Peer to Peer payments

Europeans coming to visit or study in United States are usually surprised by dozens of differences between both places; the type of food, the transportation system, etc. However, nowadays Europeans need to add another difference to their list, peer to peer mobile payments which are only available in US.

Peer to peer mobile payments allow users to send and receive money with their friends by simply using their smartphones and without knowing other’s people account. Currently there are several applications available such as Venmo, Square Cash, Google Wallet, PayPal, Dwolla or Clinkle. All of these applications solve the same “job to be done” which is to transfer money in a convenient and easy way. However, each one of them has several features that make them different from the rest.

Analysis of differences between applications

Venmo brings together mobile payment and social network. It allows transferring money between Facebook friends registered on the platform. Moreover, Venmo also allows users to comment on the payments done by their friends, which helps to make the payment process fun and engaging. For those users that don’t want to share their payments it is possible to change the privacy setting to avoid sharing payments details with their contacts.


Square cash is the easiest application from the user perspective since it does not require that the person receiving the money is registered on the platform. The recipient receives an email where he needs to introduce his debit card to finalize the transaction. Contrary to other applications, Square Cash is only available for debit cards; it does not accept either credit cards or bank accounts.


Google Wallet apart from allowing users to transfer money between accounts, Google Wallet let users to attach coupons, gift cards and loyalty cards to their accounts. Moreover, users can also make payments on stores by either tapping their android phones or swiping a Google card.


PayPal is the most established player and a lot of people have already an account. It allows transferring money among national and international PayPal users. Another differentiation factor (except for Google Wallet) is that allows larger amounts of monthly transactions than its competitors (up to 10,000$/transaction, whereas other apps allows only ~3000$/transaction or per week).


Dwolla differs from the other application in that is the only application that verifies the user ID and makes him comply with customers regulations before he can start using the platform. Even though this additional security could be considered as a positive feature; the users perceive it on the opposite way because it requires completing an exhaustive registration and waiting several days for the verification process to be completed.


Clinkle has recently launched it service (September ’14) and it is based on “treats”. The idea behind the platform is that after seven different transactions users will receive a “free treat” (e.g. coffee) that they will be able to share with their friends. It does not have any other main difference in comparison with the other applications.


Market Design – Safety and privacy

Now that we understand the main differences among platforms, the first concern for users in order not use this application is the potential lack of security and privacy on these applications. Fortunately, there is nothing to be worried about, because all the companies have created agreements with the main credit card companies (MasterCard, Visa and American Express) to ensure protection for all the digital transactions, and also to support users with teams against fraud and risks.


The other main concern that could avoid users from adopting this peer to peer technology is the cost of using the service. Different companies have monetized their services on different ways, either by charging a flat fee per transaction, or by charging variable fees when using credit or debit cards. Additionally, another method used by these companies to monetize their services is to invest the money transferred from the bank account to the peer to peer account as any typical bank would do.

The only platform that is currently not monetizing its users is Square Cash that is not charging any fee. All the transaction costs for users for the different platforms are summarized in the following table:


Peer to peer payments are here to stay and is very unlikely that they will disappear any time soon. “Venmo, alone handled $314 million in mobile payments in the first quarter of this year” according to Bloomberg. Moreover, the total global market according to BI Intelligence could “worth well over $1 trillion” by 2018.


Network Effect and Winner take all

By this time I am quite positive that most of the readers are already convinced of the attractiveness of peer to peer payments. However, they might be wondering which application to download from all the existing.

Taking into consideration that there are not big differences between platforms, what really makes the difference is the number of users on each of them (network effect). The platform that will manage to grow faster will take control over the market, because the more users available in the platform the more powerful it will become (winner-take-all). Currently Venmo is winning this race and is fairly common to hear among Millennial users to use Venmo as a verb and ask their friends to “Venmo me”, which reminds to what happened in the past with Facebook or Google (“Facebook me” or “Google it”). However, it is important to keep an eye on the rest of applications, especially on Square Cash that is currently trying to increase its Network effect by not charging its users and by giving 1$ away for new users to start using its services.

Who will be the winner of this race? Would it be Venmo, Square Cash or any of their competitors? The only thing that I can say is that I hope that these companies expand their services quickly to Europe because if there is one thing that I will miss from United States when I will be go back home, it will be peer to peer payments.



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Cash was king, who’s next?

“The king is dead, long live the king”

Cash/cards are dead, long live mobile payments. Many commentators have declared that cash and credit cards are on their way out. The future is in mobile payments. Five years from now, many of us may not even carry wallets, they say.

