Mobile payments and mobile credit

Mobile payments, e-Money & Keitai Credit October 17, 2008  This is a free trial version with a few selected pages only. Please purchase and download the full report here:  http://www.eurotechnology.com/store/mobilepay/ Mobile Payments, e-Money and Keitai Credit by Gerhard Fasol PhD Eurotechnology Japan K. K. www.eurotechnology.com Tokyo, October 17, 2008 (Version 16) ©2008 Eurotechnology Japan K. K. All Rights Reserved ©2008 Eurotechnology Japan KK 1 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 License Thank you for purchasing licenses to our reports, and for your cooperation with our licensing conditions. Only through your purchases can we continue to produce high-quality market reports from Japan IN THE CASE OF SINGLE LICENSE: If you have purchased a single copy license of this report, you are not permitted to copy this report except for a single back-up copy IN THE CASE OF CORPORATE LICENSE: in the case that your company has purchased a corporate license, you may distribute this report within your company, place the report file on a corporate server, but you are not permitted to distribute this report outside your company. IF YOU WISH TO GIVE A COPY OF THIS REPORT TO YOUR CUSTOMER OR OTHERS please contact us for licensing information and permissions. ANNUAL SUBSCRIPTION: we offer annual subscriptions for a particular report, and also for all our reports in one single transaction at a great discount - please contact us for details. Corporations subscribing will receive all updates at the time of publication, so that you can be sure to have the latest up-to-date information   Note.  This research report comes without any warranty of any kind. The authors and Eurotechnology Japan K. K. do not warrant that the information in this report is without error, nor that the information serves any particular purpose. For legal advice please consult properly licensed legal professionals, for investment advice please consult properly licensed ﬁnancial advisors. Trademarks mentioned are the property of their owners.  Eurotechnology is a trademark or registered trademark in Japan and other countries. ©2008 Eurotechnology Japan KK 2 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Exec. Summary: Mobile Payment, eMoney and Keitai Credit   Mobile payments, electronic money, and mobile phone credit payments are rapidly developing in Japan   Development of electronic money and credit, electronic and mobile payment systems in Japan is not planned but determined by free market forces   Retailers’ perspective   Reduce cash handling costs, and improve accounting   Customer relationship management, identify individual customers, make transactions traceable   Improve cashflow management   Choice: operate own e-cash and collect commissions or license/partner with others and pay commissions   Convenience of transaction increases spending   Mobile operator perspective   Open new non-voice/data-traffic income (commission on transactions)   Enter new business field (consumer finance, loans, credit card loans)   Licensing income (for encryption, technologies etc)   Credit card company perspective   Compete for commissions and power with mobile operators -> new competition   SONY perspective   Near field communication chips (commodity, low margin)   Secure chips, encryption chips (high margin)   Locked into Japan, recent JV with NXP opens possibility of international business development for Felica chips, technologies, terminals   Consumer perspective   Convenience and speed of transaction   Point systems and incentives   Fashion (it’s fashionable to use e-cash in Japan)   Projections   While consumer uptake of electronic tickets was faster than expected, electronic cash uptake seems to be slower than expected   Currently many companies issue own electronic cash. We expect consolidation within about five years, some electronic cash systems may be merged, taken over of shut down. ©2008 Eurotechnology Japan KK 3 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Agenda   Executive summary: Mobile payment, e-money and keitai credit   Competitive landscape for e-money and keitai credit   E-Money vs keitai credit   Disruptive innovation   New business model for mobile communications   DoCoMo:   investment in credit card companies   new mobile payment and credit brands   DoCoMo’s strategy   KDDI The Card and SoftBank Card   QuicPay, Smartplus and Visa-Touch   Electronic cash and mobile payments in Japan   Edy - electronic cash, Bitwallet KK, Mobile banking and Edy   Electronic money for Japan’s retailers (Nanaco and WAON)   I-Mode Felica Examples: AM/PM, Ticket-PIA, ANA   Felica and Mifare   mobile FeliCa wallet phones and the mobile FeliCa eco-system   M-Commerce, mobile payments and mobile transactions   Payment for content: music, KDDI/AU’s chaku-uta-full, games, mobile newspapers, manga, mail-order   