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A Long & Winding Road for Mobile PaymentsFebruary 2013
Upwardly Mobile
Introducing the Speaker
1
Universal Interest in Mobile PaymentsThe driver behind interest in Mobile Payments varies depending on the entity
Mobile Payments = A potential
lucrative new revenue source
The vested interest in the eventual widespread adoption of Mobile Payments is on the rise, across governments and corporations in multiple verticals
Optimism around the growth of Mobile Payments is largely due to the high levels of penetration of mobile phones
This optimism has translated into real
investment in the field. By 2015-16, investment estimates exceed:
$ 1 Trillion
Why are Industry Participants Optimistic About Mobile Payments?
Electronic vs. Cash15% vs. 85% penetrations
Bank Accounts vs. Mobile Solutions1.8 billion vs. 5.9 billion (reach)220+ years vs. 25 years (pace)
Source : Citi Research, Citi GTS, GSMA Mobile Money For Unbanked2
Investment Direction in Mobile Payments
6 months of > 10 announcements / day*
Mobile Payments is an incredibly exciting and fast-moving field
ISIS, the mobile commerce joint venture created by AT&T, T-Mobile and Verizon, made its mobile wallet available in Austin & Salt Lake City
Apple released the iPhone 5, with a host of new hardware and software features, but not NFC support
PayPal announced that consumers with Android devices can pay at Starbucks using its payment service
MoneyGram partnered with Dutch digital security provider Gemalto to allow mobile money transfers to any of its 248,000 global locations
ParkMobile USA is launching a new NFC-enabled mobile parking service in Michigan to allow motorists to pay for parking via their mobile phones
Telefonica has struck global direct-to-bill deals with Facebook, Google, Microsoft and RIM, enabling users to pay for content through their mobile phone bills
* Period between 3/2012-9/20123
Participants in Mobile PaymentsWe consider 5 key categories of participants investing in Mobile Payments. Their achievements include:
Merchants Continued rapid support of non-traditional card acceptance systems, especially the smaller and micro-merchants
Expended their vision of a “by the merchants, for merchants” Mobile Payments ecosystem through a venture called “Merchant Consumer Exchange” (MCX)
Technology & Internet Companies
Invested in supporting technology to enable security and funding
Introduced chip-and-pin support in addition to standard card swipes
Introduced credible alternatives to NFC-centric technology- includes PayPal’s fast evolving offline approach and Google’s redesigned wallet approach
Telecom Companies
Introduced direct-carrier billing relationships in several geographies
Made progress on SMS based mobile payments in several emerging markets
Continued the process of starting regional partnerships to introduce wallets (partners include card networks, technology companies and banks)
Card Networks
Unveiled incremental details about their respective wallets
Worked on expanding their funding reach beyond traditional bank relationships by investing in prepaid and cash-based funding options
Focused on targeted offers through either M&A or specific merchant arrangements or both
Banks & Financial Processors
Processors have unveiled products that could extend mobile payments capability to smaller financial institutions
Larger U.S. banks have agreed to collaborate/exchange data to facilitate P2P transactions
Unveiled regional inter-bank or bank/telecom collaboration on wallets
This is just the beginning…As quick as the market is moving, the Mobile Payments is still in its infancy
Although we are now able to take a guess at the lay-of-the-land for a future Mobile Payments ecosystem, we still look for a multi-year path to reasonably widespread adoption
It may be a long and winding road, but every day brings us closer to reality
Let us address some of the key topics in the industry around Mobile Payments
5
1. Processing “Rails” & Transactions
Processing “Rails” & TransactionsIntroducing mobility comes along with introducing changes to the payment value chain
There are potentially two ways in which the mobile payment transaction differs from a traditional transaction
Integration to a Commerce Platform
The mobile phone is now an overlay to the payment transaction itself:
• Information • Interaction
Creates potentially large adjacent markets
Gives rise to new business models:
• Social/commerce aspects could be integrated
Transaction Mechanism
The underlying transaction mechanism can change
Consumer can use NFC technology to perform a transaction
• Form factor change from a credit card to a smart phone
Process of authentication and clearing
7
