What are mobile payments?
“A transaction in which the transfer of funds is initiated using a
mobile phone” - Forrester (precise definitions vary)
Importantly, mobile payments encompass payments to peers and to
businesses of both a remote and proximate nature. In addition, the
mobile phone in question can be that of a merchant.
How big are mobile payments?
• $163B in 2012
• 35% annual growth forecast to 2017 for $721B in 2017
• Remote money transfer the dominant use case at 71% in 2013 and 69% in 2017
• Africa leads in transaction value but Asia forecast to overtake in 2016
• Near Field Communications (NFC) forecast cut by 40% relative to one year ago outlook
• Result of disappointing NFC adoption in all markets in 2012
• Still expect growth from 2% of mobile payments transaction value to 5% during period
Source: Gartner, June 2013
• $12.8B in 2012
• 48% annual growth forecast to 2017 for $90B in 2017
• 90% of transaction value currently mCommerce contrasting strongly with global mix
• Mobile payments adoption to be fueled by unprecedented growth in proximity payments.
• To make up nearly half of all mobile payment transaction value in 2017
• Currently represents the smallest category at less than 5%
Source: Forrester, January 2013
Is the US growth forecast realistic?
“The growth of mobile proximity payments, mobile remittances, and mobile remote payments
hinges on this reality —each must deliver a better, more convenient option to consumers than
the next best payment alternative for a given purchase at a given time.”
The forecast for mCommerce (mobile remote payments) may be quite realistic.
• Mobile commerce is already delivering on its convenience promise while also having
significant room for improvement in user experience
• The forecast mCommerce growth still only has mCommerce at 12% of eCommerce in 2017
• The forecast annual growth rate for mCommerce is ~30% when disaggregated
On the other hand, the forecast arrival of mobile proximity payments is clearly speculative.
What do the experts say on the future of money?
What do consumers say about mobile payments?
Security is often a concern for non-users. However, many consumers simply don’t
see the benefit and aren’t interested even if security concerns are addressed.
Source: Federal Reserve consumer survey , November 2012
What do consumers say about proximity payments?
The majority of consumers in the federal reserve survey sample said they were
unlikely to use mobile contactless payments. However, some of these same
consumers still believe these payments will become common in the next 5 years.
Source: Federal Reserve consumer survey , November 2012
Do consumers have another idea for improving payment?
Many consumers would rather leave both their wallet and their
mobile phone in their pocket when making an in-store purchase.
Which Of These Methods Would You Prefer When Making A
Payment In A Store? (U.S. Consumers)
Open an app that can scan a bar code
Have your name and photograph registered so merchants can take
payment without phone
Tap your phone on an electronic sensor at the register to pay without
having to open any apps
Have a pin/password that you can enter at the register without taking out
Source: comScore Digital Wallet Road Map 2013
How can digital wallets make inroads with US consumers?
• Flip consumer perception of security weakness into one of security strength
• Digital wallets typically offer security features including encrypted account numbers,
remote deactivation, and pin requirements for larger purchases
• Consumers typically notice missing mobile phone 4-8 times faster than wallet and leave
home more often without wallet than phone (FRB)
• Ensure the consumer value proposition goes well beyond tap versus swipe
• Contactless (tap-able) credit cards have been around for many years and predictably
have not drawn much consumer interest
• Many (non-exclusive) options exist to construct a value proposition
• Support multiple mobile payment types: proximity, mcommerce, p2p
• Store unlimited cards/accounts and smartly apply them to the context
• Recommend the best account for the payment at hand
• Autoapply loyalty and similar cards
• Complete payment as quickly as possible and work without battery power when
• Provide and/or enable an app ecosystem for integrated deals, alerts, financial
• Leverage high efficiency use case entry points (ex. transit, parking, vending)
• Ensure sufficient scale and pursue universality
Aren’t other countries having a lot of success?
Economic and technological factors have led emerging markets to develop
mobile money more quickly particularly as it relates to mobile money transfer.
For example, Kenya’s M-Pesa money transfer system has 31% of Kenyan
GDP wash through the system and it is expanding into India in 2013.
How about mobile proximity payments outside the US?
“While numerous NFC trials over the years returned high satisfaction rates among consumers, most
were conducted under controlled conditions. Commercial NFC services launched to date have met
with relatively poor interest from consumers, including those in South Korea, Turkey, Singapore, the
UK and the U.S., the latter with the Google Wallet.” (NFC Times)
“Japanese telcos, which have sold at least 70 million contactless-mobile phones with proprietary FeliCa
technology, have found that a large base of phones and acceptance points for payment and transit
ticketing does not necessarily lead to mass adoption by consumers.” (NFC Times)
"Where I believe the controversy lies, the crux of the issue is that while many users have registered for
the function, there appear to be few active users” (Celent)
“Use of NFC services is very low,” said Yoon. “One example, in Korea, as you know, we started
launching NFC services on Galaxy S II, Galaxy Note and Galaxy S III, so in Korea I think there are tens
of millions of NFC devices already in the market. (But) consumers, they don’t know how to use it. They
don’t even know they have something called NFC that they can use for transportation and mobile
payment.” (Hankil Yoon, Senior VP, Samsung)
“Turkish mobile operator Turkcell, one of the first telcos to commercially launch NFC, is introducing a
new mobile wallet that includes a PayPal-like service enabling consumers to pay for purchases by
entering their phone numbers on point-of-sale terminals. … But the face-to-face payments service,
designed to enable users to make physical-world payments with their phones, is an acknowledgement by
Turkcell that the telco’s NFC rollout is not taking off as expected.” (NFC Times)
Is there a digital wallet front runner in the US?
