Indian Bank Regulation Throws Roadblocks for Mobile Payments

The Reserve Bank of India (RBI) issued anxiously awaited guidelines on Friday detailing what banks in India must do in order to offer 'mobile banking' services. The RBI had previously issued a moratorium in July on the offering of such services while it finished its recently published guidelines.

Mobile payments companies have been springing up around the globe, including Europe, Africa and Asia, in addition to the American versions. Several companies, including, "mChek, Paymate and Obopay are in the final stages of developing their micro-finance offerings, while fine-tuning their tie-ups with various MFIs to launch mobile-based financial products."

The RBI draws a distinction between 'mobile banking' services that are being offered including "balance enquiry, stop payment instruction of cheques,
transactions enquiry, location of the nearest ATM/branch etc...Acceptance of transfer of funds instruction for credit to beneficiaries of same/or another bank in favor of pre-registered beneficiaries" For the purposes of its guidelines, "“mobile banking transactions” is undertaking banking transactions using mobile phones by bank customers that involve credit/debit to their accounts. It also covers accessing the bank accounts by customers for non-monetary transactions like balance enquiry etc. "

The Hoops & Limits

The RBI created a number of hoops that must be jumped through in order to begin offering 'mobile transaction' services:

• Only banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile banking services....Only banks who have implemented core banking solutions would be permitted to provide mobile banking services. This means that mobile banking operators outside the country of India will be unable to provide services to specific banks. Rather, they are likely to be forced to white-label or license their applications to the banks before the services may be offered. FURTHER, the service provider must actually be a bank regulated within the country of India rather than just an external service provider.
• The services shall be restricted only to customers of banks and holders of debit/credit cards issued as per the extant Reserve Bank of India guidelines. In other words, if you don't have an India-based account, you are out of luck.
• Use of mobile banking services for cross border transfers is strictly prohibited. This requirement will limit the attractiveness of the Indian market. Companies outside the country wanted to get into the remittance game of Indians working abroad and sending money home. The inability to offer cross-border accounts from banks in the US to banks in India limits the transaction volume.
• Banks shall put in place a system of document based registration with mandatory physical presence of their customers, before commencing mobile banking service. This will limit the use of the Internet to sign up customers for 'mobile banking' services.
• It is necessary that the mobile banking servers at the bank’s end or at the mobile banking service provider’s end, if any, should be certified by an, accredited external agency. This simply creates an added level of bureaucracy within the Indian government, and additional costs for the mobile banking service provider.
• A per transaction limit of Rs. 2500/- shall be imposed on all Mobile Banking transactions. Subject to an overall cap of Rs. 5000/- per day, per customer. In other words, <$100 per day per customer overall.

RBI Says 'Jump'

The RBI has set up obstacles to international services to provide mobile banking solutions, requiring payer and payee have Indian accounts at Indian banks, and the money is moved by an Indian-based service, prohibiting cross-border transactions. Combined with the transaction limit, the speed and size of the Indian-based market is likely to be hindered.

American Banker's "Mobile Banker" Feature

Mpayy is excited about a feature we received in the American Banker today. It can be found here. Registration is required, but they have a two week free trial with no need to input a credit card.

Enjoy!


American Banker
Its Testing Done, Alt-Pay Start-Up Faces New Tests

American Banker | Thursday, July 10, 2008

By Steve Bills

Mpayy Inc., a new entrant in the alternative payments space with backing from U.S. Bancorp, is hoping that its combination of e-commerce, mobile technology, and automated clearing house services will help it stand out in an increasingly crowded market.

The Chicago company announced Wednesday that it had closed a funding round led by the Minneapolis banking company.

Conrad M. Sheehan, Mpayy's founder and chief executive, said U.S. Bancorp had also led an earlier funding round, last year, but he would not disclose the amount of funds raised.

Mr. Sheehan said his company has intentionally been keeping a low profile. "We're very focused on designing and building a great product without putting too much attention on us too early," he said in an interview Wednesday.

But after testing its Internet and mobile commerce technology since early this year, Mpayy is now ready to begin promoting it actively, Mr. Sheehan said.

A U.S. Bancorp spokesman said the company would not discuss Mpayy, though Mac McCullough, an executive vice president at U.S. Bank and a director on Mpayy's board, said in the processor's press release that the banking company is "very pleased to continue with our role in Mpayy and continue to view it as an attractively positioned player in alternative payments with a compelling and unique value proposition."

Mr. Sheehan said that in addition to its financial backing, U.S. Bancorp is hosting Mpayy's applications in its data centers.

