Payonner : Prepaid Debitcard Issuer, gets $4M funding

The pre-paid card market is HUGE, about $2T worldwide. The debit card market is smaller but significant portion of it. In US, several companies, Greendot being the prime example, have offered pre-paid cards with Mastercard and Visa logos.

The prepaid card market is of particular interest to me, partly because last year I spent a few weeks investigating it; initially as a potential consumer and later as a potential provider of the debit cards.

From the providers point of view, the debit cards do not offer any revenue source other than the fees. A significant portion of the fees are mandated by the networks that are used to complete the transaction, generally referred to as “interchange fees”. In addition, the debit cards have limited “spoilage” (unused funds by the consumer) which accompanies a typical gift cards. The providers generally argue that the cost of using the debit card is competitive with the cost of using an unsubsidized bank account of third party check cashing services.

From the consumer’s point of view, the first issue that always comes up is the cost; the cost of using the card is not insignificant - about $150/year for average use. There is the activation fee, monthly fee, usage fee, re-charging fee, ATM fee, and the list seems unending; most card providers nickel and dime the user. Actually, nickel and dime charges would be fine, but the charges were a dollar or two for each “transaction.”

The purpose that I wanted to use the debit card was for a system that typically transferred about $1000/year to a service providers located in different countries. In the test cases, I found that the cost of $1000 transfer over 12 months was about $200. A 20% transaction cost was unacceptably high.

The Payoneer is trying to address the same market with somewhat lower fees. In March, the Debit card company Payoneer snared $4 million in venture funding.

The first round investment of $4M in Payoneer was led by Greylock Partners and included Crossbar Capital and several angel investors.

Payoneer was founded in 2005 and maintains a research and development facility in Tel Aviv, Israel. The co-branded MasterCards provided by Payoneer can be used anywhere whether it is in any store, online, or ATMs that MasterCards are accepted. There are some things Payoneer is doing right, it has partnered with several Web businesses likes Metacafe, Amie St., oDesk, and BitWine that need to transfer funds internationally on a regular basis.

The Payoneer business model revolves around enabling companies to use prepaid debit cards to pay their recipients. This goes contrary to the existing services like wire transfers or checks where funds can take few days at best to go through for international locations. Like for India it takes anywhere from 5-10 business days. So if companies need to make recurring payments to some of their service providers, they can be better off using Payoneer. They can even integrate the Payoneer payment processor into their payment platform that makes it easier and quicker to remit, reload, and manage online.

Payoneer claims that that most other forms of payments open to small Internet publishers are too complicated or costly. These publishers often need to make payments to companies that provide them with advertising, for example. A prepaid MasterCard, which does require a few set-up steps, is either cheaper or easier than using PayPal or normal credit card, the company says. Prepaid debit MasterCards are accepted at stores and ATMs worldwide.

As I noted earlier, this is yet to be proven. Payoneer charges about $3/month for the card and $2 per ATM withdrawal fee, in addition to the $10 initial fee. Assuming just one withdrawal per month, the cost is already at $60/year. There is 3.5% loading charge and there is probably about a 3% charge for currency conversion. We are back to $120/year to transfer $1000/year in a foreign account. So I am not sure if it makes sense for the segment of $1000/year transfers.

I am not convinced that in this day and age, one can’t construct a better way to transfer funds from one account to another without incurring 15% to 20% transaction cost. I wish Payoneer a success but I also hope that some new service or technology will offer an acceptable solution to the payment problem. In a way, this problem is similar to the micro-payment problem; how can one reduce the transaction cost? If you get down to it, the transfer of funds from one card to another is essentially an electronic change in an entry in some financial database; why should that cost as much?



Mobile Marketer : HipCricket gets additional $2M funding & Google Phone

A key factor helping to drive mobile marketing is the medium’s high rate of click-throughs and conversions. As an example, Dunkin’ Donuts campaign that used mobile coupons to help promote a new latte drink, generated a 4% response rate which translated into a 21% increase in store traffic. As a comparison, the response rate for an ad is less than 3 percent for direct mail and less than 1 percent for Internet banner advertisements.

