Posts by Ed Kountz (bio)

Ed Kountz | May 09, 2008, 10:31 AM
Alternative Payments Update : Consumer Drivers in a Multi-Sided Market // U.K.’s Carphone Warehouse Goes Mobile (Payments)

Clients and prospects will likely already know my views on the space of alternative online payments (PayPal, BillMeLater, Google Checkout and eBillMe, in particular).

For those who don’t, here’s a quick synopsis:

While credit cards remain the number-one online consumer payment option for purchasing goods and services, this is not necessarily a function of having been designed for web usage.

Put simply, credit cards weren’t designed for the web. But their ubiquity in the U.S marketplace….and the leading role the U.S. played in the early days of e-commerce…has made cards (debit as well as credit) the natural way to facilitate online transactions. JupiterResearch survey data reflect this.

Since then, of course, a variety of other payment options designed for Internet usage have emerged. Some, like PayPal, BillMeLater, Google Checkout and eBillMe, have been relatively successful. Others, like Beenz and Flooz, have come and gone. The difficulty of balancing development of a multi-sided market—in which success is predicated on overcoming the “chicken and egg” nature of generating enough consumer demand, while ensuring adequate merchant acceptance—can be significant, and requires resources adequate to sustaining visibility, and generating demand. Not a path for the faint of heart, or weak-of-capitalization.

A new JupiterResearch report indicates that consumers who are turning to alternative online payments are doing so for two primary reasons. The first is security -- in the form of not having to enter card information online. The second, convenience, is related—as anyone who has ever wanted to make a purchase on a PC upstairs, using a credit card located in a wallet or purse a floor or two away has found. In a time-challenged society, speed of throughput takes on many forms. True, consumers report wanting the ability to still use cards, when they want to, reflecting the value of consumer payment choice. But while it takes time to expand new market offerings, JupiterResearch believes that the significant expansion in merchant acceptance over the last 18 months … and the consumer factors outlined above … bode well for the continued off-eBay expansion of PayPal, and the continued consumer adoption of BillMeLater and other services which can deliver on consumers’ needs by tapping into the speed, convenience and security aspects associated therewith.

link

Beyond online, another area in which managing the development of a multi-sided payments market will present challenges is in mobile payments. An interesting deal to note out of the U.K. this week on the subject. Monitise plc and Metavante, with whom Monitise plc is co-backer on their U.S. JV, Monitise Americas, announced the introduction of a mobile payments service tied to a prepaid payments card tied to, and distributed via, Carphone Warehouse.

Despite the name…a relic of the days when mobile phones weighed ten pounds and sat in the “boots” of vehicles…Carphone Warehouse is one of the U.K.’s largest mobile phone and phone accessory chains, making the inclusion of a Carphone Warehouse an interesting synergy in a prepaid-centric nation. In the U.K., Monitise plc operates the Monilink mobile banking and payments network, which is available to customers of HSBC, first direct, Royal Bank of Scotland, NatWest, Alliance & Leicester and Ulster Bank, plus the major UK network operators.

Ed Kountz | May 07, 2008, 09:21 AM
Amazon vs. NY State: Online Sales Tax and the Consumer Perspective

Amazon.com’s decision to file suit against the state of New York regarding that state’s newly-amended sales tax law brings the issue of sales tax collection and e-commerce back into spotlight.

Amazon’s complaint was filed against NY Gov. David Paterson, the state’s Dept. of Taxation and state tax commissioner Robert Megna, following the state’s decision to amend its tax laws in some interesting ways.

Traditionally, of course, Amazon and other e-tailers haven’t been subject to collecting state sales taxes on sales to state residents unless they had physical presence, such as a warehouse, in the state.

The NY changes amend the definition of “physical presence,” to include any e-tailer which does $10K or more in in-state sales through affiliated sites based in New York, beginning June 1. “Affiliate” websites—such as Amazon’s Associates Program—would be included under the new definition, and would necessitate the firm (and others) to collect sales tax on everything sold in the state.

click here

Amazon’s complaint asserts that it does not have any in-state representatives “soliciting on its behalf,” and is seeking to have the ruling declared invalid.

