Mobile Payments - Threat or Opportunity?

Introduction

Mobile devices are too sophisticated and too widely held not to become the payment tools of the future. However developments have been slow and the focus must move on from short-term ROI, as investing in mobile is really about shaping the payment device of the future. This report provides detailed analysis of the key opportunities in mobile and the true threat from not taking advantage.

Scope

*In-depth analysis of the opportunity for mobile payments in each of the three major payment segments: P2P, NFC, and mobile commerce.

*Examines the scale of the global addressable market for each of these segments, along with case profiles of success stories and notable innovations.

*Outlines the strategic need for issuers to prioritise m-commerce over NFC and P2P payments to generate revenue now and protect future market share.

*Highlights the critical importance of investing in mobile as a means for banks and schemes to remain central to the future of retail payments.

Highlights

Mobile penetration continues to increase, with 4.6 billion mobile subscriptions at the end of 2009. This suggests nearly two in three people globally have a mobile handset. While the internet is often cited as the great telecommunication revolution of the last 25 years, the impact of mobile technologies is undoubtedly much more widespread.

The view of some within the industry is that NFC is the payment product that will ultimately drive the rollout of wider mobile payment services. NFC will certainly develop strongly, but the need for hardware upgrades means that it cannot be the first part of the mobile payment landscape that the industry fully brings to market.

Mobile commerce must be the immediate priority. With global online sales of EUR1.09 trillion to target, no costly hardware upgrade to manage and merchants who will embrace any opportunities to extend their sales channels to mobile this opportunity is huge. Most importantly if the cards industry does not move on m-commerce, others will.

Reasons to Purchase

*See the opportunity for issuers, acquirers, and schemes in each of the three sub-segments of mobile payments: P2P, NFC, and mobile commerce.

*Learn where the big opportunities are within each category and where there is space to innovate and create new mobile payment services.

*Understand the importance of acting now on m-commerce to ensure that you are not cut out of the future mobile payments value chain.


Report Highlights
Mobile penetration continues to increase, with 4.6 billion mobile subscriptions at the end of 2009. This suggests nearly two in three people globally have a mobile handset. While the internet is often cited as the great telecommunication revolution of the last 25 years, the impact of mobile technologies is undoubtedly much more widespread.

The view of some within the industry is that NFC is the payment product that will ultimately drive the rollout of wider mobile payment services. NFC will certainly develop strongly, but the need for hardware upgrades means that it cannot be the first part of the mobile payment landscape that the industry fully brings to market.

