Droplet is a mobile payments app that lets you pay without having to queue, and collect rewards on your phone each time you spend.
One of the reasons businesses love Droplet is because it’s transaction fee-free, saving money on what they normally spend on cash handling and card processing. We believe that no other payment company can say this.
When we started Droplet we felt we could apply the power of the web to payments to save time and money. Rather than making money out of business’ needs to transact, Droplet creates exciting products that allow businesses to reinvest that money and make life easier and better for customers.
We’ve achieved this by taking a lot of the clunkiness out of the old fashioned card systems.
Because there’s no scanning or tapping, customers can pay from anywhere – they don’t have to queue to pay or wait for the card machine.
If you go somewhere regularly, having the payment taken care of in the background makes the whole experience more seamless and collecting rewards via mobile means no more fiddling around with bits of stamped paper.
Already more than 600 businesses have joined including coffee shops, hair salons, bars, restaurants, lunch venues and taxis. These businesses will soon be able to pay a monthly subscription to use the new loyalty product based on how many of their customers are collecting rewards.
Rather than using expensive advertising or a sales force, we market our products through ambassadors inside the communities Droplet helps support.
Droplet is registered with the Financial Conduct Authority for the issuing of Electronic Money. The the app averages 5★ in the App Store and has already has grown to 16,500 users.
Droplet is raising acceleration capital in order to extend our ambassador model to 10 new cities and reach gross profitability in 2015. Our existing investors have committed £200,000 that will convert to equity on completion of this round (without prejudice to the crowd), and the company will launch on Crowdcube in March with the additional aim of using the crowd to grow our ambassador network. The management team is also talking to national retailers and has two significant blue chip pilots lined up for 2015.
The purpose of the next three years, and this fundraise, is to get Droplet to the point where the cost of acquisition of merchants is less than the average revenue per merchant. Having validated this, we believe Droplet will be in a strong position to decide how fast it wants to grow and can choose whether to stop spending money to acquire merchants and enjoy the profits, keep growing at a steady rate to net profitability (as shown in the Financial Snapshot) or increase the burn rate and grow faster.
Size of market
More than £500bn is processed on cards in the UK every year according to the UK Cards Association. The payment processing companies that charge for these transactions are diverse and the market is fragmented, however it is thought by the European Commission to be worth more than £110bn a year in the EU alone.
This is just card fees – it doesn’t account for the costs businesses incur in handling cash payments which still made up around half of all retail transactions in 2014.
The shift to mobile is seen by many as inevitable. According to Gartner, mobile payments are expected to grow by 35% in volume and value every year for the next three years, reaching £470bn globally by 2017.
Key trends
A great many payment providers are launching mobile products but we know that the majority of mobile payment businesses focus solely on payments. These include banking apps like PayM and Pingit, mobile operators apps likeEE’s wallet and Weve, and technology companies like Paypal and Zapp. We believe these products’ narrow focus on payments means that for many shoppers, using mobile payments is only marginally more convenient than traditional options.
This has led analysts and observers to say that the key to changing consumer behaviour is to expand mobile payments to include other, more valuable services and it is these value-added services that Droplet’s business model is based on.
Instead of charging for transaction fees, Droplet is like the Skype of payments: giving away the thing everyone used to pay by the yard for, and making money from the ecosystem around the product. We believe Droplet is unique in this regard.
Droplet’s chargeable rewards product seeks to do a better job of something most merchants and consumers are already doing. According to AIMIA, £1 in every £7 spent in the UK is linked to loyalty. Globally, it is estimated that the loyalty market will be worth £65bn by the end of 2015. We feel there is a huge opportunity for Droplet to interrupt the traditional payment model and capture a share of both payment processing costs and loyalty marketing investment.
The benefits of reduced payment friction are already being seen by apps like Über (where payment is handled seamlessly in the background) and Amazon One-Click.
Competition
We know that mobile is a key trend in payments but so far very few mobile payment systems have achieved widespread adoption.
We believe this is because the majority of mobile payments businesses are missing the point. For a payment-only technology to gain adoption it needs widespread acceptance, and this requires mainstream consumer adoption. The exceptions prove the rule: the often-cited M-Pesa because it offers a secure, widespread payment facility in a country that lacks payment infrastructure, and ApplePay in the US which now counts for two of every three dollars spent via contactless payments on the US’s three largest card networks because it already has mainstream consumer adoption and makes contactless payment more convenient for its own loyal customers (but doesn’t offer any data to the merchant).
Thanks to Droplet’s geolocation technology, when regulars walk into Droplet merchants they can be charged seamlessly by the merchant – removing the “payment step” altogether. And by combining payments with loyalty, Droplet seeks to do something genuinely useful for its users that other payments options can’t.
