Mobile Payments: An IBM Point of View

Mobile Payments:
An IBM Point of View
Dr. Mark Sherman
Lars van Dam
IBM
WebSphere Strategy

Outline
• Overview of retail payments
• Mobile money market
• Mobile money opportunities
• Scenarios of mobile money
applications
• Impacts to existing payment
systems
• Operational issues for
implementing mobile money
• Case studies
• Summary
© 2012 IBM Corporation2

Overview of retail payments: Participants
Cardholder
Merchant
AcquirerCard NetworkIssuer (Bank)

Overview of retail payments: Merchant, acquirer, network
and issuer interactions
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

Outline
applications
systems
• Case studies
• Summary

Mobile money market: what is mobile money
Mobile Banking
Balance inquiry
Account applications
Account transactions
Bank locations
Alerts
Mobile Commerce
Promotions
Behavior tracking
Loyality programs
Mobile Payments
Person to person transfers
Bill pay
Payment at POS
In application payments
Mobile Wallet: linking mobile device with accounts and account activity
Bank accounts
Credit cards
Loyality cards
Bank balances
Credit balances
Gift cards
Receipts
Credit limits
Phone balances
Using a mobile device as payment vehicle

Mobile money market: payments are accelerating
in major markets
PayPal processed $4 billion worth of mobile payments in 2011*
•$750 million in 2010*
•$141 million in 2009*
David Marcus, vice president of PayPal Mobile*
Starbucks Mobile Application with rewards and mobile payments
•Started with Northern California and Seattle
•Now available nationwide in the US
•Mobile application is available on apple and blackberry
Juniper Research reports consumers will use mobile
payments to pay for $670 billion worth of goods and
services by 2015.
Google Wallet payments are now supported by Toys ‘R’
Us, Macy’s, and Bloomingdales

Mobile money market: emerging markets
• Application of mobile money varies
greatly among geographies
• Emerging markets have a
combination of circumstances that
encourage adoption of mobile money
Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets
– 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
– Very small deposits and loans are not profitable for traditional
delivery models
1.7 billion people in emerging markets have a mobile phone and
no access to banking services

• Mobile money transaction volume growing at greater than 50% CAGR thru 2015
• Mobile payments are projected to be between 15% and 20% of total consumer
payment transaction volume by 2020
• Mobile payments made by over 1 billion users by 2016
Mobile money market: sizing the market
Global mobile transaction volume Mobile transaction volume as a % of
non-cash consumer payments by
geo in 2015
Mobile money is modest now but growing rapidly
•Sources: Gartner “Forecast: Mobile Payments, Worldwide, 2008-2015”; Pub May 2011; Winning After the Storm, BCG Global Payments Report, 2010, Portio Research, Mobile Payments
2012-2016 Analysis and Forecasts for the Worldwide Market for Mobile Payment Services, 2012.
$B

Outline
applications
systems
• Case studies
• Summary

Mobile money opportunities: overview
Customer Care and Insight
Mobile money software gives a holistic, single view of the customer and glean deeper insight into customer needs, so you
can innovate with less risk. Develop high quality, tailored services to restore customer confidence, increase loyalty, and
drive revenue.
• Mobile Banking
• Branch of the Future
• Mobile Payments
• Mobile Commerce
• Mobile Agents/Claims
• Store of the Future
• Virtual currency
• Location based shopping
• Personalized campaigns
• Mobile cross-sell, up-sell
• Mobile Network Monetization
• Mobile field-force enablement
Retail
TelecommFinancial
Services
Healthcare
• Mobile check-in, Mobile prescriptions
• Mobile payments
• Mobile Health Monitoring & Prevention
• Mobile enabled Clinicians
• Virtual currency – FF Miles
• Customer Loyalty programs
• Ecommerce – Ticketing, Entertainment
Travel &
Transportation

