Mobile Payments 2010-2014

© 2010, Portio Research. All Rights Reserved

1
Mobile Payments 2010-2014

Portio Research Limited.
Published March 2010 by Portio Research Limited © Copyright 2010.
www....
Mobile Payments 2010-2014

Contents
Introduction ............................................................................
Mobile Payments 2010-2014

Business Model – Mobile Coupons ..................................................................
Mobile Payments 2010-2014

List of Figures
Figure 1: 
Figure 2: 
Figure 3: 
Figure 4: 
Figure 5: 
Figure 6: 
Figure 7: 
Fi...
Mobile Payments 2010-2014

List of Tables
Table 1: 
Table 2: 
Table 3: 
Table 4: 
Table 5: 
Table 6: 
Table 7: 
Table 8: 
...
Mobile Payments 2010-2014

Chapter 1
Introduction

© 2010, Portio Research. All Rights Reserved

7
Mobile Payments 2010-2014

Introduction
Worldwide Mobile Market
The worldwide mobile market is witnessing tremendous growt...
Mobile Payments 2010-2014

600

10
7.8

Users (In Million)

500
400

5.6

300

6

4.1
489.5

3.0

200
1.8

2.3

81.3

2010...
Mobile Payments 2010-2014

Mobile Payment Volumes
Mobile payment volumes denote the face value of purchases and transactio...
Mobile Payments 2010-2014

Figure 5: Mobile Payment Volumes – Regional (In USD Billion, 2009 & 2014F)

Mobile Payment Volu...
Mobile Payments 2010-2014

Chapter 2
Mobile Money

12

© 2010, Portio Research. All Rights Reserved
Mobile Payments 2010-2014

Mobile Money
Objective
In this report, different types of mobile payments and mobile payment pl...
Mobile Payments 2010-2014

•

•

Demand side:
― The growing ubiquity of mobile phones and their increasing multifunctional...
Mobile Payments 2010-2014

Chapter 3
Mobile Payments

© 2010, Portio Research. All Rights Reserved

15
Mobile Payments 2010-2014

Mobile Payments
Overview
The mobile payments market has significantly evolved in the last five ...
Mobile Payments 2010-2014

Key categories of goods and services offered through mobile payments are:
• Mobile applications...
Mobile Payments 2010-2014

Mobile payment services using SMS, applications, WAP and USSD can be accessed
remotely. However...
Mobile Payments 2010-2014

Figure 8: How NFC Payments work

Mobile Ticketing –
Issuing Server

Mobile Coupons –
Issuing Se...
Mobile Payments 2010-2014

Figure 9: Subscribers with NFC Capable Handsets — Worldwide (In Million, 2009 – 2014F)

Subscri...
Mobile Payments 2010-2014

Market Size
The mobile payments market is expected to witness significant growth to 2014. The
f...
Mobile Payments 2010-2014

Table 1: Regional Break-out of Mobile Payment Users (In Million, 2009 – 2014F)

2

Mobile Payme...
Mobile Payments 2010-2014

Table 2: Regional Break-out of Mobile Payment Volume (In USD Billion, 2009 – 2014F)

Mobile Pay...
Mobile Payments 2010-2014

NFC Payments' Share
in Mobile Payment Volume
(In Percent)

Figure 14: NFC Payment Volume as a P...
Mobile Payments 2010-2014

Case Studies – Mobile Payments
Japan
Population: 126.9 million (End-2009)
Mobile Penetration: 8...
Mobile Payments 2010-2014

Figure 15: Contactless Mobile Payments Services in Japan

Adoption by other MNOs
In 2005, KDDI ...
Mobile Payments 2010-2014

Figure 16: DCMX Users (In Million, June 2009 – December 2009)
12

Users
(In Million)

10.7

10....
Mobile Payments 2010-2014

Key drivers:
• Dense urban population and high use of mass transit systems
• Consumer behaviour...
Mobile Payments 2010-2014

The UK
Population: 61.2 million (End-2009)
Mobile Penetration: 132.8 percent (End-2009)
Popular...
Mobile Payments 2010-2014

Opportunities:
• Revolutionising mass transit payments through handsets: The UK’s
Department fo...
Mobile Payments 2010-2014

The US
Population: 308.7 million (End-2009)
Mobile Penetration: 89.0 percent (End-2009)
Popular...
Mobile Payments 2010-2014

Opportunities:
• The micro-payments market in the US is a burgeoning market. There is an
opport...
Mobile Payments 2010-2014

Drivers
The mobile payments ecosystem primarily consists of four entities: banks, mobile networ...
Mobile Payments 2010-2014

Table 3:

Regional Drivers – An Overview

Regional Drivers – An Overview
The US
• High use of c...
Mobile Payments 2010-2014

Challenges
•
•

•
•
•
•
•
•

As mobile payment services have to be customised for each market, ...
Mobile Payments 2010-2014

Table 5:

Assessment of Challenges for Different Mobile Payment Platforms
Challenge

Platform

...
Mobile Payments 2010-2014

Table 6:

Regional Challenges – An Overview

Region

Challenges

Japan
(Asia Pacific)

The Osai...
Mobile Payments 2010-2014

Value Chain
The value chain of mobile payments is quite complex and involves MNOs, banks, retai...
Mobile Payments 2010-2014

The several stages in the value chain of mobile payment services are explained below:
• Demand ...
Mobile Payments 2010-2014

Business Models
The business models used predominantly for mobile payment services are:
• Bank-...
Mobile Payments 2010-2014

The payment process is executed as follows:
• Banks provide merchants with contactless points o...
Mobile Payments 2010-2014

Figure 23: Bank-centric Model – Benefits and Drawbacks

Benefits
•
•
•

New user acquisition
op...
Mobile Payments 2010-2014

Collaboration Model
In this model, MNOs and banks join hands to provide mobile payment services...
Mobile Payments 2010-2014

The payment process is executed as follows:
• Banks and MNOs come together to offer mobile paym...
Mobile Payments 2010-2014

Figure 25: Collaboration Model – Benefits and Drawbacks

Benefits
•
•

New user acquisition
opp...
Mobile Payments 2010-2014

Operator-centric Model
In this model, the mobile network operator is responsible for the deploy...
Mobile Payments 2010-2014

The payment process is executed as follows:
• The MNO installs the mobile payment application o...
Mobile Payments 2010-2014

Figure 27: Operator-centric Model – Benefits and Drawbacks

Benefits
•
No Benefits

•

Full aut...
Mobile Payments 2010-2014

Peer-to-Peer Model
In this business model, Peer-to-Peer mobile payment service providers sit at...
Mobile Payments 2010-2014

The payment process is executed as follows:
• Peer-to-Peer payment service providers install th...
Mobile Payments 2010-2014

Figure 29: Peer-to-Peer Model – Benefits and Drawbacks

MNOs

Banks

Drawbacks

Benefits
•
•

•...
Mobile Payments 2010-2014

Table 7:

Comparison of Mobile Payments Business Models

Model

Stakeholder

Benefits

Drawback...
Mobile Payments 2010-2014

Key Players
Mobile payment services are now being offered in all major markets worldwide. Opera...
Mobile Payments 2010-2014

The figure below shows the value of P2P transactions processed through M-PESA.

Monthly Transac...
Mobile Payments 2010-2014

NTT DOCOMO Japan – DCMX
DCMX is a credit payment service launched by Japanese operator NTT DOCO...
Mobile Payments 2010-2014

Globe Telecom Philippines – GCASH
GCASH is a popular M-commerce service launched by Globe Telec...
Mobile Payments 2010-2014

mChek
mChek is a provider of mobile payment services in India, and has established business
par...
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
Mobile Payments 2010 2014 - Portio Research Ltd
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First edition of our annual report looking at the mobile payment industry and the penetration of NFC-enabled handsets

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Mobile Payments 2010 2014 - Portio Research Ltd

