Updated 7pm Eastern (last paragraph on AML)
Amex: What are they “Serving” up? Marketing Hype
Jim McArthy, Visa’s Global Head of Product gave an excellent overview of the market in his analyst call last week (see here). His quote on Serve “Virtual pre paid card” from Revolution money… I completely agree. Serve is a small evolution for revolution money.. and for background see previous post.
What about Payfone? Well the only unique thing about Payfone is its clearing network, most likely Roamware’s inter-carrier settlement network. Roamware, Mach, Belgacom BICs , … etc have agreements with most carriers globally to allow for roaming access, payment and clearing (aka SS7, B-ICI). I love Roamware.. a tremendous company growing at 500%+ per year with a stellar team. IPO should be happening this year. None of their growth is dependent on this Payfone thing.. but it is a good idea.. ON PAPER.
While all the technical and architecture pieces are there to make Payfone viable (example all of Roamware’s carrier agreements), NONE of the carriers are anxious to let another brand and another service ride on their rails. Remember Inter Carrier Settlement (ICS) is for phone charges.. one of the biggest carrier headaches in mobile billing is customers calling to complain that Zong put a premium SMS on their bill for some gaming top up.. of course it was actually your 12 year old that did it.. The US carriers got fed up with this and all committed to billtomobile (see related post), I just had dinner w/ Paul Kim Tuesday.. tremendous executive. The summary of this post is that Billtomobile killed the Boku/Zong models.. and created commonality across US carriers. Carriers take almost 40% of premium SMS fees.. can you imagine a physical goods merchant paying 40% interchange.. ? on a Pizza?
The picture I’m trying to paint is that carriers love digital goods, they have committed to billtomobile (in the US) and are just starting to “think” about expanding on the $25 limit and physical goods. What makes Payfone think that any carrier on earth would let them lead this? This is NOT a technical problem for the carriers.. they already have all of the capability to turn on mobile payments to any merchant. They have the wallets as well. Not only would this create mass customer confusion.. it would also impact carrier led initiatives for NFC at POS.
Most of my contacts are just shaking their head at this one… Payfone? Not in the US.. no way. The carriers have complete control to shut this down. If Payfone would have just spent a little time with the MNOs they would have seen the flaw here. The only option I see for them is to give this thing to Roamware and let the carriers brand it and attempt to integrate it within their current wallet plans OR focus on merchant acquisition for billtomobile payment.
ICS/SS7 has well defined transaction types (SMS, Data, voice, …). Payfone does not just “throw” a transaction on the SS7 network without either the sending carrier and the recieving carrier agreeing to the transaction. There is first an “authorization” process before any transactions are even allowed. Example: does this customer have an international plan? are they a pre-paid? what is their limit? Voice only?
Recieving carriers can deny payfone transactions. Of course a sending carrier may be successful in “masking” the transaction so that they look like a voice charge.. but this would certainly fall afoul of both regulators and the ICS agreements. Remember this is money transfer cash out, which will ALSO be covered by numerous banking/MSB regulations. As with any money transfer business, KYC is required on both sender and reciever in most jurisdictions. Who maintains regulatory responsibility for KYC? Carriers? NO WAY.. is Payfone doing a KYC on its senders? RECIEVERS? Again, this is the beauty of PayPal.. both senders and recievers have registered and accepted terms.
There are few short cuts in payments.. this solution is technically elegant, but complicated when taking into account carrier plans and regulatory issues.