Mpayy is positioning itself primarily as a lower-cost alternative to credit cards for online merchants, using the ACH system as a way to beat payment card interchange expenses, Mr. Sheehan said. "It's more of an e-check platform. There's also a stored-value piece" for the unbanked.

Initial customers include Lawbooksforless.com and the Alliance for Lupus Research, which Mr. Sheehan said is using an Mpayy application known as a "widget" to add a payment system to social networking sites.

Mpayy's mobile payment capability uses the same secure Web interface but with a streamlined design, he said. "It turns your cell phone into a mobile point of sale."

Commercial users — such as taxi drivers, flea market sellers, and multilevel marketers who sell using the home party method — could save half or more compared to bank cards, and Mpayy offers free person-to-person transfers.

Big banking companies have begun placing some bets on alternative payment technologies. Bank of America Corp. last week took an equity stake in mFoundry Inc., a developer of mobile banking and payments software. Citigroup Inc. is pursuing a variety of strategies, testing mobile-phone payments with technology from Obopay Inc. and forming a joint venture with the South Korean wireless carrier SK Telecom Co. Ltd. to develop mobile technology.

Bruce Cundiff, a research analyst at Javelin Strategy and Research, said Mpayy could break through by offering its service online, on mobile devices and through social networking widgets.

"I like the fact that they are going after multiple markets here. They're not putting all their eggs in one basket," Mr. Cundiff said.

But like other entrants in the alternative payments market, Mpayy faces what Mr. Cundiff called a "chicken and egg" predicament in trying to develop both a merchant base and a customer base, similar to the issue that eBay Inc.'s PayPal unit faced in e-commerce in the early part of this decade before beating out rivals.

"Mpayy's key differentiator is being able to integrate with U.S. Bank's robust merchant services business," he said. "I think that dovetails nicely with U.S. Bank's merchant strategy."

© 2008 American Banker and SourceMedia, Inc. All Rights Reserved.

Hard Data on Mobile Usage

Nielsen Mobile put out new data today based on a global survey of 1 million mobile subscribers' use of the web on their phones, and the numbers continue to point to a growth narrative that is one of the strongest in the American economy.

Monthly Usage & Upside

Nielsen's data demonstrates that 40 million Americans access the Internet via their cell phones as of May 2008, which is 15.6% of the mobile subscribers in the US. This data is very consistent with what the Pew Center found that we discussed here. However, even more exciting is the fact that fully 95 million Americans have access to the mobile web through their cell phone service provider either by directly paying for it, or bundled with their other services. That number is up 28% from Q1 2007, but still accounts for just 37% of the 254 million mobile phone subscribers in the US.

These numbers are very exciting for Mpayy demonstrating that the installed untapped base is already 55 million strong. Further, continued growth of the mobile web subscribers to even 50% will more than triple the number of users today. Mobile data packages account for $1.7 billion in annual sales, and the average subscriber is spending $11 on monthly data plans.

Specific Uses

Nielsen's data contradicts what we discuss yesterday, demonstrating that the iPhone is #2 in the device list with 4% penetration, still a ways behind the 10% occupied by the Motorola Razor.


As far as the specific browsing habits, Nielsen reveals that 40% of mobile Internet users find their favorite sites through search engines, and 22% type in the exact URL. Just 17% of users find their sites through carrier portals, a number that is likely to continue to decline as iPhone, SmartPhones and imitators continue penetration.

Further, 5 million users in the US are accessing mobile banking websites that mostly just allow them to view their account balances and make a few payments. This number shows massive potential for breakout for Mpayy's Personal accounts that allow electronic payments to friends and family as well as roving salespeople that use Mpayy's secure Mobile Merchant account. As you can see from the left, email, weather and sports continue to lead mobile web usage, but watch out for Mpayy!

What Value Widgets?

ReadWrite Web continues to questions the ability of facebook to monetize its platform. The general potential of facebook and other social networks is an issue I've blogged about here and here. It has not stopped the venture community from continuing to pour money in, including a $20 million investment in meebo at a $200 million valuation most recently.

RWW notes that most of the successful facebook applications are strictly fun ways to communicate with your friends - I totally just superPoked your demon. Applications that actually have utility tend to not have the viral component that many of these applications which just reach out and touch/invite facebook friends. Further, it remains difficult to engage users while on facebook. Further, for applications that are related to one's personal activities - calendars, reminders, blog readers - it is strains reason to assume that people will bother their friends with invitations.

