Presentation on mobile payments and mobile money at the June 2013 SmarterCommerce Global Summit in Monaco. Includes description of relevant IBM product families that support mobile money and mobile payments.

1. SSB-3521 Riding the Mobile
Payments Tsunami
Dr. Mark Sherman
IBM
Enterprise Mobile Strategy

2. © 2013 IBM Corporation 2
• What is mobile money
• Growth of mobile money
• Larger payments story
• Evolution of payment
processes
• Operational issues for
implementing mobile money
• How IBM can help
• Summary
Outline

3. © 2013 IBM Corporation
Mobile payments interact with a wide variety of processes that are
intertwined with other mobile content, increasing the payment
processing opportunity, all together labeled mobile money
Related content
Gift card
Loyalty card
Coupon
Ticket
Promotion redemption
Transit
Receipt
Digital good
Microfinancing
Payment type
mCommerce
eCommerce
mPOS
Proximity POS
Stored value
Bill pay
P2P
mBanking
Telco billing
Mobile payments are the tip of the mobile
money iceberg

4. © 2013 IBM Corporation 4
Mobile money is exploding
Total mobile payments
will be worth more than
$1.3T globally by 2017, a
growth over nearly 400%
from 2012.
PayPal mobile payments grew nearly
10,000% from 2009 to 2012.
$M
Juniper Research,
Sources: David Marcus, President of PayPal Mobile, Quarterly reports, annual reports, press releases; Juniper Research, Mobile payment --
Check It Out, Aug 2012; Consumer and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013;
eMarketer Press Release, Tablets, Smartphones Drive Mobile Commerce to Record Heights. Jan 9, 2013
Banking application penetration

5. © 2013 IBM Corporation 5
42%of smartphone
users have used their
phone to comparison
shop at a retail store
Mobile money is important to consumers
75% of mobile
shoppers take action
after receiving a
location based
message
32% have used it to
scan a product’s
barcode to find the best
price for the item
64% of consumers who
use their phones to
comparison shop in a
retail store have changed
where they purchased the
product as a result of the
information they found
1 in 6 people switching
banks say a poor mobile
banking experience
prompted them to shop
for a new bank.
91% of mobile
users keep their
device within
arm’s reach 100%
of the time
Source: “China Mobile 50k survey”, Morgan Stanley Research, 2011; Consumer and Mobile Financial Services 2013, Board of
Governors of the Federal Reserve System, March 2013; JiWire Mobile Audience Insights Report Q42011;. Google, Mobile Banking
Trends, October 2012,

6. Mobile money market: unbanked and
underbanked
© 2013 IBM Corporation6
Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets; Consumer and
Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013;;
Demirguc-kunt and Klapper, World Bank, Measuring Financial Inclusion, Apr 2012
Formal banking reaches about 37 percent of
the population
1 branch and 1 ATM per 10,000 people
Mobile phones have a penetration rate of 50
percent
5,100 mobiles phones per 10,000 people
1.7 billion people in emerging markets have a
mobile phone and no access to banking
services
Globally, more than 2.5 billion adults do not have a formal (financial) account
Very small deposits and loans are not profitable for traditional delivery models
19.4% are unbanked or underbanked
59% of the unbanked have access to a
mobile phone, half of which are
smartphones
90% of the underbanked have access to
a mobile phone, 56% of which are
smartphones
Emerging markets United States

7. © 2013 IBM Corporation
In 2017, mobile payments will be
2.5% of the total amount of
worldwide commerce that is
theoretically addressable by mobile
payments (up from 0.4% in 2012)
Mobile money is only part of the story
Total world wide payments
Year $ Trillions
2010 331
2020 782
Source: Grealish, Mohr, Rutstein, Schwarz, Storz, Urban, Winning After the Storm - Global
Payments 2011, Boston Consulting Group, Feb 2011; McPherson, Hand & Stofega, IDC,
Technology Selection:Worldwide Mobile Payments 2012 – 2017 Forecast
Despite enormous growth, mobile payments are a small
part of the entire payments ecosystem
Support of conventional channels will dominate business for the
foreseeable future
Mobile cannot be treated as separate channel. Bankers and
retailers need to provide consistent experience across all
customer interaction points

8. © 2013 IBM Corporation
Cardholder
Merchant
AcquirerCard NetworkIssuer (Bank)
Today’s payment process

