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New entrepreneurs could claim the digital payment world

The startup culture applies its own rules while other payments players hesitate

New entrepreneurs could claim the digital payment world

There’s a fascinating article in the Oct. 14 New Yorker entitled “Bay Watched,” by Nathan Heller, which chronicles a new generation of entrepreneurs somehow combining 1960s-era disdain for long-held business rules with a 21st Century supple and serious ability to make real money through digital startup enterprises.

According to Heller, the epicenter of this phenomenon is San Francisco, which is what he says has been described as the capital of the “three-business-card life”—meaning, while a person spends most of his or her time working on one tech-related business startup, he or she keeps an equity position or raises funds for two or three others—betting that one or more will succeed.

Heller concludes that this newly reinvented San Francisco is home to a generation in development that is “creative, thoughtful, culturally charismatic, swollen with youthful generosity and dreams—and fundamentally invested in the sovereignty of private enterprise.”

What makes this article relevant here is the news that Ebay—already owner of PayPal—will acquire Braintree, a payments platform that can be situated on an app or a website. Braintree’s payment platform already powers next-generation innovators such as Airbnb (a community marketplace for accommodations), OpenTable (a clearinghouse for restaurant reservations), TaskRabbit (another clearinghouse to find errand-goers), and Uber (an alternative way to connect people needing rides with those providing rides.)

Each one of these very successful startups operates primarily through mobile devices and computers. And each one—you guessed it—is based in San Francisco.

Braintree’s mobile application, Venmo, “gives people an easy way to pay each other using their mobile devices and leveraging social payments,” it says. Ebay hopes to add the payments volume represented by Venmo to its PayPal mobile payments. And PayPal, by the way, has had mobile payment volume of more than $20 billion this year.

It’s not just Ebay eying this space. Spindle and Cardis USA recently announced a partnership to create “a comprehensive payments ecosystem that will be more attractive for everyday small purchases.” Significantly, they expect that merchants that use their new network may save up to 50% compared with debit and credit card transaction fees.

Frost and Sullivan, the London-based business consultant, looking at the bigger picture, predicts that mobile point of sale payment-based solutions will see a market revenue growth from $2.53 billion in 2012 to $3.51 billion in 2017.

“[Mobile] POS payment-based solutions have become a viable option for small enterprises and direct sellers owing to its cost-efficiency, security, and easy to use features. This niche market is also the perfect entry point for new challengers to deploy their innovative payment systems based on a cost-effective business model,” says Jean-Noel Georges, global program director for Frost and Sullivan.

All of which is to say: Everybody else should watch out.

It’s been demonstrated already just how complicated the development of electronic payments has devolved, with all the different stakeholders, technologies, interconnections, pilot projects, and regulators—to name just some of the elements—wrapped up in a confusing ball of tangled promises, suspect business cases, and iffy end results.

Ovum, a business research firm, puts it this way:

“The level of hyperbole and confusion in the market is increasing. Many existing payment providers and potential new entrants are unsure of how to proceed in an industry that is evolving almost daily. It is critical that the growing number of businesses, vendors, and service providers gain a better, and more balanced, understanding of the nature of these developments, and how they are impacting and being impacted by existing payments infrastructure,” says Gilles Ubaghs, senior analyst.

While all this is going on, the target market—all of us consumers—needs solutions now. A lot of us are finding them.

Fiserv surveyed 2,500 Americans about person-to-person payments and in what forms those payments take place. Cash and checks still predominate—but the electronic payment forms aren’t that far behind. According to the survey, 88% of respondents said they sent money to another person in the last 12 months. Of these, 56% used cash, 41% used checks, and 31% used an online method such as a bank-based P2P payment service—or PayPal

Looked at another way, the survey found that 60% of respondents made a payment at least once a month using a laptop or desktop computer; 30% made a payment via their mobile phone; and 22% made a payment via their tablet.

Fiserv offers the P2P solution Popmoney to its bank clients, and surely it and they are heartened by the survey result that indicated 79% of respondents would be open to using a digital person-to-person payment service from their bank.

Which puts banks back into the picture, fortunately. ABA endorses Fiserv generally for its array of payments solutions. It also operates ABA Prepaid, with Transcard, which allows participating banks to tie their customers’ payroll, gift, student, traveler, and online payments to the bank brand.

But is that enough?

As Fiserv’s Tom Roberts, senior vice president of marketing, Electronic Payments, says: “Just as the ways people communicate with each other have become more digital, their payments to each other are becoming more digital as well.”

The potential promised by easy, quick, digital payments certainly has been recognized by the guitar-playing, equity capital-raising startup culture in the Bay Area—and they are seriously claiming ownership of it.

Sources for this article include:

Cash, Check or Text; How Americans Pay Each Other

Frost & Sullivan: Electronic Funds Transfer-Point of Sale Terminals Rapidly Moving towards Mobile Platforms

Success of mobile payments dependent on significant infrastructure investment, says Ovum

Ebay Inc. to acquire global payments innovator Braintree

Spindle and Cardis USA Introduce Solution that Lowers Costs of Low-Value Payments

American Bankers Association

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at jginovsky@sbpub.com.

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