2. Card Network Incumbents and their actions
Card Network Incumbents: Visa, Mastercard, Amex
Visa - Drive more volume and commit to a B2B model
V.me Cyber Source
Fundamo Vodafone
Square
MasterCard - Drive more volume and commit to a B2B model
Paypass Western Union Google
Telefonica Truaxis
American Express - Enter new marketsegments and build new geographies
Serve Twitter Facebook
Foursquare
Lianlian Group
9
Although card network incumbents are not at the risk of material disintermediation of their business model, they have invested in non-traditional models to increase market relevance
3. Targeted Offers & Data Ownership
Targeted Offers
Data Type
Merchant-LevelPurchase History
Data Collected Offer Made
SKU-LevelPurchase History
Purchase History+
Real-Time Location
Customer has Completed Several
Recent Purchases at Local Golf Course
Customer PurchasesE-Book Reader at
Bookstore
Frequent CoffeeDrinker is Driving by Popular Coffee Shop
Sporting Goods Store Offers $20 off Purchase
of $100 or more
Bookstore Offers 15% Discount on Compatible
Accessories (Case / Headphones)
Coffee Shop Offers 25% Discount at Nearby
Location
Browsing History+
Real-Time Location
Consumer Recently Searched for Jeans and is Walking by Clothing
Store
Clothing Store Offers $10 off Purchase of
Jeans at Nearby Store
Data Type
Merchant-LevelPurchase History
Data Collected Offer Made
SKU-LevelPurchase History
Purchase History+
Real-Time Location
Customer has Completed Several
Recent Purchases at Local Golf Course
Customer PurchasesE-Book Reader at
Bookstore
Frequent CoffeeDrinker is Driving by Popular Coffee Shop
Sporting Goods Store Offers $20 off Purchase
of $100 or more
Bookstore Offers 15% Discount on Compatible
Accessories (Case / Headphones)
Coffee Shop Offers 25% Discount at Nearby
Location
Browsing History+
Real-Time Location
Consumer Recently Searched for Jeans and is Walking by Clothing
Store
Clothing Store Offers $10 off Purchase of
Jeans at Nearby Store
Data Type
Merchant-LevelPurchase History
Data Collected Offer Made
SKU-LevelPurchase History
Purchase History+
Real-Time Location
Customer has Completed Several
Recent Purchases at Local Golf Course
Customer PurchasesE-Book Reader at
Bookstore
Frequent CoffeeDrinker is Driving by Popular Coffee Shop
Sporting Goods Store Offers $20 off Purchase
of $100 or more
Bookstore Offers 15% Discount on Compatible
Accessories (Case / Headphones)
Coffee Shop Offers 25% Discount at Nearby
Location
Browsing History+
Real-Time Location
Consumer Recently Searched for Jeans and is Walking by Clothing
Store
Clothing Store Offers $10 off Purchase of
Jeans at Nearby Store
Targeted Offers: Examples
Given the trend in advertising industry towards tangible return on investment based on efficient targeting, financial transaction data is considered a extremely valuable resource
Financial Transaction Data: Ownership & AccessThe ownership of financial transaction data is a tricky with each player having access to different elements
• Card issuers are well-positioned given their direct access to consumers, but they lack SKU level data. The scope of their information is also narrow to the spend on their cards
• Card networks have the fullest view of broad payment trends given their vast volumes, but they lack direct access to consumers and to SKU-level data
• Merchants have the richest SKU-level data, but often lack direct access to consumers and have a narrow view of spending only at their stores.
• Private label credit card providers have access to full array of data. They are well-positioned to make targeted offers, though the scope of this offering is typically limited to singular programs.
Card Issuers Merchants
Customer InformationName
Contact InfoFinancial Profile
Purchase SummaryMerchant Data
Purchase AmountDate / Time
Customer Account Number
Merchant InformationItems Purchased
Discounts / Coupons Used
Card Networks & Acquirers
Proprietary Data Proprietary DataShared Data
Card Issuers Merchants
Customer InformationName
Contact InfoFinancial Profile
Purchase SummaryMerchant Data
Purchase AmountDate / Time
Customer Account Number
Merchant InformationItems Purchased
Discounts / Coupons Used
Card Networks & Acquirers
Proprietary Data Proprietary DataShared Data
Card Issuers Merchants
Customer InformationName
Contact InfoFinancial Profile
Purchase SummaryMerchant Data
Purchase AmountDate / Time
Customer Account No
Merchant Information
Items PurchasedCoupons Used
Card Networks & Acquirers
Proprietary Data Proprietary DataShared Data
12
4. Ecosystem Evolution
Ecosystem Evolution
Mobility clearly complicates the traditional payment ecosystem and process flow. It introduces to the picture
more steps, more roles and more role-players in the ecosystem.