9. © 2013 IBM Corporation
Batches of
transactions are
queued by the
merchant, including
a $100 transaction
by Hans
Card network distributes
each transaction to the
issuer, including Hans’s
$100 purchase
$100
Card network routes
funds to acquirer
$100
http://www.creditcards.com/credit-card-news/how-a-credit-card-is-processed-1275.php
Issuer subtracts processing
fees ($1.70) which are
exchanged with the card
network and submits funds,
including funds for Hans’s
transaction
$98.30
Merchant sends a batch of
transactions to the acquirer to
receive payment
Acquirer subtracts discount
fees ($0.50) and pays
merchant
$97.80
Acquirer submits batch of
transactions to card networks
$$
$$
Acquirer submits batch of
transactions to card networks
$$
$$
Note: Names and fees are illustrative
and are not from any particular
vendor or relationship
Today’s payment process

10. © 2013 IBM Corporation 10
New mobile payment models change fees
and access to information
Each participant in payment
chain receives two potential
values
Fee for service
Transactional information
Information has its most
competitive advantage
when not shared
New models can
disintermediate existing
vendors
New models change
where fees can be
collected
New models change
where information flows
and can be collected

11. Mobile device uses information in mobile
wallet to act a proxy for wallet
•Communicated at POS thru NFC or QRcode on mobile
device
•Proxy routed thru existing network to an intermediary that
produces desired payment selection
•If connected, wallet may communicate with intermediary to
select payment at POS
•Proxy gets access to data previously reserved for acquirer
© 2013 IBM Corporation11
Customer Merchant Acquirer BAUMobile
Wallet
Proximity payment with proxies
Acquirer
Mobile
Wallet
Intermediary

12. 12
Mobile payment platform independently
communicates with customer and merchant
•Party identification depends on wallet
and POS applications
•Collocation checked independently of payment process
– Verified by comparing GPS locations of customer and merchant POS
– Assumed using merchant posted QRcode as proxy for physical
presence
– Merchant could generate payment specific QRcode on POS
•Requires network connectivity
•Platform gets access to transaction data
© 2013 IBM Corporation12
Customer Merchant Acquirer BAUMobile
Wallet
Collocated payment
Mobile
Payment
Platform
Mobile
Payment
Platform

13. 13© 2013 IBM Corporation13
Customer
or payer
Mobile
Payment
Platform
Merchant or
payee
Mobile
Wallet
Private
Account
Payer and payee assumed to have accounts with
the mobile payment platform
Transaction handled thru updates in platform’s
private accounts
Payment platform, not acquirers or banks, see
transaction information and potentially fees
Most have fall back capability on engaging current
system if both parties do not have accounts
Payment thru a mobile payment platform
BAU

14. © 2013 IBM Corporation 14
Operational issues need to be considered
Security Scalability
Availability Connectivity
In 2012, companies reported losing an average of
0.9% of total online revenue to fraud. The mobile
channel shows the highest revenue fraud loss rate
at 1.4%.
While surveys confirm consumers are concerned
about security in new [mobile payment] services,
they continue to engage in risky online and mobile
services behaviors.
Expect bout 750B global mobile money
transactions in 2020 (25,000 tps)
Virtual currencies (e.g., loyalty points) will
multiply the scaling requirements.
Sub-Saharan Africa’s manufacturing
enterprises experience power outages on an
average of 56 days per year.
Total data center outages occurred once a year
on average. An average data center outage for
an e-commerce company costs more than $1
million.
Need to connect many enterprise systems: core
banking, payments, functional silos, retail supply
chain, inventory management, merchandising,
marketing, promotions, advertising
Need to connect many external systems: ACH,
ATM, Swift, EDI, SMS aggregators, 3rd party
financial interconnection networks, conventional
credit card processing networks
Source: Sources: http://www.informationweek.com/hardware/data-centers/data-center-outages-generate-big-
losses/229500121; World Bank, Underpowered: The State of the Power Sector in Sub-Saharan Africa, 2009;
2013 Online Fraud Report, CyberSource, 2013; Federal Reserve Bank of Atlanta, The US Regulatory
Landscape for Mobile Payments, July 5, 2012

