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Cracking the mobile payments code: Danielle Dalkie of Network Roma scans the horizon to discern the shape of things to come

25 Sep

Danielle Dalkie

It’s never easy predicting which technology will win out in a fast-growing and ever-changing sector crowded with players who are all touting their latest innovation as the future. And that’s especially true when it comes to working out exactly how people will eventually use their phones to pay when they shop. In this article, specially written for NetworkMilan, entrepreneur and social media strategist Danielle Dalkie considers the implications of PayPal’s ongoing tech spending spree. She also hovers her iPhone over the current state of QR codes and scanning technology to take a snapshot of developments in this rapidly-evolving market. Her conclusions may surprise you…

PayPal’s recent tie-up with Discover Card barely a month ago was yet another in a long line of strategic moves which show the growing importance of mobile as a payment option. Discover (which has just agreed to pay back $200m to millions of consumers who were charged for add-ons such as such as credit score tracking and identity theft protection), allows customers to access their PayPal account in-store by using their mobile phone number and PIN.) PayPal also snapped up credit card scanning service card.io earlier this year. However, while Paypal (which is owned by eBay) would like to think it is leading the mobile payments space their strategy so far seems to be more about acquiring interesting bits of technology to supplement online payments while trying to make it “mobile”. And let’s not forget Zong, another of their acquisitions last year, which also allows consumers to pay using their phone.

Cracking the mobile payments code: Danielle Dalkie of Network Roma scans the horizon to discern the shape of things to come

Card.io is just one of the many different mobile payments technologies PayPal is pinning its hopes on

Card.io provides mobile software that lets consumers use their smartphone cameras to scan credit cards for information, thereby simplifying the process of loading those cards into a digital wallet. Many mobile payment application developers have partnered with card.io to take advantage of its card scanning software, and according to PayPal’s Hill Ferguson those developers will continue to be given access to card.io’s technology.

Rather than backing one technology, PayPal is hedging its bets by backing various players. It’s also keen to head off competition by either controlling the technology used or matching it with something similar, if not indistinguishable, in all but name (and shape). PayPal’s Here, for example, allows merchants to accept a payment on any mobile phone using a detachable card-reader. The service presents a head-on challenge to Square, who have a virtually identical technology. The two systems are so close I think we will leave it to them to hash it out amongst themselves to see who wins this particular battle.

Early last year PayPal endorsed peer-to-peer NFC [Near Field Communication, which allows customers to pay by tapping or holding their phone near a counter-top device. Editor’s note.] Then came the big announcement towards the end of 2011 of their closed loop solution for the consumer, which seemed subsequently to have been completely refocused. Their agreement with Discover seems to complicate the picture even further.

PayPal’s NFC solution for mobile payments can hardly be called agile. Paying with your phone is supposed to be streamlined – so why would I want to have five different apps for my favourite stores? And then the scanner app as well? It’s clunky. This is where Google Wallet shows itself to be the true leader in the field. The NFC wallet is simple and really does cut down the time spent at the check-out. That said, the prospect of NFC as a universally-available function of the mobile phone is still a few years off. So we have two options: QR codes or tags? Whilst the code solution is much cheaper it is not that secure. The problem is that QR codes leaves users vulnerable to hackers who may use the code to lead them to a malicious website or application. And with less than 5 per cent of people having any form of security on their mobile phones, it potentially leaves them wide open to fraud.

This type of technology allows for closed loop solutions – a topic which I covered in a recent blog post here on NetworkMilan, explaining that this is good for merchants but makes it more complicated for the user. So, regular readers will already know I don’t think the current payments systems and solutions on offer are ideal. However, there does need to be a universal solution. The fact that your Google Wallet has Visa – which is accepted worldwide – is convenient. And until the industry can settle on an alternative, multiple closed loop solution, any challenger will always come second to the Visa and MasterCard network.

While scanner apps and barcodes are not without risks or issues, around 21 million American adults used mobile barcodes in 2011, a figure that grew by 147 per cent from the previous year, according to a survey carried out by eMarketer. This positive trend expected is expected to continue over the next few years and it tracks, of course, with the wider take-up of smartphones. (Around a quarter of smartphone owners use mobile barcodes, a figure which is set to continue rising, reaching nearly 40% by 2014). In this survey, consumers said they would use the technology to access discounts, offers or coupons, whereas only 23 per cent of respondents said they would want to use mobile barcodes to actually complete a purchase.

Since the number of consumers using the technology is growing, it makes sense that the Open Mobile Alliance (OMA) has developed a standard for handling 2D barcodes that it hopes will direct mobile phone users to websites more easily. By standardizing the specification for encoding, decoding and the resolution of 2D barcodes, the OMA has said it wants to stimulate the usage of the codes. Hopefully, standards like this will help to protect consumers and reduce the inherent security risks of these payment solutions. For the consumer, such an initiative can only be of benefit to them.

Ultimately, it really all comes downs to the basic economics of supply and demand. Consumers do want to be able to make mobile payments, but the technology we need to provide a universal, seamless and secure service is still a good few years off. I am not saying that QR Codes and scanners are not a great bit of technology; they are. However, it is just not a viable long-term solution.