This is less a payments issue than a taxation and legal one, of course. Yet it is worth noting in light of recent JR survey data, which shows that more than a quarter of all online users indicate that one reason they shop online is because of their ability to avoid paying sales tax on those purchases.

Of course, those numbers also suggest that most consumers DON'T factor in sales tax advantages in their decision to shop online...given other issues like traffic, cost of gas, etc, the time and convenience advantages of purchasing books or CDs online, for delivery, are clear. But the number who seek the sales tax advantage is large enough to give cash-strapped states renewed interest in revisiting the topic.

This battle is still in its early stages, but if the state prevails look for potential beneficiaries among e-tailers who can prove they do not have a “physical presence” in the state, and who market to this sub-segment of the market accordingly. Of course, look also for attempts to restructure the “affiliate” agreements in compliance … and many more updates in the interim.

Ed Kountz | May 02, 2008, 10:35 AM
Fee Fairness-Back Again // a Belated Goodbye to the ExpressPay Fob

The perennial discussion of credit card industry fees is on-again, with a bullet, in Washington. Thursday saw the Office of Thrift Supervision roll out a seven-item plan designed to tackle issuer practices it considers unfair. The plan would, among other things, give consumers more time to pay bills and eliminate rate increases and double billing practices.

This follows on a Senate proposal, unveiled by Democratic Senator Christopher Dodd on Wednesday, which combined some of these same proposals with others, including eliminating fees for phone-based credit card bill payments.

Regardless of how these initiatives play out, issuers find themselves facing something of a challenge. Since 1990, penalty, cash advance and other fees (with the exception of annual fees) have come to represent an increasing portion of of credit card industry income, as no-annual fee and zero-percent APR offers became early victims of the industry competition. At the same time, the rise of “payments-plus” products (notably, rewards cards, which give consumers something back beyond the trasaction, in the form of miles, cash, or other perks) have increased costs of maintaining that relationship (though on the other hand, have successfully increased consumer spend in ways unimagined in the days of "standard" cards).

In spite of the challenges, an opportunity exists. JupiterResearch survey data indicate that 86 percent of U.S. online cardholders surveyed would like their primary credit card issuer to explain its fees and policies, according to the 2007 JR Financial Services Consumer Survey. Proactive steps to adapt to the new reality, and better align policies with consumers’ expectations for “fee-fairness” in the process, could offer one of the clearest opportunities to realign market share visible in the U.S. today. The go-go days of the 60s-80s are undoubtedly over, but innovations that tap into that 86 percent would offer access to a clear majority of U.S. cardholding consumers.

On another note, MasterCard reports there are now more than 28 million MasterCard PayPass cards in circulation worldwide, accepted at more than 109,000 merchants in a variety of environments in 24 pilot/ rollout nations.

While progress on the supply-side continues, the U.S. in particular still needs greater visibility around value and usage. Consumers who try, tend to become repeat users. But in many metro markets visibility remains limited, a point I’ve made before and a challenge for widespread U.S. adoption. On that note, a belated RIP to the American Express ExpressPay key fob. While the fob itself never achieved widespread visibility, as a user since its introduction, I found great value in the concept of being able to leave the wallet at home. Form-factor innovation, while obviously not cheap, made ExpressPay the contactless payment option I found most valuable, on-the-go. When my ExpressPay fob becomes inactive in July, I for one will miss it.

Ed Kountz | May 01, 2008, 07:04 AM
Web 2.0--Startups Seeking Young Adults

Some of our more popular recent research has centered on the payment habit differences between young adults—whom we define as those online users 18-34—and older online adults, or those who are 35 and older.

Chief among these changes, of course, is higher ownership and online usage rates of debit cards, but other examples (including relatively higher rates of usage of P2P payments services, and higher overall interest in mobile payments) are also evident.