  1. 1. Mobile Payments 2010-2014 © 2010, Portio Research. All Rights Reserved 1
  2. 2. Mobile Payments 2010-2014 Portio Research Limited. Published March 2010 by Portio Research Limited © Copyright 2010. www.portioresearch.com info@portioresearch.com Disclaimer and Legal Notices Disclaimer Every care has been taken in the preparation of this study to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at time of publishing. All opinions, suppositions, estimates and recommendations included in this document are solely the opinions of the authors unless otherwise stated. Portio Research Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this document cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Portio Research Limited accepts no liability or obligation to inform the reader of such changes. Portio Research Limited do not promote or endorse any specific companies or products, the views and opinions we express in this document are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Portio Research Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished or reconstituted in any way without the express written permission of the publisher. Forwarding of this electronic document without the correct legal licence is theft. It’s unethical, immoral and against the law. If you have any questions about the legal licence conditions under which this document has been distributed, please contact Portio Research on info@portioresearch.com If you did not buy this document and a colleague or associate has sent it to you, do not assume you are legally entitled to read it, it is your responsibility to ensure you have the correct legal licence to read this document. 2 © 2010, Portio Research. All Rights Reserved
  3. 3. Mobile Payments 2010-2014 Contents Introduction ..............................................................................................................................8  Worldwide Mobile Market ..................................................................................................................... 8  Worldwide Mobile Payments Market .................................................................................................... 8  Mobile Payment Users ...................................................................................................................... 8  Mobile Payment Volumes................................................................................................................ 10  Market Size ..................................................................................................................................... 10  Mobile Money..........................................................................................................................13  Objective ............................................................................................................................................ 13  Overview ............................................................................................................................................ 13  Mobile Payments ....................................................................................................................16  Overview ............................................................................................................................................ 16  Case Studies – Mobile Payments ...................................................................................................... 25  Japan .............................................................................................................................................. 25  The UK ............................................................................................................................................ 29  The US ............................................................................................................................................ 31  Drivers ............................................................................................................................................... 33  Challenges ......................................................................................................................................... 35  Value Chain ....................................................................................................................................... 38  Business Models ................................................................................................................................ 40  Bank-centric Model.......................................................................................................................... 40  Collaboration Model ........................................................................................................................ 43  Operator-centric Model.................................................................................................................... 46  Peer-to-Peer Model ......................................................................................................................... 49  Key Players ........................................................................................................................................ 53  Safaricom Kenya – M-PESA ........................................................................................................... 53  NTT DOCOMO Japan – DCMX ...................................................................................................... 55  Globe Telecom Philippines – GCASH ............................................................................................. 56  mChek ............................................................................................................................................. 57  Paybox ............................................................................................................................................ 58  paythru ............................................................................................................................................ 59  Mobile In-application Payments ...........................................................................................61  Overview ............................................................................................................................................ 61  Revenue Potential.............................................................................................................................. 61  Operators ........................................................................................................................................ 61  Application Developers.................................................................................................................... 61  Handset Manufacturers ................................................................................................................... 62  In-app payment mechanism ............................................................................................................... 62  Business Model.................................................................................................................................. 62  Case Study: Apple App Store ............................................................................................................ 63  Mobile Ticketing and Coupons .............................................................................................67  Overview ............................................................................................................................................ 67  Mobile Ticketing ................................................................................................................................. 67  Mobile Coupons ................................................................................................................................. 68  Drivers and Inhibitors ......................................................................................................................... 68  Key Players – Mobile Ticketing and Coupons .................................................................................... 69  Mobiqa ............................................................................................................................................ 69  NeoMedia Technologies.................................................................................................................. 71  Cellfire ............................................................................................................................................. 73  Market Size ........................................................................................................................................ 74  Value Chain – Mobile Ticketing.......................................................................................................... 75  Business Models – Mobile Ticketing .................................................................................................. 77  Model I ............................................................................................................................................ 77  Model II ........................................................................................................................................... 78  Value Chain – Mobile Coupons ......................................................................................................... 79  © 2010, Portio Research. All Rights Reserved 3
  4. 4. Mobile Payments 2010-2014 Business Model – Mobile Coupons .................................................................................................... 80  Case study ......................................................................................................................................... 81  Mobile Ticketing – Go North East .................................................................................................... 81  Mobile Coupons – Planet Funk ....................................................................................................... 83  Opportunities and Benefits for Stakeholders ...................................................................................... 84  Conclusion ..............................................................................................................................86  Appendices .............................................................................................................................90  Glossary .......................................................................................................................................... 91  Portio Research Classifications ..................................................................................................... 103  Companies Mentioned in this Report ............................................................................................ 104  About the Authors.......................................................................................................................... 107  Also available from Portio Research Limited ................................................................................... 109  4 © 2010, Portio Research. All Rights Reserved
  5. 5. Mobile Payments 2010-2014 List of Figures Figure 1:  Figure 2:  Figure 3:  Figure 4:  Figure 5:  Figure 6:  Figure 7:  Figure 8:  Figure 9:  Figure 10:  Figure 11:  Figure 12:  Figure 13:  Figure 14:  Figure 15:  Figure 16:  Figure 17:  Figure 18:  Figure 19:  Figure 20:  Figure 21:  Figure 22:  Figure 23:  Figure 24:  Figure 25:  Figure 26:  Figure 27:  Figure 28:  Figure 29:  Figure 30:  Figure 31:  Figure 32:  Figure 33:  Figure 34:  Figure 35:  Figure 36:  Figure 37:  Figure 38:  Figure 39:  Figure 40:  Figure 41:  Figure 42:  Figure 43:  Figure 44:  Figure 45:  Figure 46:  Figure 47:  Figure 48:  Figure 49:  Figure 50:  Mobile Subscribers – Worldwide (In Million, 2009 – 2014F) ................................................ 8  Mobile Payment Users and Penetration – Worldwide (2009 – 2014F) ................................ 9  Mobile Payment Users – Regional (In Million, 2009 & 2014F) ............................................ 9  Mobile Payment Volumes – Worldwide (In USD Billion, 2009 – 2014F) ............................ 10  Mobile Payment Volumes – Regional (In USD Billion, 2009 & 2014F) .............................. 11  Mobile Payment Volumes – Growth by Region (In Percent, 2009 – 2014F) ..................... 11  Mobile Payment Opportunities for Key Stakeholders ........................................................ 16  How NFC Payments work ................................................................................................ 19  Subscribers with NFC Capable Handsets — Worldwide (In Million, 2009 – 2014F).......... 20  Penetration of NFC Devices — Worldwide (In Percent, 2009 – 2014F) ............................ 20  Mobile Payment Users — Worldwide (In Million, 2009 – 2014F)....................................... 21  Mobile Payment Volume — Worldwide (In USD Billion, 2009 – 2014F) ............................ 22  NFC Payment Volume — Worldwide (In USD Billion, 2009 – 2014F) ............................... 23  NFC Payment Volume as a Percentage of Mobile Payment Volume — Worldwide (In Percent, 2009 – 2014F) .................................................................................................... 24  Contactless Mobile Payments Services in Japan .............................................................. 