This is a follow-up commentary to a previous post "Enstream: A Mobile Moneris or Dexit Revisited?" published on June 15, 2009. The article was an attempt to contextualize the beta launch of Zoompass within the current Canadian and international mobile billing and payments ecosystem. The fundamental question posed was "Does this venture have a chance to succeed, or is it doomed to fail like so many other attempts in the past?" And if it does succeed, what are the implications for the market?
Two months later, and after spending some time interviewing Enstream management, along with management from other companies within the Canadian mobile ecosystem, I will call an early verdict:
Zoompass is destined to succeed and here is why:
1. The carrier coalition (T.TO, BCE.TO, RCI.TO) funding the Enstream venture is more committed than ever after initial feedback. So far, it has refrained from the typical eye gouging that makes these types of ventures implode early. Most of its competition would come from chronically underfunded start-ups - so it has a definite capital advantage (and apparently patience).
2. The bench strength is deep. Most of the management team and the 35 or so developers iterating through the beta have been poached from companies like Verisign (VRSN.Q) (Mqube), which suggests deep experience in mobile SMS-based billing gateways, and mobile transactions.
3. There is pent-up demand. Canada is behind countries like Kenya in getting mobile micro-payments launched. In a study conducted by Gartner, Inc, it forecasts that 190 million people worldwide will be making mobile payment by 2012, and that the current annual growth rate is 70%. To put this into perspective, as of 2009, there are 250 million smart phones in the market. Recent North American surveys conclude that between 26% and 32% of mobile users would immediately adopt mobile payments if they were offered. These surveys, regardless of variances in methodologies, appear to point to mass adoption potential. The tweetsphere appears to indicate some consumer impatience for access to such services.
4. Target market is trained and willing. Zoompass is targeted at the 18 - 30 age cohort. There is almost 100% intersection among this group of previous experience downloading paid mobile content and applications thanks to iTunes, PayPal, and a myriad of on-portal and off-portal mobile content malls. There is little education required, and mobile micro-payments are a simple extension of what they are already accustomed to doing.
5. A vast majority of the capital risk is willingly borne by the consumer. Unlike previous failed electronic payment solutions, there is little financial risk at the endpoint assumed by the provider or merchants. Consumers have already invested in the wallet for other reasons. As a result, Zoompass can be tweaked relatively efficiently, with limited capital consequence, as it gets feedback from consumers. With limited capital risk, there is more flexibility in the design of potential offerings. More importantly, there is limited scaling friction caused by capital constraints. In this regard Zoompass is more like Twitter, less like Interac.
6. Zoompass is being developed collaboratively with its target market. Unlike many previous attempts at new electronic payment systems, Enstream is fully engaged in a collaborative design process with its potential consumers. In the end, this approach is most likely to result in success because it is not pushed into the market. The consumer is pulling it. Enstream has ripped a page from the US-based handbook of "how to launch a successful digital application". It is being very un-Canadian in its aggressive interaction via social media, ensuring better buy-in from a highly educated, elusive, and often cynical target market.
Where can this go?
Ultimately, Zoompass has its sights set on about 20 million subscribers with a factory installed application that includes active RFID and NFC components. The carriers have a little pull with handset manufacturers, so the ultimate factory install objective is obtainable. As well, Zoompass is not interested just in the cash that resides in your wallet, it is interested in the whole wallet. Think about what is in your wallet right now: Credit cards galore, various gift cards, a coffee card, loyalty cards, a phone card, your license, your health card, maybe a transit pass.
What does this mean to the mobile ecosystem and to Canadian consumers?
First, the Canadian consumer...
1. A potential carrier oligopoly in mobile payments is a risk to consumers. Already, Canadian mobile subscribers pay some of the highest mobile bills in the world due to market distortions caused by the CRTC and to a related lack of competitive choice. The Enstream Joint Venture represents a potential to perpetuate oligopoly risk. The extent of the oligopoly depends upon how successful Enstream is in co-opting the financial services industry into its offerings.
2. A potential meta-oligopoly only perpetuates risk to consumers. Canadian financial institutions could band together as in the past (e.g. Interac) in order to offer an alternative mobile payments solution. Already there are whispers of Big 5 summit meetings on the topic of a competitive offering. Before consumers begin to cheer, this only represents two choices operated by a total of 8 very large institutions. It doesn't necessarily create a fully baked competitive environment that gives consumers adequate choice. As an aside, Canadian financial institutions are simply not wired to build out consumer services iteratively like Enstream is doing, so the chances of success are more limited, which means that consumers could be more likely than not saddled with a mere oligopoly.