So should I start buying up wallets given that they may be a collector’s item soon? A Business Insider report paints an interesting picture. It estimates that cash use will decline at a CAGR of approximately -1% in the future, while in-store mobile payments will grow at a CAGR of 154%. How will that happen, you may ask? Well, commerce is going mobile. And who likes pulling out their credit card to pay on their mobile? I certainly don’t. The screen is small, typing 16+ digits is not fun. And you are not always purchasing from retailers that have your information stored under a sign-in. Once I start using an online payments service, I will start doing it in-store, particularly if the merchant allows/encourages me to do so. The next thing you know, the only thing I need to pay in-store is my smartphone. There is merit to this argument. After all, online payments giant Paypal processed $180bn in transactions last year. And only 30% was on eBay!

And so the story goes. But the jury is out on whether consumers will jump in to pay with their mobile. Is it really much more convenient to pay with your phone in store when you can just swipe your card? How much time does it really save you? And perhaps most importantly, does it feel secure?

Enter Apple. CEO Tim Cook doesn’t just want to play your music and send your texts; he wants to be your wallet. Apple Pay could be a game-changer in the world of mobile payments. The reason is that because Apple is trying its best to make it as secure as possible. First, iPhone6 allows you access only after a fingerprint match. A “secure element” in the device also encrypts your account numbers so that they can be stored safely. Apple Pay itself uses a technology called NFC – Near Field Communication. The technology uses low power signals to communicate with a reader that is a few inches away. The cool part is that the iPhone will communicate with the reader in code. So unlike a typical credit card transaction where your card number is fully visible and available, Apple Pay will send a secret code to the reader. The reader will unlock this secret code and then communicate with your bank to get authorization for funds. So even if your phone was hacked, all the hackers will get is unintelligible code, not your actual bank account/credit card number. Sounds good, no?

But cards are fighting back. If its speed you want, they have a product for you. This summer in London, I often paid for my lunch with “contact-less payment” using my debit card. I would just wave my card in the general vicinity of a reader and lunch was mine. No pins or signatures required. As we discussed in class, consumers have incentives to use credit cards, such as rewards, cash-back, etc. If Apple Pay means I have to pay for my flights, then forget it. Apple will probably have to do more to win in this space. They will certainly need to get partners on their side and understand the motivations for consumers to use certain payment methods.

Not to mention that Tim Cook still has to convince merchants to adopt the reader. This is the real question. Will merchants want to invest in the reader? Many small merchants in the US already have Square, which lets them use the traditional credit/debit card in a mobile fashion. Larger merchants may want their own barcode-enabled system – Starbucks is an incredible success story in this space. In a recent earnings call, the CEO mentioned that in 2013, 11% of Starbuck’s US and Canada transactions were done through the mobile app. Users are reported to find the app very engaging. An app with an in-built payment system could be a great way for a brand to directly engage with the customer. The Starbucks app connects to your credit/debit card or PayPal account. It remains to be seen if large global brands will want to give up direct engagement for Apple Pay.

Pasted Graphic

But the gauntlet has been thrown. PayPal seems to be nervous. Apple Pay is credited with eBay’s recent decision to spin off PayPal. Their first response was to take a cheap shot. They ran an ad reminding consumers that Apple was recently a part of a massive data breach that involved naked pictures of celebrities being hacked and released on the internet. Want your naked pictures on the internet? No? Then don’t use Apple Pay.

But they will have to try harder than that. Apple has grand ambitions to convert 600m ITunes account holders to Apple Pay. Some good-old fear-mongering probably won’t do the trick. Many will be watching this space with great interest. I know I will. Maybe Google will learn a lesson or two and bring back a new and improved Google Wallet?

P.S. PayPal is also trying make moves into the global remittances market. Every year, immigrants send $542bn in remittances home. PayPal is angling to get a piece of that market. You can now use PayPal in Nigeria and South Africa, for instance. Personally, I would like to see companies like Apple and Google make an effort to create products for consumers in emerging markets. Companies like Mpesa have done amazing work to help the global unbanked access financial services like never before. With their collective knack for innovation and engineering prowess, Apple and Google could have a meaningful impact in this space. I suppose at this point its more important for me to have a marginally better smartphone every few years.

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Internet Payment Processing for Online Businesses

Internet-payments monolith PayPal (responsible for about $5.5 billion of eBay’s $14 billion net revenues in 2012) recently acquired Braintree, an internet payment-solutions provider, for $800 million in cash. [1, 2] This is bad news for entrepreneurs and developers in the online economy.