In some European countries, the response rate is as high as 50% (yes, 50%, I didn’t put an extra zero) and in US, some campaigns have seen response rate of 7%+

About 95 percent of all active cell phones in the US (220M users), can be reached by using text messages, and 62 percent of all mobile phone subscribers regularly send and receive text messages. High response rates also translate into high CPMs-$41 for mobile display ads in 2006. By 2011, CPMs are still expected to remain fairly steep at an estimated $23.

HipCricket is one of the biggest players in this market.

HipCricket is the nation’s largest mobile marketing operation focused on the broadcast community, serving more than 100 clients across North America. Over the past 12 months, the company’s product and approach drove 250 percent growth in its client base, including companies such as Disney, Staples and General Motors and broadcasters like Los Angeles’ KNBC.

HipCricket technology is an effective way for advertisers to utilize text messaging in a user-friendly, web-based format.

HipCricket’s round A closed in January for an undisclosed amount, but HipCricket said that “strong investor demandâ€�? brought in a further $2 million from angel investors, Broadmark Capital, and a European investment group.

This opportunity has not gone unnoticed by Google. The rumors of Google phones (code name switch) have been around for almost a year now, and there was some confirmation of the project by a European executive.

What Google wants to do is to give away the phone cheap in return for advertisement views. Let’s not forget Google’s purchase of Dodgeball.com - a mobile location based social networking service, that is now available in most US cities.


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The Fundas of The Funded and The Funders !

A new site called the TheFunded.com has just launched that rates venture capitalists, giving entrepreneurs different type of information about the VC firms.

Considering the venture funding process is still secretive, and there is limited public and/or objective information about venture capital firms (and their individual partners) the information might be helpful.

There is some quantitative information available on a few of the funds (SDC Platinum and other databases) but a central place for qualitative information about the people and process behind the VC groups is still lacking. You hear a tidbit here and there and here, or can see a visual map by linksview blog but a meeting place that has exceeded the critical mass would be welcome.

My concern here is that the “reputation” of the firm has very often have no relationship with the “reality” of the firm. I can name several VC firms where my perception of a particular firm, which I had gleaned from talking to others in the field, was proven to be completely off base when I actually interacted with them in real time.

This reputation process has been tried in the dating context without much success. As ouriel ohayon quipped:

Although at the end of the day, like in dating sites, you don’t know what you get until you are married and signed the papers. And even then…

So true!

Michael Arrington noted in his Techcruch blog, that since most startups are turned down for funding, there will be a tendency for people to leave negative comments. I actually think that since the postings are not anonymous, most of the comments will be extra positive.

Also a note of caution: TheFunded was started by an entrepreneur who says he was really “burned�? by a VC firm. So make sure to bring some salt and some A1 sauce when you are reading the site.

Although I haven’t used it, the InsiderVC.com has similar service and it will be interesting to see how theFunded.com evolves.


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Wirama, RFID Antenna/reader enabler raises $1M in series A financing

Earlier I wrote about RFID technology implementations falling far shor t of the predictions. As I noted there, one of the issues facing RFID implementations, is that the antenna/reader technology is not always robust enough to cover all of the physical space where the system is to be deployed.

Instead of being a hardware installation issue, it becomes an infrastructure issue. One needs to ensure that the every part of the physical structure where RFID will be deployed, is capable of sending the RFID data, and the antennas are placed appropriately to be able to read the data accurately. With the signal fading issues and physical constraints, getting full coverage is very often not easy.

Wirama tries to address the particular issue of accurate readings of RFID signal over physical space.

“Wirama’s products allow customers to deploy more economical and efficient use of RFID systems in warehouses, stores and loading docks,” said Ben Wild, company president. “This is enabled by a fundamental set of novel, patent-pending innovations that increase range and reliability of RFID systems by essentially eliminating the effects of fading.”

With improved reliability and range, RFID may get a chance to fulfill its promise.

Wirama was co-founded in 2006 by Ben Wild, Upamanyu Madhow (UC Santa barbara) and Kannan Ramchandran. The trio brings a great deal of design and technology experience to the company.

Wirama announced that the company has closed a $1.0 million Series A round of financing from a group of experienced technologists. The investing group is led by Silicon Valley veterans, Dr. Steven McCanne and Jerry Kennelly. Kennelly will take a seat on Wirama’s Board of Directors.

We wish them well.



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