QR codes for mobile payments? Consumers are not yet sold on the idea (Image: Frank Edens via Wikimedia Commons)

Online retail sales increased by 14% last year to more than £50bn, with predictions that the growth will continue to hit high streets, according to a new report. The increasing popularity of mobile devices, combined with the growth of mobile-based retail sites, is directly related and affected by the increase in online sales generally. Mobile really is the “missing link” between online and retail stores. It is going to be key, and business is fully aware of this. The challenge remains, however, to find a solution that is reliable not only in terms of technology and security, but one which also meets consumers’ increasingly important demands for services that don’t add unnecessary complication to their already busy lives.

Danielle Dalkie is the co-founder of Waspit, an innovative mobile payments service that provides social banking for students. She is based in Rome and works with clients based in Italy, the UK and the US. Danielle has recently founded Network Roma, a LinkedIn group dedicated to facilitating networking opportunities and collaboration among freelancers and companies with a Roman connection.

Still confused by the plethora of mobile payment technologies out there? Check out The Most Important Mobile Payment Infographic Ever created by MobilePaymentsToday.com.

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Posted in Business English

Nothing ventured, nothing gained: Danielle Dalkie finds the rules for raising startup capital are (gradually) changing

01 Aug

Fuelling the digital economy: options for startups (Image: Stock.xchang)

I have first-hand experience of raising capital; pounding the pavement and listening to people tell you that something you have put your heart and soul into doesn’t really interest them: sorry. Then, just when it seems you are about to give up , when you have spoken to every investor – twice – you suddenly stumble across someone who is actually willing to invest.

In the current economic climate it seems this process is even more arduous as people are less willing than usual to part with their hard-earned cash. When it comes to venture capital, the conventional wisdom has been that if you want money the Americans are pretty much giving it away. Finding investment in Europe, however, while far from impossible, isn’t exactly easy either (particularly in Italy). Take for example the Italian startup wunderkind, Mashape, an API marketplace for cloud-based services: they spoke with every VC and investor in Italy – all without success. And then (miraculously) after just 19 days in the USA they found funding in San Francisco.

According to Marco Palladino, one of the founders of Mashape (along with Augusto Marietti and Michele Zonca) it’s entirely cultural. He told TechCrunch: ‘in Italy, the investor community is smaller and has less money than in Silicon Valley. Therefore, they don’t want to take a risk by investing in a new and innovative model – they want to invest in something proven and secure. Thus, they fund models that already exist, which ends up slowing down local innovation as a consequence’.

However, you can find venture capital if you’re in the right industry. A recent report states that there has been a 37 per cent increase in investments in the US this quarter. Not surprisingly companies in the mobile sector have been the main beneficiaries, including seed funding for startups. In fact, 22 per cent of all deals have been at the seed stage this quarter.

Even though the Italian investments market still trails its main European counterparts it has been growing and an increasing number of opportunities are available. In the past three years, 183 startups have received financing, according to a survey by “Startup Numbers”. The combined investment capacity of the funds for 2012-13 is about 320 million euros, aimed at supporting around 160 new businesses. The average lead time between the issuing of the business plan and the actual investment is about 6 months. Some firms can manage it in 3 months, while others need up to 10 months. The average share of capital controlled by investors is 30%.

There is also growing interest in the Italian startup sector, attracting not only homegrown VC funds, but also foreign money. Government support in the form of a Task Force to propose new laws more favourable to startups has also helped to spur optimism, as we reported on NetworkMilan recently.

Kickstarter: the world's largest funding platform for creative projects

However, while the traditional funding route for startups remains hard just about everywhere there is a new trend in the form of online funding networks. Depending on which site they use a startup can raise whatever amount they need to get their business off the ground. Whether you’re a one-man-band with a brilliant idea, or a small company seeking further development funds, this seems to be where most people are getting angel funding. Kickstarter is the one most people have heard about, creating a community for people with money to invest: anything from $10 up to $1 million, as was the case for Nano Wristbands (which convert an iPod Nano into a watch).

I also came across Payable.com as well, which takes a slightly different approach. You share your idea on the site, which then gets funded by the ‘investor/s’. Payable’s own developers step in to get you up and running and the software is sold via their online store, which is how the investors make their money back. One disadvantage with this model is that you don’t own the IP.

And there’s Kabbage.com, which, according to its website can ‘provide working capital to online sellers to help their business grow in less than 10 minutes‘.

I like the idea of startups funding startups. It makes sense; they understand the risks involved and are generally more in tune with the way entrepreneurs think. And it is these companies that have been the driving force behind the growth in seed investment, as I mentioned above.

Certainly, the times they are a-changin’ for the investment sector. I personally do not believe you can say one location or market is better or worse than any other, especially since the dire economic outlook affects everyone equally (at least in the West, still languishing in recession). (According to an article in the Wall Street Journal, U.S. government spending relative to GDP is 36%, which is very close to that of Spain. And the US debt-to-GDP ratio is 103% whereas Spain’s is 68%.)

But while times remain tough, the growing diversity of funding sources for startups is one of the factors helping to get new high-tech businesses through these tough times.