Banks - leverage the user’s financial profile data
• Help banks protect and grow revenue by maintaining brand
relevance and leveraging emerging business models
• Provide a safe way to transact business, secure assets, reduce
fraud, ensure compliance
• Offer secure digital vault services to aggregate coupons, transport,
loyalty rewards, traditional currencies
Merchants - leverage the user’s shopping patterns
• Drives a more customer centric view; control point shifts to the
end-user with the mobile device.
• Shift more towards “one to one marketing” and leveraging the
value of “intelligent data from digital currency”
Telcos - Leverage subscriber base and delivery
channel
• Mobile Money will allow MNO's to increase customer retention and
generate new revenue through value added services
Mobile money opportunities: key players
• Create new value by
aggregating data and
applying insights across
the enterprise,
• Provide secure, high
availability, large scale
transaction processing
• Leverage Smarter
Commerce
New mobile
money entrants –
transform business

Outline
applications
systems
• Case studies
• Summary

Application scenario: consumer on-line
purchase with tablet
• In the last year, tablets’ commerce traffic increased 348%
• Tablets converted visits into purchases at a rate of 3.23
percent, well ahead of smartphones at 1.39 percent.
• Payment processing for tablets mirrors web on line
purchases
• Special considerations beyond web experience
– Exploitation of location information
– More accessible than PCs
– Need tablet-aligned gestures (e.g., sweeps)
– Need visually large carts
Customer Merchant Acquirer Credit Card Bank
Source: Monetate, Couch Commerce: How Tablet Shoppers are Changing Online Sales, 2012

Application scenario: mobile banking
• Customers interact directly with bank
like on the web
• Special considerations beyond web
experience
– Diversity of devices – beyond browsers
– Smaller screen – UI redesign necessary
– Location awareness – enables services
such as ATM and branch locations
– Authentication streamlined for mobile
devices
Customer Bank

Application scenario: consumer purchase at
retailer – NFC (Near Field Communication)
• Mobile device uses information in mobile
wallet to act as credit card
– Communicated at POS thru NFC
– Much hyped, little used
• Not a compelling convenience compared to a
credit card
• Gartner Hypecycle: “For the past decade, NFC
has been a technology looking for a solution”
– May revive for virtual currency (loyalty points)
Customer Merchant Acquirer Credit Card BankMobile Wallet
Source: Gartner, Hype Cycle for Mobile Device Technologies, 2011

retailer – bar code – platform control
• Merchant generates transaction information
– Customer uses custom app to send to mobile
payment platform
– Mobile payment platform also serves as acquirer
– Purchase confirmation sent to merchant thru different
path
– Mobile payment platform may require return path to
go through its system
Merchant
Mobile
payment
platform
Credit
card
BankCustomer

retailer – bar code – merchant control
• Merchant generates transaction information
– Customer uses custom app to send to mobile
payment platform
– Mobile payment platform provides wallet information
to merchant
– Merchant processes transaction as if credit card
presented
Merchant
Mobile
payment
platform
Merchant Conventional
processing
Customer

Application scenario: consumer purchase
soft goods
• Soft goods include tickets, phone cards,
music
• Mobile device uses information in mobile
wallet to act as credit card number
– Communicated thru web interface
– Optional documentation back thru mobile wallet
Inventory

Application scenario: consumer to consumer
payments – telco mediated
• Common scenario in emerging
economies for P2P payments
• Agents conduct the cash-in and cash-
out functions, enabling customers to
convert cash into electronic money
and back again at convenient
locations
• Telcos arrange funds transfers
among their accounts
Payer Payer
Telco
Payee
Telco
Payee
Agent
PayeePayer
Agent

Application scenario: consumer to consumer
payments – mobile platform mediated
• Emerging scenario in both
established and emerging
markets
– Requires established accounts
with either bank or mobile
money platform vendor
Payer Payer
Bank
Payee
Mobile
Money
Platform
Payee
Bank
Source: Venture Beat

Application scenario: transformative
scenarios
• Mobile devices have unique properties beyond credit
cards, cash, banks and PCs
– Omnipresent: people always carry their phone with them
– Personal: mobile identifies the specific person
– Context: mobile has location, acceleration, orientation
information
– Multiple inputs: gestures, audio, video
• Everyday micropayments
– Parking (knows your car), vending
• Location and destination based pricing
– Bus, subway and train fares
• Delivery of gift cards over the phone
• Integration of loyality, context and location for
promotion
• Streamline general admission event ticketing
• Credit extension based on mobile activity
• Competitive interception based on mobile application
activity
• Multichannel offerings
– Prepare then retrieve ATM withdrawal
– Preorder fast food
• Reminders to replace consumables
• Personal credit card acceptance
Square
ShopSavvy

