By Patti Murphy
The Takoma Group
When was the last time you blogged? Does your company have a blog or a presence on a social networking site like Facebook or MySpace? What about Twitter? Have you given any thought to the opportunities new, peer-to-peer (P2P) social media create for new revenue streams?
If your answer to this last question is no, you'd be well-served to consider the opportunities this new online phenomenon creates for growing the electronic payment pie.
If bankers and their partners in the payments space don't tap into P2P networks, you can expect nonbank competitors to dominate online micropayments and associated marketing opportunities.
"The way we're used to doing business isn't working anymore," Larry DePalma told bankers during a presentation at NACHA - The Electronic Payments Association's Payments 2009 conference in early April. "The value of peer-to-peer communications is orders of magnitude more important than the old ways of communicating."
Several non-financial services companies are creating new payment models - known as micropayments - for P2P networks that stand to generate hundreds of millions of dollars in small-denomination transactions.
For instance, Spare Change Payments ( www.sparechangepayments.com) already has a presence on MySpace, Facebook and Bebo (which functions like an aggregator of social networking sites).
According to a recent report in the technology blog, TechCrunch, Spare Change is processing about $2.5 million a month in micropayments for purchases ranging from Lil Green Patch (a Facebook application collecting money to fight global warming) to the online gaming application Mob World.
Users purchase Spare Change using PayPal or credit or debit cards. They can also post transactions to their mobile phone bills. Users purchase a minimum of $2 in Spare Change credits, which can be used for online applications that charge as little as 10 cents.
Data provided by Spare Change suggests that in March 2009, just one year after start up, roughly 125,000 unique visitors purchased spare change from the company.
Both PayPal and Google are also reportedly working out the kinks in technology to support micropayments.
In addition, a company called Shopit (www.shopit.com) is positioning itself to support micropayments. Shopit offers an application that members of just about any social networking site can use to sell items, whereby Shopit handles all the back-end support - including payment processing. The cost to end users: a flat 8 percent.
Last year, Shopit struck a deal with Revolution Money Inc. that makes Revolution Money's RevolutionCard the method of choice for Shopit micropayments. The company's RevolutionCard operates on the existing credit and debit card structure with what the company claims is a security presence that can stand up to the rigid data security requirements of e-commerce.
Co-founded by former America Online Chief Executive Officer Steve Case, the RevolutionCard is quietly gaining momentum, both online and offline, as it rides the rails of the bankcard networks. Revolution Money also operates MoneyExchange, which is billed as a secure and free way to send payments online.
MoneyExchange struck an alliance with Chase Paymentech that provides it with access to 650,000 new retail locations for the RevolutionCard, by Case's reckoning. Last fall a deal was made with CardinalCommerce Corp. to add RevolutionCard acceptance support for online merchants who process through that company.
Revolution Money also has contracts with RBS WorldPay Inc. and Fifth Third Processing Solutions for processing RevolutionCard payments.
"Thanks to our agreement with Chase Paymentech, Revolution Money can now help more merchants improve their payment economics," said Jason Hogg, CEO and a co-founder of Revolution Money, in announcing the latest deal.
Hogg is the son of Russell Hogg, who ran MasterCard Worldwide for several years in the 1980s. The senior Hogg also served on the Revolution Money board along with other well-known businesspeople - including Larry Summers, who recently resigned his board seat to join the Obama administration.
In response to questions at Payments 2009, Hogg said the company wants to work with as many payment processors as possible. "We're in discussions with some pretty big hitters," in terms of ISOs and acquirers, he said. The first PIN-based credit card network in the U.S., RevolutionCard is sold as a cheaper and safer alternative to bankcards.
There's no interchange, and processing fees are a flat 0.5 percent per transaction, which makes it much cheaper than PayPal.
In a keynote address at Payments 2009, Case complained that Visa Inc. and MasterCard have become oligarchies and that interchange has gotten way too expensive for merchants.
He also said more than 400,000 online shoppers are paying with Revolution Money products today. And he asserted that the "network effect dynamic" that helped to grow AOL and other Internet giants "has been embedded in Revolution Money."
"We believe there's a ripe opportunity for a new company that unleashes competition," Case told a crowd of about 1,000 bankers. And he extended an offer to work with any and all banks. Just days before the address, Revolution Money had secured a third round of financing worth about $42 million from an affiliate of The Goldman Sachs Group Inc., Morgan Stanley, Case and several other key executives.
Hogg stated in a press release that the funding was a "big endorsement of Revolution Money's business model," especially given the economy. "As merchants and consumers search for savings at every turn, Revolution Money is seen as a welcome alternative to the traditional high-cost credit card companies and PayPal."
Younger consumers are a potentially lucrative market for new payment applications like those offered by Revolution Money and Spare Change. "Gen Y folks are among the most underserved by banks," Fred Brothers, Managing Partner at eCom Advisors, stated at Payments 2009.
Brothers offered data suggesting nearly one in three of these younger consumers don't believe banks are interested in serving them; 43 percent believe banks take advantage of people. Results of a survey recently released by the Federal Deposit Insurance Corp. suggest this is more than mere perception.
In a February 2009 report, the FDIC said that although most U.S. banks offer basic financial education materials for unbanked and underbanked consumers, few engage in serious outreach, like extended business hours and multilingual services. Banks, it seems, must do a betterjob to reach this market, or alternative payment companies will.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at firstname.lastname@example.org.
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