Mobile commerce must be the immediate priority. With global online sales of EUR1.09 trillion to target, no costly hardware upgrade to manage and merchants who will embrace any opportunities to extend their sales channels to mobile this opportunity is huge. Most importantly if the cards industry does not move on m-commerce, others will.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Despite the hype, mobile payments have yet to take off 2
Mobile payments are not the same thing as mobile banking 2
Mobile devices should be the natural heir of plastic cards, but significant challenges remain 2
Ubiquity in ownership and greater functionality give mobile devices clear advantages over cards 2
However, the challenges of bringing together a range of stakeholders continue to hold mobile back 2
Mobile payments: threat or opportunity? 3
Mobile holds huge opportunities across m-commerce, NFC and P2P payments 3
M-commerce is a huge potential market and no longer restricted to digital content 3
Mobile P2P payments present a clear opportunity to replace paper with card transactions 3
NFC is the biggest opportunity in mobile but will be the last area of mobile to develop 4
Mobiles also have unique properties that should be leveraged to create entirely new payment services 4
Combining m-commerce and NFC enables handsets to be the top tools for browsing, payment and fulfillment 4
PayPal's move into mobile P2P points to direct opportunities with m-commerce 4
Combining NFC and P2P is a less developed opportunity, but one that has potential nonetheless 4
The real threat for the payment industry is not being able to capitalize on this opportunity 5
Despite the lack of progress to date, mobile will undoubtedly dominate the future payments landscape 5
The true threat is that inaction will see the cards industry disintermediated from the future market 5
M-commerce must lead the way, as NFC will not drive mobile payment rollout 5
M-commerce is the most attractive and immediately addressable market, not NFC 5
Creating the NFC business model is a challenge that must be resolved 6
Investing in mobile is not about short-term profit, it is about shaping the future of consumer payments 6
Table of Contents 7
Table of figures 8
Table of tables 9
Despite the Hype, Mobile Payments Have Yet to Take Off 10
Despite the attention paid to mobile, there has been little progress to date 10
Defining mobile payments: Any payment initiated with a mobile handset 10
More specifically, mobile payments include P2P transfers, NFC and m-commerce transactions 11
The user interface for mobile payments and banking is becoming more advanced 12
Apps may provide the best experience but can not yet reach the mass market 12
Mobile devices are the natural heir of plastic cards, but significant challenges remain 14
Ubiquity in holding and greater functionality give mobile devices clear advantages over cards 14
The holding of mobile devices is extremely high on a global level and still rising 15
Consumer use of mobiles extends far beyond simply telephony 17
However, the challenges of bringing together a range of stakeholders continues to hold mobile back 18
Viable business models for mobile payments remain hampered by the potential number of players involved 18
Key players have yet to agree on technical standards 20
One of the most successful mobile payment platforms in the world is proprietary 21
NTT Docomo's success in mobile has been driven by its effective domestic monopoly 21
The collapse of Simpay shows the difficulties in even bringing together MNOs to work on mobile payments 22
Mobile Payments: Threat or Opportunity? 24
Mobile holds huge opportunities across m-commerce, NFC and P2P payments 24
M-commerce is a huge potential market and no longer restricted to digital content 24
The development of iPhone apps to facilitate m-commerce shows how this may develop 25
The key to m-commerce is creating additional business through meeting a need for immediacy 27
Mobile P2P payments present a clear opportunity to replace paper with card transactions 28
There are four clear areas of P2P where mobile could develop 28
The main challenge with domestic P2P payments in developed economies is fees, but services for merchant acceptance could drive take-up 29
The lack of alternatives makes the potential for domestic mobile P2P strongest in developing economies 32
The cross-border remittance market also has strong potential for mobile P2P 34
NFC is the biggest opportunity in mobile but will be the last area of mobile to develop 36
NFC also offers clear consumer and merchant benefits over contactless cards 38
Despite the market opportunity, the lack of activity in contactless is a major barrier to the rollout of NFC 41
Convincing merchants is the key, but there are other stakeholders to consider 42
Mobile also has unique properties that should be leveraged to create entirely new payment services 43
Combining m-commerce and NFC enables handsets to be the tool for browsing, payment and fulfillment 44
Mobile barcodes are an effective stepping-stone to a more complete NFC-based offering 45
However, technological limitations reduce the scope for this to become widespread quickly 46
PayPal's move into mobile P2P points to direct opportunities with m-commerce 47
PayPal's mobile products position it well to capitalize on future developments in m-commerce 48
The PayPal experience highlights the opportunity for further innovation in P2P and m-commerce 49
Combining NFC and P2P is a less developed opportunity, but one that has potential nonetheless 49
The real threat for the payment industry is not being able to capitalize on this opportunity 50
Despite the lack of progress to date, mobile will undoubtedly dominate the future payments landscape 50
Trends in mobile banking show the emergence of a link between financial services and mobile handsets 51
The true threat is that inaction will see the cards industry disintermediated from the future market 51
Mobile operators and other third parties are beginning to move into this space 52
Interchange revenue is a compensation at the moment, but may also be removed 54
M-commerce must lead the way, as NFC will not drive mobile payment rollout 55
M-commerce is the most attractive and immediately addressable market, not NFC 55
The aim has to be achieving critical mass across all three areas of mobile payments 56
Issuers and schemes need to remember that MNOs have more to gain from NFC 58
Creating the NFC business model is a challenge that must be resolved 58
The issue of customer ownership is central to any viable business model, particularly in NFC 58
The issue of revenues is a critically important one 61
Investing in mobile is not about short-term profit; it is about staying involved in the future of consumer payments 62
Investments in mobile payments are not going to generate a return within even three-to-five years 63
Mobile will replace the plastic card, and this will define the future role of banks and schemes in payments 63
Offerings that are led by consumer demand, rather than technical feasibility, will be those that succeed 64
Appendix 66
Supplementary data tables 66
Definitions 68
Credit card 68
Debit card 68
European Payments Council (EPC) 68
ePurse/eWallet 69
Interchange 69
Merchant service charge (MSC) 69
Mobile network operator (MNO) 69
Mobile payments 69
Point-of-sale (POS) terminal 69
Methodology 69
Primary research 69
Secondary research 70
Further reading 70
Ask the analyst 71
Datamonitor consulting 71
Disclaimer 71
List of Tables
Table 1: Current standards bodies and their sector focus 20
Table 2: The four areas of P2P payments and their relative attractiveness for mobile 29
Table 3: Total online commerce (goods and services) by country, 2009 66
Table 4: Total addressable market for contactless payments by value band 67
Table 5: The total global addressable market for contactless payments by merchant sector 67
Table 6: Total online payments (for goods and services) by country made by PayPal, 2009 68
Table 7: Current relevant Datamonitor publications 70
Table 8: Future relevant publications 71
List of Figures
Figure 1: The user experience in mobile payments is advancing 12
Figure 2: More advanced mobile platforms are only currently available to a niche audience 13
Figure 3: On a purely functional level, mobile devices are the next stage in the development of payment technologies for POS payments, 2009 15
Figure 4: Mobile phone subscriptions far surpass any other communications tool globally, 1998-2009 16
Figure 5: Mobile phone usage has become widespread across all parts of the globe, 2009 17
Figure 6: The broad span of potential players in m-commerce is slowing its wider roll-out 19
Figure 7: Docomo has successfully leveraged its market power to develop a multi-functional mobile payment service 22
Figure 8: The global online commerce market will hit €1.09 trillion by the end of 2009 25
Figure 9: The Ocado App provides a rich user interface for m-commerce 26
Figure 10: Square provides a way for merchants to accept card payments using their iPhone and a plug-in magnetic stripe reader 32
Figure 11: Mobile phone subscriptions globally are rising in line with the value of remittances, suggesting an opportunity to bring these two elements more closely together 34
Figure 12: The addressable market for contactless payments globally is $963 billion 37
Figure 13: Petrol stations are the largest potential market for NFC payments 38
Figure 14: In the Payez-Mobile trial, consumers making NFC payments above €20 could pre-authorize their payments using the keypad on their phones 40
Figure 15: Integrating discounts with NFC is a potential value-creator for the merchant 41
Figure 16: There are opportunities for mobile payments to occupy new areas of the payment landscape where there is overlap between the major clusters of opportunity 44
Figure 17: Lufthansa is marketing its mobile boarding pass as a time saving option 46
Figure 18: The US saw an estimated €16 billion in PayPal transactions during 2009 47
Figure 19: PayPal's mobile presence covers SMS-, WAP- and application-based services 48
Figure 20: TransferJet's service points to opportunities for P2P NFC payment products 50
Figure 21: The Mint application enables consumers to gain a view of their finances across multiple providers 52
Figure 22: MoBank customers can make m-commerce payments through their handset 54
Figure 23: Mobile payments will reach maturity when services across all three major payment areas are available 57
Figure 24: The trusted service manager sits between the MNO and issuing/acquiring banks in the NFC ecosystem 60

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