DoCoMo’s strategic investments: Rakuten-Auctions and Tower Records Japan   Mobile auctions   KDDI’s mCommerce initiatives   SUICA, PASMO and transportation based e-cash systems   QR-codes to pay bills, paying utility bills by mobile phone   DoCoMo Coin   Summary ©2008 Eurotechnology Japan KK 4 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Market dynamics   JR-East’s SUICA:   One of the earliest forces is the application of FeliCa wireless smartcards by the JR-East railway company for fare collection. The reason for this introduction was mainly that the fare gates to read magnetic-tape type rail tickets needed to be replaced by a modern and cheaper technology, and to reduce maintenance. Contactless smart cards were selected for this upgrade, since there are no moving parts, and therefore maintenance costs are much reduced. In addition, smartcards allow the extension of services to ecash and other electronic applications, such as using the train-IC card as an access key for buildings. JR-East selected the name SUICA for the new FeliCa based smart cards.   JR-East approaches DoCoMo:   It is reported that JR-East approached NTT-DoCoMo to explore how SUICA could be combined with DoCoMo’s mobile phones and i-Mode. This approach lead to the development of FeliCa wallet phones.   Fixed rate data plans:   With the introduction of fixed-rate data by KDDI/AU, DoCoMo and Vodafone (now: SoftBank mobile) were forced to follow with own fixed rate data plans, setting a ceiling on traffic related revenues, and forcing operators to develop streams of revenue independent of traffic. DoCoMo focused on FeliCa wallet phones, while KDDI focused on development of mobile commerce portals, music and mobile auctions   DoCoMo’s investment in credit card companies and the “iD” credit brand:   In April 2005 DoCoMo announced a controlling investment in Japan’s second largest credit card company, Mitsui-Sumitomo Credit Card Company. This led DoCoMo to develop the iD credit brand and platform for mobile credit card payments.   QuicPay:   DoCoMo’s move into the credit card space, forced the credit card companies (market leader JCB), competing operators KDDI/ AU and Vodafone (now: Softbank Mobile), as well as other market participants to react and to develop their own mobile payment systems and infrastructures centered around the QuicPay system and brand.   Targeting Japan’s US$ 600 Billion small payment market:   Japan’s consumer payment market is approximately US$ 3000 Billion/year of which US$ 600 Billion are “small payments”, done using coins or YEN 1000 (US$ 10) bills. At the moment credit cards are almost never used for such small payments. Mobile phone credit card payment (“Keitai credit”) allows credit card companies to enter the area of small daily payments   Trends:   Post-pay keitai credit (iD, QuicPay, SmartPlus, PiTaPa) and pre-pay mobile cash (Edy, SUICA and Seven & I’s e-cash NANACO and Aeon’s WAON) are complementary and address different markets. The mobile payment market is in it’s early stages and is rapidly developing. ©2008 Eurotechnology Japan KK 6 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 DoCoMo’s Strategy  DoCoMo’s strategy is to attract part of the small payments (YEN 100 - YEN 1000) from cash to mobile phone payments ©2008 Eurotechnology Japan KK 35 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 SoftBank Card   In respone to DoCoMo’s DCMX credit card and to “KDDI The Card”, SoftBank created the “SoftBank Card” ©2008 Eurotechnology Japan KK 47 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Edy electronic cash (pre-installed in all I-Mode- FeliCa Phones) Why The Name Edy? Euro Dollar Yen ©2008 Eurotechnology Japan KK 69 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Kid’s Waon  From autumn 2007, AEON will issue “Kid’s WAON” - electronic money for children ©2008 Eurotechnology Japan KK 95 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 FeliCa & Mifare   More about FeliCa wallet phones   http://www.eurotechnology.com/store/walletphone/ ©2008 Eurotechnology Japan KK 124 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 FeliCa Wallet Phones  More reports about FeliCa wallet phones and mobile payment:  http://www.eurotechnology.com/store/walletphone/  http://www.eurotechnology.com/store/suica/  http://www.eurotechnology.com/store/cmode/ ©2008 Eurotechnology Japan KK 129 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Japan’s Mobile Internet as a Platform for Mobile Payments i-Mode EZweb SoftBank-Mobile/Yahoo-ketai (was: Vodafone Live! and born as: J-Sky)   More about i-mode, EZweb, and Yahoo-keitai (Softbank-Mobile) and Japan’s mobile internet businesses:  http://www.eurotechnology.com/store/imode/  http://www.eurotechnology.com/store/kddi/  http://www.eurotechnology.com/store/softbank/ ©2008 Eurotechnology Japan KK 151 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 