When news came out earlier this week that mobile payments company Obopay raised another $70 million, effectively doubling its total funding raised to date, some observers were surprised at the sheer size of the round. While others expressed skepticism that mobile payments would ever really take off, at least in the U.S.
But the bigger opportunity for Obopay and mobile payments in general is not in the U.S. It is in India and other parts of the world where a large portion of the population don’t have bank accounts. These are the so-called “unbanked.” There are billions of them and their relative spending power is on an upwards trajectory. Obopay CEO Carol Realini says:
There are four billion phones, and only one billion bank accounts. Our view is you have to have a way for both the banked and the unbanked to participate in the mobile payment system.
And that is her strategy in a nutshell. Obopay operates in the U.S. and India right now. If you have a bank account, you can link it to Obopay and use your phone to make payments wherever Mastercard is accepted. If you don’t, you can load up your account using a prepaid model. Realini throws out some Gartner estimates that only 6 million people use mobile payments today across the entire world, but that could grow to 100 million by 2011. (Add salt, nobody really knows).
Despite Obopay’s two-pronged strategy, if mobile payments do take hold, I’d expect them to be more popular among the unbanked outside the U.S. Most people in richer nations already have an abundance of payment options available to them, and adding a mobile wallet won’t make a huge difference one way or another for most people. In countries where payment options are more limited, the ability to turn your mobile phone into a wallet should be much more appealing. Obopay is not alone in trying to bring mobile payments to India. Other startups such as Australia’s Paymate and India’s own mCheck are also making inroads. But that $70 million should help Obopay establish a presence there.
One more thing about that money. Many of the reports suggested that the entire $70 million came from Nokia, which is wrong. Realini confirmed to me that “there are other investors.” Although she says she is not at liberty to disclose who they are at this time. One place to look is the long list of investors who have poured money into the company in the past. Qualcomm, Redpoint Ventures, Onset Ventures, and Richmond Management seem to be the company’s steadiest investors across previous multiple rounds—although I have not confirmed their participation in this one.
Congrats on the round. That’s a lot of money. I hope and cross my fingers that it turns into great products and services.
Was this not a recapitalization? The SEC filing was just that Obopay filed to sell $70 million in new Preferred Shares. Are you sure they didn’t wipe out a lot of the old equity and give them new shares? Did they sell all those new shares?
Or, did they ACTUALLY get $70 million more in cash?
You gotta wonder what’s happened to all the other equity, and if the $70 million is still a ‘minority stake’, is the valuation actually over $140 million?
Anyway, congrats to Obopay.
If you think about global expansion, entering new markets, creating relationships with carriers, governments (yes some countries will not let you just walk in and offer your service) and banks worldwide, having an insurance for the service then 70M is frankly not too much. Now I am not even going to talk about dealing with Fraud. That will be another 100M dollars (ok totally exaggerated amount, but) before they start to get it right.
Obopay I heard is moving everyone to India—gotta go where the opportunity is!!!!
I can’t recall the name of the program, but I remember seeing a report about Nokia trying to establish something similar in parts of Africa where there’s a similar disparity in terms of bank accounts and credit cards vs. number of mobile phones.
Will be interesting to see where this goes, and if emerging countries will lead innovation in mobile.
You have to think of tweeners under 18 as part of the “unbanked” too. They have limited to zero payment options. But they are probably more likely to use text based mobile payment solutions like paymo.com
it’s nice to hear a news story about a company that’s doing well. i would much rather hear about a company that’s doing well in this market than the other thousands that aren’t. depresses me. i’m glad i took the time to read this article.
In Brazil there’s a similar service called Paggo (www.paggo.com).
That’s http://www.paggo.com.br, actually…
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The interesting thing about Obopay is that they seem to have raised the latest round not on past performance in the US market (where they have been operating for the past 3-4 years) but on future potential in the emerging markets like India, South East Asia, and Africa. Question is – how will the Obopay solution adapt to the needs of extremely price sensitive customers in emerging markets and more importantly, how will the Obopay solution differ from the local offerings in these emerging markets. They have only recently launched their service in India, a market which already has many entrenched players like mcheck and Paymate India.
I was a member of the core launch team of an Obopay-like operation based in Boulder, Colorado named Mocapay. We had an SMS-based system of payment at a few hundred point-of-sales around town and in Cincinnati, Ohio. Mostly sub shops, pizza joints, smaller local retailers but also a couple national names. (They have since re-grouped as a mobile gift card company.)
From my direct experience, mobile payments are far too complicated for most people to take the time to figure out.
It’s not the technology doesn’t work. It works great under controlled conditions. But when you include two hard-to-manage ingredients – a mobile user and a point-of-sale clerk, you get an unacceptable myriad of drop points and weak links.
Basically, companies like Obopay should be focusing more on the human element – the face-to-face interaction between users. If the first, second or third experience is a bad one, both merchant and user will be hesitant to try it again. Both consumer and merchant need extensive (and expensive) training to make it work within acceptable parameters.
All the great partnerships in the world won’t overcome a bad user experience at the height of lunch rush.
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trying this out…
Holy smokes….$140MM total raised by a company I’ve never heard of.
The ‘unbanked’ is an interesting group that I’ve not considered before.
Hi good luck for ur venture its surely has a great potential in India and elsewhere too. Much would depend upon the product you develop on this concept and identifying right collaborations.
I would like to mention here tht this concept was my dream project, an idea i nurtured into product concept in year 2000 but in India its not easy to get funds. Without seed money it never took off but im quite sure whoever does it right can change the economy works in our times.
- Bharat Sharma
There are many security issues with mobile payments.
The SIM card could have been a good environment but it is owned by the operators.
The MicroSD card with a microprocessor is a feasible solution as it is too a secure environment.
Advantage: physical deployment by distributing the MicroSD card – thus no downloads or Over The Air problems.
“Despite Obopay’s two-pronged strategy, if mobile payments do take hold, I’d expect them to be more popular among the unbanked outside the U.S. Most people in richer nations already have an abundance of payment options available to them,”
Oh really? And which richer nations is that? france? italia? uk? do your research….
As someone who has been tracking Obopay for a long time, I fail to even understand why anyone is investing in an independent company such as Obopay for mobile banking.
There are more than enough larger banks who have offerings which are vastly superior and can easily crush them. Even Nokia could take that investment and build their own solution blowing Obopay out of the water.
I guess the only reason why they are investing so heavily is because of the CEO who is without a doubt one of the best rainmakers I have ever seen.
However, if you notice, they have lost a lot of headcount over the past year or so and don’t seem to be getting anyone of worth to fill those seats.
There is a difference between mobile banking and mobile payments. The Mobile banking market is predominantly a convenience and cust service play for banks with little opportunity for revenue generation. This market is being addressed by startups like firethorn and clairmail. The mobile payments market is where the revenue opportunity is (from transactions). And clearly the opportunity is very big in emerging countries. The mobile payments market has a number of regional players like paybox in europe, wizzit and mpesa in africa, and paymate and mcheck in india. Obopay today does not have service or traction in any of these high growth markets….
The mobile market is wide open for game changers to really change the dynamics and challenge bloated valuations which are unlikely to be sustainable beyond 2010.
Mark Allcock, Private Investor