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$5M for fraud proof mobile credit card authorization?

Published August 29th, 2005 edit replace rm!

In Business 2.0 John Occhipinti from the Woodside fund wants to pay $5M in venture capital for a fraudproof credit card authorization via cell phones and PDAs. I found this via Nathan’s hilarious Elevator Pitch generator.

Lets first look at why John wants this from us:

Credit card fraud is more rampant than ever, and consumers aren’t the only ones feeling the pain. Last year banks and merchants lost more than $2 billion to fraud. Most of that could be eliminated if they offered two-part authentication with credit and debit purchases — something akin to using a SecureID code as well as a password to access e-mail. Occhipinti thinks the cell phone, packaged with the right software, presents an ideal solution. Imagine getting a text message on your phone from a merchant, prompting you for a password or code to approve the $100 purchase you just made on your home PC or at the mall. It’s an extra step, but one that most consumers would be happy to take to safeguard their privacy. More important, Occhipinti says, big banks would pay dearly to be able to offer the service. “It’s a killer app no one’s touched yet,” Occhipinti says, “but the technology’s within reach.”

Let’s identify the problems with what John wants:

His ideas as he says is that the merchant sends a SMS with a payment request to your phone. You then perform some sort of digital signature to authorize it and the payment goes through.

This is already very doable and I have seen lots of similar applications from either smaller entrepreneurs (eg. Luup) in Europe or from various kinds of mobile operator funded initiatives (these always fail though for a variety of political reasons). For the full lowdown on all of these just take a stroll over to Scott’s Payments News Mobile Payment page.

While reading through the latest on Scott’s site I came across UPaid, which looks fairly interesting. They have just got the deal for a massive roll out for Visa CMEA (that is middle eastern region). I’m sure there a loads of startups doing this as the technical side of this is not particular hard. PayPal actually even was originally founded as a similar style application for Palm.

About Credit Cards. Now in the US and arguably for international cross border e-commerce the CC is king. In regional or national markets outside North American and the UK it is arguably not the only horse though.

The CC was a brilliant 1950’s style design, which just is not compatible with open networks in a secure way. This is why lots of contractual padding is necessary around it. Did you every wonder why you need a credit check for a merchant account or for a debit card? Well this is the banks who well understand the risk embedded in an unauthenticated payment device and they need to place the risk somewhere. All the rules about who is liable for what in case of fraud are also based on this.

The CC networks are basically multi party electronic networks, where the only thing circulating are account numbers and amounts. There is no digital signatures or anything like that. When you sign a cc slip, the merchants bank keeps it on file in case of fraud. It never gets sent to the card holders bank or anything like that. What all of this means is that every link in the CC network is insecure and open to fraud. Just because you secure the link between cardholder and the merchant doesn’t secure all the other links in the system, just see the whole CardSystems case as the most extreme case.

The problem with all of these rules and legal safeguards around the card is that the end user has so little liability with the card and is happy with that. All of the attempts by the credit card operators to move more liability on to the card holder by using improved technology have so far failed. See MasterCard SecureCode and Verified by Visa.

If these massive programs have failed, why would a $5M startup offering the same thing but in a mobile package succeed? They are up against the exact same forces.

The only that will improve the security of credit cards is to get rid of the non authenticated credit card completely. This does not mean getting rid of the credit card, but it does mean that you couldn’t just enter your credit card on a web form and over the phone. This could not just be a regional or an optional initiative it would have to be international and compulsory. If this was made John’s company could provide an ideal system for authenticating credit cards for phone orders.

Now the merchants and their banks (the acquiring banks) would love this to happen and have been pushing for it. Currently they are the only ones who have been affected on a large scale by CC fraud. The other side of the transaction are the card holders and their banks (the issuing banks), who until recently have had very little incentive to change anything. The reason for this is as mentioned above, the card holder has little risk with credit cards and likes the convenience. The issuers are in a very convenient business and none of them want to rock the boat by say requiring Verified by VISA for internet transactions. So nothing will happen until the cardholders and issuers get part of the liability of the insecure system.

I believe that there really is no good way to fight this essentially internal politics within the card associations. The only people who can change these rules are the associations themselves.

It’s much more interesting to work outside of the credit card system and in reality outside the banking system as they really have no incentive to give you what they perceive to be their own business.

The traditional abstraction away from the banks is the electronic money system, which has it’s own money (or gold) backing the funds in circulation. This is relatively simple to create. You have a bank account, a Ledger, a web front end and customer service staff. I was personally involved with one of these. The big problem here is lack of convenience for the end users, who have to “load money” into the system somehow, before they can use it. With roughly $37 Million in circulation E-Gold is pretty large now, but it’s still no where near as big as PayPal for these same reasons.

