It should not go unnoticed that mobile telcos already have a directory of always on identities, which they are able to observe the behaviour of (they’re your ISP when you’re not on WiFi). They have not however managed to leverage this great asset from the world of voice and SMS into the internet value chain. There have been passed attempts, most notably Phorm, which failed to respect consumers and the existing internet ecosystem players. More recent forays in the space seem to lack ambition, whilst the OTT players are gaining in speed and scope (see X.Commerce (https://www.x.com/) from eBay and Facebook Credits rolling out across 3rd party sites).

If Telcos do not act, by necessity over the top players will be forced to re-create or work-around their assets - at the requests of both merchants and consumers. Complicating things further for Telcos, device association to network connectivity (for data) is now as low as 20-30%, forcing telcos to innovate their own Over-The-Top solution to let them span these ‘off-net’ experiences. All this can be done, the question is to they have the ambition to do it? Signs are we may see a resurgence of ‘operator portals’ (dressed up as App Stores or Deal Sites) but little engagement with the wider world. This would be a tragedy for the industry, as we all watch more and more of the ecosystem drift State-side.

If voice related number portability was an issue, you could easily imagine a situation where an ‘overlay’ network would be used to disconnect the user’s perceived phone number from that of the operator ‘owned’ number(s).

Firstly you must ensure that your user base is no more fraudulent than the population at large, or more specifically, the customer base of your competitors. In that way, while good users may object to paying fees, they have no lower price alternative (from companies with a cost and therefore long-run price advantage over you). Step two is to attract less fraudsters and/or block more fraud. Fairly simple really. Doing this requires deep IP which comes at a high fixed cost. This fixed cost makes achieving scale essential to winning the game and is one of the key assets of large payments players. As fraudsters prey on the weak (and good users abandon the weak) gaining a lead on your competitors quickly is key - a sort of most secure car on the road approach to security versus an unbreakable door approach. Finally you need to start engineering out the cost of fraud, by either passing the cost on to 3rd parties or removing the aspects of your service that enable/attract fraud in the first place.

PayPal lost $9m to fraud in its first year. Fraud prevention is an expensive game to learn, and one that directly affects the bottom line. In tight margin businesses it can be the deciding factor between profit and loss. And in payments, which is a vey tight margin business, fraud is a core business competency. If you operate in payments and are experiencing above average fraud, and cannot pass this cost on to consumers (for the good reasons mentioned above), you should look t merchants to cover the cost. If they are unwilling, and your increased cost of fraud comes with no incremental upside to merchants (e.g. greater customer reach, lower checkout abandonment) - you should perhaps reconsider the game you’re in!

Sockington is not Jason Scott, his owner and I presume keyboard assistant. This statement is true in so far as Frasier is not Kelsey Grammar, and Carrie is not Stephen King. James Bond is also not Ian Flemming, in fact James Bond is not just a subset of Ian Fleming’s mind. James Bond is now happily continuing life after Ian died back in 1964. Who would you prefer to owe you money - James or Ian? Sockington or Jason?

Sockington has earning potential, and given his high profile, a need to protect his good name. Jason hopefully is earning a good wage himself, but perhaps has less need to keep his identity clean. He could go bankrupt, adandon his creditors, change his name by Deed Poll and all potentially without impacting his earning power. Sockington on the other hand lives and dies by his personal brand. So how important is it to link Sockington to a ‘real’ identity, when so much value is tied up in his ‘virtual’ ID? Do I need to know who Sockington is, or do I just need to know what Sockington earns?

Lending to Sockington without knowing the ‘real’ identity behind him, is in many ways no different to lending to a Limited company. In a limited company the creditors have no lien on the assets of the people behind the company, nor can the force the owners to work. They simply lend on the basis that the company has more interest in existing than not. I’d lend Sockington money, and if he didn’t get a ‘job’* to pay me back, I’d come after that cat with Marmaduke until he made good!

* a few Google Adwords perhaps.

The payments space seems to reward scale handsomely, offering great defensibility to the incumbents, and a giant shimmering tower for invaders to dream of capturing. Financial institutions are inherently risk averse (true, despite what’s just happened) and consumers fear innovations that ‘fiddle’ with their money, so the pace of innovation seems tortuously slow in the payments sphere. Perhaps, like telecoms, it may advance quickest where there has historically been no infrastructure, making the developing world the test bed (or profitable home) of new payments related services.

However there are a number of things happening, forces gathering on the horizon, that make me believe there may be some excitement to be had at home in the payments space still. Apple’s payment experience on the iPhone is amazing. Google’s Checkout experience on the open web and integrated with the Android Market on mobile may start to offer the same ease of purhase everywhere (but isn’t quite there yet). PayPal’s success in displacing ‘card numbers’ with authenticated digital IDs (your email) may spread and their involvement in OpenID may see us one day watching the Olympics sponsored by OpenPay. Micropayments and the rise of virtual goods may see very different models emerge - who knows, but at least it is exciting!