Payments Views

ACH

Decoupled Mobile? A Look at mPayy

At Glenbrook, we’re fascinated by the topics of mobile payments (in general); the potential for new ACH applications; and the continued growth of eCommerce.  So it was great to talk to Conrad Sheehan, CEO of mobile payment startup mPayy – who has moved his company right into the center of all three topics.

To start with, Conrad is no slouch – he is an industry insider, having built his payments skills as a consultant to banks and Viewpointe during those early check image days, and then later as head of Chase’s consumer payments group during the early growth days of POS debit.

mPayy, which was started in 2007, is interesting today because of the platform it has built to support eCommerce and P2P (person to person) payments.  It might be even more interesting in the future – at the point of sale – more on that later.

The Platform

The mPayy platform is a “secure debit platform”.  mPayy, says Sheehan, is a “decoupled debit provider” using mobile as a key channel. A consumer sets up an mPayy account and authorizes a transaction on the merchant’s or biller’s website or mobile site.  For billers or any invoicing merchant, mPayy can send a mobile invoice and collect payment from the consumer’s cell phone.  P2P transactions can be done on the mPayy website, by mobile, or on the major social networks. mPayy then manages the process of drawing funds out of the consumer’s account, by an ACH debit transaction, and sending money on to the recipient.

All of this, of course, requires some sophisticated risk management on mPayy’s part – to ensure that the consumer is properly authenticated; that the bank account information they have provided is valid, and that there are sufficient funds in the account to pay for the purchase.  The mPayy platform handles this through a complex set of back-end processes.

You can think of mPayy as a PayPal-like platform, but Sheehan is quick to point out that there are some important differences.  First is that credit card funding is accepted only as a back up (if the DDA funding fails), not as an up-front option for the consumer.  That means that virtually all mPayy transactions run on the more profitable half of PayPal’s business model.  This also enables mPayy to pass some of the savings (from avoiding card funding expense) on to merchants. Secondly, the consumer identifier is the mobile number, rather than the email address, as in PayPal’s case (making PayPal sound “so 1990’s” in this respect!).

Merchants & Consumers

Like many payments startups, mPayy faces a “chicken and egg” problem of signing up both merchants and consumers.

Sheehan’s starting point is merchants, where he feels he has a “very compelling proposition”.  The elements of the merchant appeal?

  • Acceptance costs “materially below that of cards”.
  • The management of ACH risks. Once a payment is authorized, mPayy guarantees settlement and absorbs any fraud-based charge-backs and NSF’s.
  • Rapid set-up process – mPayy can open up a consumer account and execute a transaction all in one session
  • Checkout support – the merchant can opt to have mPayy populate the address page, etc.

mPayy is signing merchants up by the now-established route for payments start-ups, of making deals with acquirers – “the usual suspects”.

What about the consumer half of the chicken and egg problem?  The best route to getting consumers, Sheehan feels, is through merchants: “anything else just isn’t cost-effective for a startup”.  He recognizes the challenge here, but thinks mPayy can benefit from lessons learned by other start-ups that have had a hard time taking this path.   Of course, he says, the consumer proposition is “easy, secure, and free”.

Easy sign-up and the mobile interface, he hopes, will help drive consumer use of mPayy once they are signed up.  A basic WAP capability for the consumer is of course already in place: iPhone and Android applications are coming soon.

Looking Forward

Sheehan is also enthusiastic about mPayy’s ability to support social networking and payments; they already have secure widgets available for installation on Facebook – but he admits “there’s been very little usage”.  He thinks the work they have done there will find better applications in supporting digital content purchases – in particular for newspapers.

We closed with a very interesting discussion about how mPayy might play in an NFC world.  Sheehan, like the rest of the industry, is watching the carriers and the card issuers battle out the question of how payments revenue – now in the issuer’s pocket – might get shared with carriers in the future.  Carriers have a shot at this because they control the SIM chip that (in the base case scenario) needs to be provisioned with card data for security.  But a debit platform such as mPayy’s could work directly with carriers on an NFC solution.  Rather than being concerned about losing existing interchange, mPayy (or any other similar debit platform) would see it simply as an opportunity for new revenue – which (and this is my speculation) they would presumably be more than ready to share with a carrier.

What do you think the chances are that a scenario like this could interest a carrier in getting started with NFC?