This document discusses mobile payments and their potential impact. It covers topics like what mobile payments are, their effect on the payments value chain, barriers to adoption, and payment options. While mobile payments are in early stages, they may significantly change the payments landscape by converging payment mechanics, disrupting existing players, and providing access to the unbanked. However, barriers like security concerns, fragmentation, and a lack of ROI for merchants could slow widespread adoption.

1. Mobile Payments
What’s it all mean?

2. Topics considered
 What is mobile payment?
 Mobile’s impact on payments
 Mobile’s impact on value chain
 Mobile’s value proposition
 Mobile payment barriers
 Mobile payment options
 Mobile payments – paradigm change or hype?
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3. What is mobile payments
First & foremost it is a payment
$
An electronic payment utilizing a mobile phone as the device to :
Give consumer access to the payment source
Deliver payment authority to the seller
It is not
Mobile banking
Mobile selling
Mobile advertising
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4. The payments paradigm
Financial
Intermediary
1. Manage cash
2. Access credit
Settle non-cash transactions
Payor
1. Buy/Sell
2. Return
Payee
Mobile payments does not break this paradigm
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5. Mobile’s impact on payments
Evolution of mobile payments will have as
disruptive an impact on today’s payments as
credit card did on checks & cash
The future is coming & fast
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6. Mobile payment revolution
Ubiquitous channel
Opportunity e-wallet realization
#1 Interact Channel
Cost
Interactive model
Pay-net reformation
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7. Mobile drivers of payment evolution
Ubiquitous channel Interactive model
• Natural adoption progression • High customer touch
• Social use influence • Customer choice driven
• ‘Always on’ identity validation
• On-demand offering
e-wallet realization Pay-net reformation
• Any source, any type, anywhere, • Front-end becomes mobile hub
any time • 2-part select/approve process
• “Full relationship” model • Consistent network mechanics
• Trust & acceptance branding moves • Transaction compatibility
to mobile e-wallet • Interchange rate competition
• Flexible funding models • Condensed acceptance branding
• Consumer usage controls
• Electronic issuing
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8. Impact of mobile access device
 Ubiquitous, programmable, interactive,
graphical, multi-mode
– 50+ million more U.S. subscribers than there are
Internet users, and mobile phone penetration is
surpassing 90% of the U.S. population
 All payments through a single device possible
– It is agnostic to payment type or source
 Can improve the payment select/approve process
 An additional layer for fraud, theft, misuse
 An additional layer against fraud, theft, misuse
 Already the channel for some purchases
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9. Mobile phone penetration
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10. e-Wallet realization (multi-source)
Easy, secure universal payment mechanism
Account selection at time of use
Connection to selected payment network
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11. Fraud implications of mobile payment
Pros Cons
 Adds tools to detect/prevent (i.e.  Adds layers of possible penetration
encryption, device validation, (i.e. phone, cell transmission, hub
interactive approval, multi-factor, interaction)
tokenization, location)  Phone config & programs are
 Can make counterfeiting, theft & consumer controlled
merchant fraud unappealing  Exposure broader than single card
 Superior to EMV in protection
 Eliminate CNP scenario risk
Approaches
 Phone will be penetrated, don’t hold meaningful
identity/auth information
 Use tokens in phone to hub level transmissions
 Hub should hold authentication details in
secure/isolated data vault
 Validate the phone used
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12. Mobile evolution outcomes
 Rise of e-wallet  Network shift
 e-wallet presence vs. wallet share  Move to IP foundation
 Family/social network helps  Move to cloud delivery
drive e-wallet choice  Transaction format convergence
 Situational/offer driven pay  Dilution of existing acceptance
source choice brands
 Customer service to mobile  Redistributed & reduced
 Micro-issuing feasible interchange
 Disappearance of cards
 NFC key requirement???
 Move to electronic issuing
 Security leap
 Major TPF loss reductions
 CNP fraud eliminated
 Broader FPF evaluation
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13. Mobile’s impact on payments
 New access device
 Multiple payment source delivery
– not a new payment source
 Accelerating payment mechanics convergence
 Opportunity to redesign transaction network path
 More complex commerce interaction at time of
purchase
 Path for un/under-banked enter electronic
payment fold
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14. M-payment network shift
Legacy Pay Network
Payment
Network M-Pay
Network
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15. Accelerating payment convergence
 Establishes common mechanics for any payment
source
 Single payment execution device
 Can/will support any payment type
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16. Opportunity to redesign network path
 Open front-end transport network
– Payment type & source agnostic
– IP-based
 Drive network convergence
– Transaction format
– Technical interface
 Improve transaction security capability
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17. More complex commerce interaction
 Purchase search/compare
 Merchant choice influence
 Purchase motivation
 Purchase tracking
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18. Un/under-banked pathway
 Gen-Y is already seeking out
 Mobile penetration vs. bank penetration
 Lack of national boundaries
 Non-bank account support
 Peer-2-Peer support
 Easy access
 Better security than cash
 Can couple with money management
 Brings un/under-banked into electronic
transaction fold
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19. Explosion of value chain providers
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20. Impact on payment value chain
 Banks are more isolated
from the consumer
Banks
 Payment network brands
Networks
weaken over time
Merchants
Acquirers  Carriers may gain some
Product
relationship stickiness
Customer Payment Payment Clearing & Account
development acquisition initiation processing settlement management
 Major opportunity is for 3rd
party providers
Network clearing, settlement
Customer engagement Transaction Processing
& backoffice management  Acquirers could become
Banks
less relevant
Networks  New critical alliances will
Merchants form
Acquirers
Carriers
 Major shifts in transaction
3rd Party
revenue model
 All depends on dominant
provider model
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21. Currently fragmented marketplace
Product Customer Payment Payment Clearing & Account
development acquisition initiation processing settlement management
Mobile payment
gateway
Mobile e-wallet
3rd party payment Retailer Interface
Mobile swipe
Mobile Bank
Services - Solutions
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22. Mobile payments’ value proposition
Lower fraud costs
Lower origination costs
Higher transaction volume
•offset by lower transaction fee
•net increase in transaction revenue??
Deliver robust combined payment vehicle
•Lower risk per $ balance
Ease of access Lower cash handling
Ease of use? Should be's???
Flexibility/choice •Transaction cost
Control •Sales increase
Security Eventually's
Information •Market presence/awareness
Purchase pricing (eventually) •Sales incentive
Payment pricing (eventually) •Consumer intelligence
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23. Fed Mobile Business Model
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24. Mobile evolution deterrents
 Consumer security concerns  Working with elephants
– Perception vs. reality – Payment $’s in legacy players
– Provider assurance – Major legacy players self-
 Merchant acceptance protection
– Solution investment – Big firm slowness
– ROI – “Follow the herd” mindset
 Initial market fragmentation
– Too many directions
– Best approach clutter
– Unclear leaders
 Demographic resistance
– Younger & tech savvy adopt
faster
– Remainder slowly
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25. Mobile payment barriers
 Protectionism by players
 Merchant ROI for acceptance
 Cost of usage to parties
 No viable business model
demonstrated
 Confusion on regulatory
oversight
 Current fragmentation of
solutions