m-Commerce, Mobile Payments, and Mobile Transactions  More about i-mode in Japan:  http://www.eurotechnology.com/store/imode/ ©2008 Eurotechnology Japan KK 156 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Payment for Mobile Content and Mobile Services  More about i-mode:  http://www.eurotechnology.com/store/imode/ ©2008 Eurotechnology Japan KK 159 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Payment for Mobile Content: Mobile Music  More about mobile music in Japan:  http://www.eurotechnology.com/store/momj/ ©2008 Eurotechnology Japan KK 161 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Mobile Auctions  More about mobile auctions:  http://www.eurotechnology.com/store/jauctions/ ©2008 Eurotechnology Japan KK 175 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 DoCoMo’s strategic investment in Rakuten Auctions  More about online auctions in Japan:  http://www.eurotechnology.com/store/jauctions/ ©2008 Eurotechnology Japan KK 178 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 KDDI/AU’s mCommerce Initiatives  More about KDDI and AU:  http://www.eurotechnology.com/store/kddi/ ©2008 Eurotechnology Japan KK 181 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 SUICA and transportation based e- Cash systems   From 2006 “Mobile Suica” converts i-mode/FeliCa phones into train tickets   read more about SUICA:   http://www.eurotechnology.com/store/suica/ ©2008 Eurotechnology Japan KK 184 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Odakyu Romance Car @Club as another example of tickets by mobile phone  Rail Ticket Purchase By Mobile Phone  Typical Transaction by Mobile Phone: US$ 5 ©2008 Eurotechnology Japan KK 200 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Using bar codes to pay bills by Mizuho-Bank  More about QR-code for mobile phones:  http://www.eurotechnology.com/store/qr-code/ ©2008 Eurotechnology Japan KK 215 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 DoCoMo Coin   DoCoMo coin is an outsourced loyalty program similar to frequent ﬂyer miles in the US.   DoCoMo offers the “DoCoMo coin” program to companies as an outsourced reward program. Companies can reward customers with “DoCoMo coins” for ﬁlling in questionnaires for example. Customers collect DoCoMo coins in a personal DoCoMo-coin-account.   Customers can use accumulated DoCoMo-coins to pay for their mobile phone bill or for other rewards.   The DoCoMo-coin program is separate from the DoCoMo-Club, which is DoCoMo’s loyalty reward program. ©2008 Eurotechnology Japan KK 219 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Summary: Mobile Payments, e-Money and keitai credit   Mobile payments, electronic money, and mobile phone credit payments are rapidly developing in Japan   Development of electronic money and credit, electronic and mobile payment systems in Japan is not planned but determined by free market forces   Retailers use electronic money to introduce customer relationship management, to track customer purchases, to reduce cash management costs and to generate licensing fees or commissions   Building a strong position in mobile credit and mobile payments allows operators to generate new income from transaction commissions   A new layer of mobile credit is added to the payment industry structure. Consequently at least in Japan the role of credit card operators such as VISA could be reduced   As the owner and developer of the Felica card system, SONY can expect increasing income from Felica chip sales. While near ﬁeld communication chips are likely to become a cheap commodity, highly secure chips for storing sensitive customer data including credit card payments are likely to remain a high value product   Consumers will only consistently use electronic money which has clear beneﬁts beyond quicker payments. Retailers and electronic money issuers consistently offer point systems and discounts   We expect electronic money and mobile payment systems to become an important competitive tool for retailers and mobile operators   At the moment there is strong growth, however we expect consolidation within the next few years ©2008 Eurotechnology Japan KK 221 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 More information:  Blogs:  http://fasol.com/blog/  http://eurotechnology.com/blog/  Reports:  http://www.eurotechnology.com/store/ ©2008 Eurotechnology Japan KK 222 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Eurotechnology Japan KK   We are the only European company in Japan with 100% focus on high-tech business development   Projects  M&A: market research, strategy, creating and structuring deals, due diligence, environmental due diligence, post-acquisition management, turn-round  Planning, incubation of Japan subsidiaries  Technology management, licensing, competitive intelligence  Mobile business development  Building customer relationships (CRM) systems with mobile focus   Customers  