An upcoming JupiterResearch report will consider these changes in the context of online behaviors and financial services needs specifically for 18-24 year olds—the much-vaunted Millennial online user category, for whom habits have not yet been as deeply established and for whom instant communications, digitalization and online and mobile technologies have become a natural extension of daily life.

With that in mind, it's worth noting the firms who are positioning to appeal, within a Web 2.0 environment, to the habits and needs of young adults. Had a recent conversation with UpDown.com, an online investing community/ social networking site aiming (the firm says) at online users 18-34. In sum, the firm seeks to add community to the online investing scene, and will reward within its investing contests financial incentives for those who beat the S&P 500. Still early days…and given the relatively lower level of investible assets among young adults, too early to declare success. Plus, firms like zecco.com and TradeKing are also seeking to a similar goal, but worth watching nonetheless. The average age of an updown.com user is 29, the firm reports, so an interesting positioning in terms of age.

And our numbers repeatedly show the outsized ownership of student loans among young adults. Another startup, Fynanz Inc, is leveraging the credit crunch to bring a P2P lending flavor to student loans. The firm originates student loans, and like other P2P lending sites brings together lenders with borrowees to make a market in student loans, wich Fynanz originates. While a targeted niche in the P2P lending space, worth watching given the slowdown in the broader student loan market (after all, it's not like demand will disappear)…but the firm will need to expand nationwide, and like other emerging two-sided markets create an equitable balance between both sides. Easier said than done, but an interesting concept with a memorable brand.

Ed Kountz | April 30, 2008, 10:04 AM
The return of US mobile payments...different this time around?

Welcome to JupiterResearch’s online home for insights and analysis of the consumer payments space. Check back with this space regularly over the coming weeks and months, and I look forward to your comments and feedback as my blog evolves.

It seems fitting to begin with a few updates from an area of perennial interest and, at least in the U.S., modest developments—mobile payments. Those of you with whom I’ve spoken in recent weeks know that JupiterResearch’s official position on the short-term potential for U.S. mobile payments is cautious. We see the value and changes, but also see the required habit shift and remaining obstacles. Many of you saw my recent report on remaining challenges for mobile proximity leveraging Near-Field (NFC), including ecosystem, business model and handset availability issues.

And upcoming research will delve into the topic in greater detail…so stay tuned.

That said, recent weeks have seen a number of US-centric announcements on the topic. These include:

--Sprint Nextel launching a downloadable mobile wallet on 18 devices from LG, Sanyo, Motorola and Samsung, called MyMoneyManager, powered by PayPal;
--Citibank and Obopay, announcing in April that Citi would be trialling Obopay’s mobile P2P payments service with US checking account holders. Obopay subsequently closed fourth-round funding, and more recently announced that Indian telecom Essar has taken a strategic stake in the firm
--Prepaid MVNO Trumpet Mobile, which (powered by Affinity Mobile’s MADE service) announced device availability at the nation’s Radio Shack stores and a deal around international remittances with Western Union. Affinity Mobile also announced a partnership with mobile banking provider mFoundry targeting underbanked consumers worldwide
--Amazon.com’s rollout of TextbuyIt, an SMS –based product comparison and purchasing service designed to give Amazon a mobile application consumers can use as an in-store shopping comparison device
--And several others

Certainly, the drivers for mobile payments are stronger than ever … even in the US. Yet the inhibitors are also significant, not least of which are a variety of other payments options and a lack of consumer interest, as measured by JR survey data. Not least of which, supply-driven expansion of contactless payments has successfully seeded the market with contactless cards, but the recent AmEx decision to end its payments fob indicating that the vision of any-token payments requires heavy marketing support and education, particularly to overcome the cost issues associated with small-batch deployments. But the deals outlined above indicate that the bloom is truly back on the rose for mobile device-based transactions, and that (in spite of modest consumer interest) the space bears watching.

If you’re planning to attend CTST May 12-15 in Orlando, I look forward to connecting with you there. I’ll be on the analyst panel on contactless and mobile technologies, moderated by First Data, on the afternoon of May 13th. Hope to see you there.