Mobile Wallet Lessons from Yoyo's Campus-Focused Strategy

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Yoyo, a QR code-based mobile wallet provider, is cutting through the noise to find a working strategy for its product.

Fintech "is a noisy market, but it's not a crowded market," said Alain Falys, co-founder and CEO of Yoyo during an interview at the Innovate Finance conference in London on March 9. Thus, Yoyo was able to find a few key deployments where it could capture a significant share of users' payments without having to change their habits in every store they visit.

Yoyo, which combines loyalty and payments, launched with a number of pilots in November 2013 and launched commercially by January 2014. The company now sees more than 150,000 transactions per month. Its strategy of targeting closed communities such as universities and corporate cantinas is the main reason for the success.

Direct Line Group, an insurance provider based in London, accepts Yoyo at its host of cafes and restaurants within its office building. Yoyo has about 50% share of checkout within Direct Line's environment, said Falys.

About three weeks ago, U.K. news agency The Guardian began accepting Yoyo in its corporate cantina, and already Yoyo accounts for more than 20% of checkouts, Falys said. Yoyo's checkout share at Imperial College London is nearly 30%, he said.

"The industry has been trying to make payments relevant for mobile," said Falys. "Retailers don't have a payment problem; they have a data problem."

When a customer pays with a card, the merchant doesn't get data they can link back to a consumer. This makes it challenging to target effective marketing to specific groups of consumers.

Near Field Communication (NFC)-based mobile wallets such as Apple Pay and Google Wallet don't fix this problem either, Falys said. NFC transactions do not allow merchants to provide discounts or refunds, although the industry is looking at ways to make this communication applicable for NFC, he said.

Yoyo instead uses QR codes displayed on a phone's screen, a method similar to that employed by Starbucks and SCVNGR's LevelUp.

Yoyo wants to emulate Starbucks user experience for loyalty, where consumers can see their loyalty points add up in the mobile wallet interface.

This sentiment was echoed by RBC's executive vice president of digital, payments and cards, Linda Mantia, after the Canadian bank found that some of its affluent customers were checking their balances before and directly after making purchases.

But where Starbucks has succeeded in moving much of its customer base to a proprietary mobile payments application, Falys said, most brands don't have the clout to sway consumers habits like that.

So Yoyo is injecting itself in the market as a multi-retailer wallet, competing with the likes of Apple, Google and Samsung. Yoyo launched its app for the Apple Watch during its presentation on March 9.

Retailers using Yoyo are charged, depending on their volume, between 1.25% and 2% per transaction. They are also charged a monthly fee per point of sale terminal.

Yoyo is live with 15 merchants that on average have about 10 locations, Falys said. By the end of 2015, the company will work with 20 to 30 chain retailers in the U.K. and 40 universities, he said.

Currently the company works through a prepaid model with consumers loading money into the app. But as the company looks to expand internationally, it plans on adopting a straight-through model to allow users to link a preferred credit or debit card.

"A lot of consumers don't understand the prepaid model as well as they understand the straight-through model," Falys said. "We're doing this to accelerate user adoption."

The straight-through model also allows Yoyo to bypass some of the regulatory hurdles to entering markets like the U.S. This makes Yoyo an intermediary to the customer and Yoyo's payment gateway partner, BlueSnap, the regulated entity.

The startup is in the process of closing on a substantial round of funding within the next month, Falys said.

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