Many mobile payment systems have wanted to get rid of the reliance on banks by linking into the mobile operators billing system. This has almost always failed as for some reason the European and (even worse) the US operators have shown to be almost more conservative than the banks. It seems like South Korea and Japan have some interesting mobile operator led payment systems that are taking off. But seriously can you imagine Vodafone or T-Mobile do anything like that?

The only large player that is on the market today that could be used to bootstrap a new system is PayPal. I am sure they have their own plans in this area, but this is where I would see something interesting. For a smaller but growing player I would look at Skype as a very possible player. They have a very widely deployed PKI system and a currently untradeable currency of their own called SkypeOut balance.

I’ve written about payment systems before and have strong opinions on it. The last startup I was in was payment related and I’m more than likely going back there at some point, once I’ve cleared my mind a bit with StakeItOut.

I have some ideas that may or may not work to get past the idea of a stored value electronic money system. However I’m not quite ready to spread them out yet ;-). Probably in the new year if I can find someone with equally large hairy cojones who also has an interest in disrupting things a bit.

More good reasons to Bootstrap from Greg Gianforte

Published July 23rd, 2005 edit replace rm!

Just saw this article by Greg Gianforte from RightNow in SiliconValleyWatcher (via Ken’s Meme Deflector) that states that Most startups should avoid venture funding .

It outlines even further great reasons to bootstrap. Here are some of my favorite from the list:

If you start by selling your concept to potential prospects (rather than stock to VCs), you will either end up with initial customers or a conviction that your idea won’t work. Why raise money and then find out which one it will be?

This first one is really important. It takes a lot of time pitching to VC’s. It is much better to pitch your product/service to your customers.

Money removes spending discipline. If you have the money you will spend it – whether you have figured out your business model and
market or not.

I can’t stress too much the importance of spending discipline. More startups have been killed by lack of this than anything else:

Raising VC money determines your exit strategy. You will either sell the business or take it public. What if you end up with a very profitable, modest sized business that you want to just run? That is no longer an option once you raise VC money.

Many people don’t think about this, but it is true. I’m sure 37 Signals are doing very good and are happy to keep doing what they do. If a VC entered into the equation, how long would that last? They would have to forget about the core business segment, that has now become loyal customers, in order to build to the levels of business that would be required to take it public.

Bootstrap globally

Published July 18th, 2005 edit replace rm!

Nowadays businesses are moving all over the world to be flexible and cut costs. I am guessing that many small startups don’t think about this step.

Chances are that you have had a fairly successfull career or a series of jobs, that have required that you live and work in a high cost area such as London, Boston, Bay area, Denmark etc. If you are Funding via a 9 to 5 you need to of course be where your cashflow requires you to be.

I have often heard.. if you want to get funded you need to be within an hours drive of your VC. Well if youre bootstrapping this is not really a problem.

Sometimes you can save money by just going to another part of the country. However for many of us it’s more practical and more fun going to another country.

Why be mobile?

However if you already are cashflow positive, living of savings or angel money or ar able to convert more and more of your work to offsite work you may be able to take advantage of cutting your burn rate and enjoy yourself seeing the world at the same time.

I’ll give an super simplified example. Lets say that all your monthly non business living expenses such as rent, food, phone, insurance, cable, adsl etc where you live right now are about $3000pm, your hosting costs $100pm and your super fancy web service sells for $10pm.

To break even you need to have (3000+100)/10=310 paying clients.

Lets say you could bring your monthly costs down to nearly a third say $1200pm. You still have your monthly hosting costs, but the break even calculation now says (1200+100)/10=130 paying clients.

You could also last a lot longer burning through savings. Imagine if you had saved $10000 up. You could keep going for 7 months without any revenue as opposed to roughly 3 months in your expensive city.

You might also be able to get away with working fewer hours on other peoples projects if you are doing outside consulting, thus being able to focus more time on yourself.

I know all of this is pretty basic maths, but I keep seeing people bootstrapping in expensive places where sometimes it’s actually better for your business to go elsewhere.

Is this for ever?

Maybe, but probably not. Maybe you will end up falling in love with someone there (I did) or you just really like where you have moved to. But really the core idea here is to just build your business up in a low cost area. Then you can always reevaluate later what you want to do.

Sometimes the legal hassle involved with immigration and red tape can be prohibitive for settling on a more permanent stage. For now just enjoy it and save the money.


There are many places in this world that are way cheaper than the places where many of us hightech types live. I myself have been bootstrapping most recently in Panama, where you as a single person can live comfortably for $1000pm, less if you are prepared to tighten your belt a bit.