None of this has stopped folks like Adonomics from continuing to espouse the limitless earning potential of facebook applications. According to a February blog post everything on the web will be remade for facebook which will create a marketplace and incomes for developers of facebook applications along the lines of eBay for Power Sellers. However, to date, the income from the widgets has come only through advertising with networks like Gigya and WidgetBucks.

These networks may extract the ad rents from facebook, assuming they can produce more success than ads on the network itself. My personal experiment with ~15 different ads failed to yield a click-through rate above 0.04%, at which point the company stops serving your ad until you increase the Cost-per-Click bid to something in the Google levels - read $1.50. The site does have the ability to deliver impressions, but the value of that given its users' unwillingness to engage calls into question its ability to drive value. (Companies can use larger images, but to do so, you need a $50,000 guaranteed budget, and who knows whether that is on an impression or click basis.

Online ads certainly continue to garner more of the discretionary funds of large advertisers. The battle for the clicks that make these ads useful will continue to go on between the multiple players providing each piece of a web page.

Widget Payments

Mpayy continues to offer its secure payments services through a syndicated widget that can also be found on facebook. Mpayy will relaunch its widget with configurable logos, skins and payment fields on May 18th. Stay tuned.

Sneak Peek to New Mpayy Mobile Site

Mpayy developers have been hard at work on a new mobile site that enhances the account features available through https://mobile.mpayy.com. Mpayy's Mobile Merchant accounts provide direct salespeople, taxis, and online ebay sellers with a free mobile point of sale system through any web-enabled cell phone. The new functionality being ported to the Mpayy mobile site will make it easier for sellers to process transactions and returns.

Mpayy's current mobile site rates a 4-Good by Ready.mobi's mobile website tester, which is certainly not bad.



However, one of the things we wanted to do was to make sure that we followed all of Ready.mobi's guidelines, including providing the ability to differentiate the experience based on the 10 best distributed cell phones, and we will launch with this device targeting ability. The new site does meet the guideline test as seen here (Dev URL is masked):



Mobile Dashboard

The Dashboard on the Mpayy Mobile Homepage still includes the Make Payment options, but a new piece of information and several new features, including Balance Information, a Withdrawal button and a Help Center.




From the Dashboard, any user can select to make a Withdrawal directly to their Linked Bank account, and get the payment batched up and ACH'd that night.




Payment Activity

Mpayy takes large steps to make sure that all communications are authenticated, including the creation of a Digital Signet at account opening. The Digital Signet is a piece of user-generated content that we place at the top of text messages and emails, so you know it comes from us. Payment recipients, whether they are free Personal money transfer accounts, or Mobile Merchant accounts for AVON/Mary Kay salespeople, Tupperware sellers, Passion Partiers, etc. who are taking direct payment, the Activity list will provide confirmation that the payment was made beyond the text message receipt.



Beyond checking their activity, sellers on the road can also process refunds with the new mobile website. This image is what happens when you drill down to a specific payment by either scrolling and selecting it, or using an AccessKey number to jump to the payment and make the selection.


When a Merchant selects to make a Refund of the specific transaction, the screen looks like this.



Secure Mobile Payments

Mpayy offers free mobile payments for anyone with a mobile web enabled cell phone. Money can be moved from any bank within the United States. On the receiving end, it is free to receive transfers, but traveling salespeople can get guaranteed payments with very low transaction costs and 0% fraud liability. Sign up, and check it out. You'll be glad you did!

Venture Capital Not Insulated from Broader Market Turmoil

Investors opening up their 401K statements for the first quarter of 2008 will probably need a large supply of Pepto-Bismol to assuage their pain with the Dow Jones Industrials offer more than -500 points. A rally on the first day of the second quarter was quickly dispatched by Fed Chairman Ben Bernanke's sick April Fool's joke that the economy could very possibly contract in the first half of 2008 sending stocks tumbling.



While at first glance, the Venture Capital industry should be insulated from the broader market and economy, new data out from the National Venture Capital Association and Thomson Financial indicates that may not be the case.

Short Line @ Exit Sign

The NVCA provided data on Venture Backed Exits in the First Quarter of 2008. In short, this is a count and measure of the magnitude of liquidity events - Mergers & Acquisitions (M&A), Initial Public Offerings (IPO) - by companies that were previously financed through venture capital funds.

The number of M&A deals was down -31% to 56 deals, from the first quarter of 2007, and even more significantly when compared with the Q1 2006. The value of those deals was down -45% to $2.491 B.

Further, the data reveals that 38% of the M&A transactions valued the venture-backed startups at less than the initial VC investment.



