Microsperience

It doesn’t seem like five minutes – well it’s about three months – since Sybase announced it was partnering Paybox. Now it’s buying them. Teresa Cottam asks what this means for the m-payments world.

Mobile payments are undoubtedly the sexy end of the telecoms and Internet billing industry. It’s a market that has been lavished with attention, and has received far more coverage than its revenues have deserved. For years, there was a lot of hype plus the chance to pay for your coke using your mobile if you happened to be in Scandinavia. But that’s changed. We now have examples of real and successful services, although nothing in this sector can be taken on face value. (see, for example, AFRICA: Mobile banking prospects remain positive)

The market is highly complex and needs consolidation

M-payment is a complex and fragmented industry and sits at the convergence of telecoms, banking and retail. We’ve been asked for some time who is going to dominate, how are these value chains going to work and which vendors are going to succeed? The answers are far from simple. What is certain, however, is that the vendor-side market is characterised by a large number of small vendors which approach the topic from a number of technical stances. The market is crying out for consolidation.

M-payment in the developing and developed world are different propositions

The way m-payment/m-banking is going to work will differ substantially between different world regions and even countries within regions. If you have an embedded and relatively efficient card payment industry and efficient electronic funds transfer (even if, like here in the UK, we’re not happy that it takes three to five days) why pay with your mobile? We’re also fairly confident about our cash in the UK, as on a world-scale forgery is quite low and street robbery uncommon. But we’re suspicious about the security of mobile technology.

In some countries the opposite is true. Cash may be risky because of forgery or the risk of having it stolen, or because it’s hard to send from one place to another. Mobile technology offers a relatively low-risk method of transferring value and substitutes for the lack of banking or card payment infrastructure.

So demand is, at least in part, shaped by the alternatives that are available.

It’s also shaped by the interaction of inertia versus need. All too often, the type of services offered just don’t appeal or are not marketed correctly. Ask 1000 people in the UK if they want to pay for their car parking with their mobile and I’m willing to bet the majority will decline. They have cash, they say. And why would they want to run up their mobile bill or depreciate their account balance (which means they’ll have to recharge sooner)? However, ask the same question to corporates who are struggling with processing parking payments for hundreds or thousands of employees and the answer may very well be different. People may grumble if they are forced to pay this way, but we know that oftentimes people grumble at any new way of doing things, and will probably change their tune if the price is cheaper and value-added services (such as remote top-up with alert) are wrapped around the service.

The supply side dynamic is unclear

For industry participants the key question has to be: can I make money from offering m-payment? is there enough potential revenue for me to invest? does it offer other value-adds such as increased stickiness and loyalty? never mind fraud – how am I going to manage all the customer support issues and repudiation risks? From an operational point of view operators need to consider whether they want to take on the risk of being a bank – and even whether they’re permitted to be one? Do customers want another brand to entrust their cash to? Or would they really prefer their banks/card company to offer the service, with the communications infrastructure powered by the operators but clearing/banking and customer care provided by banks?

Look at this excellent article on TechCrunch Mobile Payments Getting Traction On Social Networks, But Fees Are Sky High by Michael Arrington, and don’t forget to read the ‘lively’ discussion below it! The point being made is that operators charge too much for m-payment services, which means merchants are disinclined to accept m-payment.

Couple this with the fact that there are plenty of payment alternatives – from premium SMS and drop dialling to landline billing and web-based e-billing via mobile or fixed browser and so on – and that alternatives such as Paypal and Visa are not just going to roll over and you realise there’s some way to go before this market reaches maturity.

So why Paybox?

So what’s going on with Paybox? First glance suggests it’s a lovely fit with Sybase’s mBanking 365 (launched just over a year ago) which is aimed at the financial services industry and supports realtime interaction between banks and their customers, two-way banking, authentication and marketing. Paybox will add to this mix remittance services, m-payment, mobile top-up and m-billing (ie the ability to pay bills via the mobile).

Next, look at the customer bases. Paybox has installations across Europe, Americas, North Africa, the Middle East and Asia. Sounds good but despite having 20,000 merchants signed up it only supports around 15 million subscribers. Contrast PayPal, for example, which manages over 164 million accounts. However, consider that Sybase has relationships with 700 mobile operators which have around 3 billion mobile subscribers between them. So clearly there is a cross-selling opportunity here for Sybase.

The history of Paybox, however, has been somewhat rocky – frankly for some time it was a vendor of technology that was ahead of its time. But even so, the fit is good, so shouldn’t we be positive? A cautious ‘yes’ I would say, although try not to get too carried away with the romance of m-payment. The timing of the Sybase deal seems somewhat questionable, for example. I can only think of two reasons why Sybase would be quite so hasty in buying its partner of three months: option 1, a fire sale; option 2, the technology was so compelling that they simply couldn’t let anyone else get it. I will leave it to you to decide which of these scenarios you find most likely.

On the positive side Sybase’s strategy is consistent and clear – now it needs to show that it can capitalise on its acquisition. Of course we still don’t know how much it paid for PayBox. One suspects, however that it wasn’t too pricey and a modest price would be indicative of a reasonable punt that may well pay off in the longer term.

What does the deal mean for general payment/billing industry dynamics?

What’s likely to be the impact on the wider payment/billing market? Probably the two most important aspects of the deal are that it clearly demonstrates how vendors we might not traditionally associate with telecoms B/OSS are targetting the payment market; it also indicates much-needed consolidation in a sector that has far too many small vendors. However players are cautioned that while there’s plenty of technology to buy, and it’s definitely a good time to buy, the question is ‘is it worth buying in?’ Are B/OSS vendors better off concentrating on the really big B/OSS issues facing operators now, rather than speculating on future value chains given the current uncertainty?

Lots of questions remain and demand is still uncertain in many markets. However, at some point some companies are going to make it big in m-payment. Will it be Sybase? It’s far too soon to say. For Sybase the acquisition has a rationale to it, but my gut reaction is that if I were a typical B/OSS vendor or NEP, and had a limited budget to spend on M&A or R&D this year, then m-payment wouldn’t be on the top of my list. I do think m-payment will go to the industry ball one day soon, but unfortunately the so-called recession will mean it’ll have to wait a little longer before some fairy godmothers turn up to transform its fortune.

Find out more about the telecoms experience at Telesperience.