Online Payment Processing Market
Software for processing payments on the internet enables much of e-commerce, and thus much of online business, today. It is a fast-growing and highly fragmented industry. PayPal’s parent company eBay was responsible for about 24% of revenues for online payment processing software in the United States in 2012, far and away the largest market share. [3] Several other big companies are active in the space, including Visa, through its subsidiary, and Google, through its Google Checkout product, but both of these have low single-digit market share.

Logistical Difficulties in Payments
Payments is a tricky space for several logistical reasons. The most significant are the regulatory and industry hurdles that have to be cleared in order to enter the market. Established payments companies, including those in the payment-card industry, have encouraged and established rules that raise the barriers to entry for online payments. In most cases, these rules are designed to protect users’ data and financial security. But such rules—ranging from the compliance guidelines established by the payment-card industry (PCI), known as the data security standard (DSS), to money-transmitting licensure requirements imposed by state governments—create significant burdens on small new entrants and have allowed the dominant players to remain on top.

New Startups Improve Online Payments
Several young companies have braved the hurdle over the last few years to enter online payments. The new entrants have all distinguished themselves by the ease with which they enable online businesses to engage the complicated payments ecosystem. Most frequently, this means the creation of a simple three-step process: 1) a website sends the user a script from an internet-payments software company, 2) the script creates a direct connection between the user and the company whenever payments need to be processed, 3) the company reports those payments to the website. In this way, the website itself is never privy to any of the user’s financial information. Not only does this add a layer of safety and security for the user, but it means that the website does not need to worry about the licensing and compliance requirements for payments processing. Many other additional features can then supplement this basic offering, including interfaces for reviewing and refunding charges; keeping track of customers and their orders; or implementing subscriptions, discounts, and coupons.

These companies, such as Braintree, Stripe, WePay, and Recurly (for recurring payments), operate to make payments easy for online businesses to integrate and seamless for customers to use. Pricing is nearly identical between the companies, and each has tried to distinguish itself in some way—Stripe with ease of use, WePay with fraud prevention, Recurly with subscription billing—because attracting users (businesses) is such a challenge. Braintree has distinguished itself with excellent customer service. Paypal’s president noted in an interview about the acquisition that “[Braintree’s] obsession with removing friction for next-generation commerce matched our own.”[4] The deep irony here is that PayPal is notorious, to the extent it even has functionality available to compete with these younger companies, for having outdated, inefficient, and expensive interfaces coupled with terrible customer service.

Shifting Between Providers
Up-front development costs and small variations in product make it hard to convince websites to switch services once they have implemented a payments processing solution. Many of the websites that these companies serve are websites that were developed after the companies were founded, suggesting that the switching costs away from a service, even one as reviled as PayPal, are a significant barrier. This is an important factor in online payments, because businesses do not receive notable network effects for using a particular payments company. In that way, the market exhibits a large first-mover advantage: once a website has been coded to integrate with a particular payments company, it is costly to change that decision.

Looking Forward
Braintree will certainly be able to take advantage of the additional resources and regulatory benefits that come from PayPal’s existing presence in online-payments processing and other payments markets. But it remains to be seen whether PayPal will allow Braintree to continue innovating. That would be the best outcome the online-payments community could hope for, and younger competitors such as Stripe will continue to push to keep the industry moving forward. But PayPal’s track record on innovation over the past few years is lackluster at best. There is a real risk that Braintree, which has played a significant role in the recent revolution in internet-payments provision for online business, will be dragged into a similar stasis now that it is part of the dominant market player. For this reason, entrepreneurs and developers should be worried about the implications of this acquisition.

[1] Form 10-K 2012. eBay, Inc. <>

[2] “EBay’s PayPal Acquires Payments Gateway Braintree For $800M In Cash.” TechCrunch. Sept. 26, 2013. <>

[3] “Online Payment Processing Software Developers in the US.” IBISWorld Industry Report OD4521. July 2012.

[4] “EBay Buys Braintree, a Payments Start-Up.” New York Times. Sept. 26, 2013. <>

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Payment platforms for online and mobile businesses – current and future landscape

While most of the press around mobile payments has focused around B2C solutions such as Square and LevelUp, online payment platforms such as Zuora, Stripe and Braintree are also seeing robust growth, riding the tremendous growth in e-commerce and P2P mobile payments. Example client include Uber, LivingSocial and AirBnB (Braintree), and zendesk (Zuora) and shopify and edmodo (Stripe).  Such platforms have a few key elements that all competitors in this space try to replicate:

  • A robust, reliable and scalable solution
  • Simple developer-friendly APIs
  • Excellent customer service
  • Quick (and in some cases “instant”) set up, including setting up a new merchant account for the client

A robust, reliable and scalable solution

Accepting payments for a new high-growth startup can be a very painful process if attempted on your own, but companies such as Braintree, Stripe and Zuora attempt to simplify the process as much as possible. The goal is to provide a solution that scales as your startup scales – from facilitating 100 transactions a week to a 1000 transactions a minute, all the while providing a reliable, secure and affordable service. Key to this space is supporting both desktop and mobile transactions, as a growing number of e-transactions occur on mobile devices. A number of startups also make international expansion a very early priority, as they attempt to be the first-mover in several markets. Payment providers try to stay one step ahead of the curve by expanding internationally and having a deep understanding of foreign legal and financial frameworks.