26  DCMX Users (In Million, June 2009 – December 2009) .................................................... 27  Consumer Spending Behaviour for Contactless Payments – Japan (2008) ...................... 27  Contactless Payment Trials on NoWcard Buses for Over-the-Air Ticket Sales to NFCenabled Handsets by the UK’s Department for Transport ................................................ 30  Mobile Payment Volume — The US (In USD Billion, 2009 – 2014F) ................................ 31  Micro-payment Opportunities in the US (In USD Billion, 2009) ......................................... 32  Basic Value Chain of Mobile Payments ............................................................................. 38  Bank-centric Model ............................................................................................................ 40  Bank-centric Model – Benefits and Drawbacks ................................................................. 42  Collaboration Model .......................................................................................................... 43  Collaboration Model – Benefits and Drawbacks ................................................................ 45  Operator-centric Model ...................................................................................................... 46  Operator-centric Model – Benefits and Drawbacks ........................................................... 48  Peer-to-Peer Model ........................................................................................................... 49  Peer-to-Peer Model – Benefits and Drawbacks................................................................. 51  M-PESA Users – Kenya (In Million, March 2008 – September 2009) ............................... 53  Monthly P2P Transactions Value – Kenya (In USD Million, March 2008, March 2009 & September 2009) .............................................................................................................. 54  DCMX Users (In Million, June 2009 – December 2009) .................................................... 55  GCASH Users (In Million, 2007 – 2009) ............................................................................ 56  Apple App Store In-app Payments Model ......................................................................... 63  Application Downloads from Apple’s App Store – Performance in the eighteen months since launch ...................................................................................................................... 64  Drivers and Inhibitors – Mobile Ticketing and Coupons .................................................... 69  Major Business Deals and Partnerships – Mobiqa ............................................................ 70  Major Business Deals and Partnerships – NeoMedia Technologies ................................. 72  Major Business Deals and Partnerships – Cellfire............................................................. 73  Mobile Ticketing and Coupons Users — Worldwide (In Million, 2009 – 2014F) ................ 74  Mobile Ticketing and Coupons Volume — Worldwide (In USD Billion, 2009 – 2014F) ..... 74  Basic Value Chain of Mobile Ticketing .............................................................................. 75  Mobile Ticketing – Business Model I ................................................................................. 77  Mobile Ticketing – Business Model II ................................................................................ 78  Basic Value Chain of Mobile Coupons .............................................................................. 79  Mobile Coupons – Pay per Redemption Business Model .................................................. 80  Increase in Revenue of Go North East (In GBP Million, 2006 – 2009) .............................. 81  Go North East’s Contribution to Go-Ahead’s Bus Revenue (In Percent, 2005 – 2009) ..... 82  Benefits of Planet Funk’s mobile coupons campaign ........................................................ 83  Mobile Payment Volumes – Regional (In USD Billion, 2009) ............................................ 86  © 2010, Portio Research. All Rights Reserved 5
  6. 6. Mobile Payments 2010-2014 List of Tables Table 1:  Table 2:  Table 3:  Table 4:  Table 5:  Table 6:  Table 7:  Table 8:  Table 9:  6 Regional Break-out of Mobile Payment Users (In Million, 2009 – 2014F) ......................... 22  Regional Break-out of Mobile Payment Volume (In USD Billion, 2009 – 2014F)............... 23  Regional Drivers – An Overview........................................................................................ 34  Challenges for Different Mobile Payment Platforms .......................................................... 35  Assessment of Challenges for Different Mobile Payment Platforms.................................. 36  Regional Challenges – An Overview ................................................................................. 37  Comparison of Mobile Payments Business Models........................................................... 52  Top Applications with In-app Payments available from Apple’s App Store (November 2009) 65  Opportunities and Benefits of Mobile Ticketing and Coupons for Stakeholders ................ 84  © 2010, Portio Research. All Rights Reserved
  7. 7. Mobile Payments 2010-2014 Chapter 1 Introduction © 2010, Portio Research. All Rights Reserved 7
  8. 8. Mobile Payments 2010-2014 Introduction Worldwide Mobile Market The worldwide mobile market is witnessing tremendous growth. It was one of the least impacted industries during the recent economic downturn, and – with the now improving scenario – is expected to outpace other major industries in terms of growth. In 2009, the worldwide mobile subscriber base stood at nearly 4.6 billion and is forecast to reach 6.3 billion by end-2014. The figure below highlights the growth of mobile subscribers between 2009 and 2014. Figure 1: Mobile Subscribers – Worldwide (In Million, 2009 – 2014F) 7,000 6,000 Subscribers (In Million) 5,000 4,570.6 5,045.8 5,440.6 5,777.9 6,065.1 6,310.8 4,000 3,000 2,000 1,000 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted Worldwide Mobile Payments Market In light of falling voice ARPU, mobile operators around the world are focusing their efforts on stabilising ARPU by promoting mobile data services. Mobile payment services are also a part of operators’ promotional campaigns, and operators – either on their own or in partnership with banks and mobile payment service providers – are developing platforms and applications to offer mobile payment services. With such initiatives in place, the mobile payments segment has established itself in several advanced mobile markets worldwide and is now expanding its reach in emerging markets as well. Mobile Payment Users In 2009, there were 81.3 million mobile payment users worldwide; this number is forecast to reach nearly 490 million by the end of 2014. Figure 2 highlights the number of mobile payment users worldwide and their penetration within the worldwide mobile subscriber base between 2009 and 2014. 8 © 2010, Portio Research. All Rights Reserved In 2009, the worldwide mobile subscriber base stood at nearly 4.6 billion and is forecast to reach 6.3 billion by end-2014.
  9. 9. Mobile Payments 2010-2014 600 10 7.8 Users (In Million) 500 400 5.6 300 6 4.1 489.5 3.0 200 1.8 2.3 81.3 2010F 2 237.3 165.5 116.0 2009 4 340.6 100 0 8 Mobile Payment Penetration (In Percent) Figure 2: Mobile Payment Users and Penetration – Worldwide (2009 – 2014F) 0 2011F 2012F 2013F 2014F Year Users (In Million) Mobile Payment Penetration (In Percent) Source: Portio Research Ltd. F – Forecasted According to the figure above, the worldwide penetration of mobile payment users is forecast to increase from 1.8 percent in 2009 to nearly 8 percent by end-2014. In 2009, Asia Pacific accounted for the highest number of mobile payment users worldwide, followed by Europe and North America. By end-2014, Asia Pacific is still expected to lead the market, accounting for over half of the mobile payment users worldwide. Between 2009 and 2014, both Europe and North America will witness a decline in their share of the worldwide mobile payment user base, while Latin America’s share is anticipated to increase during this period. Mobile payment services have the potential to significantly transform the money transactions industry, and thereby the economies in these developing markets. Figure 3: Mobile Payment Users – Regional (In Million, 2009 & 2014F) 300 267.1 Users (In Million) 250 200 150 113.7 100 50 29.4 33.9 52.4 9.9 3.2 26.9 4.9 29.4 0 Europe Asia Pacific North America Latin America Africa and Middle East Region 2009 2014F Source: Portio Research Ltd. F – Forecasted © 2010, Portio Research. All Rights Reserved 9 In 2009, Asia Pacific accounted for the highest number of mobile payment users worldwide, followed by Europe and North America.
  10. 10. Mobile Payments 2010-2014 Mobile Payment Volumes Mobile payment volumes denote the face value of purchases and transactions through mobile handsets; whereas mobile payment revenue is a small percentage of this volume. This percentage varies across geographies because of the different business models employed. For example, if a subscriber makes a payment of USD 100 through a mobile handset and the transaction cost is 6 percent, then USD 100 represents the mobile payment volume and USD 6 is the revenue opportunity for the stakeholders. This amount will be distributed among all stakeholders—MNOs, banks/financial institutions and payment service providers —according to the revenue sharing agreement. Market Size Mobile payment volumes were USD 68.7 billion in 2009 and are forecast to reach USD 633.4 billon by end-2014. The figure below depicts the growth of mobile payment volumes between 2009 and 2014. Figure 4: Mobile Payment Volumes – Worldwide (In USD Billion, 2009 – 2014F) Mobile Payment Volumes (In USD Billion) 700 633.4 600 500 415.5 400 270.0 300 171.0 200 100 68.7 108.3 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted In 2009, Asia Pacific generated the highest mobile payment volumes, followed by Europe. In the same year, the difference between mobile payment volumes in Asia Pacific and Europe was nearly USD 4 billion; however, by end-2014 this difference is forecast to increase to USD 198.5 billion. Markets such as China, Japan, South Korea and India are expected to lead the growth of mobile payments in Asia Pacific. 10 © 2010, Portio Research. All Rights Reserved Mobile payment volumes were USD 68.7 billion in 2009 and are forecast to reach USD 633.4 billon by end-2014.
  11. 11. Mobile Payments 2010-2014 Figure 5: Mobile Payment Volumes – Regional (In USD Billion, 2009 & 2014F) Mobile Payment Volumes (In USD Billion) 500 400 345.6 300 200 147.1 82.1 100 28.7 24.8 9.8 2.7 34.8 2.7 23.8 0 Europe Asia Pacific North America Latin America Africa and Middle East Region 2009 2014F Source: Portio Research Ltd. F – Forecasted Worldwide mobile payment volumes are forecast to grow at a CAGR (Compound Annual Growth Rate) of 55.9 percent between 2009 and 2014. During this period, Latin America will lead other regions in terms of growth in mobile payment volumes with a CAGR of 66.7 percent, followed by Asia Pacific with a CAGR of 64.5 percent. Europe is expected to experience the least growth in mobile payment volumes with a CAGR of 42.7 percent. Figure 6: Mobile Payment Volumes – Growth by Region (In Percent, 2009 – 2014F) CAGR (In Percent) CAGR Worldwide = 55.9 % 64.5 70 60 66.7 CAGR 55.9 % 55.0 52.8 50 42.7 40 30 20 10 0 Asia Pacific Europe North America Latin America Africa and Middle East Region Source: Portio Research Ltd. F – Forecasted © 2010, Portio Research. All Rights Reserved 11
  12. 12. Mobile Payments 2010-2014 Chapter 2 Mobile Money 12 © 2010, Portio Research. All Rights Reserved
  13. 13. Mobile Payments 2010-2014 Mobile Money Objective In this report, different types of mobile payments and mobile payment platforms have been studied. The existing business models and current opportunities for stakeholders have been discussed, while select case studies have also been evaluated. The study also provides market forecasts in terms of revenues and users, to gauge the opportunities provided by each type of mobile payment option. Overview Mobile handsets have found utility in transactions such as money transfer and payments. Handsets are now increasingly being used to transfer money and purchase products (physical or digital goods) and services. One of the earliest major commercial platforms for mobile payments services was launched in 1999 when NTT DOCOMO launched the i-Mode mobile Internet platform for money transactions in Japan. Smart launched Smart Money the next year in the Philippines. Currently, there are a variety of mobile money transactions being provided. Some are mentioned below: • Mobile payments Physical goods including books, CDs, garments, etc. Digital content including ringtones, games, music, videos, applications etc. In-app payments Mobile ticketing Mobile coupons • Mobile banking • Mobile money transfer including remittance transfers The advent of NFC (Near Field Communication) technology and its use for making contactless proximity payments is revolutionising mass transit systems and retail payments. NFC payment platforms have been widely adopted in Japan, South Korea, the US and major mobile markets in Western Europe. Mobile payments refer to the use of mobile handsets to pay for items in a store, to settle a bill, to buy tickets or to redeem coupons. This is finding traction with consumers who prefer cashless payments and with merchant firms seeking to reduce billing processing times. Mobile ticketing is used for the sale of tickets at movie theatres, concerts, sporting events, airports, train stations, mass transit systems, parking lots, etc. Mobile ticketing offerings have evolved to incorporate coupons and loyalty programmes. Location-based services have also been used for targeted mobile advertisements through promotions and coupons. Furthermore, mobile handsets are being used to access banking services that include account information, bank transactions, and stock and commodity trading. In addition to mobile banking services, mobile handsets are also used to remit money through specific remittance corridors through MNO-bank collaborations. Despite the obvious benefits of mobile money services, early market adoption was stunted by technological challenges, a lack of standardisation, fragmented commercial efforts, and most importantly a lack of sustainable business models. However, there are certain factors – both on the supply and demand side – which encourage the deployment and adoption of mobile money services. These have worked in the favour of proliferation of these services. © 2010, Portio Research. All Rights Reserved 13 NFC payment platforms have been widely adopted in Japan, South Korea, the US and major mobile markets in Western Europe.
