Archive for the 'Payment System' Category

Why do I need to know what payment systems my vendor accepts?

The answer seems obvious. Because I need to be a member of one of the payment systems my vendor accepts in order to complete a transaction. But it then occured to me that it does not necessarily have to be so. Wouldn’t it be simpler if I could use whatever payment system I want to release a certain amount of cash and if the vendor can have some guarantee of being the owner of the money before releasing the good to me? The answer is of course yes!

In fact, to get back to the former answer, it is not necessary that one organization like Visa, PayPal or a coalition of them controls the entire chain for making the whole thing possible. It’s only because this entire chain of processing takes today very long – like days or even weeks – to complete that my vendors asks me to use the payments systems they accept. They need to be sure of receiving the money, some day, to agree handing the good over to me now.

So, if we had an open and real-time settlement system, we could perfectly imagine that we would no longer have to care what is the ultimate system that vendors would be using.

To give a brief explanation of what a settlement system is, I’ll just say that this is a way to make valid the change of ownership of a certain financial property, in this case cash, from one party to another. A real-time system would be a system that would process the entire chain in a couple of seconds. And an open one would be a system which would let any cash sending system and cash receiving systems interoperate.

So, if my vendors could know in real-time that the money I’ve just parted with is now in his full posession, they would be perfectly happy completing the transaction. Which means I could send the money from my mobile phone – or any other online device – using whatever payment system I would like and I would feel comfortable using. My vendor could also use the payment system most convenient for him. As long we are both happy and trust our payment providers, we would no longer have to determine if both of us are members of the same systems.

Now, do you think it all sounds science-fiction because we can not create such an open and real-time settlement system or because current payment service providers have too antiquated backbones to dream processing such a transaction in real-time and have no incentive to move to an open system? If this is the latter, this suggest the word “Disruption” to me.

My bank money is too sticky!

Like the vast majority of people I think, I have only two places where I hoard money.

The first one is my physical wallet The amount is not significant, but I could not do without it, yet. Money in it is not sticky, in the sense that it’s flowing efficiently and rapidly out of my wallet, sometimes too rapidly. So cash is nice, except for one thing, it’s reach is rather limited, I have to hand-out cash to make a payment and be physically connected. So I turn to this storage of money for standard use, buying bread, paying taxis,… When I want to replenish my physical wallet, I turn to my second pile of money: my bank account.

My bank account is indeed the second place wher I store money. The amount is more significant and certainly too high from a pure financial consideration. While replenishing my physical wallet by going to an ATM is a bit of drag, it’s all-in-all quite ok. Money is flowing relatively well between the two. In fact, most of the flow out of my bank account is done for standard payments like grocery, electronics,.. and is done via a debit card. There again things are not that bad and; at this point money is not too sticky.

But then, there are all this other flows or non-existing flows which show that my bank money can be very sticky.

In the category of existing flows where money is a pain moving, I’d put things like buying financial assets, making payments to a foreign friend. If you want to buy a financial asset that is not offered by your bank, you then see how sticky money is, you have to make multiple operations to complete your transaction. Sure, banks have a interest in making your money sticky, they would rather having you buy financial assets they provide. But even there, money is not flowing swiftly: what’s the point of raising customer satisfaction when your money is captive anyway. Concerning payments to a foreign friend, we reach the ridiculous: you don’t see money flowing, but evaporating through fees and time delays. Before we had PayPal, transfering money to a friend in another country was close to the non-existant category.

Which leads to the category of non-existant flows, or at least not existing yet. And here, I’ll turn again to my P2PMoney pet project. Leaving in a global world, with many interactions with a growing community of contacts, I think we will have more and more a desire to see our money freely and swiftly being pooled, spent and redistributed among varying groups we belong to. And for these workflows, bank money is flowing like a rock.

So we have now Telecom operators coming with the concept of a M-Wallet. While I don’t know how fast I’ll turn to this third type wallet, there’s one thing I’m sure: I don’t want my M-money to be sticky. And being not sticky does not mean money flows swiftly for transactions that are in the operators best interest, it means it flows swiftly for thing I want to do!

Would you rather be paid through PayPal or Visa?

It could be funny to ask the same question at significant intervals in time.

 I first asked myself the question above for online payments a while ago, when PayPal appeared on the radars (at least when it reached mine). At the time, I definitely answered Visa. What, who is this PayPal? OK, this looks great but can I trust them to deliver flawlessly any payments (something that does not seem to be the case even as of today)? Then, should I open an account since when Visa decides to move on, who will use PayPal anylonger? So I decided to ask people to send credit card details and entered the information on my credit card processing machine.