Simple developer-friendly APIs

Stripe is perhaps the best poster-child for having developer-friendly payment APIs. Stripe boasts having APIs “that get of your way” and also pioneered the “instant” setup features that were replicated by Braintree – which allow you to get started with a payment solution in under a day. The key here is to have API wrappers for various languages such as Ruby, PHP, Python and many more to make it incredibly easy to get started and integrate with your service.

Excellent customer service

Braintree seems to be leading here, and promises to always have a real person answer a customer service call. Customer service is key in this business, which is based on having reliable, trustworthy service with quick turnarounds if something goes wrong. Parts of the payments process remain tedious and high-touch. For example, setting up a new merchant can often involve multiple long-threads between the payment-solution provider and the client, where the payment-solution provider acts as the middleman (and underwriter) between the client and the bank. The client wants to have the account set up as soon as possible, while the bank wants to make sure that a proper risk assessment as done – companies like Braintree try to simplify the process by having excellent customer service and quick turnaround times.

Instant set-up

Now that Stripe and Braintree have instant setup (by eliminating the waiting period for a new merchant account or underwriting approval), startups can have a quick headstart in facilitating e-commerce transactions.  Through this process, companies such as Braintree also get more insight about the client’s business model and growth plans, and try to ensure that clients’ accounts are never frozen or shut down because of unanticipated activity.

Disruption and future landscape

While there are certainly scale benefits to serving many clients, I do not see any network effects associated with providing online payments. However, this could change as some of these providers attempt to get into the mobile P2P payments space, such as Braintree’s acquisition of Venmo.

On the other hand, the companies in this space are addressing an unmet need. For many high-growth startups, solutions such as PayPal, are too expensive, slow, outdated and too hard to integrate with. I see solutions by Braintree and Stripe taking away a lot of business from PayPal. Switching costs are also high – it is usually hard to migrate customer payment information from one platform to another.

Although payment providers are seeing tremendous growth just because of the amount of growth in e-commerce and online/mobile transactions, all these solutions (except for Braintree’s Venmo business) are still reliant on the infrastructure provided by the credit-card networks. All the startups in this space seem to be playing the puppy-dog strategy – posing as small players who are friendly with the credit-card networks and are doing little to disintermediate them.

Competition is tough in the payment space, and more and more players (both large and small) are getting into this space everyday. Braintree, Stripe and Zuora seem to have carved out a niche, but need to remain innovative and competitive to stay relevant going forward. I’m looking forward to seeing many more innovate solutions come out of these companies to make payments for young, high-growth startups even easier.


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 Mobile technology is driving towards an all-encompassing device that will consolidate your communicator, payment system, house key, car key and identification.  We aren’t there yet, but there is a lot of the effort focused on enabling payments from a smartphone; worldwide mobile payments is a $172B business and is expected to grow to $617B by 2016.[1]

There are dozens of companies already chasing after this market and every few months, a new entity seems to jump in – each with its own business model, proprietary technology and merchants.  What are the key requirements of a successful mobile payment platform? At the risk of over-simplifying, the four critical ingredients are:

  1. Security to protect access and transaction payments – often executed with a password, PIN number, photo or distance limit.
  2. Financial institution support – access to finances, whether it be a bank account, credit card or something else.
  3. Communication technology between the customers’ mobile device and the merchants’ transaction device – could be physical, radio or cloud-based.
  4. Widespread merchant acceptance – customers need to be able to use their mobile payment platform at a sufficient number of stores and services.

 There is lots of sprinting to grab first mover status because this is an industry with network effects that is destined to tip towards one platform, at least in the United States.[2]  The real challenge of winning the platform war is to execute especially well on points three and four: Communication Technology and Merchants.  (Note: that is not to say that the first two points are less important, but rather they are table-stakes to even be at the Mobile Payments table).  Surveying the leading platforms, it appears that there are two major customer-focused paradigms that mobile payment entrants consider:

  1. Hardware play – require customers to buy the device with the special hardware that enables payments.
  2. Software play – require customers to download the app that enables payments.