Many North American go to Panama, Costa Rica, Chile or Argentina to startup due to low living costs and fun living.

If youre doing it solo or with a friend you can easily go to places like Panama during your startup phase. As an extra bonus you will get to work on your tan and salsa dancing skills as well.

For people from the European Union, there are loads of great cheap wired places that you might not have thought about. Due to the EU principal of free labor mobility you can move to any EU country with very little hassle. In northern Europe, Estonia is a good choice (Skype thinks so too). But I hear that Latvia and Lithuania are great as well. These countries have better infrastructure (think Wifi everywhere) than just about anywhere else in Europe and are incredibly cheap to boot. I am guessing you could get a long on $1000-1500 in Estonia monthly, but don’t have any real experience to back it up with.

Eastern Europe generally offers many cool cities to live/work in that are incredibly cheap.

I know that there are also many people who go hang out writing code and starting businesses in Thailand and other places in South East Asia.


Pick your place and remember that you are doing it to save money. Neither Cayman Islands, London nor Bermuda will save you a dime. Questions you need to ask through google or expat mailing lists are:

  • How long is a tourist visa good for?
  • How much do expats need to live? People survive in Panama for $250pm, but expats generally need considerably more.
  • Can you easily get highspeed internet as a foreigner?

If you are just starting up and keep a low profile you can in most parts of the world get away with just a tourist visa. If this needs to be renewed every month, it’s not worth it. Many places will give you a 3 or 6 month tourist visa on entry. You will then need to either extend (lots of red tape) or do a visa run (long weekend in a neighboring country) which may or may not be expensive.

With the example of Panama, if you buy purely US brands in the supermarket you will end up paying dearly. Local brands are available for most products and groceries at a fraction of the imported brands. For example in Panama a US brand yogurt will probably cost you $1.50 while a local one $0.50. Search for supermarket web sites for the country where you’re going such as this Rimith, that will give you a pretty good idea of grocery costs.

Assuming you are developing a great new web service you need an apartment with high speed internet. Some places like Estonia this is readily available, but more likely you need to be able to have it installed in your apartment. This may or may not be a painful experience. Check on mailing lists for peoples real experiences with companies. For example see my experiences with in Panama.

You will more than likely need a furnished apartment. Many expats with nice apartments often advertise for room mates on the expat mailing lists, these generally already have internet etc. If you prefer living solo you can often find cheap furnished apartments when you get there.

Doing it

If you are paying rent back home there is probably not much reason to do this, so give your notice to your apartment and throw as much of your junk out as you can. Store the rest in a self storage place or in a friends basement.

Buy your plane ticket. Try to get something flexible if possible. It is definitely worth while paying a bit more for a ticket that will allow you to change it. Some fare classes only allow you to be in your country of choice for 90 days, where others allow you to extend it to up to a year.

Book a hotel for a couple of days. It is often easier to find cheap hotels when you are on the ground. Then focus on finding an apartment. There are always agencies you can use, but they are often expensive. If you know the local lingo check the papers.

The Visa run

If you need to leave the country every 90 days for visa reasons, you normally take the bus or plane to the closest neighbor. From Panama most expats go to Costa Rica or Colombia (much more fun than you might think). Again ask on the expat mailing lists.

Staying in focus

Remember you are not on holiday. It is OK to go to the beach everynow and again, but you are there to work on your projects. Most roaming entrepreneurs don’t have problems doing this, but some do.

Don’t burn your bridges

I’m talking from experience here. If you are bootstrapping without a job in a place like London or Boston, you can likely get a job again quickly if things don’t quite go as planned. This might be more difficult if you are in the other part of the world. Specifically don’t think you can necessarily get a job as a foreigner in Panama, Estonia or elsewhere. There maybe work permit issues, the salary may be way to low.

Basically unless you can work remotely and maintain a good network back home, don’t wait until you have no more money in your bank account, keep that return ticket ready and whatever money you might need until you receive your first paycheck. You can always come back again, once you’ve built up funds back home.

Don’t be naive

Only plan on settling down in your chosen low cost destination when you know your way around. Expect that you will probably need to leave again in a while. If you need to grow and hire other people as well as have an actual office, that may only be possible in a place where it is easy to hire qualified staff.

Never underestimate red tape

Don’t bother becoming a local business until you really need to. The red tape involved can be painful and expensive. Many people just continue on their business using the same structures as at home. See my Legal structures for bootstrappers for more information. Basically make choices on what is best for growing your business. Some times it is cheaper and easier to have a US LLC than a Cool offshore company registered in Panama.