3. But what about the new broadband spectrum wireless carriers? The future entry of new carriers such as Globalive (Wind Mobile), Publix Mobile, and DAVE Mobile could present a viable alternative in mobile payments for consumers by creating its own JV/coalition. Possibly. However, these folks have a lot on their plates just to get services launched by 2010. In the meantime, Zoompass could deliver to the Enstream JV an insurmountable lead before new players could respond. Independent developers are mostly ignored by capital markets, so there is not likely to be any effectively funded, meaningful competitive "white knights" appearing out of the woodwork any time soon.
4. RIM to the rescue? New Nortel (RIM) may have a couple of things cooking but probably at an earlier stage of development than Enstream. It could leverage its balance sheet to acquire (similar to Nokia buying Obopay) but it has been mostly dabbling. As stated in June, RIM is likely to try to leverage its new PayPal relationship before it hunts for another Obopay. Even still, what if you are an iPhone user?
In the not-to-distant future, it is feasible for someone at the Canadian Competition Bureau to have another file dropped on their desk. Ironically, the near certain success of Zoompass may create some market uncertainty for investors as consumer protection raises the specter of government intervention.
Now the Canadian mobile ecosystem...
1. There are probably some small exploitable market niches around the edges of the possible Zoompass juggernaut. Enstream is not targeting what I would coin the "Money Mart Cohort". These are people with limited traditional banking access, and no credit. A vast majority are the working poor and recent immigrants who tend to be "cash-oriented". Depending on sources, this group represents between 10% and 12% of the population depending upon the year. For over a decade now, these people have already been engaged in card-based micro-payments by buying billions of long-distance minutes and pre-paid mobile time. The carriers have been making hay with this group for a while. An independent mobile payments offering could sprout up for these people. However, the size of the market limits the amount of potential competitors in this niche. And there will be a lot of microcaps scrapping over this business. Even with considerable consolidation, there are likely to be a couple of winners and a lot of losers in this market.
Other interesting potential mobile payment market niches could include payroll, government stipend, and international remittance. The common thread among these solutions, is that they are not necessarily micro-payments, and they do not have person-2-person elements to them.
2. Start-ups could take their cookies and simply leave the room. Enstream would certainly be happy. Micro-payments are a worldwide phenomenon with much larger opportunities outside of Canada. Enstream management states that it is (for now) a Canadian-only venture. Vendors with current international footprint may choose to apply their limited capital resources to exploit those markets more aggressively. Investor may also see Canadian companies with good IP and weak balance sheets snapped up by foreign interests over the next few quarters. This is a good thing for shareholder of such companies.
3. Complimentary and indirect competitors may find opportunities to hitch their fortunes to Zoompass. This could be a good way for a diverse group of vendors to maximize shareholder value. Enstream has been fairly vocal that it would like Zoompass to be an open platform for other developers and that it has (as alluded to earlier in this post) designs on getting a piece of the entire wallet. This is the exciting stuff for the mobile ecosystem based on feedback that I am receiving. However, I am skeptical that it will truly be an open development platform. Is Apple's Safari really an open platform? Enstream will pick its partners regardless of its current public postering. Notwithstanding, opportunities abound for partnerships in gift and re-loadable cards, loyalty management, EMR/health services, government services, RFID, POS, and NFC. There are potential technical and infrastructure partnerships related to billing systems, and provisioning along with cloud services related to transaction processing, ecommerce, identity and security. Although most of these solutions are likely to be provided by large cap vendors, there is likely room for Canadian small-cap, micro-caps and start-ups to participate (and a spot for investors to potentially benefit from considerable gains). As the solution matures, there are likely to be as of yet unimagined consumer applications that can be developed for commercial benefit.
In summary
Zoompass is here to stay. There is demand for mobile payments, success elsewhere in the world is well documented, and Zoompass appears to be destined for a successful launch in 2010. It may experience some bumps along the way, but it will likely be a market force within the next 24 months.
With its success will come uncertainty related to consumer choice, even if there is a direct competitive response from the financial services industry. Will there be a consumer outcry that compels government regulators to force the Enstream JV to open its platform to future competitors? If so, the ultimate benefit to shareholders of the main JV participants could be muted.
Investors should expect a lot of angst among the myriad of smaller under-capitalized players that have been developing solutions in this space so far. How does a management team respond to this competitive cluster bomb? Those that underestimate or ignore the potential for Zoompass do so at their peril. Shareholders should expect, and even encourage, increased M&A activity and strategic recalibration. Some companies may even attract new investment.