Droplet is not alone in addressing the broader opportunity for value-added mobile payment services but many of the attempts by incumbents have failed, including:
Weve, a universal smartphone wallet and joint venture between the UK’s three biggest telecommunication operators that was abandoned after being developed for several markets because the partners couldn’t agree how the app would work. This was in spite of being hailed by debut advertiser Eat as a “game-changer”.
O2 Wallet, which allowed users to compare online prices by scanning barcodes on physical products as well as send and receive payments. It was shut down in 2014 at a reported cost of over £100m because of the expected arrival of Weve, according to a former spokesperson.
V.me and Masterpass, Visa and Mastercard’s respective mobile wallet propositions (now abandoned and the names re-positioned for online payments only).
In our opinion this combination of legacy infrastructure, lack of direct access to consumers and competing vested interests means existing payment industry players will find it hard to address the opportunities that Droplet sees. Even established loyalty providers like Nectar show little sign of entering the mobile payments market and it’s questionable whether using mobile loyalty on its own is any more convenient than traditional options.
There are a small number of combined mobile payment and loyalty startups, including YoYo and Harris & Hoole’s own app, that we consider direct competitors to Droplet.
We see the existence of YoYo as validation of the market opportunity – being backed by venture capital and focusing on rewards over payment. The ‘at till’ experience of paying with YoYo involves scanning a QR code on the device screen, which we have found to be slow, clunky and error-prone. We believe that our product is superior in design and user experience, and that by taking out the payment step altogether, we can offer increased convenience to consumers around that even contactless can’t achieve.
Political
Proactive government support for financial industry innovation has been favourable to Droplet, creating timely new legislation like the Electronic Money Regulations 2011, within which Droplet is registered.
We feel the socio-political climate is ideal. The UK Government is “committed to High Streets as part of its long term plan and is supporting local high streets” according to the UK High Streets minister Penny Mordaunt, and the success of Droplet was one of the reasons cited when Norwich Lanes won Best City at the Great British High Street of the Year in November 2014. Winners were selected for “their ability to demonstrate innovation, collaboration and initiative in helping get their high streets to adapt to the modern world and changing consumer habits” and the Minister actively encouraged other cities to embrace Droplet.
Social
The renaissance of independent bricks-and-mortar retail is part of a social phenomena that has, if anything, been strengthened by the last five years of social media evolution. Droplet is designed to appeal to people’s need for a sense of place and community in its brand positioning, as well as the community-led way it’s taken to market.
Steffan Aquarone, CEO, UK
Steff is a young entrepreneur whose businesses usually involve collaboration between large numbers of people in order to disrupt existing business models. He founded his first business aged 20.
Prior to Droplet Steff led a team of 300 villagers in the small Oxfordshire village of Kingston Bagpuize who made an entire romantic comedy feature film. Tortoise in Love premiered in London’s Leicester Square where the red carpet was flanked by tractors and watched live by 5 million people.
Steff’s background was home-educated before attending Norwich School and graduating from Warwick University (Politics). In previous businesses he has sold and delivered projects to blue chip clients including John Lewis, RBS, News Corp, Vodafone, Land Rover and American Express.
Will Grant, CTO, UK
Will is a technology entrepreneur and consultant. After his Computer Science degree, Will trained with Jakob Nielsen and Bruce Tognazzini at the Nielsen Norman Group – the world’s leaders in usable design. As CTO of online video platform Buto, Will led the technology team in the development of numerous first-to-market features such as out of the box clickable video, video SEO and high-availability video delivery.
Prior to Droplet, Will’s own consultancy clients include Cabinet Office, the NHS and Channel 4. Will worked on interaction design for london2012.com which went on to win a Webby award.
Jeroen Serpieters, Lead Engineer, UK
Jeroen is a senior software engineer. Previously he was lead software engineer for a financial reference data management platform that powers the second largest bank in Belgium. Later he was technical director for a Belgian healthcare software startup where he led the offshore development centre.
Luke Courtenay Smith, Sales and Marketing, UK
Prior to graduating in Politics from Sheffield University Luke worked as a writer, performer and producer and is now using his communication skills and passion to grow the Droplet community. Luke took Droplet to over 100 independent businesses in Norwich in under four months and supports Droplet’s growing network of ambassadors to do the same.
Scott Evans, Mobile Engineer, UK
Scott has over 15 years experience across a range of gaming and application software development. He is a highly motivated and skilled individual with experience across an unusually wide variety of languages and environments including both iOS and Android development.