PayPal Bump, RIF Sim, and P2P NFC - Whats the Future?

Recently PayPal released an iPhone app using Bump technology for P2P money transfer.Already more than 1million people have downloaded the application. I think that enabling such a P2P payment service on smartphone platforms will open up a host of new avenues for services and business models to be built around it.

To begin with, PayPal bump service is conceptually a p2p NFC model, where phones communicate with other phones to initiate a transaction. In advanced economies with good credit card penetration installing NFC infrastructure such as readers/writers at POS will be an added burden, and may never take off. But in emerging economies, such as China and India, NFC has strong potential to be take roots. For example, China  Mobile has begun commercial roll out of contactless mobile payments system using RF SIM enabled phones, and China Telecom has promptly followed suit. Any P2P mobile transaction system - be it NFC, RF SIM or PayPal Mobile can lead to creating of new services and products around these platforms. Also customers could find so many new ways to use the p2p NFC, as in the case of MPESA, which was originally invented to deliver micro credits in Kenya, but one customers found innovate ways to use it, turning MPESA into one of most successful mobile payment systems in the world. Some of the services that I could think of where P2P mobile payments will find use are :-

1. Digital Lending. With value (not just money) transfer enabled, services like P2P digital lending can mushroom. For example, music companies can sell songs with DRM allowing certain number of times a song can be rented, and person renting the song can pay the lender directly using p2p NFC. iPad and Kindle have ebooks, and now ebooks can come with limited lending rights. Here again, a simple p2p NFC utility can work.

2. Value Transfer. Promotional coupons provided by advertisers can now be traded amongst peers. Not everyone who receives a $10 coupon has a utility for it, and now one can transfer the coupon to others who have a utility, and get the value in cash through P2P transfer.

3. Payments  for Services in Emerging Economies. Vast majority of daily service providers in emerging economies like India can benefit greatly by p2p NFC, Bump and other contact-less payment systems such as RF SIM. Everyone has a mobile phone but not a credit card. As such credit card penetration is almost non existent even with their customers. So customers can pay small businesses such as hair saloons, photocopying service, laundry services, daily door to door vegetable vendors - using P2P mobile money services.

Given that PayPal already has mobile payment services leads me to believe that the new iPhone, Andriod and Blackberry Bump App is one way to promote and increase use of PayPal mobile. The consumers are king. They will find innovative ways to use such a service. I am sure that the PayPal will see this service being used a number of different ways.

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M-PESA Adoption Cycle - An example of two tail diffusion of technology

M-PESA is a hugely successful peer to peer mobile money transfer system run by the mobile operator Safaricom in Kenya. The M-PESA system allows customers to perform four basic transactions- transfer money from person to person, transfer money from individuals to businesses, cash withdrawals at designated outlets and ATMs, and loan receipt or repayment. The user loads the money on the mobile wallet by depositing cash with the agent at an authorized M-PESA outlet. Once the money is loaded on the mobile wallet, the user receives an “e-Float”, which is like virtual currency that can be used to make payments or transfer to any other person via merchant via encrypted SMS. The receiver of e-float can use this virtual currency to make further transactions or can cash-out from M-PESA designated outlets. M-PESA customers use this mobile money transfer system, to complete basic banking transactions without having to ever visit a bank, and thus M-PESA has turned into a branchless banking system in Kenya, where only 19% of the population has bank accounts, but over 42% of the population has mobile phones .

One of the important lessons M-PESA success allows us to draw is its technology diffusion and adoption cycle. In most technologies, the diffusion of technology follows a linear pattern, with the innovators, and early adopters adopting first, followed by the early majority and the late majority, and finally, the laggards. This is depicted by the picture 1 (source Wikipedia) below

Linear diffusion of technology

However, in MPESA’s case, there is a two tail adoption converging on the centre, causing an exponential diffusion of technology. The early adopters of M-PESA are young urban workers who wanted to transfer money to their folks living in rural areas. However, in order to receive the money, the receiver, typically an illiterate resident in rural Kenya, also needed to have an M-PESA account. Normally, these illiterate rural residents are considered the laggards, and are expected to be the last adopters of any new technology. However, in MPESA’s case, the early adopters and the laggards adopted M-PESA simultaneously, creating an explosion in network effects.  The diffusion of technology in MPESA is depicted in the picture 2 below.

Two tail diffusion of technology

This kind of diffusion of technology as seen in M-PESA’s adoption cycle is seldom seen in any other technology.  This brings out important lessons for designers of technology products and social games. There are opportunities and dangers in designing such products that would allow two tailed diffusion of technology. The opportunities lies in the fact that use of technology by the innovators and early adopters would not be possible and meaningful without one other group adopting the technology, and hence there will be exponential adoption as innovators and early adopters force the diffusion in other groups in order to even test the waters. On the other hand, such requirements that atleast two groups adopt a technology to be of meaningful use to any of the users, can create significant entry barriers for even innovators to test the waters.

Some of the other applications that I could think of where such two tail adoption is possible, are social games. For any social game, diffusion follows a linear pattern as described in picture 1. But say, if we design a social team game for families that requires individual families to form family teams, and compete with other family teams, we can induce a two tail diffusion. In such family games, the teen age kids, who are the innovators and early adopters, would recruit their older family members, who are normally the late majority and the laggards, to join their teams in order to play against another family team. This will automatically increase game adoption and get on board the early adopters and the late majority simultaneously. However, for such diffusion to be made possible, the games must be compelling enough for teenage kids to exhort their older family members to play the games. So a better way to create this two tail diffusion is to create compelling games that can be adopted by single user, and then create new avenues to play team form of the same game, and thus increase adoption. 

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