The impending Zoompass launch, and its likely success, should make thing very interesting for some time in the Canadian mobile market. Some investors could make some nice returns, others not so much. It will all depend on the reaction of management teams and subsequent execution. As always.
Please feel free to comment.
Disclosure: I do not own shares of any of the companies mentioned in this post.
Showing posts with label Enstream. Show all posts
Showing posts with label Enstream. Show all posts
8/18/09
6/15/09
Enstream: A Mobile Moneris or Dexit Revisited?
Yesterday, Telus (T), Bell, and Rogers (RCI) launched mobile payment solution branded Zoompass, which is developed and operated by Enstream, a new mobile payment solution platform, which also just happens to be a three-way joint venture among them. This post will attempt to contextualize Enstream (where the intellectual property resides) within the mobile ecosystem. Will it dominate? Will it survive? As with most things, its future is probably somewhere in the middle and it could morph into something entirely different.
I have attempted to sign up for the beta service. The sign up process appears to be fairly straightforward from the web, although the system hangs once I have logged into my new account from my Blackberry 8700. I still have not got to the point where I can use it.
Mobile Payments Will Have a Major Worldwide Economic Impact
An earlier blog post analyses the importance of billing systems in a race to become top dog for mobile applications. Mobile payment systems are a genus closely related to billing systems within the mobile ecosystem, although with probably more far-reaching economic implications, especially for emerging economic blocks such as BRIC and MENA. Mobile payments have the ability to accelerate the flow of funds, improve liquidity, and improve economic access for hundreds of millions, closing in on billions, of people worldwide (more on that later). Mobile payments systems are operating in countries as varied as Kenya, Korea, the Phillipines, and Britain, which has have helped to provide a glimpse into a potentially massive worldwide opportunity.
Is Enstream Relevant?
Leadership at Enstream appears to understands the global potential, and is already positioning itself within an inferred world market opportunity. The question is; can it get there from here? Possibly. But there is a lot of work to do and the JV is nowhere near to being a first mover in the industry. Even in Canada. The inter-relationships and possible connectedness among participants is extremely complex with carriers, software vendors, device manufacturers, distribution channels, retailers, banks, and payment networks all vying for bits of transaction value. Many of those bits are still to be defined, and Enstream has to stake out its claim quickly.
Consumer Feedback Is Negative
For now, the Zoompass solution offers some additional convenience for Canadian consumers, although many appear to be choking on the high fees currently advertised at $0.50 per transaction. Consumer feedback via the blogsphere and twitter has been decidely negative related to fees and the potential for competitive concentration. CEOs that have been in the market for a while have all commented that the fee structure, as it stands, is a likely impediment to adoption.
Commentary From the Ecosystem Itself is More Positive
Notwithstanding the fee structure, most of the commentary offered by CEOs already operating in the ecosystem has been balanced and considers what Enstream means to their companies, to Canadian consumers, and to the world.
Universally, CEOs believe that it is a positive development that Canadian carriers are getting serious about mobile payments. Most of the vendors in the Canadian market are under-capitalized start-ups that have struggled to convince carriers of the market potential in Canada. As one CEO put it, carriers are finally showing that they "get it". Some believe that Enstream could behave as a universal gateway to the major carriers for independent mobile payment applications, which may kickstart another wave of development in the vertical.
Zoompass connects mobile transactions to a co-branded prepaid, reloadable Mastercard - not subscriber accounts. Presumably, this hybrid card system offers users maximum flexibility for consumers to withdraw funds via ABMs, pay via POS, and to transact via SMS or NFC from a mobile handset. There are already several prepaid Mastercard programs deployed, with many others in the works, which all appear to operate within a similar framework. Many CEOs believe that the Enstream platform may be an opportunity to better connect current prepaid programs to mobile devices both electronically, and at the POS.
Others believe that this move by the carriers may spur on more aggressive competition from banks and payment networks, which could deliver competitive gateway infrastructures, and ultimately better choice and lower costs to consumers. Several financial institutions are currently at early stages of developing applications to connect mobile devices directly and securely to consumer bank accounts for mobile payments. However, unless projects are sped up, consumers may have to wait several quarters until serious choice becomes available.
Some Global Comparatives
Device manufacturers such as Nokia (NOK), RIM (RIMM), and Apple (APPL) have a broader world view on mobile payments. In March 2009, Nokia made a substantial strategic investment in Silicon Valley-based Obopay. Obopay operates with a similar model to Enstream, but with deployments in both the United States and India. The price point is $0.25 to send up to $1000 and nothing to receive funds. In the meantime, RIM is actively testing ideas and pursuing multiple opportunities in the space, and has recently announced a partnership with payment giant PayPal (EBAY) to deliver billing and payment solutions for its AppWorld venture. PayPal Mobile is considered by many to be competitive to the new Enstream venture.