  14. 14. Mobile Payments 2010-2014 • • Demand side: ― The growing ubiquity of mobile phones and their increasing multifunctionality make them a compelling replacement for physical wallets; worldwide mobile penetration passed 67 percent at end-2009 ― Unbanked populations can access financial services through this mode, which helps boost economic growth Supply side: ― MNOs have large subscriber bases and control of mobile handset features, user interface, and subsidies ― Banks have loyal user bases and financial resources to become enablers of mobile payments Key value propositions of payments using mobile handsets: • Convenience for in-store segments, particularly the micropayments segment • Speed of contactless transactions enabled by mobile phones with embedded NFC chips • Inherent connectivity, ubiquity and near real-time verification capability of mobile devices (via SMS, WAP, USSD or NFC) 14 © 2010, Portio Research. All Rights Reserved
  15. 15. Mobile Payments 2010-2014 Chapter 3 Mobile Payments © 2010, Portio Research. All Rights Reserved 15
  16. 16. Mobile Payments 2010-2014 Mobile Payments Overview The mobile payments market has significantly evolved in the last five years. Despite its limited success in a majority of markets, both developed and developing, few have doubted the potential mobile payments have to act as an alternative for cash and cheque payments, especially for micro-payments (less than USD 15). Obstacles to adoption have been a lack of scalable and viable business models, lack of standardisation, and fragmented commercial efforts. However, the success of mobile payment business models in countries like Japan, South Korea and the US has revived the interest of potential stakeholders to bring out the next phase of mobile payment services worldwide. Key stakeholders in the mobile payments value chain include: • Merchants • Banks and financial institutions • Mobile network operators (MNOs) • Consumers Mobile payments provide a number of opportunities to stakeholders, as depicted in the figure below. Figure 7: Mobile Payment Opportunities for Key Stakeholders Stakeholders Opportunities Banks and Financial Institutions • • More sales opportunities Personalised marketing and improved marketing effectiveness • • • New users from unbanked areas Tapping micro-payments market Channel to provide differentiated offerings • Merchants Transaction commissions by leveraging network assets and subscriber base Platform for increased mobile content sales Mobile Network Operators • Consumers • • Immediate access to product information and promotions Easier micro-payments, cashless payments Source: Portio Research Ltd. 16 © 2010, Portio Research. All Rights Reserved The success of mobile payment business models in countries like Japan, South Korea and the US has revived the interest of potential stakeholders to bring out the next phase of mobile payment services worldwide.
  17. 17. Mobile Payments 2010-2014 Key categories of goods and services offered through mobile payments are: • Mobile applications and In-app payments • Mobile ticketing • Mobile coupons • Transportation and parking payments • Mobile content (music, videos, online game subscriptions, wallpapers, etc.) • Physical goods (books, magazines, CD/DVDs, clothes, etc.) Currently, mobile payments are mostly used for the purchase of mobile content, mobile ticketing, coupons and micro-transactions. The growing number of bank-MNO partnerships is expected to make mobile wallets more capable of carrying out larger and secure transactions. This will encourage the use of mobile payments for the purchase of physical goods and macro-transactions will also increase significantly. Mobile Payments — Stakeholders’ Views and Initiatives Retail stores are looking to use mobile payments as a means of reducing queues at the checkout Every second saved at the counter equates to an additional EUR 1 (USD 1.3) in net income. Consumers like contactless mobile payment facilities and there has been positive feedback. — McDonalds Reviving the vending machine market Visa has collaborated with fellow Vancouver 2010 Olympic and Paralympic Winter Games sponsor Coca-Cola to provide 550 Coca-Cola vending machines enabled with ‘Visa payWave’ contactless payment terminals. (Announcement made in January 2010) Investments in developing technology for mobile payments Mobile payments is a focus area and Visa has been collaborating with MNOs and handset manufacturers to standardise this. Visa has invested nearly EUR 800 million (USD 1.0 billion) during the past five years (20052009) on R&D and EUR 170 million (USD 219.9 million) of this investment went into R&D of chip and PIN. Another EUR 200 million (USD 258.7 million) is planned to be invested for developing low-cost contactless payments through cards and mobile handsets. — Visa Mobile payment services primarily fall into two categories— remote and proximity services. The four major mediums of providing these services are the following: • SMS/Application • WAP • USSD (Unstructured Supplementary Services Data ) • Near Field Communications (NFC) or Contactless payments © 2010, Portio Research. All Rights Reserved 17 The growing number of bankMNO partnerships is expected to make mobile wallets more capable of carrying out larger and secure transactions.
  18. 18. Mobile Payments 2010-2014 Mobile payment services using SMS, applications, WAP and USSD can be accessed remotely. However, NFC payment services can only be used if the accessing device is in proximity of the NFC reader, which connects the device with the back-end servers and data centres. The choice of medium for providing mobile payment services depends upon market characteristics and the capital the service providers are willing to spend. SMS and applications-based mobile payments have been deployed in many emerging markets, such as China, India, the Philippines and Indonesia. This medium benefits from the ubiquity of SMS use and can therefore be used to target the ‘bottom of pyramid’ user segment. The ‘Smart Money’ service in the Philippines is an example of a successful SMS-based payments service. WAP services can be used to target the owners of mid-range and high-end handsets. However, these services are often hampered in emerging markets by an unavailability of high-speed networks and a lack of capable handsets. The problem of session timeouts also degrades user experiences. USSD (Unstructured Supplementary Services Data) is a standard for transmitting information over GSM networks. This mobile payment medium is apt for developing markets and is cheaper than mobile payments using SMS. Barclays’ ‘Hello Money’ is an example of USSD-based mobile payments; a user dials a specific short code on the handset to access the mobile payments menu. NFC is more useful in developed markets with capable infrastructure. It is being used to make mobile payments for transportation, ticketing and coupon services. Japan and South Korea have pioneered the deployment of NFC solutions for mobile payments. How NFC Payments work The way in which NFC mobile payments work is depicted on the next page. 18 © 2010, Portio Research. All Rights Reserved The choice of medium for providing mobile payment services depends upon market characteristics and the capital the service providers are willing to spend.
  19. 19. Mobile Payments 2010-2014 Figure 8: How NFC Payments work Mobile Ticketing – Issuing Server Mobile Coupons – Issuing Server Financial Card Provider – Issuing Server IP Network Back-end Application Software Financial Point-of-Sale Network Merchant NFC Reader Device Collaborating Payments Solutions and Authentication Firms MNO Source: Portio Research Ltd. To avail NFC payment facilities, a user needs to have an NFC-enabled handset. In order to make a transaction, a user must wave the handset near an NFC reader device so that the user account is identified by the reader and the transaction is made. Micro-transactions— which are defined differently in different markets—do not require authentication. The payment is either deducted from a pre-paid account or is charged to the mobile/bank/credit card account directly. The details of the mobile payment and available balance can then be accessed using the handset. Advantages of making NFC payments through mobile handsets: • Contactless payments are nearly 40 percent faster compared with payments using credit or debit cards, and nearly 55 percent faster than cash payments. 1 • The availability of historical data for consumer spending behaviour of NFC users makes them easy to target for mobile advertisements, promotions and mobile coupons • NFC payments are more efficient in enabling micro-payments The proliferation of NFC devices in the near future is shown in the following forecasts. 1 Source: http://www.bos.frb.org/economic/cprc/presentations/2008/quibria012308.pdf © 2010, Portio Research. All Rights Reserved 19
  20. 20. Mobile Payments 2010-2014 Figure 9: Subscribers with NFC Capable Handsets — Worldwide (In Million, 2009 – 2014F) Subscribers with NFC Capable Handsets (In MIllion) 1,000 893.4 800 653.1 600 437.7 400 200 232.8 33.1 106.5 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted The extent to which the worldwide penetration of NFC devices will increase between 2009 and 2014 is shown in the figure below. Penetration of NFC Devices (In Percent) Figure 10: Penetration of NFC Devices — Worldwide (In Percent, 2009 – 2014F) 14.2 15 10.8 12 7.6 9 4.3 6 3 2.1 0.7 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted 20 © 2010, Portio Research. All Rights Reserved
  21. 21. Mobile Payments 2010-2014 Market Size The mobile payments market is expected to witness significant growth to 2014. The forecasts for the number of mobile payment users during this period are given in the figure below. Figure 11: Mobile Payment Users — Worldwide (In Million, 2009 – 2014F) Mobile Payment Users (In Million) 600 489.5 400 340.6 237.3 165.5 200 81.3 116.0 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted The worldwide mobile payment user base is forecast to grow at a CAGR of 43.2 percent between 2009 and 2014. The Latin American mobile payment user base is expected to witness the highest growth rate during this period, while Europe is forecast to experience the least growth. The regional distribution of mobile payment users is given in the next table. © 2010, Portio Research. All Rights Reserved 21
  22. 22. Mobile Payments 2010-2014 Table 1: Regional Break-out of Mobile Payment Users (In Million, 2009 – 2014F) 2 Mobile Payment Users (In Million) 2009 2010F 2011F 2012F 2013F 2014F CAGR (In Percent, 2009 – 2014F) Europe 29.4 39.1 51.4 67.2 87.5 113.7 31.1 Asia Pacific 33.9 51.5 78.1 118.4 178.4 267.1 51.1 North America 9.9 13.6 18.8 26.3 37.0 52.4 39.6 Latin America 3.2 4.7 7.1 10.8 16.9 26.9 53.0 Africa and Middle East 4.9 7.1 10.1 14.5 20.7 29.4 43.0 Total 81.3 116.0 165.5 237.3 340.6 489.5 43.2 Region Source: Portio Research Ltd. Worldwide mobile payment volumes are expected to increase at a CAGR of nearly 56 percent between 2009 and 2014. The forecasts for mobile payment volumes are given in the figure below. Figure 12: Mobile Payment Volume — Worldwide (In USD Billion, 2009 – 2014F) 3 Mobile Payment Volume (In USD Billion) 700 633.4 560 415.5 420 270.0 280 171.0 140 68.7 108.3 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted The following table provides the regional break-out of mobile payment volumes to 2014. 2 3 Note: The total number may not add up to the sum of regional numbers because of rounding-off errors. Note: Mobile payment volumes denote the face value of purchases and transactions through mobile handsets. 22 © 2010, Portio Research. All Rights Reserved