We are no longer dealing with the traditional 4-party ecosystem consisting of:
- Consumer- Merchant- Issuer- Acquirer
Mobile Payments creates new roles due to:
The integration of social/commerce functionality into the purchase
transaction
Changes in how the purchase transaction is executed
14
New and existing players are increasing their offerings in the Mobile Payments space
5. The Technology Choice
The Technology ChoiceWhich technology is likely to win and become the global standard for Mobile Payments?
Near- Field Communications
Radio-Frequency
Identification
Quick Response
CodeSMS
TechnologyCloud-based Technology
(Internet & Wi-Fi & GPS)
• Presumed de-facto standard
• Allows mobile devices with a NFC chip to send data to an NFC enabled POS device
• Secure element that saves confidential data in an encrypted format
• “Tap & Pay”
• Uses radio waves to transfer information
• Information is transferred from and RFID tag to an RFID reader
• Uses two-dimensional bar codes to store unique information
• When a Smartphone is placed in front of a scanner, the identifier is passed to the mobile payment system and then to the POS
• Very useful in emerging markets since it can be used without a Smartphone
• Text messages are used to transfer money
• Uses the wireless internet to pass payment information from the consumers phone to the merchants POS servers
• Information is pushed over a cellular and/or Wi-Fi network
16
6. Global Standards & Regulation
Mobile Payments Regulation in US: A case study
Federal Reserve Board (FRB)
Federal Deposit Insurance
Corporation (FDIC)
Office of the Comptroller of the Currency
(OCC)
National Credit Union
Association (NCUA)
Consumer Financial
Protection Bureau (CFPB)
Federal Trade Commission
(FTC)
Federal Communications
Commission (FCC)
Multiple regulatory agencies could issue or influence the regulation for the mobile payments industry
Complex regulatory environment with variable standards depending on the status of the participants
Consumer protection is of paramount importance and many regulators are focused on this area
18
Mobile Payments Regulation in US: A case study We expect regulation to be a focal point as the industry grows
ConsumerProtection Regulation
Better Mobile Specific
Technology (Ex : Facial
Recognition )
Wide spread consumer adoption
Source: Fumiko Hayashi, Federal Reserve Bank of Kansas City, July 2012
Appropriate consumer protection regulation can clearly help the adoption of mobile payments
19
7. Mobile Wallet Attributes
Desirable Mobile Wallet Attributes
Mobile wallet
Consumers
Banks & Financial
Processors
Card Networks
Merchants
……..
Technology & Internet
Companies
Security
Speed & Ease of Use
Ubiquity
Convenience
End to end experience
Ecosystem integration
Cost
Desirable attributes differ based on participants but a few characteristics are universal
21
Desirable Mobile Wallet Attributes: Examples
Payments
Loyalty
Rewards
• It Works Today: Does not need any additional hardware or a special phone
• Not Just Payments: Takes consumer centric approach by consolidating useful consumer tools
• Loyalty/Rewards: Makes it easy to earn, check and use loyalty points
• Mental Accounting: Allows for partitioning of money for coffee (essentially a gift card that the consumer can reload)
Google Search, for a restaurant
Allow merchants to present Google Offers
Research choices with Zagat
Share the experience with Google Plus
Payment via Google Wallet
Search OffersResearch Pay Share
End to end experience
Ecosystem integration
Starbucks mobile wallet has grown to 42MM transactions by focusing on the entire wallet experience
Google’s integration of products show how wallets fit into larger information ecosystem
“StarbucksMobile
Wallet”
22
8. Consumer Adoption
Consumer Adoption: The Holy Grail
Consumers typically adopt if they see value
• M-Pesa• Starbucks
Behavioral change is in progress
• Level Up• Park mobile
Broad adoption of ecosystem players
• Including small merchants
• Including small banks
We remain believers in the multi-year adoption of mobile payments. There are several factors that support our view
24
It’s time for your
Questions?
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