Do your banking back home (for now)

There is way to much red tape involved in opening up bank accounts for foreigners in most countries. It’s often easier to keep your accounts back home. Remember to tell them that you are going. Many US banks have a nasty habit of freezing clients credit and debit cards when used abroad. Let them know ahead of time and have a non 800 number for your bank handy in case it does happen.

If you decide to settle more permanently then you can start opening cool offshore bank accounts.

Don’t do this for tax reasons

Seriously do it to save money for your business and not for protecting some currently non existant future $20 million fortune.

If your costs are already low at home stay put

If you already have a nice low cost work environment at home, stay put. There is no need to even consider this.

If there is interest I will follow up with bootstrappers guides for Panama and a few other places. If you want to write one for your favorite place I’m happy to have you guest blog it or I will link to it from here.

For more about Panama have a look at my PanamaFAQ and the Panama category on

Selling, and other domains to help fund my businesses

Published July 14th, 2005 edit replace rm!

Like many other geeks I have had a collection of domain names that I have built up over the years. Inspired by Punditpreneur it struck me that I might be able to sell some of them off to help put me in a position, where I can move away from Funding through my 9 to 5 and spend more time on StakeItOut and SoapBX. It really is draining working essentially two full-time jobs and I would dearly like to be able to put all my focus in one place.

So I have a small collection of domain names, that I think would be useful for some people. The real big one is, where I have had my other blog going for a few years.

I’m not sure how I managed to pick up, but the plan was to build an online discussion forum community like I previously had done with TravelTalk. However everyone else started doing this as well and financial and crypto apps started becoming more interesting to me.

About pricing. I ordered’s domain appraisal service, which valued it at €10,000 or roughly $12,000. We’ll see how realistic that is, but judging by DNJournal’s Domain Sale Report more might be realistic. I am definitely not in need of a quick sale so I’ve set it for sale for $20,000 or highest offer. I may accept a small part of this as stock if the project sounds cool, but remember my main motivation is food, housing, server hosting etc. as I am bootstrapping myself. If you can think of something else such as a leasing or partnership scheme I’m all ears. (pronounced Ticket) was a project that I created last year as part of the Neuclear project. Basically it was a way to create single use “prepaid” cards that could be sent via email or printed out in an internet cafe. As the NeuClear projects are on hold for the next year or so, I might be interested in selling this if someone is interested. I personally love the domain name and will only sell it if it is a decent price, or I will start something up on it again in a years time. I’ve listed it at $3000, the same rules govern as above with regards to structuring.,, and (Public Key Yellow Pages) was also part of the NeuClear infrastructure. CaribWeb was around 1996 a fairly large Caribbean travel site that I put together and was actually making money on. I sold off one part of it and ended up focusing on travel discussions with and where planned as portals for their respective subject areas. However I never had time to get around to it. Caribweb could possibly be brought back to life in a successful way so I’m selling that for $2000 on the same terms as above. The others give me an offer, you wont offend. I might even exchange them entirely for stock if you have a good idea.

These are the links to’s sales pages for them:

You are also more than welcome to write me personally at [email protected].

BAP #7 Searching for the team

Published July 7th, 2005 edit replace rm!

You’ve all heard the common advice that to startups that you need a good team. I’m sure that is right, however some times and at certain stages that team should consist of just you.

Granted if you happen to have a really good small founding team of really capable people, by all means you should work together. However, don’t go searching for your team unless you have a specific requirement.

Over on Allen’s Blog there is a interesting article
Some Tough Questions You Should Ask about picking the “team”. Go read the full story, but here is the gist of it:

Founders are also “expensive� in terms of equity (usually, and sometimes even rightfully, to reward them for taking the risk in joining a startup). Founders are harder than normal employees to transition out of the Company (not legally, just emotionally: “How can we fire Joe? He’s a founder.) Just like most people (including VC’s), founders usually have skills and experiences that are narrower than they, themselves, believe (even sincerely). And finally, founders don’t always pick their co-founders with a beady, cold-eyed, highly calculating gaze with a tough-minded focus on who can actually make the biggest contribution to the Company. Often, co-founders are picked because they are friends, or like-minded, or “great people, the kind you’d pick if you were in a foxhole under fire�.

He talks about how VC’s analyze the team. This also applies to us bootstrappers and it is certainly a kind of uncommon wisdom that we should heed.

My take on it is stay solo or tiny where each party has a clear role and clear talent to fulfill this role. When you actually feel a specific need that you can’t fulfill in your existing team (or by your self) bring partners in one by one to fullfill the necessary tasks. See for example 6 simple rules for micro ventures for more information on when you should bring further partners in.

About me

Pelle gravatar 160

My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). CEO of Notabene where we are building FATF Crypto Travel Rule compliance software.

Most new articles by me are posted on our blog about Crypto markets, regulation and compliance

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