Even starker is the IPO trend. In Q1 2006, Venture Backed companies accounted for 18 IPO's with a combined value of $2.2B, and an average of $121.7 million. In the first quarter of 2008, those numbers were 5 deals for $282 million, and an average deal of $56 million.

According to the Wall Street Journal & Dealogic (registration required):

There were fewer IPOs in the first three months of 2008 than in last year's first quarter in every major region of the world. Globally, the number of IPOs fell 60% to 100 deals and the amount raised slid 10% to $35.9 billion, according to data from Dealogic. In terms of the number of new offerings, it was the worst period world-wide since the third quarter of 2003, by Dealogic's count.

Now, the IPO market is typically very sensitive to the overall trend in the market, and venture capitalists, entrepreneurs and investment bankers alike will often postpone an initial public offering when the market is going through a correction. IPO's are meant to allow founders and VC's to take some money off the table as well as create a publicly valued currency that allows the company to engage in some of its own M&A activity. However, the magnitude of the slide is significant, and if you strip out the Visa IPO, everything looks a bit less rosy.



Plenty of $$$ for Now, Financing is NOT the End Game

While the exit picture isn't so rosy, plenty of money is still out there, particularly if you call yourself an Open Source technology company. Further, VC's are so desperate for deal flow that in some instances, they are willing to buy out the owners personal stakes according to the founder of thefunded.

It is important for entrepreneurs to manage their burn rates and work to produce revenues quickly, though, because this funding could easily dry up. Smaller deal size could be a leading indicator for a slowdown in the supply of funding, especially in light of falling confidence among VC's, according to Silicon Valley Venture Capitalist Confidence Index.

On Web Growth & Web $Growth$

Much has been made of Internet company valuation, and with the order of magnitude money has been flying at startups in the Valley, much demands investigation. Valuation is an inherently subjective process that can be made to conclude anything depending on methodology and assumptions. Value investors who prospered in the crash of 2000-1 were vindicated that company value is derived from a string of revenues, and the stock value is a claim on that string. The followers of Benjamin Graham's approach will only invest in stocks of companies with strings of positive Free Cash Flow that have a Net Present Value to the stock-holder.

Venture Capital Investing a Different Animal

Now, Venture Capital investing is far different from buying stocks listed on the NYSE, NASDAQ and S&P 500. Venture Capital investors have the flexibility to demand very sharp hook-clauses into the Term Sheets they give out. I just finished my MBA at the University of Chicago where we studied how to structure a Term Sheet to limit downside risk, and ensure a positive return with near certainty, while still having significant exposure to the upside should a startup venture succeed.

It's a powerful piece of knowledge to have as an asset manager who is renting money from wealthy individuals and institutions. In order to raise future funds, an asset manager must show returns greater than the stock market and other asset classes. The first Case Study in Professor Steven Kaplan's Entrepreneurial Finance & Private Equity class is a study of David Swenson, Chief Investment Officer of Yale's Endowment.

The Boston Globe wrote a story about a study by Josh Lerner of Harvard with colleagues:

It shows that $1 billion invested at the end of 1991 by the average US college or university endowment grew to $3.68 billion at the end of 2005, a gain of 268 percent over the 14-year period. That was slightly less than the 278 percent compounded growth of the benchmark Standard & Poor 500 stock index in the same period.

By contrast, a $1 billion investment by "Ivy Plus" school endowments turned into $5.88 billion, a gain of 488 percent. The Ivy Plus group was defined as Ivy League schools - Harvard, Yale, Brown, Columbia, Cornell, Dartmouth, Princeton, and Pennsylvania - plus the Massachusetts Institute of Technology, Duke University, Stanford University, and the California Institute of Technology.

Those very large endowments had access to the best VC funds and startup deals, with terms that would most benefit investments by Endowment managers in the role of Limited Partner. The investments grew the endowments of the Ivies so significantly that the schools are substantially liberalizing their tuition assistance. Here is Harvard's 3-Point Initiative to lower Expected Family Contributions.

To an entrepreneur, the experience can look more like this anonymous posting on thefunded.com.

The term sheet provided to us was astonishing, the most rapacious I have seen in 20 years. The terms were far from even remotely resembling market: extreme liquidation preferences, antidilution ratchets, wiping out of the previous investors. Most unbelievably, an absolute requirement for the management team and Board to resign, to be replaced in their entirety at [their] sole discretion[edited].

How Blogerrific Can You Get?