  23. 23. Mobile Payments 2010-2014 Table 2: Regional Break-out of Mobile Payment Volume (In USD Billion, 2009 – 2014F) Mobile Payment Volume (In USD Billion) 4 2009 2010F 2011F 2012F 2013F 2014F CAGR (In Percent, 2009 – 2014F) Europe 24.8 36.6 53.1 76.4 106.8 147.1 42.7 Asia Pacific 28.7 48.1 80.7 134.7 217.7 345.6 64.5 North America 9.8 15.0 23.0 35.5 53.8 82.1 52.8 Latin America 2.7 4.4 7.3 12.3 20.6 34.8 66.7 Africa and Middle East 2.7 4.3 6.9 11.0 16.6 23.8 55.0 Total 68.7 108.3 171.0 270.0 415.5 633.4 55.9 Region Source: Portio Research Ltd. The contribution of NFC payments to mobile payments is forecast to increase in the future. NFC payment volumes are shown below. Figure 13: NFC Payment Volume — Worldwide (In USD Billion, 2009 – 2014F) 5 NFC Payment Volume (In USD Billion) 160 133.7 140 120 100 85.2 80 55.0 60 31.7 40 20 9.7 17.8 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted The contribution of NFC payments to worldwide mobile payment volumes is given in the next figure. 4 Note: The total number may not add up to the sum of regional numbers because of rounding-off errors. Note: NFC payment volumes denote the face value of purchases and transactions through NFC-enabled mobile handsets. 5 © 2010, Portio Research. All Rights Reserved 23
  24. 24. Mobile Payments 2010-2014 NFC Payments' Share in Mobile Payment Volume (In Percent) Figure 14: NFC Payment Volume as a Percentage of Mobile Payment Volume — Worldwide (In Percent, 2009 – 2014F) 25 18.5 20 15 20.4 21.8 22.7 16.4 14.1 10 5 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted 24 © 2010, Portio Research. All Rights Reserved
  25. 25. Mobile Payments 2010-2014 Case Studies – Mobile Payments Japan Population: 126.9 million (End-2009) Mobile Penetration: 87.3 percent (End-2009) Popular Mobile Payment Services: FeliCa, Mobile Suica, Edy Money, Nanaco, QUICPay Mobile payments industry in Japan: Overview • Japan is a developed market with wide-scale deployment of mobile payment solutions • Pre 2004, the primary mode of mobile payments was by accessing merchant sites using mobile Internet. In 1999, NTT DOCOMO was one of the first MNOs worldwide to commercially launch money transaction services; these were based on their iMode mobile Internet platform. Users paid through credit card or bank accounts. • The deployment of mobile contactless payment solutions began as early as July 2004. The proliferation of mobile payments through NFC-enabled handsets is illustrated in the figure over the page. © 2010, Portio Research. All Rights Reserved 25
  26. 26. Mobile Payments 2010-2014 Figure 15: Contactless Mobile Payments Services in Japan Adoption by other MNOs In 2005, KDDI and Softbank (previously Vodafone Japan) adopted FeliCa Development of Platforms for Businesses Platform development for businesses, to enable contactless payments Some of the platforms developed are mentioned below. o NTT DOCOMO: iD o East Japan Railways: Mobile Suica o JCB (a credit card company): QUICPay o Bit Wallet (a joint venture of NTT DOCOMO, Sony, and some financial institutions): Edy Money o Seven & I Holdings: Nanaco Service Evolution and Uptake Development of Products and Services In July 2004, NTT DOCOMO began offering mobile handsets incorporating FeliCa contactless chips developed by Sony The chips carried information such as personal identification, bank account numbers, balance, transit pass details, etc. In April 2006, NTT DOCOMO launched DCMX, a consumer credit service Deployment of Mobile Payments Launch of Services Interoperability Railways, JCB, and Bit Wallet have enabled interoperability for their point-of-sale readers and data centres ‘Mitsubishi UFJ Nicos’ (a credit card company) and ‘Seven & I Holdings’ have agreed to enable interoperability for their readers and data centres Source: Federal Reserve Bank of Boston, ITIF and Portio Research Ltd. • • 6 As of October 2009, 60 million mobile subscribers in Japan had NFC-capable handsets. 6 NTT DOCOMO is the market leader in mobile contactless payments in Japan in terms of number of users. Its DCMX service, offering credit to users, has been successful with high adoption rates. The following figure illustrates the growth in DCMX users during H2 2009. Source: http://www.cartes-asia.com/mobile-felica-5-years-of-mobile-contactless-business-in-japan 26 © 2010, Portio Research. All Rights Reserved
  27. 27. Mobile Payments 2010-2014 Figure 16: DCMX Users (In Million, June 2009 – December 2009) 12 Users (In Million) 10.7 10.2 9.6 8 4 0 Jun-09 Sep-09 Dec-09 Period Source: Portio Research Ltd. • • As of September 2009, the installed base of FeliCa compatible iD reader/writers was over 420,000; and more than 600,000 shops accepted mobile payments in Japan. 7, 8 The breakout of Japan’s proximity payment volume in 2008 is shown below: Figure 17: Consumer Spending Behaviour for Contactless Payments – Japan (2008) 34.5% 14.3% 8.3% 35.0% 7.9% Physical Retail Location Online Shopping Auction Transportation Mobile Content Purchase Source: Portio Research Ltd. 7 Source: http://www.nearfieldcommunicationsworld.com/2009/09/03/31591/ntt-docomo-reports-10-million-mobilecredit-card-customers/ 8 Source: http://www.itif.org/files/2009-mobile-payments.pdf © 2010, Portio Research. All Rights Reserved 27
  28. 28. Mobile Payments 2010-2014 Key drivers: • Dense urban population and high use of mass transit systems • Consumer behaviour preferring the use of value added services • Initiatives by dominant players in businesses, including mobile services, digital and electronics component manufacturers, financial services providers and mass transit system operators (NTT DOCOMO, Sony, JCB, East Japan Railways, etc.) in setting up the mobile payment ecosystem • Government’s role in encouraging key stakeholders to collaboratively develop and deploy mobile payment services Success factors: • Consumer satisfaction: Consumer satisfaction due to swift and hassle-free transactions • Higher sales volumes: Higher than average purchases and reduced transaction times at checkouts encouraged merchants to deploy the NFC mode of payment, as the gains offset the high commissions charged by the issuers • Mobile advertisement potential: The FeliCa service for mobile phones is useful for targeted mobile advertising. It has attracted many merchants who send coupons directly to users at the time of payment, and also uses a database of consumer behavior to target their advertisements. • Unifying loyalty programmes: Japanese consumers subscribe to a number of loyalty programmes from chain retailers; on average, a Japanese consumer has 12 loyalty cards. Mobile NFC payment services, such as i-mode FeliCa by NTT DOCOMO, unified these loyalty cards on the mobile handset, which removed the need to carry cards to avail loyalty benefits. 9 9 Source: http://www.cartes-asia.com/mobile-felica-5-years-of-mobile-contactless-business-in-japan 28 © 2010, Portio Research. All Rights Reserved Higher than average purchases and reduced transaction times at checkouts encouraged merchants to deploy the NFC mode of payment, as the gains offset the high commissions charged by the issuers.
  29. 29. Mobile Payments 2010-2014 The UK Population: 61.2 million (End-2009) Mobile Penetration: 132.8 percent (End-2009) Popular Mobile Payment Services: payforIT (Vodafone, Orange/T-Mobile, O2, 3), PayPal Mobile Mobile payments industry in the UK: Overview: • Mobile payment services are at an early stage of adoption in the UK. There have been a number of trials to identify efficient mobile payments options, and trials for contactless mobile payments through NFC have been a key focus area. • Not all stakeholders who can benefit from the deployment of mobile payment services are proactively pushing these services, which is impeding its proliferation • The UK government plans to boost the initial deployment of mobile payments infrastructure by funding the early adopters, such as the transit system • State of Contactless Payments in the UK: Contactless card transactions in the UK without a PIN are currently limited to a maximum of GBP 16. This limits the number of payments a user can make without entering the PIN as a security check. 10 The competition for micro-payments using mobile handsets comes from payment cards issued by leading international payment bodies, including American Express, MasterCard and Visa, which enable low-value payments, usually under GBP 10, without entering a PIN. 11 Department for Transport highlights the need for stakeholders to step-up In a publication released in July 2009, the UK’s Department for Transport and consultancy firm Detica highlighted the need for MNOs and local authorities to step-up in building contactless ticketing infrastructure. The report suggests that the benefits of setting up contactless payments infrastructure will be realised by operators and local authorities. Therefore, their participation in building the infrastructure is required to formulate a sustainable model and it will not be feasible for the Department for Transport to fully fund the entire contactless payment infrastructure. Developments: • payforIT: payforIT is a cross-MNO mobile payment initiative by UK MNOs including Vodafone, 3 and Orange/T-Mobile. The service allows payment for mobile subscriptions and content to be charged directly to a subscriber’s mobile bill, avoiding the hassle of receiving a series of premium SMS messages (for microtransactions). • Visa pilot: Visa Europe’s large scale six-month pilot of “mobile wallet” with O2 in the UK was completed in April 2009. The pilot aimed at executing contactless payments using mobile handsets for purchases, travel and accessing events. Partner firms included Transport for London, TranSys, Barclaycard, Nokia and AEG. 12, 13 10 Source: http://www.crimereduction.homeoffice.gov.uk/crimereduction047a.pdf Source: http://www.dft.gov.uk/pgr/regional/policy/nationalsmartticketing/ticketreport.pdf 12 Source: http://corporate.visa.com/_media/visa-mobile-fact-sheet.pdf 13 Source: http://www.visaeurope.com/pressandmedia/newsreleases/press398_pressreleases.jsp 11 © 2010, Portio Research. All Rights Reserved 29 The UK government plans to boost the initial deployment of mobile payments infrastructure by funding the early adopters, such as the transit system.
  30. 30. Mobile Payments 2010-2014 Opportunities: • Revolutionising mass transit payments through handsets: The UK’s Department for Transport estimates that a national ticketing project using NFC for contactless payments can bring savings of over GBP 2 billion per year as a result of reduced dwell time, reduced time through station gates, decongestion benefits and other factors. The figure below depicts contactless payments through Electronic Ticket Modules on NoWcard Buses for Over-the-Air Ticket Sales to NFC-enabled Handsets. 14 Figure 18: Contactless Payment Trials on NoWcard Buses for Over-the-Air Ticket Sales to NFCenabled Handsets by the UK’s Department for Transport NoWcard trial phone (NFC-enabled handset) being used with a ‘Bus Electronic Ticket Module’ User accessing information on available balance and last transactions Source: The UK’s Department for Transport Report and Portio Research Ltd. 14 Source: http://www.dft.gov.uk/pgr/regional/policy/nationalsmartticketing/ticketreport.pdf 30 © 2010, Portio Research. All Rights Reserved
  31. 31. Mobile Payments 2010-2014 The US Population: 308.7 million (End-2009) Mobile Penetration: 89.0 percent (End-2009) Popular Mobile Payment Services: PayPal Mobile Mobile payments industry in the US: Overview: • The US market is anticipated to be one of the key markets for the growth of mobile payments. It is already established as a leading market in e-commerce with welldeveloped credit infrastructure, and consumer spending behaviour is expected to propel growth in mobile payments in the next five years. • Mobile payment forecasts for the US market to 2014 are given in the figure below: Figure 19: Mobile Payment Volume — The US (In USD Billion, 2009 – 2014F) 15 75.7 Mobile Payment Volume (In USD Billion) 80 70 60 49.6 50 40 32.8 30 20 10 21.2 9.1 13.8 0 2009 2010F 2011F 2012F 2013F 2014F Year Source: Portio Research Ltd. F – Forecasted • • NFC-based mobile payments are mostly in trial or initial launch phases in the US market, with different stakeholders – including MNOs, financial institutions and merchants – making efforts to set up the mobile payment ecosystem Merchants are deciding whether the resultant increase in payment volumes and operational efficiencies brought about by NFC-capable point-of-sale readers will result in adequate return on investment upon setting up this infrastructure. Therefore, the initial adoption for NFC is expected to be in the form of large-scale deployments, which will ensure a critical mass for making the investments profitable. Developments: • Apple is working on prototypes for the next generation iPhone with an in-built RFID reader that may pave the way for Apple’s foray into NFC-enabled handsets. If launched, this would clearly have a positive impact on the proliferation of NFCenabled handsets in the US. 16 • At end-2009, over 35,500 point-of-sale terminals were deployed in 13 cities for contactless fare payment on the US mass transit system; the number of service users was nearly 19 million. 17 15 Note: Mobile payment volumes denote the face value of purchases and transactions through mobile handsets. Source: http://www.nearfieldcommunicationsworld.com/2009/11/05/32191/apple-testing-rfid-enabled-iphone/ 17 Source: http://www.itif.org/files/2009-mobile-payments.pdf 16 © 2010, Portio Research. All Rights Reserved 31 NFC-based mobile payments are mostly in trial or initial launch phases in the US market, with different stakeholders making efforts to set up the mobile payment ecosystem.
