buy a train ticket or a latte with your cell phone, it is freedom from banking but at what cost? conrad sheehan. plus, predicting the new year in social media. our reporters, sarah lacey and the financial times richard waters this year on "press: here." >> here is a term you probably have not heard. unbanked. people who for one reason or another do not use the banging system. >> the city of chicago wants to

modernize the way passengers play for the ride on what locals call the "l." it thought about accepting credit or debit cards but one report says nearly half of all passengers lack access to a bank card. nearly one in five americans use prepaid cell phones. the market for reloadable prepaid debit cards is enormous. the federal government is issuing tax refunds that way. delivering bank like services to the unbanked has attracted more than seedy check cashing stores. paypal once used for little over than ebay purchases is dabbling in real world transactions. starbucks has a pay by phone app and many are experimenting with money by text message. sending dollars by dialing. conrad sheehan is ceo of m-pay.

he is in a bid to take over the payment system of the chicago transit system. richard waters and sarah lacey. if you can land the cta contract, you have got this giant currency that can be used for other things. this could really make your company? >> yes. it absolutely could. we like mas transit. it is something we do extremely well. it is a high volume of users transacting every day. >> why not go with visa or mastercard? >> visa and mastercard are great, but there is a huge segment of mass transit riders that are unbanked or underbanked or otherwise don't have access to electronic payments or financial services that is a big

deal. upwards of 50% of riders chicago, boston, new york, san francisco are unbanked. for different reasons, cultural reasons they might be immigrants. it is a big part of serving urban communities. >> i spent the last couple of years traveling in emerging world. in nairobi you can get in a cab and pay your cab fare. it is amazing these other countries have made because there wasn't a big, lucrative middle and upper class so in order to build a business in india or africa, you had to go after the bottom of the pyramid and make that profitable. in the u.s., we are on silicone valley, people will pay money and middle class problem technology companies that can be

funded are targeting towards people who have iphones, who want to pay with their credit card to get coffee. why do you think the sector you are talking about are ignored in the u.s. when you can build profitable businesses off people who aren't as rich in the rest of the world? >> i don't know. when you look at the u.s. economy, the median income is less than $40,000. there are tens of millions of people who don't have access to these products. you can now profitably serve tens of millions of people. you don't have to cross sell them a bunch of other products. they don't have to have a bunch of disposable income to serve them. >> the possibility is you could text money. that is one way. you could buy the prepaid cards.

people would be surprised to realize people who don't have bank accounts have cell phones. >> prepaid cell phones. >> that seems astounding. >> the telephone in today's world is indispensable versus banking services have long skimmed over big swaths of our society. whether it was a hundred years ago from a wave of immigration from europe or today's world. >> it is easy to buy a cell phone at 7-eleven than open a bank account. >> immigrant workers are working on spec or in people's home. that cell phone is their lifeline to their income. >> and from chicago to san francisco that works where some other things may not. >> i didn't want to spoil this particular party, there is a

massive market -- >> you don't care, is what you are going to say? >> no. not at all. there are two big issues. we just came out of a subprime crisis. you are not in the credit service. but unbanked market has to take that into consideration. we live in a different regulatory climate and credit climate. payment system is an important part of the infrastructure of the country. that will hold back some of this activity in the u.s. >> when i started the company i used to watch the consumer debt levels, this is 2004, 2005. there wasn't a simple alternative for electronic payments for debit, particularly in the world of unbanked or in the world of mass transit which outside the u.s. is highly

adopted. that started to come together. essentially an electronic micro payment system is what m-pay is. >> one of richard's questions is are you exposing yourself to regulation particularly as it changes, as the obama administration begins new regulations? you are not a bank. >> no. >> therefore, you are not subject to those regulations ? >> we are a software company. we comply with the electronic fun fact, we don't extend credit, that is reg-z. that is any type of 60 day or longer exposure. >> i would think you guys are beneficiaries of what you are talking about because there are people who can't get credit anymore who could a few years ago. >> the average debit card transition is $45.