Mr. Blodget, 35, gained fame among American investors after correctly predicting in 1998 that the share price of Amazon.com would soar to $400. But that fame turned to infamy as Amazon and many others among the Internet stocks he recommended plunged. Several companies that Mr. Blodget praised in published reports and television interviews, including Pets.com, a unit of IPET Holdings, and eToys, failed before ever turning a profit.

...Through all of 1999 and well into last year, Mr. Blodget advised investors to buy virtually every stock he covered. Boyishly handsome with a charmingly casual manner, he became a fixture on CNBC and in the financial press, making the case for companies that were losing lots of money selling diapers or dog food over the Internet.(New York Times, November 15, 2001)

When Henry Blodget left Merrill Lynch, this was his Wall Street epitaph in the New York Times. Blodget's departure came at at a point when everyone felt burnt by Internet companies, and they perceived him as a cheerleader. A quick perusal of the stories about his stock picks on theStreet.com reveals positivity on the likes of Yahoo, Amazon, and Priceline.com, all of whom produced profitable businesses to the tune of many billions in profits.

However, Henry Blodget, who edits the very poignant Silicon Alley Insider is credited with arguing TechCrunch at $100 million, which TechCrunch Founder Michael Arrington disputes in this interview on Charlie Rose.



Whose Rents are they Anyway?

AOL announced plans to buy social networking company, Bebo for $850 million giving it access to 40 million members worldwide and rich video content like the online production house that arose out of lonelygirl15 fame on YouTube. In fact, Avatar of WidgetsLab predicted the move made sense for AOL over a month ago. Zach Hurst of 1Dawg notes that values Bebo users at $21.25/user, and that facebook users would be $300 per person at the $15 billion valuation given by its Microsoft investment.

The facebook valuation has driven many associated investments, and thus more venture capital into social networking websites. Adonomics is a facebook only VC fund, widget valuation tool and marketplace for orphan widgets. The company publishes its theoretical valuations of the Top 100 widgets on facebook by users. According to its valuation, the Top 100 facebook applications are worth $1.2 billion and each instance of use is worth $27.09.

So, if facebook is worth $15 billion and the ecosystem that drives facebook usage is worth over $1.2 billion, what is the valuation of the ad networks that plan to use widgets as marketing tools and advertising vehicles? Gigya received $9.5 million this week and WidgetBox received a CEO from Hummer Winblad who helped it raise $14.5 million with several other firms.

The final answer to the question of how much value facebook users create, and for whom will be fascinating. It's interesting and important for investors and entrepreneurs alike to ask now which investments will deliver profits, and which shall be attrited.

Widget Commerce w/ Mpayy

Mpayy's Secure Payments Widget hopes to securely produce this stream of revenues. We are a highly scalable commercial application, and can enable either our Person-to-Person money transfers or Internet Point of Sale web services through its widget or with simple integration to any website. For charities, non-profits, and charities, we'll process donations for free.

Check us out and play the Mpayy Bracket Challenge!

Countdown to NCAA March Madness TipOff

The Countdown has Begun

On March 2nd, we launched the Mpayy Bracket Challenge to entice users to sign up for Mpayy. Bracketology experts, fanatic followers of conference champions and underdogs alike, 18-45 year old guys who anxiously await the release of a blank bracket sheet & plan to check their scores on their wireless devices are our sweet spot.

I've placed a countdown widget on the blog to the right until the time of tipoff on March 20 @ Noon. I'm looking for one that's slightly less futuristic looking, but you get the idea.

The $25,000 Mpayy Bracket Challenge is a hosted tournament open to all Personal and Mobile Merchant account-holders. The tournament Terms & Conditions can be found here. Users go through our quick (and increasingly friendly in-line validated forms) registration process and continue through to the Dashboard seen here:



Users click through to the hosted Mpayy White Label website, specify a password, and get to the Picks page. As you can see, the pool is all ready to be loaded with bracket the moment it comes out.



Reaching Bracketology Experts

Mpayy is the perfect way to accept fees for online NCAA March Madness bracket tournaments and office pools. Users can just sign up for a Personal account to send and receive money from users checking accounts. If you've ever run a friendly pool or Fantasy sports competition, you know what a pain in the arse it is to collect money from even your friends. Mpayy provides no excuse to not have paid. Just sign up and beam the funds to whomever is running the pool. No fees to either of you. PayPal will let you do this for 5 players without charging you. Mpayy wants to help you run your whole pool.

In order to get in front of college basketball fanatics, Mpayy has launched coordinated display and search engine marketing programs to find highly networked individuals through financial websites, social networks, and those looking for the tools to run brackets online. You don't have to go find those ads, just sign up to accept free online payments for your March Madness College Basketball tournament.