Euronet (EEFT) is a significant electronic transaction processor with 421,000 prepaid wireless, long-distance, and gift card endpoints worldwide. In 2007, it acquired RIA, the third largest money transfer agent in the world, and then last year attempted but failed to buy MoneyGram, the second largest money transfer agent in the world behind Western Union. Euronet, through its electronic network, is beginning to deliver a mobile payment and remittance infrastructure that can be cash-based. And here is why.
Between 80% and 85% of all mobile subscribers in emerging economies do not have bank accounts (not to mention credit), nor do they have easy access to local banking infrastructure. Most emerging economies operate as cash-based societies. This is a main driver behind the proliferation of prepaid subscriptions in BRIC, MENA and Latin America. Euronet and others like it are attempting to deploy ways to digitize cash via local merchants without banking infrastructure. By comparison, the Enstream solution appears to need banking infrastucture.
____________________________________________________
Bottom Line: Ecosystem
The Enstream launch is seen as positive by participants in the ecosystem as long as it evolves to a platform for multiple mobile payment applications tha can be offered to Canadian consumers. Enstream states that it is looking for development partners. The question is how economic will it be for independent developers to participate. Without participation by third-parties, the concept may struggle.
Bottom Line: Consumers
Consumers appear mistrustful of the enterprise, which implies that there is a branding deficit shared by the three founding partners that could impede progress. Pricing has been described by consumers and others in the ecosystem as the most immediate concern and potential barrier to adoption. Objections and barriers have been erected quickly by consumers, which may require time, capital, and effort to overcome before traction can be gained.
Bottom Line: Market Share
As for worldwide expansion, by comparison to other more advanced solutions worldwide, Enstream is late to the game and its business model may not be easily translatable to other regions of the world. As a result, Enstream should be viewed as regional play limited to the Canadian marketplace, with potential to buy its way into other markets in the future.
Bottom Line: Investors
Investors should expect that the JV will contribute little to the performance of RCI, T, or BCE over the next few years, unless the business model is revamped to go viral, which is quite possible. From a cost perspective, Enstream could contribute to the accelerated extinction of "hard cards" on display in many convenience stores, saving millions of dollars in the channels.
I have attempted to sign up for the beta service. The sign up process appears to be fairly straightforward from the web, although the system hangs once I have logged into my new account from my Blackberry 8700. I still have not got to the point where I can use it.
Mobile Payments Will Have a Major Worldwide Economic Impact
An earlier blog post analyses the importance of billing systems in a race to become top dog for mobile applications. Mobile payment systems are a genus closely related to billing systems within the mobile ecosystem, although with probably more far-reaching economic implications, especially for emerging economic blocks such as BRIC and MENA. Mobile payments have the ability to accelerate the flow of funds, improve liquidity, and improve economic access for hundreds of millions, closing in on billions, of people worldwide (more on that later). Mobile payments systems are operating in countries as varied as Kenya, Korea, the Phillipines, and Britain, which has have helped to provide a glimpse into a potentially massive worldwide opportunity.
Is Enstream Relevant?
Leadership at Enstream appears to understands the global potential, and is already positioning itself within an inferred world market opportunity. The question is; can it get there from here? Possibly. But there is a lot of work to do and the JV is nowhere near to being a first mover in the industry. Even in Canada. The inter-relationships and possible connectedness among participants is extremely complex with carriers, software vendors, device manufacturers, distribution channels, retailers, banks, and payment networks all vying for bits of transaction value. Many of those bits are still to be defined, and Enstream has to stake out its claim quickly.
Consumer Feedback Is Negative
For now, the Zoompass solution offers some additional convenience for Canadian consumers, although many appear to be choking on the high fees currently advertised at $0.50 per transaction. Consumer feedback via the blogsphere and twitter has been decidely negative related to fees and the potential for competitive concentration. CEOs that have been in the market for a while have all commented that the fee structure, as it stands, is a likely impediment to adoption.
Commentary From the Ecosystem Itself is More Positive
Notwithstanding the fee structure, most of the commentary offered by CEOs already operating in the ecosystem has been balanced and considers what Enstream means to their companies, to Canadian consumers, and to the world.
Universally, CEOs believe that it is a positive development that Canadian carriers are getting serious about mobile payments. Most of the vendors in the Canadian market are under-capitalized start-ups that have struggled to convince carriers of the market potential in Canada. As one CEO put it, carriers are finally showing that they "get it". Some believe that Enstream could behave as a universal gateway to the major carriers for independent mobile payment applications, which may kickstart another wave of development in the vertical.
