Wow, what a surprising bit of news (or perhaps not so surprising given the potential value in a Holy Grail mobile payments solution that the world accepts) - a brand new startup still primarily in stealth mode and working on a supposedly new solution to the mobile payments conundrum has just managed to land a $25 million investment. The road to the investment began in April 2013, when 12 or so students left Stanford en masse to formally start up the company, led by 22-year-old CEO Lucas Duplan. Duplan actually founded the company in 2011 but managed to graduate from Stanford in three years before taking the leap into real-world entrepreneurship and taking a collection of fellow students with him.
Duplan says of Clinkle, “We want to modernize how payments work. There’s no additional hardware for the consumer with our approach and a store can set up a system in a matter of minutes.” We'll get to what that solution is in a minute. The bottom line today is that he has managed to convince a collection of true A-list VCs that Clinkle's solution is a game changer. Considering the amount of dollars that can be had by unlocking the right solution to enable mobile payments to really take off it is probably very much worth the gamble for these VCs to invest.
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At the end of the day $25 million is a huge sum of dollars for a stealth mode company with around 50 college age employees, no real tangible business assets other than a business plan built entirely around technology that appears to work without requiring near field communications (NFC) support. But in fact for the VCs in question a $25 million gamble - especially when spread out amongst a large group of them - is nothing more than a rounding error. It's an easy risk to take with huge upside and really very little downside if the investment doesn't pan out.
With that scenario in mind, Clinkle announced yesterday it has in fact received a $25 million round of seed funding. The VCs in on the deal include, among several other minor players, Accel Partners (Jim Breyer, the partner heading up Accel's investment was one of Facebook's first investors), Andreessen Horowitz, VMWare founder Diane Greene, Salesforce.com CEO Marc Benioff and PayPal founder Peter Thiel. These are indeed among the top VC players, although Benioff might be considered more of a celebrity investor than a blue chip VC. Diane Greene, VMWare's founder, apparently lent the company some influence to help it bring in the big VC names, and in particular Breyer.
High Frequency Noise
So what is Clinkle actually working on? Let's be crystal clear about it - it isn't a new combined mobile payments business strategy and technology plan, but specifically a technology solution that is on the table as the game changer. Apparently, Clinkle is working on a hardware solution that takes advantage of a mobile device's (let's stick to smartphones on the user's end) ability to generate certain types of high frequency sounds and to use that generated high frequency capability as a communications channel. Other smartphones, tablets and even desktop PCs are able to capture these high frequency signals. What it does essentially is to replace NFC in the technology value chain.
The very first thing that comes to mind here is that Apple has resolutely refused to support NFC on the iPhone. That is potentially something of significant near-future interest. Meanwhile, we're not yet sure what it would mean for NFC. Can that same high frequency communications channel replace all cases where NFC is currently used? Would it kill the Samsung bump?
Another mobile payments player (we could probably still label it a startup) is LevelUp, which uses the idea of scanning QR codes to create the wireless link between a smartphone and a business. A user downloads a LevelUp app, links a credit card to a QR code and then uses the smartphone in place of the credit card. We assume that at some level Clinkle's approach will likely work along the same lines only it will substitute the high frequency communications link for scanning codes. Obviously one advantage is that there would be no need for line of site, as scanning requires.
It's interesting to talk about the technology itself - and we'll leave out here any discussions about how secure such a wireless link would be. The problem that we see is that the high frequency solution obscures one critical issue - to date the lack of mobile payment acceptance from both users and businesses (and it’s the businesses that have a preponderance of the control here) hasn't been a technology issue. It has been a business issues.
Specifically, most businesses have yet to see any real value in using smartphones and NFC to replace wallets and credit cards. And though the likes of American Express, Visa and MasterCard continue to make their own noise about supporting mobile payments, none of them has yet really made the sort of effort required to drive mobile payments forward. None of the big three have truly stepped up yet to offer a truly differentiated mobile payment service - one that would swing the tide and force the others to aggressively deliver competing services. Even Google, along with some half a billion dollars in total investment in Google Wallet to date hasn't cracked the code.
One aspect of Clinkle's business plan - we imagine - is to be able to circumvent traditional payment channels. It's beyond the scope of our article to explore that here, but part of Clinkle's story will likely be that the company won't make its money by taking a share of the transaction, and it will allow businesses to wean themselves from being captive audiences of the big three and the banks. The problem is that the big three and the banks offer a level of security - and most importantly familiarity to businesses - that are true barriers to new players breaking in.
We hugely doubt any standalone player can play against them - or offer any real reasons for them to partner with Clinkle. Will the major point of sale hardware vendors (such as Honeywell) look to play? Clinkle could certainly get a leg up if their systems were to provide a means for receiving Clinkle's high frequency signals.
We'll stop here. We'll return with more details o the business side of Clinkle's strategy in the near future, and in any case, we certainly wish Clinkle the best of luck in cracking the mobile payments code.
For another Clinkle and mobile payments perspective check out Editor in Chief Rich Tehrani's latest blog post. And, a much fuller list of investors can be found on Duplan's company blog, although apparently there are even others beyond the extensive list Duplan provides there.
TechZone360 Senior Editor
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