Failure to meet consumer
needs & expectations Rapid adoption depends on

Security perceptions mitigation of these barriers
 Lack of interoperability &
technical standards
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26. Mobile payment solution choices
 Decisions in each dimension
critical to solution success &
survivability
 Breadth of type & sources
Provider Payment coverage aids convenience
model types factor
– “One device to rule them
all”
 Current solutions/pilots are
all over the range on these
Interaction Payment – Industry is hunting for
model sources what works
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27. New paradigm or hype?
 Will reform payment value
chain
 Potential for disrupting major
chain players
 Suspect NFC element is more
hype than a driving change
 Technical capability still early
in hype cycle
 Significant barriers to broad
adoption constrain pace
 Major & minor participants
are exploding
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28. Pace of mobile interest
 Mobile growth is still in early
stage maturity
 Pace is exploding
 N.A. has been lagging
(largest market value)
 2010 showed continued
acceleration
 Mobile banking is ahead of
mobile payment in maturity
 Represents best model of
payment adoption potential
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29. Mobile banking adoption
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30. Key takeaways
 4+ Billion phones globally, greater penetration than banking
 Major change impact to the Point of Transaction
 Mobile pay interaction is source of new products, services &
revenues
 Path to Gen-Y, un/under-banked, & cash transaction reduction
 Ease of use, security, freedom of choice are consumer keystones
 Clear merchant ROI is key impediment
 Disruption of existing payment players is high potential
 Big payment players & carriers are rushing in
 Solution & participant space highly fragmented, unclear leaders
 Will drive payment mechanics convergence
 Will drive payment network improvement
 No dominant mobile pay offering has arrived yet
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31. Further information on this
Contact me
BCI provides focused consultation and assistance in the
payment systems area
 Payments solution evaluation  Project advisory or management
 Strategy and issue consultation  Architecture direction & rollout
• Quicker and more accurate problem identification and solution
• More dependable delivery of key payment initiatives/projects
• Creative and tested solutions to payment systems improvements
• An objective viewpoint that sees the whole picture
• Deep experience delivering business value through technology
Executive IT help & leadership on payments when you need it
Contact: Mike Batton, President, Batton Consulting Inc. | mike@battonconsult.com | 630-443-7735 (O) 630-862-6799 (M)