SIEMENS, Deutsche Telekom, NTT Communications, Electronics for Imaging, Cubic, Asahi Glass, SCHOTT Glass, UNAXIS, Government of Finland, and many more   Market reports: http://www.eurotechnology.com/store/   More information: http://www.eurotechnology.com/ ©2008 Eurotechnology Japan KK 223 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Current and Recent Projects   M&A:  We are advising and assisting a European company in the acquisition of a pharmaceutical factory in Japan. We managed the environmental due diligence process, and will - if the purchase is successfully concluded - take part in managing the turn-round   Mobile systems of a major financial institution  We examined and found issues in the mobile systems of a major financial institution, and assist in mobile business development   Customer relationship management using mobile phones:  For a major retailer in Japan   Business development  Business development in Japan for a major opto-electronic manufacturer  Market entry/business development for a speciality service company in the energy supply field   Market research  We are performing a range of market research projects, purchase by major investment banks, venture capital firms, telecom operators, mobile phone handset makers and other companies ©2008 Eurotechnology Japan KK 224 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Eurotechnology Track Record - Examples   SIEMENS   Analyzed and mapped the environmental industry sector of Japan and developed outline strategy for market entry and business development   UNAXIS   Analyzed and mapped Japan’s ﬂat panel display industry for next 10 years   Map public and private OLED programs and roadmaps   Analyze existing R&D and prepare expansion or cooperations   Deutsche Telekom Japan   Business analysis and strategy advice for international mobile handset business   Government of Finland   Advise on R&D funding strategy for mobile communications for 2005-2010   SCHOTT Glass   Advise on R&D in Japan   Asahi Glass   Global marketing strategy for lighting systems based on novel optical ﬁbre   Major global retailer   Plan mobile phones centric customer relationship management (CRM) system   Licensing negotiations, business development based on patent licensing   Inspektor: dental diagnostic equipment   HelloNetwork: JAVA based streaming video for broadband and mobile   And more ©2008 Eurotechnology Japan KK 225 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Gerhard Fasol   Austrian (born in Vienna)   Read/write/speak/negotiate/present in Japanese (started learning Japanese in 1984)   PhD in Physics (Cambridge University, Trinity College)   Since 1984 passionate & active participant->entrepreneur in Japan’s technology sector:   15 years work in Tokyo   25 yrs professional work with Japan   10 years CEO & Entrepreneur in Japan   1984- helped build cooperation between Germany’s top semiconductor R&D labs with NTT R&D   Tenured faculty member at Cambridge University, and Director of Studies at Trinity College   Manager of Hitachi’s R&D labs (nano-electronic devices) in Cambridge/UK (1990)   Assoc Prof NTT Telecommunications Chair of Tokyo Univ (nano-electronic devices)   “Sakigake” Elite R&D project of Japan’s Government (spin-electronics)   Advisor to Chairman (Hatakeyama) of JETRO   Founded Eurotechnology Japan KK in 1996:   M&A advisory: We help foreign companies acquire companies in Japan, strategy, market research, mobile business development, structure and build cooperations and more   Mobile banking systems, customer relationship management with mobile phones   Among our past & present customers: Siemens, Deutsche Telekom, UNAXIS, Schott Glass, Asahi Glass, Cubic, Intel, Ericsson, advise Government of Finland (TEKES): Finland’s R&D funding strategy in mobile services, Swisscom-Innovation, many foreign Embassies in Tokyo, and many more   Briefed President of Germany (Horst Koehler), US-Senator Jeff Bingaman, French Vice-Industry Minister Nicole Fontaine, and many EU top managers about Japan   Professional record   20 years semiconductor R&D: Japanese patent applications and many scientiﬁc publications   Software engineering: built software to simulate electron motion through nano-devices (2nd Prize in Japan’s Computer Visualization Contest of Japan’s Computer Graphics Association   10 years CEO & Entrepreneur in Japan ©2008 Eurotechnology Japan KK 226 www.eurotechnology.com

Mobile payments, e-Money & Keitai Credit October 17, 2008 Contact  Eurotechnology Japan KK  Shinagawa Intercity Tower A 28F  2-15-1 Konan, Minato-ku  Tokyo 108-6028, Japan  Tel +81-3-6717-4160  FAX +81-3-6717-4141 and +81-3-5477-7044  http://www.eurotechnology.com/  CEO: Gerhard Fasol PHD  Fasol@eurotechnology.com  Mobile: +81-90-8594-6291 ©2008 Eurotechnology Japan KK 227 www.eurotechnology.com

Mobile payments and mobile credit

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