 Then, I asked myself a second time later on, when the need for regular online payments became more pressing. OK, I really need something that would look like what PayPal is doing. What? Visa still does not offer anything similar and ask for cumbersome procedures to get online payments. Grrr, I do not really like it, but seems that I should go with PayPal; I could always switch later on when Visa offers the same level of service. I’ll have to bite the bullet and any associated sunk costs, but I can not wait for ever.

Lately, I asked myself the same question again (intellectually). Would I rather be paid through PayPal or Visa? OK, what am I talking about? What Visa’s got to do with online payments???

Free Digital Money

Did you ever wish you had absolute powers? And among these the ultimate regal power: the power to mint your own currency? Thanks to Free Digital Money, this is now something within your reach. FDM lets your create your own currency and do things like mint coins, withdraw, deposit and revoke them.

This is currently an experimental project and I hope this will create a lot of brainstorming and cross-pollination. I see close connections with P2PMoney, our open-project at BarCampBank for a payment pooling and revenue sharing platform.

While the notion of private digital currency is not new (cf. Linden dollars), it is interesting to see the outcome such a tool could make by easing implementation in a multitude of novel situations. I was just thinking this morning that it could be fun to see a company use its own internal currency for its internal bargaining processes: I come to your meeting if you pay me 100 Acme dollars. Of course, in that case, internal monetary mass would have to be thoroughly controlled to avoid devastating inflation: invite me to your meeting this week, while you can still afford me.

Should you give your valuation on your first date?

I was participating the other day to a project presentation session at a Business Angel club. The different presentations were all finally presenting some slide where you could find the money they need (a good point) and some valuation (a bad point). Let me give a fatherly piece of advice: “do not give your valuation on the first date”.

 This special moment of seduction where entrepreneurs meet potential investors is definitely a first date. You may engage for a long time as partners and you must surely take the female approach of being very selective on the gene pool and the means of survival that you want for the baby that “you” will be carrying. So be very seductive, be plain open on what you need, but do not spoil this first getting-together with valuation. The risks that you take is that you could deter some potential investors that have a lot to offer beside money. Second, in a good negociation, you must try if possible not to be the one giving the first price: if your valuation is silly and you find someone ready to talk with you, chances are they will never go for the long stand or are plain stupid. In the case of professional investors like VCs, this can be even considered as a faux-pas, VCs will use their own valuation mechanisms to come to a price and you’ll have small freedom to maneuver beside playing several potentially suitable partners one against the others.

 So do not rush things. Dress your idea up for the event, give your number at the end of the first rendezvous and wait to see if you convinced a smart investor or two to try to know more about you,… and be ready to get rid of the indecisive ones.

P2P Money: would you also need a pooled payment system?

At BarCampBank, we have been thinking lately of what we call P2P Money. In fact this is more like a pooled payment system that would allow us to decide and manage common expenses for the group. Beyond our immediate need as a community, we also see that as an enabler for the different project we are incubating in peer-to-peer mode.

 In short, here is a list of requirements that could characterize such a system:

  • Have a place where pledges for money can be stored and easily committed
  • Have a way for the group to define different future expenses, voting for prioritization and approval.
  • Have a way to make direct payment to the vendor in case of a large payment
  • Alternatively, have a way to transfer cash to one of the participant to make the payment
  • Have a way to enter, track, approve past expenses incurred by different participants (above feature would then provide a reimbursement mechanism)
  • There are already things existing along these lines. This is certainly one of the driving ideas behind Fundable . Fundable already makes possible so called “group actions”. Iit misses some of the decision making and tracking (accounting) that I described above. But it is a v 1.0 of a Business 2.0 application. So stay tuned for what comes next there.

     It is interesting to devise for a while what a new system like P2P Money would make possible or what systems it could replace eventually.

    First, it would make possible monetary coordination in loosely organized groups. Association could collect funds from their members (or non members) for routine small projects. Budding project groups could start acquiring resources without having to trust one of the member to serve as a treasurer. Transnational social network could jointly invest to promote their goals (something standard banking system make next to impossible).

    Second, it could eventually entirely replace the banking system for certain of these groups. I can easily imagine any club using such a system for its entire accounting and expense system. True, usually you do not pledge money, but treasurers would cerainly feel happy not to bank all the checks and reimburse members that bought material with through similar paper hassle. 

     Finally, things have to be put in perspective to give the boundaries to a pooled payment sytem. Bill Gates can easily decide to allocate $1B to a project within a matter of days. That represents 1M people ready to collectively pool an average of $1000. That’s a lot… So, no need to say that a pooling payment system won’t be a significant player before a while. But it makes possible entirely new patterns. If we indeed find a large collection of problems that can only efficiently be solved through the wisdom of crowds, we definitely need P2P Money. So be prepared for a long journey, but the prospects seem quite exciting. What do you think?