PAYMENTS Insight. Opinion. VOL 8 MOBILE PROXIMITY PAYMENTS: THREE ECOSYSTEMS FIGHTING FOR VICTORY FINN-OVE PUTENSEN At the end of 2013, the mobile payments market Junior Associate looked quite different than it does today. Espe- cially “new attackers” such as start-ups tried to MIRKO KRAUEL conquer the market by introducing proprietary Principal solutions. Large providers like Yapital (Luxem- bourg / Germany) or LevelUp (USA) invested heavily and also PayPal introduced a solution for CONTENT 2014 was a very interesting year in terms of mobile proximity payments. Aside from the three mobile proximity payments, the payment via a comparably large providers, numerous start-ups mobile phone at the POS. The latest major devel- released their – often QR-based – payments solu- 1 MOBILE PROXIMITY PAYMENTS opment is the entry of Apple’s Apple Pay solution tions, trying to win merchants and market share. Due to major developments the mobile payment into the mobile payments market. Shortly after its landscape changed in the past year. Mirko Krauel and launch, Apple Pay was already supported by more In addition, banks also launched their own pay- Finn-Ove Putensen will show that three major ecosys- than 500 banks in the US. This has caused some ments solutions in several European countries. tems fight for market victory and give a forecast of who reactions from other players like the – not yet Some successful examples of this are Swish could win. launched – CurrentC solution from competitor (Sweden) or Paym (UK). These two solutions MCX. The merchants who will participate in the started with P2P payments but plan to extend 3 PUBLIC MARKET VALUATIONS MCX initiative are currently blocking the Apple their services in the near future (e.g. mobile prox- Public companies in the payments universe have experi- Pay solution. Putting this emotional discussion imity payments). These banking initiatives can enced an interesting third quarter. Markus Massem aside, we believe that the launch of Apple Pay will be very strong when banks collaborate, e.g. Paym takes a look at valuation drivers and benchmarks the dif- be the final brick for the NFC ecosystem to suc- already acquired more than 1.6 million customers ferent groups within the payments universe. ceed. In this article, we will review the key devel- since its launch this past April. opments of the last twelve months and give an 4 M&A ACTIVITY outlook on the potential mobile proximity pay- What are the key drivers of M&A activity? Which trans- ments landscape at the end of 2015 as still many actions made headlines in the 3rd Quarter of 2014? changes are lying ahead of us. What are recent takeover rationales? Andreas Haber- setzer and Robert Kayser answer these questions. Key developments of the mobile payments land- scape in the last twelve months 6 VENTURE CAPITAL In oversimplified terms, currently three ecosys- Yet again the Innovalue team reviews the latest payment tems are fighting for overall leadership in the startup funding activity (Q3 2014). What are current mobile payments market: product or service innovations for investors, and what are Proprietary solutions such as PayPal, large the global investment trends within the payment start-ups like Yapital and the other “new ecosystem? attackers” Bank-based solutions such as Swish 8 M&A ACTIVITY (Sweden) and Paym (UK) Transaction overview Traditional scheme-based solutions that are supported by Apple, Google and mobile 13 VC ACTIVITY network operators Transaction overview PAYMENTS Insight. Opinion. 2 Additionally, some of the big Mobile Network to be fed. And with the upcoming interchange case, gaining critical scale on the consumer side, Operators (MNO) began to roll out their SIM- reduction in Europe, it will not be easy to find a and ensuring broad acceptance on the merchant based mobile payments solutions for their sustainable business model for all participants. side. But the key problem is that bank initiatives Android smartphone base. Vodafone, for exam- Banks also must ensure that they retain customer can only survive if the majority of the relevant ple, launched their Vodafone SmartPass in ownership with regard to financial services. banks in one country will join the solution in order November 2013 in Spain and recently rolled out to creative sufficient scale and to convince the the service in the UK. "The launch of Apple merchants to become integrated. In many coun- tries where the banking landscape is highly frag- Pay created positive The landscape was very fragmented in terms of mented, this alignment will not be easy to achieve. providers, technology and strategy. This murky momentum for Today, in countries where few banks dominate the picture became at least a little bit clearer at the scheme-based solutions and market, we already see relevant cross-banking beginning of 2014 due to two major develop- had a positive spill-over effect, initiatives. Paym (UK) for example started with a ments. First of all, Google introduced Host Card P2P use case but has also moved into consumer- even for other solutions such as Emulation (HCE), allowing a cloud-based solu- to-business use cases and might also grow to the tion for POS proximity payments based on the Google Wallet." POS. international schemes. This removed the gate- keeper position of MNOs. In February 2014, both We believe that the most proprietary solutions Conclusion Visa and MasterCard announced that they will will only survive in certain merchant segments We have demonstrated that, at the moment, support HCE. As a second development, Apple (e.g. restaurants) or for certain use cases (e.g. there are three key competing ecosystems fight- launched its payments solution in the US, also order-ahead and window shopping). The big ing for victory in the mobile proximity payments relying on a scheme-based approach in combina- question is if one of the players will be able to market landscape. All of them are facing serious tion with its own hardware secure element. generate sufficient scale in order to become a challenges that they need to solve. As mentioned payments scheme on its own. We expect that due above, we believe that on a global level the recent An outlook on the potential mobile proximity to the pure amount of initiatives and the resulting developments might give the scheme-based solu- payments landscape at the end of 2015 marginalisation, consolidation will now start and tions an advantage over the other ecosystems, We therefore believe that the launch of Apple Pay increase throughout 2015 – only the major provid- but this needs to be seen and there has to be a created positive momentum for scheme-based ers will survive the consolidation. sustainable business case for all participants. solutions and had a positive spill-over effect, even Within the proprietary solutions, we think that for other solutions such as Google Wallet. For It remains rather interesting for banks to develop only the biggest providers will survive, with some instance, Google Wallet has seen a 50 per cent their own solution in order to keep complete con- small providers potentially able to find an attrac- increase in transactions on a weekly basis after trol over the consumer relationship, to avoid tive niche. The consolidation in the industry will Apple Pay’s launch. Additionally, MNO wallets being pushed back into a pure enabling role, and begin now. Cross-banking initiatives are very can – if they reduce their current hurdles and to find a solution where they don’t have to share interesting, but they will only be successful if the restrictions – participate. But there’s one serious their revenues with a lot of players. Major chal- majority of relevant banks in a country align and obstacle: within the system, many mouths have lenges include developing an attractive business cooperate on such a joint initiative. Market relevance and readiness of mobile payments solutions Relative market relevance Scheme-based solutions • Appearence of suitable payments solutions (e.g. Apple Pay, Google Wallet, HCE) • Builds on existing infrastructure (e.g. acceptance at POS) and scheme back-end High • Will be relevant in the future not only in the USA but also in Europe Proprietary solutions • Partially, mass-market suitable solutions existent (e.g. Paypal, LevelUp, Yapital) • Limiting factors are e.g. acceptance and lack of consumer base • Have to differentiate from payments in order to survive beside scheme-based solutions Bank-based solutions • Readiness differs from country to country (e.g. Paym in UK with relatively high readiness) • High fragmentation / institutional issues of banks as limiting factors • Will be successful in some markets where banks can align but not in all countries Mass-market readiness Today Tomorrow PAGE 1 PAYMENTS Insight. Opinion. 3 PUBLIC MARKET VALUATIONS AND THE MARKET ENVIRONMENT MARKUS MASSEM Senior Associate Public markets have been choppy as of late after The public companies captured in our payments Visa saw a 4% jump in after-hours trading follow- concerns of a slowdown in global growth knocked universe (see end of article for listing) have ing its earnings results, as investors reacted posi- down the major indexes in mid-October. Since gained ground over the past two weeks through tively to the earnings report showing a marked then, broadly upbeat corporate earnings, contin- the end of October. This has been the result of improvement in cross-border transactions and ued improvement in U.S. economic data and the solid quarterly earnings and has largely made up growth in international revenue. Also guidance unveiling of an addi- for the losses incurred in was bullish with projected revenue growth in the tional stimulus from late September and the first low double digits for the fiscal year 2015. Master- the Bank of Japan have "The public half of October.