Why Micro-Retailers Need Mobile Payment Systems

A micro-retailer is an individual who intends to sell goods directly to consumers with few or no middlemen. A typical micro-retailer uses a third party website to host the catalog of his goods, such as eBay, Etsy, CafePress, Zazzle, etc. Many typical micro-retailers are based in low-income countries where the actual manufacturing of the goods happens. These micro-retailers therefore have access to many products at wholesale prices. Some of them even have the skills and materials to produce the products themselves. Fast Company wrote an excellent story about micro-retailers.

It is interesting to note many of these countries have poor banking systems and many people do not have bank accounts. So this begs the question, how can more individuals in these countries participate in micro-retailing when they do not have an account from which to deposit or withdraw money?

Enter modern mobile payment systems, such as MoneyExchange and Obopay, among many new ones popping up all the time. They offer services by which any seller or buyer can bypass the need for having a bank account. Here is what I understand about them.

An individual creates an online account at one of these services. Funds can be deposited to this account through normal means such as money transfers from banks, credit cards, etc. An individual without a bank account or credit card would pay for an ATM card at a local convenience store with cash. The ATM card is linked to this individual’s online account. Subsequently, the individual can deposit more money into the same ATM card. Money withdrawals happen at the ATM machines.

So the online account and the ATM card work hand-in-hand. When someone deposits or withdraws money to the online account, the same is reflected on the ATM card, and vice-versa.

Real transactions happen when one online account holder transfers money to another online account holder. In these mobile payment systems, these transactions are initiated on a mobile phone, typically via text messaging.

So why do micro-retailers need mobile payment systems? Because they typically live in countries with no banking systems. These are the micro-retailers who have been untapped. They have access to raw materials and manufactured goods at or below wholesale prices. I would love to buy more goods from these people because they could save me money. I don’t want to pay the middlemen any more than I need to.

The next question is: how does one tie their online catalogs with these new mobile payment systems? An online shopper would see the option to pay by mobile, during the checkout process. Perhaps at that point the shopper would be given a unique code and total amount to enter into the text messaging going to the payment system. The system would immediately respond with a confirmation payment code to enter into the website to complete the checkout process.

Do today’s mobile payment systems support this kind of interaction? I hope they do very soon because I have an immediate need for this to occur. I truly believe mobile payment systems are going to be popular on a global scale, especially because they bypass the limitations of today’s banking systems. I welcome your remarks on this very much.

A Proposition For Obopay or MoneyExchange

If you have read some of my previous posts you may already know about my need for an escrow service to support the growing number of micro-retailers who are selling to other individuals worldwide. Fast Company did an excellent story discussing this trend among Chinese micro-retailers.

It seems to me one of the primary concerns about building such an escrow system is the overhead for customer service and also in the event of arbitration between the parties. I can see how this could get expensive to support. An ideal escrow service would need to keep a record of all the communication between the buyers and sellers and handle all the necessary automatic notifications to either party for a smooth transfer of goods and services.

So now my thinking is to handle all the customer service and partner with a service who can simply “park” the money in an escrow without having to handle the communication between sellers and buyers. This partner would provide to me the developer’s API so that I can tie the alerts and notifications to my system. These would include such information as money received, amount received, to and from accounts, etc.

One such partner I am considering is Obopay.com. They can handle the transfer of money for 10 cents a transaction. That is cheap and very attractive for global micro-retailers. The idea would be for buyers to use Obopay to send my system the purchase amount. My system would receive a notification from Obopay containing all the transaction information. My system would then alert the seller that the funds were received for this purchase so he can go ahead and fullfill the order. When the buyer receives the goods, he notifies my system. My system then uses Obopay to send the funds to the seller.

If there is any arbitration needed between the parties, my customer service would take care of that. Obopay would therefore not need to get into the business of building an entire escrow system. If any buyer needs a refund then I can use Obopay to send back the funds to the buyer. From Obopay’s viewpoint, they would not need to change their business model.

There are therefore two missing pieces for this partnership to occur. First, an API from Obopay. Second, international support. I am especially targeting the United States and China. I read some good news Obopay is expanding into India. However, to really explode this kind of service, Obopay needs to be available worldwide and provide third party sites with an API.

I truly hope Obopay can foresee the potential in catering to micro-retailers. I am building a site where micro-retailers can sell their goods. I just need the right kind of payment system that does not add so much overhead costs and works internationally (or at least the major countries). Other services I am considering are mCheck.com, CitiMobile and Revolution Money Exchange.