Outline
applications
systems
• Case studies
• Summary

Card
Holder
Credit/Debit
Card Payment
Mobile
Payment
Merchant Acquirer Credit Card
Company
Issuer
Telco
Payment
Provider
Payers Payees Facilitators Fund Holders
MajorMarket
EmergingMarket
Market Dynamics
• Shift from cash and checks to cards and electronic payments
• Mobile and social commerce are creating a discontinuity in the market.
• Agents in Emerging Markets play an important role in distribution and liquidity
Impacts: new paths for payment processing introduced
Acquirers and credit
card companies can
be utilized by or
disintermediated by
telcos and payment
providers in mobile
transactions
Agent

Impacts: consumer and retail experiences are transforming
Swipe
NFC
OTA
In-Person Transactions
Online Transactions
Context-Aware Marketing
RetailersConsumers
Interactive
Non-interactive
Non-location-aware
Location-aware
P2P B2B
Optical
Scan

Acquirers
Impacts: retailers, banks and facilitators look to expand
their roles
BanksRetailers
Payment Providers
Credit Card Companies
Telcos
Both Acquirers and
credit card companies
can be utilized in or
disintermediated from
electronic payments
In major markets
banks act as the
fund holders
Telcos and payment
providers can either
access payers’ funds
directly through banks
or indirectly through
acquirers and credit
card networks

Outline
applications
systems
• Case studies
• Summary

– Some signs to track
• Know-Your-Customer: black lists
• Account activity: mobile banking supports easy account creation and dormant accounts
could be used for laundering
• Behavior profiles of customers: amount, timing, velocity, source and destination
location of transactions
• Behavior profiles of agents: in addition to customer checks, looking for splitting
payments to increase fees
• Mobile devices offer additional capabilities to manage security
• Faster data on location for potential intercept
• Potential use of biometrics (e.g. face image) to reduce false positives
• Remote management
Operations: security and fraud detection
• Mobility adds additional vectors to
conventional fraud
– Technical
• RFID jamming
• “Nishing”
• Data validation: ensure all formats adhered to
• Malware
Source: McAfee Threats Report: First Quarter 2012

Operations: Support of parallel channels
• Expectation of consistency across
multiple channels
– Pay bills anywhere
• Expectation of cross channel
interaction
– Finish ATM, food order or
application transaction
– Video interaction with call center
from tablet and ATM
• Need one view of the customer
maintained across all systems
supporting channels
– Including in-flight interactions

Operations: scaling to meet transaction volume
• About 750B global mobile money
transactions expected in 2020
– About 25,000 transactions a second
• Likely to grow rapidly for use in
micropayments
• Currency equivalents, like loyalty
points, drive the number higher
Source: BCG Global Payments, 2011

Operations: ensuring availability
31 © 2012 IBM Corporation
Qualities of service can be insufficient in emerging markets
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;
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. Poneman
Institute, 2011
Sub-Saharan Africa’s
manufacturing enterprises
experience power outages on
an average of 56 days per year.
World Bank, 2009
India loses power to
600M people for up to
two days. NYT and CNN,
7/31/2012

Operations: integration driven by partnerships
• Many interconnected players
– Merchants, banks, telcos, mobile
payment platforms, acquirers,
credit card companies
• Many interconnection systems
– ACH, ATM, Swift, EDI, SMS
aggregators, 3rd party financial
interconnection networks
• Competing wallets
– Connecting with large number of
mobile wallets will be challenging

© 2012 IBM Corporation
1962: IBM created the Sabre airline reservation
system for American Airlines—a precursor of
everything from the ATM to e-commerce
Operations: How can IBM help
"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

Operations: IBM can help bring assets
to provide business value
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