Zoompass connects mobile transactions to a co-branded prepaid, reloadable Mastercard - not subscriber accounts. Presumably, this hybrid card system offers users maximum flexibility for consumers to withdraw funds via ABMs, pay via POS, and to transact via SMS or NFC from a mobile handset. There are already several prepaid Mastercard programs deployed, with many others in the works, which all appear to operate within a similar framework. Many CEOs believe that the Enstream platform may be an opportunity to better connect current prepaid programs to mobile devices both electronically, and at the POS.
Others believe that this move by the carriers may spur on more aggressive competition from banks and payment networks, which could deliver competitive gateway infrastructures, and ultimately better choice and lower costs to consumers. Several financial institutions are currently at early stages of developing applications to connect mobile devices directly and securely to consumer bank accounts for mobile payments. However, unless projects are sped up, consumers may have to wait several quarters until serious choice becomes available.
Some Global Comparatives
Device manufacturers such as Nokia (NOK), RIM (RIMM), and Apple (APPL) have a broader world view on mobile payments. In March 2009, Nokia made a substantial strategic investment in Silicon Valley-based Obopay. Obopay operates with a similar model to Enstream, but with deployments in both the United States and India. The price point is $0.25 to send up to $1000 and nothing to receive funds. In the meantime, RIM is actively testing ideas and pursuing multiple opportunities in the space, and has recently announced a partnership with payment giant PayPal (EBAY) to deliver billing and payment solutions for its AppWorld venture. PayPal Mobile is considered by many to be competitive to the new Enstream venture.
Euronet (EEFT) is a significant electronic transaction processor with 421,000 prepaid wireless, long-distance, and gift card endpoints worldwide. In 2007, it acquired RIA, the third largest money transfer agent in the world, and then last year attempted but failed to buy MoneyGram, the second largest money transfer agent in the world behind Western Union. Euronet, through its electronic network, is beginning to deliver a mobile payment and remittance infrastructure that can be cash-based. And here is why.
Between 80% and 85% of all mobile subscribers in emerging economies do not have bank accounts (not to mention credit), nor do they have easy access to local banking infrastructure. Most emerging economies operate as cash-based societies. This is a main driver behind the proliferation of prepaid subscriptions in BRIC, MENA and Latin America. Euronet and others like it are attempting to deploy ways to digitize cash via local merchants without banking infrastructure. By comparison, the Enstream solution appears to need banking infrastucture.
____________________________________________________
Bottom Line: Ecosystem
The Enstream launch is seen as positive by participants in the ecosystem as long as it evolves to a platform for multiple mobile payment applications tha can be offered to Canadian consumers. Enstream states that it is looking for development partners. The question is how economic will it be for independent developers to participate. Without participation by third-parties, the concept may struggle.
Bottom Line: Consumers
Consumers appear mistrustful of the enterprise, which implies that there is a branding deficit shared by the three founding partners that could impede progress. Pricing has been described by consumers and others in the ecosystem as the most immediate concern and potential barrier to adoption. Objections and barriers have been erected quickly by consumers, which may require time, capital, and effort to overcome before traction can be gained.
Bottom Line: Market Share
As for worldwide expansion, by comparison to other more advanced solutions worldwide, Enstream is late to the game and its business model may not be easily translatable to other regions of the world. As a result, Enstream should be viewed as regional play limited to the Canadian marketplace, with potential to buy its way into other markets in the future.
Bottom Line: Investors
Investors should expect that the JV will contribute little to the performance of RCI, T, or BCE over the next few years, unless the business model is revamped to go viral, which is quite possible. From a cost perspective, Enstream could contribute to the accelerated extinction of "hard cards" on display in many convenience stores, saving millions of dollars in the channels.
In the end, we may see Enstream positioned as a Moneris-type of mobile payment infrastructure that would likely compete directly with Moneris itself, or some other bank-based mobile payments system in Canada. As for other threats, handset manufacturers could provide substitution through some as-of-yet developed applications. Notwithstanding, to be successful Enstream would need to become a neutral Canadian platform for competing applications from local providers to multinationals.
Bottom Line: Joint Venture
However, there is no guarantee the the founding partners can resist meddling, or poking each other in the eye, long enough to give the venture an opportunity to feel its way towards success. For every successful JV among Canadian institutions - whether banks or telcos - there have been dozens that have failed.
I do not own shares of any of the Companies mentioned in this post. As well, I have chosen to generalize the commentary as opposed to attribute direct quotes.
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