  32. 32. Mobile Payments 2010-2014 Opportunities: • The micro-payments market in the US is a burgeoning market. There is an opportunity for mobile payments to establish themselves as the preferred mode of micro-payments in several areas. The micro-payment volumes given in the figure below account for the total spending in a specified area. Given the size of consumer spending in these areas, mobile payment players can tap huge revenue opportunities through planned investments. Figure 20: Micro-payment Opportunities in the US (In USD Billion, 2009) Spending Volume (In USD Billion) 160 153.0 120 80 40 14.0 14.0 10.0 7.0 7.0 7.0 4.0 3.0 0 Payment Areas Source: Federal Reserve Bank of Boston and ITIF • • • 18 Although the food restaurant sector shows the highest annual consumer spending, this is a fragmented sector with a number of small players, whereas the mass transit system – while smaller in terms of consumer spending – is consolidated. As mass transit systems are run by the government, the deployment can be more planned, uniform and scalable. Big restaurant brands such as Subway offer mobile coupons to consumers which they can use to avail several discount schemes Nearly 33 million trips are made daily on the mass transit system in the US which is expected to provide a critical mass of initial demand for mobile payments 18 Source: http://www.itif.org/files/2009-mobile-payments.pdf 32 © 2010, Portio Research. All Rights Reserved
  33. 33. Mobile Payments 2010-2014 Drivers The mobile payments ecosystem primarily consists of four entities: banks, mobile network operators, merchants/retailers and users. In the bullet points below, we briefly highlight various drivers for each stakeholder to adopt the service. • Banks Mobile banking is a potential revenue generation service as banks offer mobile banking to existing clients with additional charges Mobile banking helps enhance the user experience, as it helps reduce the time taken for banking activites; for example, money transfers, accessing the last 10 transactions, paying bills on the move. Mobile services are often more accessible than banks. Handsets can therefore act as a stepping stone for banks to reach unaddressed users through their mobile connections. Mobile banking helps to reduce operating expenditure. For example, as more and more users become mobile, banks can reduce the number of staff or branches and thereby reduce the related costs • Operators Mobile payments will help operators increase revenues by offering it as a value added service, and also through the receipt of transaction commissions A successfully implemented mobile payment service will lead to several benefits including the possible adoption of flat-rate data plans, and additional SMS traffic (in the case of SMS based payments), etc. Prepaid top-ups, gifts, bill payments, and similar services will increase convenience and enhance the user experience By entering into partnerships with m-commerce service providers and introducing loyalty programmes, subscribers will be encouraged to access several mobile payment services • Merchants Mobile payments help merchants in generating a new channel of sales; increasing mobile Internet subscribers will mean an increase in potential user base for the merchants Merchants would like to capitalize on the consumer’s spontaneous purchase decisions – while on the move Consumers use their handsets for checking prices and reviews on products; it will be easy for the merchants to sell their products through the same interface Merchants can make significant cost savings resulting from lower labour costs, and by using more cost effective marketing campaigns – an SMS campaign will cost much less than a media campaign • Consumers As consumers look for convenience in their day-to-day transactions – such as transport tickets, prepaid top-ups, greeting cards, etc – mobile payments can provide the required convenience and cashless options, reducing the dependency on a PC/ laptop Mobile banking will provide consumers with the convenience of checking their bank account information on their mobile handsets, thus negating the need to visit a branch. This will greatly influence consumers in subscribing for the mobile banking service As mobile handsets increasingly become an integral part of lifestyles, and as handset manufacturers, operators, and banks try to regulate security and payment standards, more and more people are likely to use mobile payments © 2010, Portio Research. All Rights Reserved 33 By entering into partnerships with m-commerce service providers and introducing loyalty programmes, subscribers will be encouraged to access several mobile payment services. Mobile banking will provide consumers with the convenience of checking their bank account information on their mobile handsets.
  34. 34. Mobile Payments 2010-2014 Table 3: Regional Drivers – An Overview Regional Drivers – An Overview The US • High use of credit/debit cards will make it easy for consumers to adopt mobile payments • US consumers are well equipped for using applications (high smartphone penetration), hence they will find it easy to use mobile payment applications • Mobile Internet use is high among US subscribers Africa & Middle East • M-PESA (implemented in Kenya, South Africa, Afghanistan & Tanzania), is expected to garner a positive impact on other African nations • Well established remittance market in the UAE will further drive the mobile banking market in the Middle East Western Europe • High smartphone penetration • Early adoption of mobile payments for mobile ticketing • Mobile Internet use is high among subscribers, with most subscribers using flat-rate data plans Japan & Korea • Tech savvy subscriber base, willing to try new services • Successful implementation of FeliCa mobile wallet and availability of NFC enabled handsets (60 million in Japan as of October 2009) will encourage MNOs to try new mobile payment services in Japan India & China • Huge subscriber base • In China, the availability of cheap smartphones and collaborations between MNOs and ecommerce players is expected to boost the uptake for mobile payments • The bill payments market in India, coupled with the emergence of payment solutions providers (mCheck, Obopay, etc.), will be an enabler for new mobile payment services • Grameenphone’s successful implementation of Cell Bazaar in Bangladesh – a service where a subscriber can buy or sell merchandise – could stimulate Indian MNOs to come up with such services. Source: Portio Research Ltd. 34 © 2010, Portio Research. All Rights Reserved
  35. 35. Mobile Payments 2010-2014 Challenges • • • • • • • • As mobile payment services have to be customised for each market, deployment times and the time to create consumer awareness of such services is usually lengthy Lack of specific ready-to-use and sound business models leads to several fragmented versions of mobile payment models (operator-centric or bank-centric models). This leads to minimal cooperation between the two critical players of mobile payments – Banks and MNOs. There is lack of coordination or shared strategy between mobile handset manufacturers, MNOs, mobile payment service providers, retailers and government regulators Interoperability issues exist in mobile payment systems due to the lack of common technology standards. Thus, the system cannot be easily adopted by any player in the mobile payment ecosystem. As there are no regulations for mobile payments in most countries, consumers are still not confident to use these services Infrastructure development is a key requirement for mobile payments; only a few countries have existing infrastructure for NFC payments. Furthermore, the availability of NFC-enabled handsets is still low. Not all merchants have an interface for mobile payments. Even when merchants have the interface, some of them are unable to read the bar-codes on tickets and coupons efficiently. Security threats in the wireless domain still pose a great challenge for adopting any mode of mobile payment Table 4: Challenges for Different Mobile Payment Platforms Platform Challenges NFC (Near Field Communication) Mobile payments using NFC requires existing contactless infrastructure and also NFC-enabled mobile handsets. WAP, HTML, or XML Technologies Mobile Internet access is still expensive in many parts of the world. Furthermore, the interface also requires modifications to make it more userfriendly. USSD (Unstructured Supplementary Service Data) The USSD mode of payment uses the signaling channels of the GSM networks and hence requires better network capacity. Also, as the data encryption in this method is weak, it poses a greater threat to data security. SMS-based SMS based services are plagued by poor reliability and security issues due to weak encryption. Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 35 As there are no regulations for mobile payments in most countries, consumers are still not confident to use this service
  36. 36. Mobile Payments 2010-2014 Table 5: Assessment of Challenges for Different Mobile Payment Platforms Challenge Platform Provisioning and Handset Compatibility Cost Security Adoption NFC WAP, HTML, or XML Technologies USSD SMS-based We use the following key to depict the level of challenge involved in implementing mobile payment services. Legend Level of Challenge for Implementation Highly Challenging Easy 36 © 2010, Portio Research. All Rights Reserved
  37. 37. Mobile Payments 2010-2014 Table 6: Regional Challenges – An Overview Region Challenges Japan (Asia Pacific) The Osaifu-Keitai system (FeliCa mobile wallet), a mobile payment model using NFC technology, was successfully implemented by NTT DOCOMO and further licensed by the other two MNOs in Japan (SoftBank and KDDI). This met with huge success in the country and received support from both banks and merchants. However, Osaifu-Keitai uses only one of the three modes that NFC is capable of – ‘card emulation’ mode. The other two modes are ‘Reader’ and ‘Peer-to-Peer’. Due to this limitation, the system is incapable of implementing new types of services in the future. India (Asia Pacific) In India, banks play the most critical role in the mobile payment ecosystem, with mobile payments being regulated by RBI (Reserve Bank of India). As per RBI regulations, mobile payments can only be executed after the users register their credit/debit card information with the MNOs. However, this is presently limiting the success of mobile transactions as the majority of the Indian population (rural majority) do not have access to a credit or a debit card. Also, with India being a country with 23 official languages and several hundred mother tongues, the mobile payment system needs to be multi-lingual, which will result in a longer lead time for service implementation. Italy (Europe) In Italy, business users prefer using their smart phones for e-mail applications at a higher rate than they use SMS and other Internet-based services. Also, the penetration of SMS users in Italy is low compared to other major European markets, thus likely making SMS-based mobile payment services in Italy comparably less successful. The UK (Europe) Due to lack of a well established commercial model for mobile payments, these services are not being marketed to consumers. Hence the adoption rate in the UK with respect to mobile payments has been low. The US (North America) Various stakeholders such as banks, transit agencies, etc. have not yet shown much interest in developing any open and interoperable multi-function smart card or mobile wallet devices. Emerging Markets (Latin America, Africa and the Middle East) The biggest hurdle for the uptake of mobile payment services in the emerging markets is the lack of the required technology and infrastructure, and also subscribers’ reluctance to adopt such services. Historically, advanced mobile data services have always faced such challenges in these regions and mobile payments are no exception. Subscribers’ lack of technical know-how and apprehensions about pricing and safety has impeded the growth of payment services in these regions. Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 37
  38. 38. Mobile Payments 2010-2014 Value Chain The value chain of mobile payments is quite complex and involves MNOs, banks, retailers, merchants and consumers at various stages. Since the services are offered through different business models in different markets, the practical value chain differs from region to region; however, fundamentally it remains the same worldwide. In the figure below, the value chain of mobile payments is explained in a basic and simplified manner, defining the role of each stakeholder across the value chain. Figure 21: Basic Value Chain of Mobile Payments Deployment of the Service Demand for the Service Use of the Service Customer Relationship Management Processing of the Service Consumers order products or transfers using the mobile payment platform and the products or services are delivered by the concerned party Regular communication with consumers is conducted to market the product and address their issues or inquiries Stakeholders Involved Stakeholders Involved Stakeholders Involved Consumers Consumers, MNOs, Merchants and Content Owners/Aggregators Consumers, Banks, MNOs, Mobile Marketing and Outsourcing Companies Consumers demand for the mobile payment instruments or applications Mobile payment instruments or applications are deployed by the concerned party Once the services or products are delivered, payment process is initiated and the amount is either debited from a user’s account or added to their monthly bill Stakeholders Involved Stakeholders Involved MNOs, Banks, Mobile Payment Service Providers and Mobile Handset Vendors MNOs, Banks and Mobile Payment Service Providers Source: Portio Research Ltd. 38 © 2010, Portio Research. All Rights Reserved