A survey at the 2013 annual conference of the National Retail Federation (NRF) indicated that retailers
believe the following players are most likely to win the “mobile wallet war”.
• 53% - Google
• Significant headwinds: ISIS carriers blocking access to secure element leaving only Sprint,
senior players leaving company including chief Osama Bedier in May 2013, limited phones
• Uses a virtual credit card connected to credit/debit cards stored in the cloud
• Can be used online as well at Google Play store and where “Buy with Google” accepted
• 25% - Paypal
• A non-smartphone wallet enabled by phone/pin entry but often still requires a card currently
• Expected to grow retailer base from 250k to 2M in 2013 but no Walmart or First Data
• Have eyes on enabling payment type choice after purchase and other wallet innovations
• 4% - ISIS (ATT,VZ,T)
• Quite low confidence given the scale of these wireless providers and provider wallet role globally
• Support for use of NFC readers of all 4 card networks
• Has been in trial mode in Austin and Salt Lake City only since October 2012
• No support for online payments and in store pin-swipe-ok methodology may not be convenient
• 19% - Other (some buzzworthy examples below)
• Apple’s passbook is beginning to see adoption for coupons/tickets/giftcards while everyone
looks for the possible addition of credit and debit card capability
• Square offers a QR code/check in based wallet with an smb base and a Starbucks partnership
• LevelUp is a startup offering another QR code based wallet which is available in 7 US cities
Why be a digital wallet provider?
• Merchants pay discount fees of 2% to 3% of transaction value or more to banks and card associations
in order to offer customers convenient payment options (mostly to the issuer but also to the acquirer/card)
•A well adopted digital wallet has the potential to earn some or all of the discount fees for a given
transaction as well as to own valuable transaction data and control an app ecosystem around the wallet
So what are the card networks and banks doing then?
Though card networks receive a relatively small portion of discount fees, their expenses and risks
are relatively low and they are highly profitable. As a result, they may have the most to lose.
However, card networks are well positioned in terms of consumer trust.
Visa and Mastercard are pursuing similar strategies with V.me and Masterpass.
• Both offerings are open wallets which support cards from other networks.
• Both are eCommerce only now but planning in store capability in 2013
• Both are planning to deter players like Google/Paypal partly by charging extra fees to use their
cards in so called “staged wallets”
Amex is a card and issuer and currently looks less aggressive.
• Actively promoting the ISIS wallet
• Serve platform looks more like a debit card than wallet
Banks may be looking to card networks to defend status quo.
Though mobile banking capabilities are common and can include p2p money transfer (ex. Chase
“QuickPay”), banks appear to be largely deferring to others for mobile wallet development.
• Chase is an ISIS launch partner (though it also has investments in Square and GoPago)
• Citigroup is a Google Wallet launch partner
• Bank of America and US Bank both have small NFC trials but are marketing the V.me wallet to
their main customer base at this time
How about the retailers?
Retailers choose what payments they’ll accept and they pay the discount fees to accept them. In
addition to controlling these fees, retailers also want access to the transaction data and don’t want
companies like Google to have it. Though there are a lot more retailers than card networks or wireless
providers, if enough retailers got together they could generate leverage or even a point of control.
MCX merchants already include five of the top 10, and 20 of the top 90 merchants by revenue on the
National Retail Federation’s Top 100 list. Walmart is first on the list and is bigger than the next 4
combined. In April 2013, MCX announced Gemalto would be developing its initial, cloud based wallet.
“We’ve chosen MCX as the solution we’ll accept … We’re not going to spread our bets over seven or
eight flavors of mobile payments.” – Mike Cook, Walmart VP over payments
Is Near Field Communications making progress?
Though NFC enablement continues (ex. 100m enabled phones shipped worldwide in 2012 with 3x that
expected in 2013), progress in 2012 disappointed analysts including Gartner and much skepticism
remains about expansion speed and more fundamentally about consumer value.
"You think about the technology that's out there today, there's no private equity funding that's following
NFC," Cook said. Investors don't believe — nor does Walmart believe — that it will become a
payment technology in a retail environment quickly enough, he said. (Mike Cook, Walmart VP)
It’s not clear that NFC is the solution to any current problem, Schiller said. “Passbook does the
kinds of things customers need today.” (Phil Schiller, Apple Senior VP)
“No need to wander around bumping your phone” (Apple 2013 WWDC Keynote on Airdrop)
“There are players like Apple that came up with a solution not based on NFC …That may be a good
thing, but once that becomes popular and consumers start to perceive that they don’t need NFC, they
just need what they have in Apple, then the (growth) of the NFC ecosystem will be delayed that
much more.” (Hankil Yoon, Senior VP, Samsung)
“The NFC payments debate will slowly die in 2013. Is tapping a phone on a terminal any easier than
swiping a credit card? I don’t think so – it’s not solving a real consumer problem and its not
providing additional value to encourage me (or anyone else for that matter) to change my behavior.”
(David Marcus, Paypal President)
“NFC was also supposed to complement the credit cards in your wallet, but that effort has fallen far
behind. It turns out that holding a phone over an NFC terminal in a store takes as long as swiping
a credit card — longer if there's any hangup in the process.” (USA Today, June 2013)