The games industry is currently in the news following the multibillion pound initial public offering (IPO) by King Entertainment, makers of the wildly popular Candy Crush games. Maintaining such an elevated position is no easy task; however, in this fast-moving sector as King’s illustrious predecessor to the market, Zynga, proved as it struggled after its own earlier floatation on the back of the Farmsville game.
The nature of the games industry is necessarily fast-paced, as popular games come and go. One factor that does remain the same is its tendency to use technological forms of alternative payments, via mobile m-payments, premium SMS text message billing (PSMS), direct operator carrier billing services, voice short codes, or more recently Bitcoin (BTC), mobile wallets and tethered card services.
caught up with InnoGames GmbH’s head of payments, Mark Gerban, who is based in Hamburg, Germany, where 300 full-time employees serve 120m registered users of its games around the world, to find out what payment mechanisms his corporation and the sector uses. The below Q&A interview ‘future-gazes’ what payment instruments more traditional treasurers may themselves be using in the near future.
Q: Could we start by briefly detailing the nature of your corporation – for example, how many countries your firm is present in, what it does and its revenue/payment volumes?
A: (Mark Gerban, InnoGames’ head of payments):
InnoGames is a developer and publisher of browser-based and online mobile games. The company uses the free-2-play business model, which allows anyone to play for free, and they then have the option to pay later on if they’d like a quicker improvement on the game, an upgrade, extra game tool, etc. With almost 120m registered users around the world, InnoGames has a global presence. We have over 300 full-time employees based in our Hamburg headquarters, and 1,600 volunteers assisting with game community management and support.
In regard to payment volumes and company scale, InnoGames would place itself among the highest earning free-2-play companies in Europe. Although I wouldn’t like to disclose the figure, our volumes are significant enough that we need to dedicate an entire department towards payment and fraud, where our team manages over 45 payment methodologies to date. This gives you an indication of the large numbers of different types of payments that InnoGames can, and does, handle.
Presumably InnoGames is like Zynga or King Entertainment developing games for global users. Any plans for your own IPO?
No, InnoGames is privately owned and different to Zynga or King, as they are focused specifically on social or mobile games. Our company began with a focus on browser games, and has latterly evolved in the direction of cross-platform games. That is to say, we allow users to play a game not just on their PC anymore, but also on mobile devices such as tablets or smartphones.
Is your company cash-rich, running a centralised treasury, or does it face any unique finance challenges such as collecting payments from online gamers around the world after a raft of regulations and anti-money laundering (AML) norms?
Private ownership means we do not disclose all this information, but I can say that InnoGames has grown to have over 300 employees in the past few years and we are doing quite well financially. In fact, InnoGames is one of the few companies to grow considerably in what is a highly competitive games market – especially as the free-2-play industry has generally seen a steady decline in most areas of growth.
Due to our industry and end-user demographic, there is a lower risk of money laundering than in some other sectors. This is attributable mostly to the low amounts of money spent on game upgrades, in comparison to other high transaction industries such as gambling or physical goods. The free-2-play games industry as a relative newcomer has also seen less AML and other regulation than some other areas, but if we do see suspicious activity at InnoGames we duly follow it up with the responsible authorities and payment processors, alerting the relevant authorities.
In addition, you must remember that the free-2-play industry generally focuses on the use of alternative payments, as opposed to traditional payment forms. Many of these alternative payments have no chargeback risk, so collecting payments in this sector is less difficult than it can be in some other industries which only use traditional payment methods such as credit cards. This is something that treasurers and other payment and finance professionals should be aware of.
Does InnoGames have an internal treasurer itself, a chief financial officer (CFO) or cash manager? Also, what kind of finance set-up generally do you have?
Aside from having a payments department, which I head, to manage all our payment systems, methodologies, fraud and debt collection systems, and a user support department, InnoGames has a CFO tasked with overseeing our entire finance and accounting duties. Our operations are budgeted on a quarterly basis, which positions our focus on revenue targets and other key performance indicators (KPIs). This is necessary to maintain a successful business. Also, we also have business intelligence (BI) reports set up to monitor operative activities on a daily basis. This allows us to keep on top of our business financially.
You were billed as a speaker at the recent IPS 2014 payments show in London, presenting a paper entitled ‘Massive Innovations in Payments in Online Games’. What lessons did it hold for treasurers?
Unfortunately my flight from Germany to London was cancelled due to an airline strike, so in the event I wasn’t able to make it to
. Nonetheless, the intent of my speech was certainly to teach treasurers and others about innovative payment methodologies and how they can help their business. The free-2-play games industry is one of the most advanced sectors when it comes to alternative payments and I believe it has lessons it can teach others. Not only do alternative payment types offer different methods of monetary transfer, for instance, they can also help negate risk and allow improvements to be added to company business models worldwide. All of these factors contribute to the bottom line revenue of a company, and as such, I feel sure they would be of interest to almost any corporate treasurer.
What are the massive payment innovations referred to in the title and are they transferable to other non-game industries and corporate treasury departments? More generally, what do you think multinational corporations (MNCs) could learn about payments immediacy and technology from your sector?
In terms of innovative payment types am referring to mobile m-payments (SMS text message and carrier billing services) and Bitcoin (BTC), among other innovations. The former mobile m-payment and billing services have been widely employed in the games industry already, with BTC being used by a handful of companies. In comparison though, other sectors are only now beginning to scratch the surface with these types of payments. As such, I think we are quite advanced and have a lot of knowledge we can share.