  39. 39. Mobile Payments 2010-2014 The several stages in the value chain of mobile payment services are explained below: • Demand for the service: Consumers can approach any of the mobile payment service providers, including MNOs, banks, independent service providers, handset vendors, etc., for a service that best suits their needs • Deployment of the service: A mobile payment service may include a mobile payment application or the instrument or both, which can be deployed by any of the below mentioned players in the value chain: MNO Bank Mobile Handset Vendor Independent service providers • • • Consumers can approach any of the mobile payment service providers, including MNOs, banks, independent service providers, handset vendors, etc., for a service that best suits their needs. These entities may assume different roles in the deployment process of mobile payment services. Several responsibilities undertaken by an entity in this stage include: Providing the required hardware/instrument or the application for the use of a mobile payment service, such as NFC-enabled handsets, mobile money payment software and dedicated POS units After the provision of hardware, the provider has to activate the service in order to enable users to avail this service Once the service is activated, the concerned party takes care of all after sales activities, such as maintaining the product and developing the updates of the product Use of the service: Once users have the required application and hardware to avail payment services, they use the service for making purchases and transactions. When users place orders with their mobile handsets, the content owner/aggregator is responsible for making the delivery. The content can be aggregated and delivered by the MNO or from independent merchants and content owners. Processing of the service: After a user avails this service, the transaction process is initiated and can be executed by the concerned parties—MNOs, banks and independent mobile payment providers. Transactions are processed in two different modes—postpaid and prepaid. In the postpaid mode, the amount is added to the user’s monthly credit card or mobile bill. In the prepaid mode, the amount is deducted from the user’s bank account or prepaid balance. Customer Relationship Management: Mobile payment service providers set up dedicated operations teams to market their applications and handle users’ enquiries. Service providers can either establish these operations in-house or outsource them to other companies. © 2010, Portio Research. All Rights Reserved 39
  40. 40. Mobile Payments 2010-2014 Business Models The business models used predominantly for mobile payment services are: • Bank-centric Model • Collaboration Model • Operator-centric Model • Peer-to-peer Model The following section briefly discusses these models. Bank-centric Model As the name suggests, banks play the central role in this model and feature in the majority of the execution stages of the whole process. Starting with the deployment of POS at the merchants’ location and mobile payment applications at the users’ instruments, banks complete the transaction process by transferring the amount to the merchants’ accounts. Figure 22: Bank-centric Model 6 Transfer of money to merchant’s account Issuer Bank Acquirer Bank 5 Requesting for money transfer 1a Deployment of mobile payment application 3 Deduction of transaction fee 4 Initiating payment request Consumer 1b Deployment of contactless point of sale (POS) Merchant 2 Purchase of product Steps Source: Portio Research Ltd. 40 © 2010, Portio Research. All Rights Reserved
  41. 41. Mobile Payments 2010-2014 The payment process is executed as follows: • Banks provide merchants with contactless points of sales (POS) and users with mobile payment applications • Users avail these applications to make purchases at merchants’ shops by simply displaying their NFC-enabled handset against the POS installed in the shop • After the purchase is made, the users’ banks deduct the transaction fee from the users’ accounts. This transaction fee is either fixed as per the agreement between the users and banks or is a specific percentage of the purchase made by the users. • Post delivery of the product to users, merchants ask their banks to initiate the money transfer process to their accounts and banks charge their share based on the agreement between the two parties. • Once the merchants’ bank receives the transfer request from the merchants, the bank coordinates with the users’ bank for the transfer. • Finally, the amount is transferred to the merchants’ account completing the transaction process Industry experts are not particularly upbeat about this business model. The model does not offer any substantial benefits to MNOs as they do not feature in the value chain of mobile payments in this model. Therefore, MNOs are reluctant to strike deals with other stakeholders that promote this mobile payment business model. The following figure depicts the benefits and drawbacks of this model from the stakeholders’ perspectives. © 2010, Portio Research. All Rights Reserved 41 This model does not offer any substantial benefits to MNOs as they do not feature in the value chain of mobile payments in this model.
  42. 42. Mobile Payments 2010-2014 Figure 23: Bank-centric Model – Benefits and Drawbacks Benefits • • • New user acquisition opportunities New revenue streams from micropayments Reduced risk with less cash involved Benefits • • Increased data traffic and revenue Opportunity to tie up with banks to acquire new users MNOs Banks Drawbacks Drawbacks • • Additional costs for deployment and maintenance of mobile payment application and POS No existing user base like MNOs • Benefits Benefits • • Quick and comfortable way to make purchases Get detailed information of all the transactions, irrespective of value of transactions Operators do not get a share in revenue as they only provide the network • • Less cash involvement, reducing mishandling risks Increased impulsive spending from consumers Merchants Consumers Drawbacks Drawbacks • Less choice as the application is completely bank dependent • • Transaction fee charged by banks Extra hardware deployment in form of POS Source: Portio Research Ltd. 42 © 2010, Portio Research. All Rights Reserved
  43. 43. Mobile Payments 2010-2014 Collaboration Model In this model, MNOs and banks join hands to provide mobile payment services to users. The service can be deployed through two different entities: either the stakeholders (MNO and banks) can agree upon an MNO providing the bank-specific mobile payment platform, or they can approach a third-party service provider to deliver the service on their behalf. Figure 24: Collaboration Model 1 Agreement between MNOs and Banks to offer payment service Third Party Service Provider MNO 2a Deployment of mobile payment application 4 Deduction of transaction fee 4 Deduction of transaction fee Consumer 3 Purchase of product 6 Requesting for money transfer 7 Transfer of money to merchant’s account 5 Initiating payment request Merchant Steps Issuer Bank Acquirer Bank 2b Deployment of contactless point of sale (POS) Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 43
  44. 44. Mobile Payments 2010-2014 The payment process is executed as follows: • Banks and MNOs come together to offer mobile payment services • The deployment of a mobile payment application is done by either the MNO or a third-party service provider selected by the MNO and bank; the deploying entity gets a fixed amount or specific percentage of total transactions being handled by its platform • Users avail these applications to make purchases at the merchants’ shops by simply displaying their NFC-enabled handset against POS installed in the shops • After the purchase is made, the users’ banks deduct transaction fees from users’ accounts and the MNOs can either add their fee to the monthly mobile bill or deduct it from the users’ prepaid balance in case of a prepaid connection. This transaction fee is either fixed as per the agreement between the users and the MNOs or is a percentage of the total purchase made by users. • Post delivery of the product to the users, merchants asks their banks to initiate the money transfer process to their accounts; banks charge their share based on the agreement between the two parties. • Once the merchants’ banks receive the transfer request from merchants, the banks coordinate with the users’ banks for the transfer. • Finally, the amount is transferred to the merchants’ accounts, completing the transaction process This model has received a positive response from all the stakeholders in the mobile payments value chain, as each player receives a share from the revenue pie. However, in practice, this model will be difficult to implement considering the complexities involved in setting standards for the payment platforms, and with the mutual consent of banks, MNOs and third party service providers also being required. The figure on the next page depicts the benefits and drawbacks of this model from the stakeholders’ perspectives. 44 © 2010, Portio Research. All Rights Reserved This model has received a positive response from all the stakeholders in the mobile payments value chain, as each player receives a share of the revenue pie.
  45. 45. Mobile Payments 2010-2014 Figure 25: Collaboration Model – Benefits and Drawbacks Benefits • • New user acquisition opportunities No hassle of deploying the service as it is provided either by the MNO or by a third party Benefits • • New revenue stream from transactions New user acquisition opportunities MNOs Banks Drawbacks Drawbacks • • Transaction revenue is shared with MNOs Complexities while setting standards for the service • Benefits Benefits • • Quick and easy way to make purchases More options available while choosing bank for payment service Complexities while setting standards for the service • • Less cash involvement, reducing mishandling risks Improved users’ satisfaction Merchants Consumers Drawbacks Drawbacks • Increased concerns about transaction fee deduction with involvement of a third party service provider • • Transaction fee charged by banks Extra hardware deployment in form of POS Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 45
  46. 46. Mobile Payments 2010-2014 Operator-centric Model In this model, the mobile network operator is responsible for the deployment of the mobile payment service and performing the transaction process. The MNO installs the application on the users’ NFC-enabled mobile handsets and provides merchants with POS. Post deployment, the MNO handles payment processes as well, thus assuming the role played in other business models by banks or independent electronic firms. Figure 26: Operator-centric Model MNO 3 Amount deducted from prepaid account or added to the monthly bill 4 Amount Paid to Merchant 1a Deployment of application on NFCenabled device 1b Deployment of POS or application on NFC-enabled device Merchant Consumer 2 Purchase of product Steps Source: Portio Research Ltd. 46 © 2010, Portio Research. All Rights Reserved
  47. 47. Mobile Payments 2010-2014 The payment process is executed as follows: • The MNO installs the mobile payment application on users’ NFC-enabled mobile handsets and deploys points of sale at merchants’ locations • Users avail these applications to make purchases at merchants’ shops by simply displaying their NFC-enabled handset against the POS installed in the shop. In addition, users can buy the MNO’s content as well. • MNOs charge users either by deducting the purchase amount and the transaction fee amount from the users’ prepaid balance or by adding the amount to their monthly bill • Post the purchasing process, merchants share the amount information with the MNO through the installed POS, after which the amount is paid to the merchant by the MNO This model is not expected to gain widespread popularity among stakeholders, as it is biased towards MNOs and completely discards the involvement of entities such as banks and electronic money companies. While MNOs gain extra revenue streams and extended product portfolios under this model, the absence of banks and known electronic money transfer firms is expected to add to consumers’ concerns about the risks involved in the process. The next figure depicts the benefits and drawbacks of this model from the stakeholders’ perspectives. © 2010, Portio Research. All Rights Reserved 47 This model is not expected to gain widespread popularity among stakeholders, as it is biased towards MNOs and completely discards the involvement of entities such as banks and electronic money companies.
  48. 48. Mobile Payments 2010-2014 Figure 27: Operator-centric Model – Benefits and Drawbacks Benefits • No Benefits • Full authority over the process Extended service portfolio and increased subscriber loyalty MNOs Banks Drawbacks Drawbacks • Exclusion from the mobile payment value chain • • Benefits Benefits • • Less hassle as service is provided directly by MNOs Less complexities with reduced number of entities involved Complete responsibility for infrastructure development and deployment of instruments Increased liability – risks and fraud • • Increased impulsive spending by consumers Reduced costs with elimination of paper bills and receipts Merchants Consumers Drawbacks Drawbacks • Increased concern for security and risks involved due to the absence of banks and electronic money companies • • MNOs have an upper hand in deciding transaction fee Extra hardware required Source: Portio Research Ltd. 48 © 2010, Portio Research. All Rights Reserved