15. © 2013 IBM Corporation
9 of the top 10 global banks power their businesses
using IBM Software, running mission-critical, high-
volume financial transaction applications on IBM
Software for its reliability, scalability and flexibility
One of the World's leading financial services
providers processes in excess of 500 million
messages a day through IBM WebSphere MQ
software
1997: IBM created the first global settlement system for
currency exchange, averaging $4 trillion a day, with the
CLS Group, an industry consortium
1962: IBM created the Sabre airline reservation
system for American Airlines—a precursor of
everything from the ATM to e-commerce
"Visa relies on System z for global transactions processing--and confirmed the ability
to handle the 2010 Christmas peak of almost 11,000 transactions a second.".
For 100 years, IBM has advanced payment systems across the world
WebSphere MQ worldwide supported over $1 quadrillion of transactions
CICS software is accessed by virtually every ATM around the world
How can IBM help

16. © 2013 IBM Corporation
IBM MobileFirst portfolio
AnalyticsSecurityManagement
IBM & Partner Applications
Application Platform and Data Services
Banking Insurance Transport Telecom Government
Industry Solutions
HealthcareRetail Automotive
Application & Data Platform
Strategy&DesignServices
Development&IntegrationServices
Cloud & Managed Services
Devices Network Servers

17. © 2013 IBM Corporation 17
Financial Operations portfolio: Complete
multichannel financial payments solution

18. © 2013 IBM Corporation 18
Enriched shopping experience
Product and pricing information
Inventory visibility across channels
Consistent user and order information
Common Management tool
Master Catalog and Sales Catalogs
Cross channel marketing engine
Online and Store management
Cross channel integration platform
Distributed Order Management
3rd party integration web services
POSKioskWeb Mobile
Contact
Center
Customer Touch Points
Customer
Profile
Marketing Promotions
Stores
Master
Catalog
Orders
WebSphere Commerce
Prices Search
Sales
Catalogs
Channel Specific Content
and Business Rules
Promotion
Rules
Marketing
eSpots
Store & Web
Pricing
Store & online
Inventory
Common
Components
WebSphere Commerce Cross-Channel
Solution

19. © 2013 IBM Corporation 19
ProcessorsIBM Global Payment Checkout
API
WalletPCI Vault
Merchant
Ledger
Adv.
Routing
Basic Fraud Adv. Fraud
Cross-channel
Commerce
Checkout
Data Feeds
Reconciliaion
Shadow
A/R
Settlement
Operations
GUI
IBM Smarter
Commerce
Logistics Partner
Treasury
A/R
Merchant’s
Accounting
Fulfilment
Order
Management
IBM Payment Systems: Wallets and Processing

20. © 2013 IBM Corporation 20
Full range of business analytics capabilities
Dashboards Scorecards Reports Queries Analysis Network
analytics
Predictive
modeling
Planning/
budgeting
IBM Business Analytics capabilities
Retail solutions and capabilities
Deliver a smarter shopping
experience
Build smarter operations Develop smarter
merchandising and supply
chains
Banking and financial market solutions
Create a customer
focused enterprise
Optimize enterprise risk
management
Increase flexibility and
streamline operations

21. © 2013 IBM Corporation
Strategic role in mobile money
Neutral provider of capabilities from IBM and partners,
including business consulting, technology
consulting and software
IBM middleware can provide the enterprise backbone
for mobile money enabling transactional insight
and connectivity, and the ability to connect mobile
devices to payment interactions
IBM is a thought leader in the space, contributing to
standards and driving innovative customer
transformation
IBM’s Global Business Services provides reference
architectures for the mobile money ecosystem
Payers:
Consumers
Businesses
Payees:
Merchants
Businesses
Governments
Fund
Holders:
Banks
Facilitators
P2P B2B
Services from strategy to execution

22. 22
• Mobile payments are part of a larger opportunity of
mobile money
• Mobile money is growing rapidly across the world
– Part of multichannel banking and commerce for the “banked”
– New channel to reach the unbanked and underbanked
• New payment processes are being deployed that exploit
mobile capabilities but may disintermediate existing
players
• Successful mobile money implementation need to
address fraud, scale, availability and interoperability
concerns
• IBM has a broad range of hardware, software and
service to support mobile money initiatives
© 2013 IBM Corporation22
Summary

23. © 2013 IBM Corporation 23
© IBM Corporation 2013. All Rights Reserved.
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