We recently sat down (virtually) with BOKU to learn more about how the company views the mobile payments market and where BOKU Accounts fits in the emerging mobile POS landscape. What follows is a summary of what we learned and our reaction to the their strategy and approach.
One of the reasons that the mobile payment market is fascinating is that you can look at five mobile payment companies and see five different unrelated payment opportunities. Often the only thing they share in common is their over-the-top zeal that the mobile device is going to change some things. Okay, maybe change everything.
One company, for example, might be doing a mobile P2P wallet, one a mobile bill pay solution. Another might be building a mobile POS wallet, another enabling consumers to bill purchases to their mobile account. Some are friends of the mobile operators, others are friends of the banks. Others want to do an end run around BOTH operators and banks. It’s a crazy market.
A week ago if you would have asked me about BOKU, I would have said they were one of five major companies in the United States providing carrier billing to merchants, or bill-to-mobile as it is called nowadays. The others are Zong, PaymentOne, BilltoMobile, and Payfone. If you haven’t been watching, a lot has changed in the bill-to-mobile space in the last 18 months. American Express took an equity position in Payfone, Zong was acquired by PayPal, and collectively all of the players have shifted to direct carrier billing, a lower-cost, more advanced form of bill-to-mobile.
Against this background, and, to some extent, out-of-the blue, BOKU announced that it was entering the mobile POS market with a product called BOKU Accounts. They see the market hyperventilating with excitement right now, but understand that NFC is still quite a ways from critical mass. BOKU believes the industry needs a non-NFC centric approach that combines the best of the mobile device and the best of the cloud. And because of who they are as a bill-to-mobile provider, they think mobile network operators (MNO’s) are in the best position to deliver mobile payments to the POS.
This last point is perhaps the most important as BOKU’s entire initiative is designed to deliver a turnkey white-label, mobile payments solution to MNOs all over the world. When deployed by one of BOKU’s carrier partners, BOKU Accounts is an MNO-branded solution, with an MNO-specific user experience, and an MNO-integrated dashboard. BOKU is very clear that the MNO owns the customer relationship, and their role is to act as the mobile payments enabler behind the scenes.
How BOKU Accounts Works
As the name implies, a BOKU Account is a prepaid account with multiple ways to get money in and multiple ways to get money out. To manage their BOKU Account, consumers can use a native app on an iOS or Android SmartPhone, or on any feature phone that has an HTML5 browser. It doesn’t matter, because the BOKU Account is in the cloud.
Funds can be added to a BOKU Account using a card on file, a direct debit against a bank account, or via any cash-in top-up capability that an MNO might have access to; so all funds on hand must be prepaid. But the account dashboard does provide the consumer with auto top-up control for when the prepaid balance falls too low.
For spending, there is a MasterCard-branded prepaid card attached to the account, as well as an NFC sticker that duplicates the same information on the card. The prepaid card gives the consumer the ability to buy in a retail setting or buy online. The NFC sticker is for retail merchants that are equipped for contactless card acceptance. BOKU envisions adding in-phone NFC support when that option makes sense. But for now, they are sidestepping NFC completely. Sound familiar?
Against this backdrop, BOKU has added transaction alerts, budgetary alerts, and a channel for merchants to deliver promotions and offers to consumers. Offers can be delivered ahead of purchase (“Take 10% off on purchases more than $25”) or after purchase (“Thanks! Make just three more lunch purchases and get a free sandwich”). The offer targeting also includes a geo-location capability so that merchants can reach out to consumers that are nearby.
Offer redemption is applied in the cloud, so to speak, against the consumer’s BOKU Account. Consumers see two transactions on their dashboard — one for the full purchase price and one for any discount that has been automatically applied.
BOKU Accounts Value Proposition
Besides BOKU, there are three other important stakeholders in the BOKU Accounts ecosystem. A quick summary of the benefits to each of them would be:
- Works with any phone, and provides the ability to pay anywhere (in store, in-app, online)
- Provides personalized offers to save money, with seamless redemption
- Provides real-time spending control and visibility (via alerts on balance and spending budgets)
- Ability to deliver targeted offers to nearby mobile customers
- No changes to current checkout flow or promotional strategy
- No new equipment (terminals, scanners, etc.) to purchase, no new training for sales clerks
- Complete turn-key mobile payments solution
- Additional source of revenue (advertising rev share, prepaid interchange rev share)
- Added value to retain existing subscribers, competitive differentiator to capture new subscribers
Banks are important enablers for account funding, but not vital stakeholders in the system. MasterCard is BOKU’s strategic partner for the prepaid account, prepaid card, and the contactless PayPass environment.