  49. 49. Mobile Payments 2010-2014 Peer-to-Peer Model In this business model, Peer-to-Peer mobile payment service providers sit at the centre of the process handling the majority of the activities, and thus reducing the role of banks and MNOs in the mobile payments value chain. Peer-to-Peer service providers install payment services on users’ NFC-enabled devices and deploy POS at merchants’ locations. Furthermore, the service providers coordinate with the issuer banks to transfer the amount to the merchants’ account. Figure 28: Peer-to-Peer Model Issuer Bank 4 Verification Process 5 Amount transferred after deducting processing or intercharge fee 3 Request to initiate transfer Peer-to-Peer Service Provider 2b Purchase through portal 1a Deployment of mobile payment application 6 Amount transferred after deducting predefined commission 1b Deployment of POS Consumer Merchant 2a Purchase of product through POS installed Steps Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 49
  50. 50. Mobile Payments 2010-2014 The payment process is executed as follows: • Peer-to-Peer payment service providers install the mobile payment service on users’ handsets and deploy POS at merchants’ locations, after which both users and merchants are required to open their accounts on the service providers’ portal to process the transactions • Once these accounts are functional, users can make purchases either from the POS installed at merchants’ locations or through the service providers’ online portal and initiate the transfer request. • After receiving purchase details from the users, service providers contact users’ banks for further processing of the transaction • The banks initiate the verification process and once it is complete, transfer money after deducting their processing fee • After receiving money from the bank, service providers transfer this amount to the merchants’ account after deducting their own commissions This business model is different in principle from other models as it minimises, to a large extent, the role of banks and MNOs—the cornerstones of the value chain in other models. Although users and merchants are expected to benefit from this type of service – as they have additional ways to avail services with the service provider’s own online portal – the reduced participation of banks and MNOs will hinder the widescale penetration and acceptance of this model. The next figure depicts the benefits and drawbacks of this model from the stakeholders’ perspectives. 50 © 2010, Portio Research. All Rights Reserved This business model is different in principle from other models as it minimises, to a large extent, the role of banks and MNOs—the cornerstones of the value chain in other models.
  51. 51. Mobile Payments 2010-2014 Figure 29: Peer-to-Peer Model – Benefits and Drawbacks MNOs Banks Drawbacks Benefits • • • New revenue channel from processing fees Opportunity to gain new users through partnerships Drawbacks Benefits Reduced revenue generation compared to other models • • • Increase in data traffic Opportunity to gain new users through partnerships No share in the mobile payment revenue pie Peer-to-Peer Service Provider Drawbacks Benefits • • Maximum control over revenue channel Partnership opportunities with banks and MNOs • • Increased initial costs with infrastructure set up Increased risk liability Merchants Consumers Drawbacks Benefits • • Reduced or no transaction fee Several discount schemes • • Extra account to manage Less involvement of more reliable entities such as banks and MNOs Drawbacks Benefits • • Opportunity with potential increase in number of transactions Faster mode of payment • Transaction fee charged by Peerto-peer service providers Lack of experience of service provider • Source: Portio Research Ltd. © 2010, Portio Research. All Rights Reserved 51
  52. 52. Mobile Payments 2010-2014 Table 7: Comparison of Mobile Payments Business Models Model Stakeholder Benefits Drawbacks Banks New revenue streams Cost incurred on infrastructure installation MNOs Increase in data traffic No share in mobile payments revenue pie Merchants Less cash involvement, reducing the risk of fraud and thefts Transaction fee charged by the banks Consumers Quick and easy way to purchase Less options in choice of bank Banks No hassle of deploying the service Transaction revenue is shared with MNOs MNOs New revenue stream from transactions Complexities while setting standards for the service Merchants Improved users’ satisfaction Extra hardware deployment in form of POS Consumers More options available while choosing bank for payment service Increased concerns with involvement of third party service provider Banks No benefits Exclusion from the mobile payment value chain MNOs Full authority over the complete process Increased liability for risks and fraud Merchants Increased impulsive spending MNOs hold upper hand in deciding transaction fee Consumers Less hassle as service is provided directly by MNOs High risks due to absence of banks and electronic money companies Banks More potential users through partnerships Reduced revenue generation as compared to other models MNOs Increase in data traffic No share in the mobile payment revenue pie Merchants Opportunity with potential increase in number of transactions Lack of experience of service provider P2P Service Providers Maximum control over revenue channel Increased risk liability Consumers Reduced or no transaction fee Extra account to manage Bank-centric Collaboration Operator-centric Peer-to-Peer Source: Portio Research Ltd. 52 © 2010, Portio Research. All Rights Reserved
  53. 53. Mobile Payments 2010-2014 Key Players Mobile payment services are now being offered in all major markets worldwide. Operators either develop their own payment solutions, as in the case of Japan’s NTT DOCOMO and Safaricom in Kenya, or tie up with independent service providers to extend these services to their subscribers. The following section discusses some of the key providers of mobile payment services. Safaricom Kenya – M-PESA M-PESA was introduced by Kenyan operator Safaricom in March 2007. The service was developed by Sagentia, an international technology consulting organisation, for Vodafone. Vodafone launched this service in several countries through its subsidiaries and partners— Safaricom in Kenya, Vodacom in Tanzania and Roshan in Afghanistan. The service allows users to perform the following functions: • Withdraw and deposit money • Transfer money to another’s account • Pay bills • Buy airtime As of September 2009, there were nearly 8 million subscribers of this service and the total value of P2P transactions (cumulative) stood at USD 3.4 billion. In September 2009 alone, the P2P (peer-to-peer) transactions value was USD 302 million. 19 The service is rapidly increasing its reach, with partnerships with leading banks, ATM service providers, Saccos and MFIs. 20 Recently, Safaricom signed a deal with Equity Bank, which will allow M-PESA users to withdraw money from Equity Bank ATMs. Safaricom has also recently entered into an agreement with Gulf African Bank, Kenya’s first fully Shar’iahcompliant bank for agent-to-agent transactions. This partnership has provided M-PESA agents with access to more delivery channels through the bank. As of September 2009, the M-PESA service was distributed through 13,326 agents and more than 27 bulk payment partners in Kenya. The figure below depicts the growth of M-PESA users in Kenya. Figure 30: M-PESA Users – Kenya (In Million, March 2008 – September 2009) 10 8.0 Users (In Million) 8 6.5 6 4 2.1 2 0 Mar-08 Mar-09 Sep-09 Period Source: Portio Research Ltd. 19 Source: Company Reports Note: SACCOs stands for Savings And Credit Cooperative Organisations and MFIs stands for Microfinance Institutions. 20 © 2010, Portio Research. All Rights Reserved 53 As of September 2009, there were nearly 8 million subscribers of M-PESA and the total value of P2P transactions (cumulative) stood at USD 3.4 billion.
  54. 54. Mobile Payments 2010-2014 The figure below shows the value of P2P transactions processed through M-PESA. Monthly Transactions Value (In USD Million) Figure 31: Monthly P2P Transactions Value – Kenya (In USD Million, March 2008, March 2009 & September 2009) 350 302.0 300 250 220.6 200 150 100 50 47.8 0 Mar-08 Mar-09 Sep-09 Month Source: Portio Research Ltd. 54 © 2010, Portio Research. All Rights Reserved
  55. 55. Mobile Payments 2010-2014 NTT DOCOMO Japan – DCMX DCMX is a credit payment service launched by Japanese operator NTT DOCOMO in April 2006, that went on to attract one million subscribers within seven months of launch. 21 DCMX allows its users to use their mobile handsets as credit cards and make purchases through DOCOMO’s mobile payment platform iD. In order to make purchases, users’ handsets should be installed with Osaifu-Keitai, DOCOMO’s contactless IC cards. The service is highly secure, as the handsets deployed with Osaifu-Keitai can be locked remotely in the event they are lost or stolen. The growing popularity of Osaifu-Keitai enabled handsets and iD terminals in shops and fast food restaurants etc. has boosted the penetration of DCMX among DOCOMO subscribers. The figure below highlights the growth of DCMX users in 2009. Figure 32: DCMX Users (In Million, June 2009 – December 2009) Users (In Million) 12 9.6 10.2 10.7 8 4 0 Jun-09 Sep-09 Dec-09 Period Source: Portio Research Ltd. As of July 2009, over 0.4 million iD readers/writers were installed throughout Japan and more than 30 million subscribers were using Osaifu-Keitai-compatible handsets. OsaifuKeitai services were used by nearly 60 percent of DOCOMO’s subscribers as of July 2009. 22 In order to promote the service, the operator offers loyalty points on every transaction. Users collect these points to get discounts on operator-owned products and other rewards offered by the MNO. 21 22 Source: http://www.nttdocomo.com/pr/2009/001450.html Source: http://www.nttdocomo.com/pr/2009/001450.html © 2010, Portio Research. All Rights Reserved 55 As of July 2009, over 0.4 million iD readers/writers were installed throughout Japan and more than 30 million subscribers were using Osaifu-Keitaicompatible handsets.
  56. 56. Mobile Payments 2010-2014 Globe Telecom Philippines – GCASH GCASH is a popular M-commerce service launched by Globe Telecom in October 2004. In order to use the service, users have to register themselves and pay PHP 1 (USD 0.02) per transaction. Using GCASH, users can make payments for the following: • Domestic and international remittances • Utility bills • Interest and amortization of loans • Insurance premiums • Donations to various institutions and organizations • Sales commissions and payroll disbursements • School tuition fees • Micro tax payments and business registration • Electronic loads and pins • Online purchases • Ferry and airline tickets • Train tickets using the G-PASS chip As of end-2009, there were 1.2 million registered users of the service. The figure below highlights the number of GCASH users since end-2007. Figure 33: GCASH Users (In Million, 2007 – 2009) 23 Users (In Million) 2 1.4 1.2 1.2 1 0 2007 2008 2009 Period Source: Portio Research Ltd. The operator has made dedicated efforts to extend the reach of this service through several partnerships and by increasing the number of outlets. In January 2010, Globe received approval from Bangko Sentral ng Pilipinas (the central bank) to use Globe’s sub-distributors as GCASH outlets. With this approval, the total number of GCASH outlets has increased from 3,000 to 18,000. 24 , 25 In August 2009, GCASH partnered with Delbros, a logistics company in the Philippines, to mitigate users’ apprehensions regarding the safety of online shopping and the delivery of goods. This partnership allows users to inspect the purchased product before they pay for it. In early 2009, Globe Telecom joined with Friendster, a social networking site, for online money transfers. With this partnership in effect, millions of Friendster’s users within and outside the Philippines gained access to GCASH, allowing them to transfer and receive money anytime, anywhere. 23 Note: The dip in users in 2009 would appear to be caused by heavy subscriber churn. Past GCASH user levels are also skewed by changes in the way Globe counts GCASH users. 24 Source: http://www.mobile-financial.com/node/3495/Globe-unit-secures-govt-nod-to-expand-remittance-service 25 Source: http://pinoybusiness.org/2010/01/29/globe-gets-bsp-nod-to-expand-gcash-network/ 56 © 2010, Portio Research. All Rights Reserved As of end-2009, there were 1.2 million registered users of GCASH.
  57. 57. Mobile Payments 2010-2014 mChek mChek is a provider of mobile payment services in India, and has established business partnerships with major Indian MNOs and banks to extend its services to users across India. mChek’s key partners include: • Bharti Airtel • Tata DOCOMO • ICICI Bank • VISA • HDFC Bank • Citi Bank • Standard Chartered Bank • Gemalto • State Bank of India • MasterCard Its mobile payment solution is handset independent and is compatible with all financial instruments such as credit cards, debit cards and prepaid cards. Users can avail its solution for the following purposes: • Pay utility bills such as electricity and Satellite TV • Purchase mobile recharge with an SMS • Buy movie tickets and flight tickets • Pay insurance premiums • Transfer money to domestic as well as international Visa Cards • Pay for over-the-counter purchases In December 2009, mChek partnered with NGO Swayam Krishi Sangam and introduced a model for cash-free microfinance for unbanked and under-banked users. The model is intended to provide financial services to users who do not have access to banks and deal in cash only. © 2010, Portio Research. All Rights Reserved 57 mChek’s mobile payment solution is handset independent and is compatible with all financial instruments such as credit cards, debit cards and prepaid cards.

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