Oct 13, 2009
Also See post on 11/12 Obopay India – Another Failure?
Obopay, Nokia Money, MasterCard Money Send… all are based on the Obopay platform. In the Valley, nothing invokes a quicker smile and shake of the head then discussion of Nokia’s $35M+ investment ($70M in round). This shake comes from both VCs and payments executives. The banks are running from the service, just as the Nokia and MC are running in.
From a Venture perspective… Nokia overpaid and may have significantly alienated banks. Obopay now has $126M in invested capital, with no “value proposition” (hence less then 20k active customers), no US success, an average team and very little product. Estimating a Series E pre-money valuation of $200M, you are left w/ post money of around $270M.. My sources tell me Revenue is less than $5M which results in a post money valuation of 54x revenue for a service from which its major customer Citi is walking away from (MasterCard is TBD).
- Series B, 9/06 Qualcomm $7M
- Series C, 7/07 AllianceBernstein, Citigroup, Qualcomm, Redpoint Ventures, Societe Generale, Richmond Management $29M
- Series D, 4/08 Essar Communications Holdings, AllianceBernstein, Onset Ventures, Redpoint Ventures, Olayan, Citigroup, Societe Generale, Qualcomm Ventures, Promethean, Richmond Management $20M
- Series E, 3/09, Nokia, TBD $70M
I must admit to feeling awkward in writing this.. given the names on the list you would assume that there is a sound basis for the investment.. but it seems to be “hedge your bets” investing at best, “swarm investing” at worst. The closest way to get to know what is real (and what is not) is to work with the customers. Hence my note.
I’m not saying that they can’t be successful, with the investors and capital listed here they certainly don’t lack a solid BOD. My point is that they have not had success to date in the US, have an average management team, and very little product. Nokia bought a bridge… lets hope it is to somewhere. The amount of money going in tells me that Obopay believes they can build a mobile “switch” to create a visa like network. Globally, financial services companies have learned a very important lesson with Visa/MC: never let someone else own the switch. Telcos I’ve worked with also clearly understand the control issue, not just in the US but in EMEA, and AP. Obopay’s most important network partner is MA, the entity which will drive network fees and transaction revenue. This brings up the question: IF Obopay is successful then what is their revenue POTENTIAL? Answer: a CUT of user fees from a SENDER Pays model.
It’s rather hard to compare Obopay to its competitors. Obopay is rich on marketing, alliances and user interface… and light on everything else (risk, operations and payment processing). Alternatively companies like Paypal and Cashedge have deep payment expertise, dedicated risk management teams (30-100) and 24×7 redundant operations.
UNBANKED or UNPHONED?
Nokia interest in “Nokia money” is less to do with the altruistic goal of bringing financial services to the “unbanked”, and more to do with growing “unphoned” subscribers. Take the MPESA success in Kenya. Safaricom/Vodafone have 99% of subscribers on pre-paid plans (aka top ups).
The challenge in growing subscribers in the third world is giving them a way to pay (top up) their mobile phone. Nokia’s selection of Obopay is very curious, given that Obopay is a hosted platform that currently requires online registration.. quite a difficult thing for an “unbanked” customer to do in rural India. We can safely assume that Obopay will invest resources to provide for service and beneficiary registration in a 100% SMS mode (or build a NokiaWallet embedded on the phone), but there are still many holes in the service that are left to be plugged and a big business challenge in incenting remote agents.
The general consensus among executives seems to be that the challenge in mobile payments is 10% software, 50% risk and regulatory, and 40% qualitative issues surrounding “consumer adoption”. Within India, regulators have been very involved in all pilots, setting an absolute Rs 5000 (~$100) limit on all providers in order to ensure that another run away “MPESA type” does not occur without a sound regulatory framework. It should also be noted that Vodafone/Safaricom was in a very unique place to address the “customer adoption” issue as it had 80%+ market share in Kenya. Most other markets have highly competitive and fragmented telecoms, each attempting to drive competing heterogeneous payment services.
Assuming Nokia’s objective is to provide this service to carriers, they will likely bundle discounted packages of low cost hand sets w/ service. The MNOs I have spoken with are NOT buying into Nokia’s vision and in fact are quite irritated that they are attempting to end run them through a direct sale to MNO agents. Hence, most major MNOs are busy formulating their own strategy, and have a host of options. If I had to bet… my chips are with the MNOs as people only buy a phone every 2 yrs (in emerging markets), they top up frequently. Nokia Money/Obopay will face competition from:
- Vodafone. Unit led by Nick Hughes is active in Asia and ME. Repeating the Kenya success
- Monitise. Provides same SMS services and integrates quickly to bank systems through ATM switch (Bank focused sale)
- hyperWALLET. Software behind Enstream
- Sybase. Rock solid software play for Telecos
- Akos Technology. Software/Service for telecos
Nokia Money and Obopay have a very, very steep hill to climb.
- Software (No risk engine, Online registration required, hosted model, …etc)
- People – Few international payments executives in team
- References – No US success
As a side note… Citi’s trial of the service had terrible adoption. Less then 20k active users (much less). Obopay could argue this is due to poor Citi marketing (for those that argue marketing.. go use the service today). I also understand that Obopay is telling prospects that Citi is still involved (which is true from a BOD level). I’ve also been told by 2 banks this week that Obopay is not taking any new US banks as its focus has shifted to India (Yes Bank).