In terms of what I’d tell an MNC treasurer specifically, I’d advise him or her never to underestimate the value of local payment methods, because some of these local systems are invaluable for customer service. Locals often expect to transfer money within their own cultural realm, and when this is not delivered, it is a failure of service to the customer. We at InnoGames have strong focus on these types of payments – it’s why we accept more than 45 different payment types, as they can help increase conversion rates. On more than one occasion, we have streamlined our payment flows so successfully that we saw double-digit growth in customer conversion rates. The key ‘takeaway’ I’d like to share is that making the payment process easier for your end users, via accommodating other technologies and payment types, will increase your overall revenue. Never forget this.
Do you think most MNC treasurers’ realise the full power of technology to centralise and standardise payments, introduce new payment channels and formats, and to enable immediate real-time traceability?
Not enough of them do recognise the power of technology. Truthfully, many treasurers are understandably focused on international consolidation and the management of company finances, but they miss out on technological advancements. For a corporate to be successful, it needs to have a payment and fraud team in my opinion that can analyse each individual market and manage things to achieve the optimum outcome.
What are the key payments trends and issues that you think treasurers should be aware of?
The key trends would be specific towards the demographic and industry in which a treasurer works in. For example, a retail shop-focused treasurer who is reliant upon offline point-of-sale (PoS) merchandise should be aware of the increase in the acceptance of cards via mobile MPoS applications such as Square, and how they can be utilised. Conversely, if a corporate is interested in offline marketing and sales, while still having the potential for cross-channel web sales, a product such as the Zapp platform in the UK would be interesting. More importantly, not all payment methods will be of interest to all companies – you need to choose what works for you and what doesn’t.
Ultimately, the world economy dictates the necessity for a new payment type or not, depending upon the convenience it offers. This is something that large MNCs have to assess internally themselves, determining their own needs. If I had to pick one particular trend, however, it would be the use of mobile devices to lower the cost of PoS distribution. Square figured this out years ago, and now many other payments companies are trailing in their footsteps. Other applications are coming along with this same MPoS concept, and some companies are starting to see the value in these types of developments.
Are there any concerns or opportunities specific to your region or payments sector that you’d like to share?
The biggest concern for most German games companies is the value added tax (VAT) handling procedures for mobile m-payments. There is an on-going debate about how VAT from other European Union (EU) countries should be documented for the German tax authorities. This double taxation risk is causing a high amount of uncertainty in the games industry. It affects all companies in Germany that use carrier billing in other EU countries. Until there is an understanding of this issue by the European Commission (EC), it will continue to be topic for debate and remain a liability.
When did you first join InnoGames Gmbh and what was your previous career background? How does the games industry compare to other sectors?
I became head of payments at InnoGames only recently, in May 2013, and was previously director of business development and of payment at gamigo, an ex-Axel Springer company, in the same field. Prior to working for gamigo, I used to work for a white-label payment services provider (PSP) serving a wide range of industries. So I understand the needs of various different business sectors, having worked at the BillingPartner.com processor. I’ve also been a professional rower, insurance underwriter and worked for the US Postal Service and UPS in America.
In comparing one industry to another, I’d say that the free-2-play games industry has the most to offer in regard to the selection of different payment methods, and it’s been interesting for that reason. Retail industries and electronic e-commerce websites have different risks to us and are therefore limited at present in the payment options they can accommodate. This is why I enjoy working in the games industry, where there is generally a higher level of accommodation and exposure to innovative payment technologies.
You have witnessed the rise of PayPal and internet/mobile payments and new regulations such as the EU’s Payment Services Directive (PSD)? What would you say have been the biggest challenges and changes over your time in the payments industry?
There will always be new challenges that arise, but the biggest and sometimes most unpredictable changes are those that arise out of regulatory authorities. It is very often regulators that put changes into law, or have a poor interpretation of a realistic scenario, which can retard the growth of new payment types. The law of unintended consequences often applies, unfortunately. For instance, the mobile payment double-taxation VAT issue highlighted earlier is just one example of this tendency.
Take Bitcoin as another example. The digital currency first appeared on the marketplace with no regulation, but this is now understandably changing. The regulatory responses to BTC need to be proportionate though. It was not until BTC started to have high transaction values and become a significant risk in black market trading a la ‘The Silk Road’ website that the currency was put firmly under the regulatory spotlight. I just hope that now regulators are aware of it, they tread carefully. There were already a number of private companies facilitating BTC payment by the time regulators started looking at it; they should know this and not act rashly. Some countries, for instance, such as Thailand and Russia, have already banned Bitcoin altogether, which I think is an overreaction.
It is perfectly normal that challenges will arise in the years ahead as virtual currencies and commodities take shape, and this will mean significant regulatory and payment sector changes. New technologies and payment types should not, however, be dismissed or banned out of hand. They should be accommodated and accepted, where possible, in order to improve business efficiency and customer service.
Tim de Knegt, treasurer for the Port of Rotterdam, discusses how he is looking to bring more value to the Port's clients using blockchain.
Regulation technology is fast gaining currency by transforming how financial institutions can tackle compliance in a swift, comprehensive and less expensive manner.
Many banks around the world, large and small, continue to experience major security failures. Biometric systems such as pay-by-selfie, iris scanners and vein pattern authentication can help.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.