Riding the Mobile Payments Tsunami


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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.

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Riding the Mobile Payments Tsunami

  1. 1. SSB-3521 Riding the Mobile Payments Tsunami Dr. Mark Sherman IBM Enterprise Mobile Strategy
  2. 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. 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. 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. 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. 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. 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. 8. © 2013 IBM Corporation Cardholder Merchant AcquirerCard NetworkIssuer (Bank) Today’s payment process
  9. 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. 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. 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. 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. 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. 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. 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. 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. 17. © 2013 IBM Corporation 17 Financial Operations portfolio: Complete multichannel financial payments solution
  18. 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. 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. 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. 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. 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. 23. © 2013 IBM Corporation 23 © IBM Corporation 2013. All Rights Reserved. IBM, the IBM logo, ibm.com are trademarks or registered trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other logos, product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at www.ibm.com/legal/copytrade.shtml. Copyright and Trademarks