One of the things we like about BOKU is that they are always looking for the shortest path between the problem and the solution. They’re not overly focused on “perfect”, when “good enough” will work. In this case, going around secure elements, trusted service managers, and the NFC infrastructure challenge makes a ton of sense when there are other off-the-shelf building blocks readily available.
While we were initially taken aback by this sudden emphasis on mobile POS payments, we don’t view it as a complete shift in mission. At its core, BOKU is a payments enabler for MNOs. With this new initiative they are still a payments enabler for MNOs. In fact, the existing business relationships they have with the major MNOs is perhaps their greatest strength.
We don’t expect the three major U.S. carriers who are invested in Isis (the NFC MNO payment platform) to jump into BOKU Accounts. However, if Isis fails to thrive (and especially if PayPal’s cloud wallet starts getting traction while Isis limps), one can imagine that this might be an easy fall-back strategy for a carrier – and one it could pursue to its own advantage, without collaboration with its competitors.
Outside of the U.S., it is easy to see where other MNOs may very well take a look at BOKU Accounts and see it as a clear build versus buy decision. The value proposition that BOKU has put together is directly aligned with what MNOs say they want to provide to consumers. BOKU indicated that they would be in trial with a large MNO and a national MNO consortium this summer, so we may learn something about adoption over the next couple of years.
How does BOKU Accounts compare to other mobile payment initiatives? While the BOKU approach is clearly not the “base case” NFC strategy like that being executed by Google and Isis, there are similarities. The most striking of these is the emphasis on offer targeting, delivery, and redemption. Google, Isis, and now BOKU all see mobile offers as a key driver of consumer and merchant adoption, as well as an important source of revenue.
This is consistent with how we see the market evolving and speaks to the importance of getting the offer system “right” in terms of multi-party adoption, data analytics, and offer targeting. If there is an Achilles heal buried in this pony for BOKU (how’s that for mixing metaphors!), it’s probably analytics and offer targeting. Its not obvious that BOKU has any existing capabilities in this area and basically sidestepped the question when we asked them about how they plan to handle offer targeting. But maybe this is their secret sauce and they didn’t want to say anything about it?
The big question in mobile payments, of course, is consumer adoption. How soon? How fast? The market trials around the world all seem to indicate that consumers are enthusiastic to embrace mobile payments, but there are many open questions about business models, infrastructure readiness, and critical mass. In the case of BOKU, we see both tail winds and head winds. The cloud model being used by BOKU, along with the attached card and NFC sticker, means consumers can start now, with the phone they have, without having to wait on a phone upgrade cycle or wait for merchants to deploy new terminals. We certainly like that.
We worry, however, about the economics around the funding model. BOKU, and by extension its MNO channel partners, is going to have to pay a lot of attention to funding mix. BOKU’s model will be in a fairly deep hole if it has a lot of transactions earning prepaid debit interchange (we assume Durbin exempt in the U.S.) but are funded in a significant way by CNP credit card load transactions. This is something that will have to be managed, and will vary, on a country to country basis. BOKU might argue that the adverting revenues from the delivery of mobile offers will offset any payment mix problems. That might be true, but it would be nice to hope that the payment transactions by themselves are break-even on aggregate.
We also worry that the general prepaid nature of the underlying BOKU Account may prove to be a drag on consumer adoption. Yes, there is an auto top-up feature. That’s a good start. But what is really needed, in our view, is a decoupled transaction model that provides what some refer to as pass-through funding without the explicit need to have prepaid funds sitting in yet another account. Prepaid is great for the unbanked and cash-oriented consumers, but it seems counter intuitive to have a payment card or bank account on file that is only used to reload a BOKU Account. Why not just pull from payment credentials on file when needed?
Our take on the competitive landscape may surprise you. One view is that, at a macro level, BOKU is competing to be the prepaid program manager for MNOs that want their own branded prepaid program with a strong mobile delivery arm. As the general market moves toward mobile, you could image other prepaid programs going down this same path.
Competitively, for example, we don’t see a lot of reason that Green Dot or NetSpend couldn’t offer this same sort of mobile package to their prepaid sponsors. This also speaks to the opportunity that BOKU might have. If it works with Vodafone, why not approach H&R Block, just as an example, to mobilize their prepaid program?
Stepping back, its also interesting to see MasterCard’s involvement with BOKU. BOKU Accounts seems consistent with MasterCard’s mobile payment strategy. Rather than focusing on a single wallet strategy for the POS — what might be called the MasterCard Wallet — MasterCard is working with Google, Isis, Telefónica, mFoundry, and now BOKU to seed a multitude of different mobile payment solutions.
Let a hundred flowers bloom, indeed.