Offer walls and marketplaces: the real alternative to "scamville"

Let me just say one thing up front: well done, Mr. Arrington! From the first clash with Offerpal (former, it seems) CEO Anu Shukla, through this post and others, there's been quite a stir around offer walls and the big question of the legitimacy of their offers (some news sites in Israel literally copied the post's words. But that's another type of scam). Beyond the provocation, there are a few actual issues here, that I think are left out since "scamville" and CEOs being replaced are much more sexy.

Here's the thing: if the social gaming industry is a viable industry (which I think it is) it should, at one point, start to mature as one. Maturing doesn't mean moving slower or becoming less appealing to users, on the contrary, there's still huge potential and a momentum so strong can't just be stopped by a few posts. But what it does mean is that you start getting attention for your mishaps and you need to start addressing this attention in a tone that is way, WAY milder and more responsible than just saying "this is sh*t and bullshi*t" (look here for some current thoughts of industry leaders and how I'd respond to them).

The EU is less united than expected

This mystery research, widely advertised today by the EU union's research department, puts cross border shopping declines inside Europe at 60%. I once wrote a post about 3rd world shoppers unable to shop, but this situation is a much graver one. Unfortunately, the pros' call to invest in better, more intelligent risk management to open up to international purchases goes unnoticed, while merchant insist on making lives harder for legitimate buyers.

Hopefully SEPA will help solve at least part of the issues dealt with here, at least giving a head start for merchants and buyers on their mutual trust issue.

What I learned about India [Part 1]

Preparing for a ceremony in Rishikesh

• "Did you see they have 'Hello to the King' here?"
• "What's 'Hello to the King'?"
• "It's basically a 'Hello to the Queen', only with a Bhagsu cake"
• "What's a Bhagsu cake?"
• "It's basically a Banoffie pie, only without the bananas"
• "I give up"

(Two Israeli backpackers, Dharamsala)

I'm not such a big traveler, but it seems to me that there is no single country you can capture in a blog post after less than a month of travel. That wouldn't be fair, but nonetheless, I have to say something other than "WOW". India is amazing, colorful, and extravagantly diverse; it is also noisy, dirty at times and completely frustrating when western perceptions of time and place collide with the Indian way of getting things done. But hey, you don't go on a backpacking trip to get five star treatments, do you?
India, at least the parts I visited, still seems very conservative. Sometimes it's obvious (you wouldn't believe how much of a standard Jason Biggs flick is censored in some Indian channels); sometimes it's subtle, though, like the highly sophisticated techie, sitting next to me in Barista coffee in Connaught place, holding an E71 but reading the caste-sorted "groom wanted" ads in the Hindustan times. It's there, and coming from a somewhat religious, symbolic country I appreciate the contradictions this creates. But the thing that amazed me the most is the fact that anything on the crust of this culture, ever so slow in its rituals and conventions, is by definition ever changing, at lightning fast pace. I'm not only talking about the highly western desserts those backpackers from my prelude discuss; what I'm actually thinking about is technology – and specifically, mobile phones.
They're everywhere. And not only are they everywhere (I had a 3G signal in the hills of Parvati valley! This actually beats some major US cities), it seems that they're actually used not as a luxury but indeed as THE major gadget. The taxi driver uses it instead of a radio; the young man on the bus to Kasol watched his favorite videos; and the old man, carrying a huge pack of firewood outside of Tosh, walks barefoot but talks on his mobile. And there's another part to it: I've explained in the past why using your mobile to pay isn't another steps towards the "stash", since the operators bill to a credit card or a bank account, not manage the user's money directly. But the case is different in India; many people do now have any financial entities in a financial institution, and a large chunk of the mobile market is prepaid. This means that other than cash, the mobile phone is the type of "currency" these people carry. Developing a mobile-phone-based, easy to use P2P payment solution is a must, the next step in payment evolution and something that will boost India's economy. This goes way beyond being able to send more ringtones and premium online content – this actually means gaining control over people's financial entities. If you can pay with a mobile phone, why not let it be your bank?



So why doesn't this happen? For various reasons (that can be overcome, but are still obstacles). One of them is the fact that a prepaid model prevents proper identification. This limits the ability to manage identities from afar, without any details from the user. It can be overcome (from installing a client, though models of incremental identification requirements when initiating payments, to rigorous vetting processes), but creates a major challenge. Another major problem is the fact that old phones have little processing power, and cannot sustain any type of payments application; if you don't install any type of software, you have a high unsecure medium, that can be easily breached and allow access to user credentials. These are the two major technical and risk related issues, and I'll discuss near-field communications and mobile authentication in future posts. The two other obstacles I learned about when I was in India are very interesting as well: one is consumer adoption, in a world of cash payments and little to no money; and the other, for which I would love to get comments from readers, is the fact that the Indian VC industry is smaller than needed, and geared towards American standards for business models and success. This is a very interesting reasons I would like to investigate, and will share my findings as soon as possible.

Bottom line, if you're looking for your next startup, maybe P2P mobile payments in India is your best guess. What's better than driving progress and technology into rural areas, while reaching amazing business success? And you get to taste "Hello to the King" as well. Next one's on me.

So your mobile phone is your new wallet?

Congratulations to Boku.com, going live today with the (old, yet renewed?) promise to turn your mobile into your new credit card. Looking at the site an judging by what I know, I wonder what's the biggest challenge lurking at their door: is it merely traction? Is it going beyond micropayments, while managing merchant vetting and credit risks with the mobile provider? I think it's a combination. But that's not my question here. My question is - are mobile phones the next "thing" in payments?