>> beyond the mass transit systems where these payment solutions are working, the bigger idea is that actually there is a big market of the unbanked with a full range of financial services. green dot was a very successful ipo, addressing just that market. as you look at that, it seems to me the other big risk is political, which is the fees often associated with serving this market are very high and political backlash. >> it is in the news when you buy some of these debit cards -- >> they have been pulled from the market. >> they are astonishing. >> they are remarkable. >> we'll come in, we don't have any fees. we make it on the click. we'll come in with a big client who gets good rates 55% to 60%

less for a micropayment 80% less. we don't use, to your point, to why outside the u.s. you see so much, there is not embedded with the legacy. >> sarah, hold that question for just a second. we will be back with conrad sheehan in just a moment.

welcome back to "press: here." >> sarah mentioned outside the u.s. there was a lot of innovation because they don't have the legacy infrastructure. the fees on many prepaids are a function of that. we build services on older systems. so our model is a completely autonomous network outside of visa and mastercard, using web

based capabilities and the wireless network that is secure and low cost. we essentially charge 50% and 60% less than visa and mastercard. >> because the payments are so small? >> there are fewer people. there are fewer people to pay. >> like it or not, the u.s. does have a developed financial infrastructure and a lot of it is built around visa and mastercard. >> there is only handful of ways money moves in the banking system. we tapped into that. visa and mastercard sit on top of that and there are companies that sit on top of that and companies that sit on top of that. >> each one charging a fee. >> every now and then we are hit with stories that everybody in kenya is using mobile phones to make payments.

implied in that is we in the u.s. will be doing this soon. my question is that necessarily true? >> no. >> because these markets do develop differently. people here like their credit cards. >> wealthy people. people who can't have credit cards should have an option. >> people with credit cards don't use it for small ticket items. >> they are using their debit cards, their visa debit cards for that. >> below $20 they are still using cash. >> there are people who don't have visa debit cards. that is the part of the argument people ignore because we are not aware of the people on the digital divide. there are tons of people who don't have access and largely the technology has ignored them. >> i'm simply raising the question is it what we are all

doing or just what we do when we get a bus? >> 50% market share in the payments industry is phenomenal. >> you are on the cusp of finding out whether the cta, chicago transit authority, is going to go with you. you are bidding on other transit authorities. if you can get that one big anchor store, so to speak, you have a currency. >> yes. >> much like we saw starbucks recently said, you can text in or app in your payment. >> yep. >> i could take the cta card as a vendor of cta and it would be your card. >> correct. >> that is huge for you. or any of your competitors. he who gets the big anchor company -- >> yeah. >> starts to be the currency of that city. >> it is a great anchor client

in a network business. you have to pick your side and get it big fast. mass transit lined up well, it is unbanked, big ticket, small item. those are things that visa and mastercard don't do well. we will rip off tens of millions of operating expense. >> i have seen paypal and they have experimented with palo a o alto. what a company ought to be doing is what you are doing. what is the biggest darn thing we can think of, make that the currency of every transaction and come off of that. >> yeah. when you go into the brick and mortar world, it is a more efficient world. the prices of credit cards are drastically less in the brick and mortar world. the retailer he is sensitive to

that. retailers run within very thin margins. walmart is 3% margin on $400 billion. 50 basis point differential you need to mark up on a credit card is huge. >> payments are a scale business. >> correct. >> paypal has 100 million users now. they are seeing a lot of innovation, particularly mobile startup companies trying to get a foothold, if it is a mass transit business, how many winners are there going to be? are we going to see a handful of companies like paypal winning? >> answer and we have to go to break. >> paypal is fantastic and has done well. it is a different customer type. the same reason visa and mastercard have been trying to do this, much of paypal's volume runs through visa and

mastercard. >> they sit on top of them? >> they sit on top. >> so i don't see that happening. we are doing everything we can every single day to win. so it is a scale business. i think our architecture is one that it is a bit of a winner take all. payments is big. it is not that everyone will use the same exact payment method from paying their mortgage to a vending machine. there is a lot of disruption, the os on the phone, the speed of the wireless, lte, that creates opportunity. that is what we are trying to exploit. >> conrad sheehan is the ceo of m-pay. thank you for being with us. >> thank you. some of the smartest people i know are trying to predict what will come in the year.

we will play it back next year. when "press: here" continues.

