Steve Geringer is offering a second time at bat for mobile payment technology that struck out; sound innovation that didn't match business realities.
"Having a great product doesn't necessarily make you successful," says Geringer, who's overseeing the sale of technology owned by FonePays, a payments startup that never got off the ground. "You need to find a niche ... everybody and their brother is selling mobile terminals."
Mobile payments have attracted tons of buzz over the past year, but even with all the hype, the tough rules of business apply, particularly for those companies that can't find the right niche or powerful cheerleaders, or run afoul of stringent regulations.
For FonePays, the back-end servers and front-end applications for Web, SMS, Android and iPhone platforms are up for grabs, and were still available at press time. FonePays was designed to allow people to pay each other by using their mobile phones. It completed beta testing, but wasn't able to secure enough funding.
It's not unusual for a person-to-person and mobile payment company to struggle.
Bling Nation, which would not make an executive available for an interview, recently went on what it's calling a temporary hiatus to revamp its business. The company used "BlingTags" or microchip stickers to allow consumers to use any mobile device to link a PayPal account to debit purchases without sharing information. Bling Nation faces well-heeled competitors like Isis, Google Wallet and Square, and also lost some bank partnerships for its FanConnect loyalty program this spring.
"Technology is the easy part," says Andy Schmidt, research director for commercial banking and payments at TowerGroup. "Selling that idea to the market is much harder. We're seeing phenomenal ideas out there that make sense to people who follow the mobile payments market closely. But when you go to Wal-Mart or Macy's with that idea, there's the head scratch."
And just because the business case can be harder than the tech development, that doesn't mean the tech side is easy. Most forward-looking point of sale mobile payments services rely on near-field communication technology, a method of communicating information wirelessly at short range that won't be widely available on phones for a year. And the lack of best practices for tech, security and revenue sharing for a broad mobile payment ecosystem can also make life difficult for new companies. "There's no accepted standard, and there's still a lack of knowledge on behalf of merchants and consumers about mobile technology," says Beth Robertson, director of payments research for Javelin Strategy and Research. "At this time we're in such an early stage of the market, it's hard to know what's going to shake out."
Even for companies that do gain some ground, politics can also pose a barrier for new ventures. "For a startup, some of the hurdles like regulatory burdens may also be significant enough to pose a barrier to a smaller firm," Robertson says.
FaceCash recently stopped doing business in California because of state regulations requiring a $500,000 tangible net worth requirement and a $750,000 aggregate surety bond requirement.
"We can't get [FaceCash] to spread quickly in California and other places because of the regulatory environment. The compliance issues are pretty serious," says Aaron Greenspan, the creator of FaceCash, which enables payments when a mobile phone-snapped head shot of the user shows up on a merchant's computer.
Greenspan, who once filed a complaint before the USPTO TTAB against Facebook founder Mark Zuckerberg in a trademark dispute which was settled in 2009, is bullish on his startup's tech, but angry about regulations which he feels favor much larger payments networks.
FaceCash, which connects payers' bank accounts to a bar code, has developed a bank routing system to enable automated clearing house transactions, and can capture line-item transaction data. "We've been able to solve the major points in terms of tech challenges, which is why it's doubly disappointing on the regulatory front," Greenspan says.
Who's Winning?
One path to success is to find powerful partners or institutional evangelists. For example, Naratte's Zoosh ultrasound NFC alternative earned a shout-out from PayPal's mobile payments chief, Laura Chambers, who in Zoosh's press announcement said she was "looking forward" to the product's growth.
Another route is matching mobile payments to a dramatic "ease of use" business case. While it's a well-worn cliche, it's also true that consumers won't adopt mobile payments that are not noticeably easier than what they're already using. The companies that are finding success are making that case.
For example, Zong's model of letting shoppers enter phone numbers into a box, then pay by verifying a return text, proved attractive enough to lure the participation of 250 carriers globally - and $240 million from eBay, which acquired the company to help PayPal expand into mobile commerce. "Firms like Boku and Zong target digital content and small payments using mobile phone numbers, offering users quick and easy payment," says Sandy Shen, a research director at Gartner. "You cannot just develop for the sake of technology, but need to find a viable use case for the technology."
One of Zong's chief competitors, Boku, also uses an internally developed engine to execute mobile payments enabled by cellphone numbers. Over the past couple of years, it's attracted more than $60 million in venture capital funding from firms such as Andreessen Horowitz, and has had its payments volume grow more than 1,000% in the past year. "The key is getting to scale with any payments business," says Ron Hirson, a senior vice president at Boku, who says the scale has attracted additional VC funding.
Another success has been Shopkick, which was founded two years ago and has attracted funding from Kleiner Perkins iFund, Greylock Partners and Reid Hoffman, the founder of LinkedIn and an investor in Facebook and Zygna.
Shopkick's mobile app provides consumers with rewards and exclusive deals at its national retail partners that are presented to consumers when they walk into stores and malls. Its retail partners include Target, Macy's, American Eagle, Crate & Barrel, Simon Malls and others.
Shopkick's innovation is a proprietary mobile app that leverages location-based technology to verify that the consumer has entered the store. Its hook is allowing retailers to identify customers before they arrive at the register. "That's the first and last time the retailer can know the customers," Schmidt says. Shopkick "has simplified the transaction, and is meeting a specific business need to make buying and selling easier."
It also helps to have founders or a management team with a banking or payments background. "A strong management team is a definite plus, those with solid industry background and track record," Shen says.
Jumio, which recently attracted $6.5 million in Series A financing from Facebook founder Eduardo Saverin, is led by Daniel Mattes, who previously founded the Web payment company Jajah, which was sold to Telefonica in 2009 for $207 million. "If you don't have the background, you'll have difficulty navigating the liability issues and fraud risks," Mattes says.
At Boku, several members of the management team have extensive experience in financial services, payments and telecom information technology. Its chief executive, Mark Britto, helped develop Amazon.com's payment platform; Hirson helped develop social media sites for young people and was vice president of product for AT&T Interactive; and senior vice president of strategy David Woo was a product manager for PayPal.
"Mobile payments have intricacies that are more complex than e-commerce or social media, there's nuance with regulations, currency exchange, languages for the website, tax handling, remittance, reconciliation and other factors," Hirson says. "It's tough to do that with your typical 'garage' type startup company."
