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No Deja Vu, P2P Mobile Payments REALLY Here

No Deja Vu, P2P Mobile Payments REALLY Here

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Mobile Payments really are coming.  Really, even Visa – the standard bearer of the Status Quo – is now getting into the game.  But not, as you might expect, for the Point-of-Sale (Pos) game.  Rather, Visa is launching a brand new service aimed solely at consumers: a money transfer function allowing Visa Europe cardholders “to send funds to other Visa cardholders from their mobile phones.”  In other words: Visa is launching a purely P2P, non-merchant service.

The article I first read about the new feature was nearly verbatim some of the pitches I’ve made for Nooch.  Just take a look at the first sentence… couldn’t be a better ad for Nooch:

“Borrowing money from a friend for a taxi ride, splitting the restaurant bill among a group of diners or sending funds to a student at college could become an easier and faster task through a new mobile-payment option Visa Europe is launching this week.”

But this enthusiasm seems down-right odd as someone who has been preaching the P2P potential (especially within Universities in the US) and usually gotten cute nods of sympathy.  Nearly everyone I know who has been associated with the payments industry in some capacity for the last 20 years believes that P2P is nothing more than the failed “split-the-bills” models of the 90’s and early 2000’s.  But that’s not what we’re talking about (see my Mobile Payments Primer to learn more about the various differences within ‘mobile payments.’)  Today’s new innovations and technologies allow new features and opportunities that were not possible before.

Status Quo Skeptics

“There’s no market.”  “There’s no use case.”  “There’s no value to the end-users.”  That’s what they say.  From their experiences, the various attempts at providing a mobile-based P2P money transfer feature have largely failed.  Some have been more public, such as PayPal abandoning the P2P market and focusing exclusively on Ebay and it’s online presence.  Some have been expensive, such as OboPay’s foray into P2P exchange, which may have burned upwards of $100 Million of investors’ cash.

And some have been defeated by fraud, technical failures (read: security concerns), or a flawed user experience.

It is kind of amazing, when you think about it, that sending money to a friend (who’s not a merchant) is still so hard.  Well, it’s not because someone hasn’t tried.  In fact, one 2000 blog post titled “The Case Against Micropayments” argues: “micropayments are a necessary precondition for the efficient use of distributed resources.”  Everyone saw the potential.  But every company or start-up that has tried to enter the informal, cash-dominated market did so in the past.  Obviously.  But until very recently, they had no chance to succeed.  The incredible advances in access to technology – such as high-speed smartphones – and the un-foreseeable change in perceptions and expectations of Generation-M (people aged 18-29) have opened up new opportunities to correct the killers of Web 1.0 and 2.0.

The world has changed

In a nutshell, micro-payment schemes (including early mobile payment companies) failed because “users hate them.”

First of all, mobile is not niche anymore. It is so mainstream that many people (especially Gen-Mers) cannot even function without their iPhone in their pocket. “Apps” are not just for nerds at Harvard.  Now, there literally is an “app” that can tell you what song is playing… anywhere.  Every company that wants to remain relevant has their own app.  More people get their news  and shop for products on mobile devices than any other medium. Who could have ever predicted that?  Innovation, by definition, is innovative.  You cannot predict innovation.

So not only are cell phones ubiquitous now, but smartphones are nearly so as well.  The old P2P methods usually involved SMS texting, i.e. writing out “pay Timmy 20 dollars for lunch yesterday” every time you needed to send money. That’s even how Venmo started. And that’s how most of the big players overseas do it as well, including M-Pesa in Kenya, KopoKopo in Sierra Leone and others.  The problem was, and is, that typing out a message like that just isn’t worth it.  It takes too long, you have to worry about making one mistake and it is cumbersome and relatively thought-“intensive”.  Who’s surprised few people want to do that?  It works in Africa because cell phones are more common than computers and the value proposition (typing something out instead of walking 3 days to the nearest village for a bank) is still tremendous for most people.

And then came apps.  The iPhone has unleashed the creative potential unlocked in countless freelancers and dreamers. There are so many apps for so many random and ultra-niche activities that apps have almost become commodities. It’s not hard to release an app and they’re usually not hard to use.  There are pictures, big buttons, a touch-screen and the internet.  People are connected all the time today.

That’s why Nooch is so simple and focused. You can be drunk, tired or both and still use Nooch in a few seconds. That just wasn’t possible before.  This means the functionality can be dramatically expanded to new situations.  Now it’s not just splitting the bill.  It’s collecting money as a group for a trip or concert.  It’s paying petty club dues like in fraternities.  It’s betting on Madden, repaying a debt for the bar, or even buying something off Craig’s List from a dorm-mate.  Nooch facilitates every one of those use cases and so many more.


 –  The Motorola RAZR was still in development and would become bizarrely popular  –  75% of US college students have smartphones
 –  Facebook is still the Winklevi’s idea  –  Zuckerberg is worth Billions
 –  MySpace is cool  –  You can login to MySpace with your FB account
 –  Making an iPod smaller was a big deal  –  Steve Jobs hailed as 2nd Einstein
 –  People carried cash  –  84% of college kids carry less than $50


Generation-M does things differently

But the technology is only half the story. The market has changed, too. Every bank in America is desperate for new account-holders to pump for fees in the face of declining revenue. And where better than America’s college campuses to find eager new customers, primed with (some) cash to spend but skeptical of credit cards and amused by the silliness of checks.  But interestingly, college students do not carry cash.  Gen-Mers are ready to be taken and the ones with college degrees are that much more likely to be lucrative customers long into the future.  (See our analysis of Nooch’s market research on college campuses to learn more.)

Bottom Line: banks need Gen-M customers and mobile payments – especially P2P – is the best way to get them.

So now companies like Nooch are attacking the Mobile Payments market with a new tenacity and a new dose of innovation. Nooch is building on the dramatic changes and progress from the last decade.  The failed payment companies each had their problems and many were unique.  But the opportunity for new innovation has never been greater than right now.  There is no longer any doubt that mobile payments – whatever form it takes – will dominate with several years. It makes too much sense and the technology AND security is already here.

Consumers must come first

And this coming revolution will come from a consumer-oriented strategy, not a merchant-oriented one.  It will come from solving a problem, not providing novelty with a neat gadget or gizmo.  College students have a problem today. Every time they need cash and don’t have it (how often do you leave your wallet somewhere or forget to even bring it?), they are looking for options.  Consumers, therefore, should be the target customer, not big retailers and merchants.

Just today, my buddy owed me $50 for some music I bought him.  He only had three twenty dollar bills. And this particular friend doesn’t usually overpay.  So he gave me $40 and promised to pay me the other $10 another time – the dreaded IOU.  Unfortunately, he lives over an hour away and I might not see him for weeks. And bringing up a $10 debt after a few weeks is rather petty and awkward.

If we had had Nooch, my friend could have Nooch’ed me all $50, or just given me the two $20’s and the remaining $10 via Nooch. Or he could have given me $60 in cash and I could refund him $10 through Nooch.  Solutions galore.  Instead, I’m out $10 and I won’t see him for a while… so I’ll probably just take the loss.  Shame.

The time is now.  Financial technology will finally catch up to the 21st century and find the right balance between functionality, simplicity and relevance for the P2P market.  Visa gets it.  Nooch gets it.  Will you get it?

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