welcome back. we are on a temporary set. we will be on a stit of the art set come next week. it is january. it is a fine time to look ahead to the future. it is a game that a lot of people in silicone valley play and some people get paid to do it. we are not talking about the easy stuff, whether or not the ipad 2 will have a camera as leaked video proports to show or facebook will share sells to the public. analysts like jeremiah owyang get paid to figure out the difficult stuff. he tries to figure out what it all means, like how a company can keep its marketing on message in an age of leaked videos and leverage twitter into something that contributes to

profit. and the role of the social strategist, someone inside of your company in charge of getting your message out to the world. jeremiah owyang, is partner at altimeter group. strategist is not a word he particularly likes, he wrote on his blog. i don't care whether ipad 2 has a camera. what is ahead in 2011? >> because you are not an analyst. >> i do more than what an analyst does. sarah is not a blogger, she is a writer. i have don't research. that is the core of what we have done. adoption and spending will go up

single digit growth in 2011. >> we would expect more. facebook is huge, twitter is huge. higher twitter people. >> the amount of funding coming into the technology space is absolutely happening, but the adoption by corporations and the money they spend is minuscule. >> what do you think about the withhold enterprise 2.0 movement? i was skeptical several years ago, but i think now we are starting to see some interesting things. leveraging the clouds builds systems that enterprises couldn't have had before. not just a corporate twitter screen. >> it was challenging when enterprise 2.0 started to emerge. this is often something that has to go with the cio and that was during a recession. now we are seeing social aspects

applied to all kinds of systems, e-mail. social cast, yammer. low cost. >> you are encouraging this. you say single digit growth and you feel that is too small? >> that is what the buyer said. most importantly brands, companies, must spend the right amount to match the consumer adoption and they are behind. >> the biggest issue these companies are facing is they know the best marketing on facebook and twitter is stuff they don't pay for. they throw a lot of money at it. infiltrate the message to the tweet stream. >> they will be seen for what they are. >> right. they would love to spend money they just don't know how to do it. >> the amount of money on

advertising and social networks is the second largest. the first is hiring people. this is very small. less than $200,000 per company. where are these crazy valuations coming from from facebook and twitter? the companies that are spending money in the category. >> they are paying facebook to be advertised. >> that's right. the old ads are banner ads and sky scrapers. the new type of ads are the social ads that interact in the stream. people interact with them and share it with friends. we are starting to see that especially from twitter. >> how much of this is winner take all, facebook getting 90%? >> i don't have that breakdown. social networks, it is not just facebook, it is twitter and blogger and tech crunch fits into this category.

>> at what point do you get the pushback from management saying with have an advertising department, a marketing department, we are going to handle it internally. we don't see facebook or twitter different than a bus shelter? >> that is where companies can go wrong, applying the traditional marketing aspects, that you don't interact with, haven't been very effective. a community manager is interacting with the social websites but work at the company. >> and have the authorization. the other thing is everybody can blog and tweet, knock yourself out, no rules. that is the other extreme and that doesn't work well. >> it doesn't work for most companies because the cultures are not set up right.

zappos and best buy, they can get away with it. >> plus there hasn't been an idiot at zappos. we aren't going, remember when that one guy did one thing? >> culturally, they would be more forgiving. >> you are right. it is part about culture. part of their brand. >> we are human. >> exactly. so it seems the bottom line from what you are saying, that $50 billion valuation that goldman put on facebook -- >> 70 now. >> you have to pay more. 50 billion is a lot of money. from what you are saying it is a bit of a punt. nobody knows if they can monetize that sort of traffic.

>> we shouldn't forget some of the revenue in facebook is virtual goods. as consumers do ecommerce in social networks we will watch this. >> i'm going to hire one of those young kids out of college and do the facebook thing the guru or the ninja. you don't suggest the young kid who calls himself the social ninja? >> that is dangerous. you should hire someone that is business driven. they may be young, old or middleaged but they need to be business driven. >> do you think there will be a backlash against social media experts. people think the emperor has no clothes which may be bad for the industry in the short term. >> it is. in the recession, with a lot of people laid off, in the first boom and bust people went to

real estate. >> i'm going to disagree with that, sarah. i agree everybody hates them, but everybody has to hire them. i like your encouraging idea that middle age people have an option. but nonetheless what you are looking at is a market with very little expertise. people have to pay up for the expert stees. . >> one thing that we found in the research when we interviewed people in corporations, if they are successful in their job, their job goes away. >> can you measure return on investment? this is the emperor has no clothes, we tweeted and blogged and i did a good job. no we have this many followers. is that the return?

>> a lot of this data is engagement data. that doesn't tell you much about interaction. >> no. >> what some companies are doing, dell is doing a good job, they track the progression of the consumer to see if it impacted the space. >> we'll stop there. jeremiah owyang is from altimeter and is, indeed, an analyst.

that's our show. thanks for joining us. next week we will be on a regular set. we appreciate your patience on this temporary set. thank you for making us a part of your sunday morning.