By Danielle Dalkie, Social Media / PR Consultant and Co-founder of mobile payments startup Waspit.

BREAKING NEWS: Danielle has recently founded Network Roma, a sister group of the Milan Business English Network. You can become part of Network Roma by joining their group on LinkedIn.

Racing ahead: venture capital is available for startups with real potential that explore every funding route (Image: Formula One by Mark McArdle via Wikimedia Commons)

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Posted in Digital

Growing Italy’s startup sector: private investment and timely government intervention combine to create fertile ground for growth in difficult times

30 Jul

Nurturing tomorrow's successful companies (Image: Theornamentalist via Wikimedia Commons)

With each day bringing ever-gloomier financial and economic news for the Eurozone and especially for Greece, Spain and Italy – bailouts, euro meltdown and the dreaded “spread” – this would not seem like the best time to start a company. Certainly not in a highly-speculative sector with few established precedents and even fewer proven business models. And yet the Italian startup scene is showing signs not only of life – but even of optimism and an excitement that flies in the face of the impending doom nearly everyone assumes is about to befall the Bel Paese (the Beautiful Country, Italy – not the cheese, of course).

Special report by Robert Dennis of the Milan Business English Network

Last month’s issue of Italian business magazine Capital featured on its cover Federico Marchetti, the founder and CEO of Yoox, the innovative online fashion retailer and the headline “Invent the future: How to become an e-commerce leader and beat the crisis”. Yoox is one of a crop of successful Italian startups that are bucking the downward trend in adverse business conditions – and providing an alternative vision for an economy in crisis.

In an upbeat feature article the magazine also described the recent visit of Corrado Passera, Mario Monti’s Minister for Economic Development and former CEO of banking group Intesa Sanpaolo to H-Farm, the Venture Incubator whose headquarters is located near Treviso in the lush countryside of northern Italy’s wealthy Veneto region. With an atmosphere that was ‘almost a happening, with an air of optimism and so much positive energy that it felt surreal, considering the times we are in’, the minister listened to the ideas and concerns of the audience of 200 mainly young entrepreneurs. The purpose of the event at the countryside retreat and embryonic tech hub, founded by Riccardo Donadon and Maurizio Rossi, was to send out the message that the Italian government is serious about its plans to support and incentivize startups. It aims to do this by working closely with industry figures who can bring their knowledge and passion to help foster the right environment for young businesses (especially high-tech ones) to grow.

Passera and Donadon at StartUp Italia Open Day (Image: italiastartup.it)

The visit was the highlight of the Open Day (May 26) organised by StartUp Italia, an independent association formed by six leading players from the startup sector to promote innovation in Italy’s digital economy. The founders of StartUp Italia – Riccardo Donadon, Giorgio Carcano, Paolo Barberis, Luca De Biase, Enrico Pozzi and Mario Mariani – are also part of the 12-strong Startup Task Force assembled by Passera to identify the practical measures needed to create a favourable environment for startups in Italy. (The Task Force, whose other members are Selene Biffi, Annibale D’Elia, Alessandro Di Camillo, Massimiliano Magrini, Giuseppe Ragusa and Donatella Solda-Kutzmann is co-ordinated by Alessandro Fusacchia, Adviser to Minister Passera for European Affairs, Youth, Merit and Innovation.)

The recommendations of the Task Force will feed into a proposed package of legislative measures also to be called Startup Italia. This package of new laws will complement the existing government “decrees” of Save Italy, Grow Italy and Simplify Italy (Salva Italia, Cresci Italia and Semplifica Italia). However, it should be noted that Italians will be choosing a new government in 2013, which could have an impact on the existing legislative framework.

Capital’s article also focuses on how Italy’s main Venture Capital funds are continuing to invest in startups despite of – or even because of – a generally unfavourable outlook in the wider economy:

• Startups that are not yet ready for investment can be nurtured by incubators such as I3P, Innovation Factory, Toscana Life Science, TechNest (University of Calabria), Polo Tecnolgico di Navacchio, Consorzio Arca (University of Palermo), Acceleratore d’impresa del Politecnico di Milano and the Technopolis (University of Bari).

• Budding startups that require seed capital of less than 1 million euros can then approach investors such as dPixel, Working Capital, Italian Angels for Growth, Annapurna Ventures, Enlabs, Digital Magics, Club degli Investitori and H-Farm itself.

• Early stage venture capital of more than 1 million euros is provided by funds that include Principia SGR, Innogest, 360 Capital Partners, Vertis, TT Venture/Fondamenta, Next Fund Lifescience, Atlante Ventures and Aladin Venture/Friulia.

Italian banking groups UniCredit and Intesa Sanpaolo (via its StartUp Iniziative) also invest in startups.

Another sign that Italy is being taken seriously as a good location for startup companies is the arrival of TechCrunch in Rome this autumn. A one-day conference on September 27^th will bring together the leading lights of Italy’s digital media and technology sectors. The event will throw a spotlight on some of the country’s highly innovative and dynamic startups.

So, while the outlook for the economy as a whole may be grim at least there is a ray of hope in the form of some exciting and creative new ventures that could kick-start growth as well as provide a significant return on investment for those with a longer-term vision.