Micro Payments and Oyster Cards

As countries move towards a larger presence of electronic payments, a number of prepaid or stored value solutions offer substitutes for checks, cash, ticketing and other paper-based payment forms. Often, the processing of payments in these solutions is silo'd outside traditional schemes, ecosystems or networks. These solutions typically operate as standalone services within closed loops. The benefit of stand alone, is the establishment of the ecosystem requires very little cooperation with banks, VISA/MasterCard, resulting is larger margins for the operator. But they come with adoption and utility challenges.

Over the years we have seen multiple variants of the closed loop payments system evolve. One of the best known is the Oyster Card system that runs London's public transport system. Run as an initiative of Transport for London, the local government body that runs the transport system in Greater London. Like other similar systems, the model has one very powerful thing going for it, addressing its core challenges of adoption and utility. Forced adoption on a daily consumer expense. Launched in 2003, the system raced to 36 million cards in circulation in June 2010 (http://en.wikipedia.org/wiki/Oyster_card). It is estimated that greater than 80% of all public transport in England is now run though Oyster. But Oyster wasn't the first.

Back in 1997 in Hong Kong, MTR (Mass Rapid Transit) launched the Octopus Card based on very similar technology and infrastructure that London would use some six years later. Like London, the operator Octopus Card Limited has the exclusive rights to monopolise the micro payments market in Hong Kong through the leverage of forced adoption. Today, Octopus Cards are used daily by 95% of Hong Kong's 7 million citizens (http://en.wikipedia.org/wiki/Octopus_card).

In Singapore, Ez-Link Pte Ltd launched the Ezlink Card back in 2001 following a similar path to other Felica based deployments around the world, leveraging everyday forced adoption, closed loop micro payments. As of 2007, there are over 10 million (http://en.wikipedia.org/wiki/EZ-Link)EZ-Link cards in circulation, with 4 million card-based transactions occurring daily. But EzLink back in 2009 took it one step further, opening the card to uses outside public transport. Today, the card is accepted as a form of payment in taxi's, 7 Eleven, McDonald's, Starbucks and a host of other retailers. Making the card a dominant player in the micro payments, cash alternative market.

There are also examples of closed loop adoption in scenarios other than public transport. In Kenya in 2003, SafariCom launched M-Pesa, the now infamous Mobile Money pioneer. The system quickly build scale through necessity. As of November 2011, M-PESA has over 14 million subscribers and well over 28,000 agents across the country to service Kenya's population of 40 million. In other parts of the African continent, MTN launched their own Mobile Money businesses in its 19 operating countries. Today MTN is seeing mass scale in Ghana, Uganda, Ivory Coast and quickly building in others.

Each of these cases have pounced on market opportunities that are rare in today's economies, mass everyday payment utilities with a clear demand for simpler, faster, safer solutions. While in a state of 'closed loop' these solutions have build scale, and now dominant micro payments in their own countries. But can these closed loop systems be opened up as per VISA's aspirations when they acquired, Mobile Financial Services provider Fundamo. In VISA's own words the acquisition was specifically aimed at "expand the utility of closed-loop systems, enable them to be interoperable, make financial services available to more consumers and offer merchants access to new customers" (VISA ACquires Fundamo for 100bn). Clearly MTN agrees on the vision, as they agreed to commit to the vision, by signing a deal with the new Fundamo VISA alliance to convert their closed loop operations into VISA Open Loop offerings. (MTN, Visa launch mobile money offering).

Can this same move apply to the world's other closed loop payments systems? Can the likes of a VISA or MasterCard open London's Oyster Card to an interoperable offering that can scale to totally replace the need for cash in the UK. Observation would tell us the perfect storm for VISA is quickly approaching, as VISA and Samsung push Mobile based NFC payments at this year's Olympic Games in London. (Samsung and Visa join forces to enable NFC mobile payment at 2012 Olympics)

Could the Olympics prove to be a critical tipping point where the a mass scale closed loop micro payments such as Oyster are peeled open by the world's payments and mobile super powers, offering consumers superior convenience, simplicity and greater utility? Personally I believe it's possible. So I put the challenge to Bill Gadja's Mobile team at VISA... are you ready to pounce on a market opportunity that doesn't come around often? Succeeding in London could be the Tipping Point (Malcolm Gladwell), that the mobile and micro payments world is looking forward, and could open doors in other markets around the world.