobile-payments efforts already is running behind rivals such as the Google effort, called Google Wallet, which began operating last year on the technology company’s Android devices.

Isis, a collaboration of mobile carriers AT&T Inc.,  Deutsche Telekom  T-Mobile USA Inc. unit and the Verizon Wireless joint venture between Verizon Communications  and the U.K.’s Vodafone Group VOD, will start trials later this summer in Salt Lake City and Austin, Texas.

And in another sign of the growing interest in mobile payments, start-up Square Inc. said last week Starbucks Corp.  will invest $25 million in the company and use its technology to eventually process all credit and debit transactions at about 7,000 Starbucks outlets in the U.S.

via Big U.S. Retailers Join Forces to Develop Mobile Wallet – WSJ.com.

In early May 1970, a long-standing wage dispute between Irelands banks and their employees unions finally came to a head. The staff walked out, and to the nations horror virtually the whole of Irelands banking system shut up shop. Wage negotiations dragged on into the summer, and then through the autumn. In the end, it was November before the banks reopened. For six and a half months, Irish companies and individuals had to survive without access to the facilities of the modern monetary system: no bank accounts; no clearing of cheques; no withdrawals of cash; no wire transfers; and so on.End of Moneyby David Wolman Buy it from the Guardian bookshopSearch the Guardian bookshop Most people, when they hear this story, assume that its effects on the economy must have been catastrophic. The reaction at the time was no different. A contemporary newspaper warned darkly of “a rapidly growing paralysis… spreading through the economy because of the banks dispute”. The reality was very different. The Irish Central Bank concluded in its official review of the episode not only that “the Irish economy continued to function for a reasonably long period of time with its main clearing banks closed for business”, but even that “the level of economic activity continued to increase”. In the absence of the official banking system, people and companies simply resorted to using private IOUs to settle payments. Few people would have believed that such a widespread and successful ad hoc monetary system could spring up and spontaneously replace the official version. But in the breach, it did – and it worked.

via The End of Money by David Wolman – review | Books | The Observer.

via The End of Money by David Wolman – review | Books | The Observer.

I attended the Mobile Contactless Payment Innovation Summit in San Francisco last week. The audience included representatives from payments companies, enablers, solution providers and merchants all engaged in mobile payments. Given the constant rate of innovation in mobile payments and recent network incentives for EMV in the US, there was a great deal to talk about.

At Glenbrook we help companies across the payments value chain to understand the future of the market; both the rate of adoption and the value proposition of new offerings are critical. As a result, I was delighted to moderate a panel on mobile and contactless payment innovation with panelists Marc Warshawsky of Bank of America, Peter Ho of Wells Fargo, Ed Busby from ISIS and Oscar Muñoz from CHARGE Anywhere.

Here are some key issues discussed both by the panel and at the event:

Heightened Expectations – As mobile smartphone adoption has exploded, the expectation of mobile payments has grown exponentially. Yet challenges related to technology standards, business models and merchant implementations have slowed progress. Some felt the problem is in consumer education and adoption , but clearly the mobile value proposition has yet to be discovered and defined.

Role of NFC – Throughout the conference, there were vocal detractors and advocates for NFC. Visa, MC and Discover have each laid out a contactless roadmap, providing financial incentives for merchants to deploy contactless (NFC) terminals. The technology is reasonably mature and effective with extensive trials around the globe; ISIS and Google Wallet are examples in the US. Trials demonstrate consistent consumer enthusiasm but handset manufacturers still rarely have NFC chips in new phone models. Why the delay? Most think the problem is in the business model. As long as carriers, handset manufacturers and banks are unclear on how they will realize incremental revenues from mobile payment, there is a hesitation to deploy at scale.

Mobile beyond NFC – Patrick Gauthier from PayPal started his presentation emphasizing the difference between NFC and mobile wallets. He demonstrated that there are other ways to access the wallet. With more active accounts than American Express has cards in hand, PayPal’s cloud-based model is a significant alternative to the physical card-centric NFC approach. Peter Ho discussed Wells Fargo’s experiences with using In2Pay microSD card for Visa payWave transactions attached to a Wells Fargo account as compared to NFC. Either technology supports the desired interaction and he suggested the decisions were more around creating the right consumer experience. Other alternatives to NFC include the barcode model (also known as the Starbucks Example). One constraint to adoption of mobile is the speed at which merchants can implement the technology at POS. Merchants have to sort through the hype, identify mandates and ultimately prioritize their investments.

Are we just sticking a credit card on the phone? – Card issuers in particular were concerned with enabling card transactions over the phone. These models are expensive to merchants as they move card present, in store transactions to what they expect will be card not present interchange. So is there value in a mobile transaction and perhaps even room for more fees? Value in a mobile payment needs to be found in the added functionality brought from the phone. Location, data, computing power and Internet capabilities augment the in-store transaction. Bill Gajda from Visa was clear “it’s about more than replacing a swipe with a tap”.

via We Can See Mobile Payments from Here! — Payments Views from Glenbrook Partners.

via We Can See Mobile Payments from Here! — Payments Views from Glenbrook Partners.

SHANGHAI—Chinese Premier Wen Jiabao told a national audience on Tuesday that China’s state-controlled banks are a “monopoly” that must be broken, in an unusually blunt appeal for a shake-up of the creaky financial system of the world’s No. 2 economy.