Payment services are fighting to increase share of wallet, and remove as many boundaries as possible between the merchant and the customers' money. Obviously, the mobile phone is always there, available to use, it's really a gadget, you know, it's not really as serious as a credit card. We all know credit cards are dangerous to use on the web. But taking a closer look reveals that a mobile phone isn't a step closer to the customer's money, it's actually the same distance. You don't own the "stash", only another funnel for getting some of it.

This, by the way, doesn't mean that mobile payments isn't a good idea or that it's going to fail (it might, though, but not because it's not the biggest funnel), and I wish Boku and friends all the luck; but fact of the matter is that your phone is pretty much the same as your bank account, debit card, credit or any other payment method - it's a key to the treasure chest. Get a hold of the chest (in other words - become the bank) - and you've REALLY got an advantage. Until then, I'll continue buying my Mafia dollars the same way, be my proxy what it may.

Here comes the scary part

It is a dark night in Tel Aviv, the kind in which bad things lurk in dark corners. Sitting in a small cafe with the security expert, I hear the wind blowing between the trees. The waitress looks worried as well. A dark night indeed. I look across the table to my partner, a serious person with thick eye glasses that add to his already grim demeanor. Then, to accent his last sentence, he leans towards me - his glasses almost opaque in the dim light - and barely whispers: "but you know, man, you know what the real problem is, right? the real problem is BOTS!".

Oh, is it really?

I didn't go to the MRC conference this year. Somehow, boogieman stories from interested third parties (over early morning session, in Vegas!) sounded less appealing for someone who needed to fly 18 hours for the experience. I did, however, read excerpts and ideas. Boy, I have to admit that the set up was a lot more successful than a Tel-Aviv cafe. Because here's the thing with 3rd party vendors - they are looking to sell, and if you're looking for the real gap in your system (rather than the perceived one), you probably shouldn't be looking at that direction. Let's see what's hot this year: it sppears that Malware and Botnets are attacking everyone, and that Machine ID and phone verification might be the only way of stopping this.

Now's probably the right moment to wonder what's my case. True. Here's my case: buying flashy new technologies when you haven't exploited the old ones is pricy, redundant, plain dumb sometimes. Most of the merchants that will purchase anti-malware and machine id solutions do not, I bet, have a decent user-location system in place, and are instead declining multiple good buyers who live in a set of black-listed locations; most of the merchants that will purchase phone verification products will double their fraud operation costs before they realize that calling alarge percentage of the transaction volume only slows them down instead of bringing that solution to loss mitigation. My case is - proper analysis of what you're dealing with, rather than going with the nifty, trendy new fraud filter, will bring you much higher ROI and a method for solving your own problem. It does, however, require some extra effort that cannot be bought off the shelf: training the right kind of people to do the right kind of work. More on that in future posts.

Black men can't shop?

Here's a familiar scenario:

Your working late hours, late enough to reach the time when you have to go and get yourself a strong one from the coffee house downstairs to wake everyone up. Only after you volunteer to be the ones who'll go get it you find that you forgot your card at home. No problem, what could be simpler? You just borrow your friend's card.
After choosing exactly what you need, with a list you made earlier at the office, come the time to pay. You reach into your wallet and hand the cashier your firend's card. It's ok, your friend gave you the card. Even when the slip needs to be signed you sign it, it doesn't matter what signature you use (btw, do you sign your own or "invent" one for the friend?), no one will notice anyway, right?

Wait.

You've just committed the basic scenario in "card present" C2B (consumer-to-business) frauds, ones in which there's a real plastic that's being put through the POS (point-of-sale) terminal.
True, you're no thief (or "carder", as one may be called). You did this all very honestly and there's no suspicion of a crime. The cashier came out clean - indeed he didn't use a very simple identity verification method (forinstance - asking for a driver's license, like other "stung" merchants already do) yet the liability is on the issuer, as long as the buyer signs the slip.

You are not thieves maybe but Gregory K, for instance, is. His method was a combination of the very simple and the somewhat sophisticated: He scanned trash cans and looked for copies of credit card slips. Sometimes he did great and hacked computers over eMule and other file sharing platforms to copy credit details. He used those details to buy online - in this kind of shopping it's much easier to pretend you're someone else, you can be Barbara from Australia for all we know, all you need is her card details and some other details people usually keep together with their card, when they are gullable and unsuspecting. Gregory had it easy, he lives in the states, and it will cost him a few years behind bars now, carried away by the (justified) fear of identity theft.

So why can't black men shop? Well, the legitimate ones can, but the thieves among them, those who orchestrate scams from third world countries, find that going into a store with a just-stolen card and claiming to be George Costanza the third will be a bit hard, but stealing on the net is so much easier and profitable. In addition, when shopping over the net the purchases are under the merchants' resposibility and those - lacking substantial knowledge in preventing fraud - turn into easy victim to sophisticated Nigerian, Vietnamese and Russian carder exploiting many stations en route to the desired loot of watches, jewelry and electronics for thousands of dollars.

How do the merchants protect themselves? Well, they just don't sell, or ask for riculously frustrating actions (you can't imagine how many times a year does an Israeli need to send their passport's or credit report's scan, little to mention not even being able to ship to Israel). Next time, when you get rejected over a simple order online, remember Greg K. and his Nigerian friends, that cost the eCommerce business billions of dollars a year, and turn online shopping into a much more complicated procedure.