Operations: from theory to practice
Transaction/payment processing
• Messaging and Integration - WebSphere MQ & ESB
• Transaction processing (CICS & WAS)
• Financial Transaction Manager
• Banking industry process and data models
• WebSphere Decision Management
• Smarter Commerce: WebSphere Commerce
• Analytics: Cognos
• Financial Fraud Detection: SPSS, i2
Consumer payment platform
• Mobile application platform (Worklight)
• Integrated buying experience
(WebSphere Commerce)
• Banking Transformation Toolkit (BTT)
Merchant Consumer Interaction
• Marketing management (Unica)
• Analytics and marketing optimization
(Coremetrics, Cognos, SPSS, Tealeaf)
• Event-driven interactions (Ilog and
WebSphere Business Events)
• Smarter Commerce
Merchant Point of Sale
• Point of sale devices, software, integration and
management (IBM Retail Store Solutions/Toshiba)
• IBM Payment Systems – Services -- addresses
merchant/acquirers/credit card processors

Outline
• Defining mobile money
applications
systems
• Case studies
• Summary

ING Direct France
• Leading iPhone banking app in France with a unique user experience
• Flexibility: Valued HTML5, but preferred starting native
• Mobile adaptation of data integration and authentication layers

38
Lotte Credit Card
Augmenting offerings with IBM Worklight
WSP14583-USEN-00
Solution components:
 IBM Worklight
 Finance All Solutions (FAS)
The need:
Korean companies are facing a demand for mobile apps from over 7
million smartphone users, up from only 800,000 in 2009, forcing them to
vigorously explore options for value-added services.
The solution:
To capitalize quickly on this rapidly growing trend, Lotte Credit Card
turned to IBM Worklight to develop an advanced application with a rich
and engaging user experience using over 100 screens, location-based
features and scannable mobile coupons. The application incorporates
augmented reality components—a first in the region—helping users find
the retail locations of its reward partners on the go.
The benefit:
 Reduced time to market and associated costs
 Deployment of one of the region’s most advanced financial mobile
applications
 Enabling better customer and employee user experience across more
devices
“We chose IBM Worklight
because it was the best
technology for Lotte to
consolidate application
development, enhancement
and maintenance, while
ensuring cost savings and
timely delivery to our
customers.”
—Kim, Young Sam, IT Planning
Team Leader, Lotte Credit Card

© 2003 – 2012 Monitise Group Limited. All Rights Reserved. Confidential.
Architecture for monitise IBM solution
39
Worklight
Studio
Worklight
Server
deploy to
app store
provision
app
B2B/
B2C
download
Android
MATM-265-100
JSON/HTTPS
?
IBM MQ
security/
activation
IBM
CICS
DB2
JRULES
push
SMS
email
MESSAGING
SERVER
COGNOS
DATA WAREHOUSE
monitise
IBM
IBM CICS
Adaptor
monitise
ENTERPRISE PLATFORM
(WAS)WebSphere
Application Server
DataPower

Visa’s real-time messaging
technology (RTM) creates a
seamless experience for
merchants who want to increase
engagement with their
consumers through
Visa provides real-time technology to
achieve breakthrough marketing
effectiveness for merchants.
Personalized
offers
Business problem
Merchants operate in a highly competitive environment where the keys to success
are bringing customers in the door and then keeping them loyal to the merchant’s
brand.
Solution: Visa’s real-time messaging technology (RTM) allows merchants to
provide more relevant offers to enrolled consumers by combining historical
purchasing behavior with real-time purchase location information. Offers are
delivered to enrolled consumers through their mobile devices and personalized to
them.
Visa created a new revenue
stream by maximizing the value
of
Real-time
purchase
location
information

Outline
• Defining mobile money
applications
systems
• Case studies
• Summary

Summary
• Mobile money encompasses existing and new forms of
payment processing
• Today’s opportunity is modest, but growth in selected
applications is expected to be explosive
• Many scenarios for mobile money alter existing payment
processes while others create new patterns and
opportunities for commerce
• Deploying mobile money solutions requires a mix of
business and technical depth

© IBM Corporation 2012. 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

Mobile Payments: An IBM Point of View

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