The hardware paradigm typically refers to the NFC chip (near field communication) inside of a smartphone as the authentication and security mechanism.  The benefit of NFC is that it is quick to process a sale and works only within a few inches of the sensor, so it is safer.  This is the system that has been adopted by Google Wallet[3] (via Android phones) and Isis[4] (the recently announced joint venture between AT&T, T-Mobile and Verizon).  The main downside for consumers is that the most popular handset does not include an NFC chip; the iPhone is 33.4% of all smartphones compared to Samsung’s Galaxy S3 representing significantly less than 25.6% of the market.[5]

The software paradigm traditionally just requires the customer to open an app and display a barcode of sorts for the merchant to scan or capture.  The benefit of this system is that it can work on any smartphone as long as the customer downloads the app.  This is the payment system that has been adopted by Square, Paypal, LevelUp, and perhaps one day: Apple’s Passbook.

With both paradigms, there is also a merchant-side challenge: it is expensive to install NFC terminals and barcode scanners – even if it is just an iPad – into every checkout counter of every McDonalds (14,000 US restaurants), Gap (2,550 stores) and Walmart (4,300 US locations).

 It is premature to predict which paradigm will win out – much less which company’s platform – but if I had to guess, it would be the software paradigm.  The reason: it is challenging enough to convince merchants to adopt this new payment system (even if the terminals were given away for free), but it may be even more difficult to sell customers an NFC-enabled smartphone.

In this highly competitive battle for market share, there have been many interesting strategies to onboard customers and merchants alike:

  • LevelUp – attracts merchants with their 0% payment processing (as opposed to 3-4% for standard credit cards)[6].  They also have built both NFC and QR-code scanners into their merchant hardware.[7]  LevelUp claims it has 3,600 merchants as of September 2012.
  • Square – got deeply intimate with Starbucks by taking in $25m in strategic financing and adding Starbucks CEO Howard Schultz to its board of directors.[8]  No surprise, before Christmas 2012, Square will be accepted in all 7,000 US Starbucks locations.[9]  As of August 2012, Square boasted 2M merchants.[10]
  • PayPal – recently invested in a national TV campaign – starring the endearingly-paranoid Jeff Goldblum – to raise awareness of its availability  (watch the commercial here).  This past May, the company announced 15 new merchants including Toys R Us, Abercrombie & Fitch, Barnes & Noble and Home Depot.[11] PayPal claims it reaches 40m point-of-sale systems as a result of a partnership with Ingenico payment terminals.
  •  Apple Passbook – just launched as part of iOS6 and the iPhone 5.  Passbook enables barcode scanning for loyalty cards and airplane tickets, but no mobile payments yet.  If that day comes, the tens of millions of iPhone owners will be an influential buying force.

The race to be the ubiquitous mobile payment platform will explode in the coming months and years.  We will likely see bitter rivalries, confused customers, frustrated merchants, and tumultuous failures before a winner is finally crowned.

[1] “Gartner Says Worldwide Mobile Payment Transaction Value to Surpass $171.5 Billion.”  Gartner Research.  May 29, 2012.

[2] The two sides of the platform are consumers and merchants.  While there are somewhat low multi-homing costs for consumers (at the app level), the costs for merchants are considerably higher: multiple hardware apparatuses, accounts receivable to manage, etc.  As such, the market will tip because merchants do not want to simultaneously support multiple technologies.

[3] Google Wallet FAQ.  October 24, 2012.

[4] “Isis Announces Its Pilot Programs Are Now Up and Running.”  Mobile Payments Today.  October 22, 2012.

[5] “One in Three U.S. Smartphone Subscribers Use Apple’s iPhone.”  Apple Insider.  September 27, 2012.

[6] “LevelUp for Businesses.”  Website.  October 26, 2012.

[7] Empson, Rip.  “On a Mission to Be Mobile Payment Agnostic, LevelUp to Roll Out NFC-Capable Terminals.”  TechCrunch.  September 6, 2012.

[8] Ha, Peter.  “Square Partners with Starbucks, Raises $25M for Series D.”  TechCrunch.  August 7, 2012.

[9] Perez, Sarah.  “Starbucks’ Square Rollout Gets a Launch Date.” TechCrunch.  October 5, 2012.

[10] Kim, Ryan.  “Why Starbucks is Betting on Square.”  Gigaom.

[11] Perez, Sarah.  “PayPal Rolls Out to 15 More National Retailers.”  TechCrunch.  May 25, 2012.


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