Mr. Wen’s declaration on a national radio program on Tuesday represents an 11-hour push for an overhaul by China’s top economic official, who formally came into office in 2003 with a reputation as a reformer but has acknowledged publicly his regrets that he didn’t go far enough. Mr. Wen is expected to step down as premier in a once-a-decade leadership change that begins late this year.In an evening broadcast on state-run China National Radio, Mr. Wen told an audience of business leaders in the export-oriented province of Fujian that China’s tightly controlled banking system needs to change.

“Let me be frank. Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly,” said Mr. Wen according to the transcript of the program posted on the broadcaster’s website. “To break the monopoly we must allow private capital to flow into the finance sector.”

The push is part of a broader set of issues over China’s future growth. The country’s economic expansion is set to slow in coming years after racing ahead at a torrid pace over the past decade, raising questions over whether it can switch from a model based on exports and investment to one that relies more on a rising consumer culture.

That has led to a nationwide conversation over China’s tight grip on its financial system, which favors big state-owned firms but has been criticized by economists and even some reformers in China.

To realize the economic transformation, “private companies should be encouraged to get into the financial-services industry,” said Fang Xinghai, director-general of Shanghai Municipal Financial Services Office and a former World Bank economist, in an interview at China’s Boao Forum for Asia this week.

via China Premier: Considering Breaking Bank Monopoly – WSJ.com.

via China Premier: Considering Breaking Bank Monopoly – WSJ.com.

White label gamification platform BigDoor has raised $5 million in new funding led by existing investor Foundry Group, bringing BigDoor’s total funding to $13 million.

BigDoor’s gamification platform essentially allows online publishers to add game mechanics to web interactions and engagements. BigDoor helps companies build game-like mechanics and loyalty programs into their sites or apps by enabling points, badges, levels, leaderboards, virtual currency and virtual goods.

The company’s newest product, Gamified Rewards Program, is being released today out of private beta, which allows publishers to give users rewards for engagement, such as exclusive content, unlocked powers, exclusive virtual items, as well as tangible rewards. The company says that private beta tests of the BigDoor Rewards program resulted in a threefold increase in the number of website registrations based on the rewards available.

Online publishers have three options for implementing BigDoor: Lite, Plus and Premium. Lite is a free offering for websites with fewer than 25,000 monthly visitors. Plus is a white-label and highly customized solution built for medium-sized websites with up to one million monthly visitors. For enterprise customers, BigDoor creates a fully customizable rewards program as part of the Premium package.

Besides just allowing publishers to implement game mechanics within a website, BigDoor also gives clients reports and analytics on how the program is influencing behavior and web engagement. BigDoor’s dashboard focuses on four key areas of performance to track the overall health of a site including loyalty, engagement, virality, and average revenue per user. This data can be measured in hourly, daily and monthly increments. And customers can also A/B test their program via BigDoor.

BigDoor says that partners realized an average lift of 153% in user loyalty, 672% in engagement, 355X in social sharing, and 9X in average revenue per user.�Customers include MLB.com, Dell, Nickelodeon, Spartz, and Wetpaint.

via Gamification Platform BigDoor Raises $5 Million From Foundry Group | TechCrunch.

via Gamification Platform BigDoor Raises $5 Million From Foundry Group | TechCrunch.

As the cost of a college education continues to rise, a startup called SoFi is offering a way for alumni to offer students financial assistance and more.Co-founder and CEO Mike Cagney describes the current student loan system as a “classic market failure,” resulting in students who are stuck with high interest rates and heavy debt that they struggle to pay off. He says that if you can remove government from the equation specifically government loans and replace it with alumni, then “you create a very virtuous cycle.”So that’s what SoFi tries to do. The company is creating university-specific funds for alumni to invest in, and those are used to make loans to students. SoFi says it’s offering to cover the full cost of attendance for participants, with loans ranging from $5,000 to $200,000. The loans are 6.24 percent fixed rate, and they can drop to 5.99 percent, lower than federal Stafford and PLUS loans and many private loans. So Students get relatively low interest rates, while alumni get a significant financial return.The benefits aren’t purely monetary. Through its website, SoFi tries to connect the participating alumni and students, for example if someone is looking for mentorship or help with their job search. Cagney notes that the loans create a financial incentive for alumni to pitch in — after all, they want students to do well so they can pay off the loans. On the flip side, he says that some alumni don’t care about making money from the investments at all, and want to use the interest payments to a nonprofit organization that will help the students something that SoFi is investigating.Of course, alumni donations are already an important source of funding for university programs. Cagney says these loans can be made from tax-deferred accounts like a 401k, so they shouldn’t divert money from traditional alumni giving.Cagney and his co-founders ran a pilot program at Stanford where they attended the Graduate School of Business last fall, raising a $2 million fund from 40 alumni. This fall, SoFi is expanding to 40 locations and hopes to lend out $150 million.As for its own funding, the company has raised $4 million from Eric Schmidt’s Innovation Endeavors, and board members Joe Chen founder and CEO of RenRen and Steve Anderson founder of Baseline Ventures.

via SoFi Reinvents College Loans With Alumni Funding | TechCrunch.

via SoFi Reinvents College Loans With Alumni Funding | TechCrunch.

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