"Global trends in M-payment - Challenges and opportunities" Tunis, Feb 23rd 2010 AICTO – M-payment services

Arthur D. Little Austria GmbH Contact Person: Schottengasse 1 A-1010 Vienna Dr. Karim Taga Austria Managing Director Tel.: (43) 1.515.41-0 Fax: (43) 1.515.41-23 [email protected] 1 Agenda

1 Introduction into M-Payment

2 Market growth and perspectives

3 Key success factors and case studies

4 The M-payment value chain and potential market scenarios

5 Conclusion

2 1 Introduction – The Global M-Payment Reports

Arthur D. Little was one of the first global management consulting companies believing in M- payment services

Arthur D. Little’s Global M-Payment Report Series

2004 2005 2006 2009

Title Title Title Title

“Making M-Payments a “M-Payments Making “M-Payments Making “M-Payments Surging Reality” Inroads” Inroads-Long Report” Ahead”

¢ In the short- and medium-tern ¢ Services like m-parking or m- ¢ Credit card companies and ¢ M-payments in developed m-payments will focus on ticketing continue to dominate banks are becoming countries applicable in niche services like m-parking or m- m-payments interested in m-payments markets ticketing ¢ Disintegration of Simpay ¢ Financial and telecom ¢ Leveraging of existing ¢ Vast differences among lleading to solutions on industry players need customer base and motivation development on individual national level partnerships for market of retailers promote service success adoption markets expected ¢ SMS based payment ¢ New payment mechanisms technologyprevails, with ¢ NFC technology 2 years away besides SMS expected to play growing interest in RFID from commercialization more important role ¢ Immediate opportunities for m-payments in emerging countries

Source: Arthur D. Little

3 1 Introduction – Classification of services

M-payment services can be clustered into either remote and proximity payments and classified in either business to person or person to person transactions

Remote payments Proximity payments

Utility bills‘ Telco VAS Transporta- Shopping payment services tion ticketing Business to person M-parking Vending Restaurants Event ticketing (B2P) (open area) machines Air-time On- Membership M-parking top-up purchases cards (closed area)

Remittance Person to person share of bills (P2P) Top-up credit transfer

Prevalence of SMS (rarely IVR or WAP) Future dominance of NFC technology technology

Source: Arthur D. Little analysis

4 1 Introduction – Different order types for m-payments

Depending on own preferences and national situations shaping the value chain, m-payments can take different order types ranging from credit over debit to prepaid versions

Different order type options for m-payments

Possible order types for m-payment

Prepaid mobile Credit card / Stored value Monthly mobile bill Bank account account debit card account

3 Clearing / settlement

Mobile payment provider 4 1 Initiation Confirmation, 2 transfer of money Authorization

5 Customer Delivery of service or good Merchant

5 2 Market growth and perspectives – Transaction growth by services

We expect total m-payment transaction volume to reach almost USD 250 billion in 2012 growing at 68% p.a. – Proximity payments will grow faster, reaching a share of 51% in 2012

Global m-payment transaction growth by services

$ billions 300 CAGR 68% CAGR 08-12: 249,1 250 65% Proximity 200 payments 163,1 124% 118% 150

96,8 100 38% Remote payments 50 44,6 146% 28,9 52% 15% 0 2008 2009 2010 2011 2012 Telco related (top-up+VAS) Remittance Utility bills payment Retail purchase M-ticketing (parking+ticketing)

Source: Arthur D. Little analysis

6 2 Market growth and perspectives – Transaction growth by regions

From a regional perspective, we expect developed markets to grow slower than emerging markets: Developed markets will capture a global market share of 35% in 2012

Global m-payment transaction growth by regions

$ billions CAGR 68% 249,1 CAGR 08-12: 250 56% 86% 200 155% Emerging 163,1 87% markets 150 76% 73% 96,8 100 27% 44,6 Developed 50 72% 28,9 markets 78% 56% 0 2008 2009 2010 2011 2012

Western Europe North America Japan, South Korea and Australia Rest of Asia Eastern Europe Middle East South America Africa Source: Arthur D. Little analysis

7 2 Market growth and perspectives – Growth influencing factors

The developments in both developed and emerging countries are influenced by economic, technological, social and cultural factors, leading to distinct opportunities for market players

Developed markets Emerging markets

s ¢ Developed banking infrastructure ¢ Low penetration of banking infrastructure r o t ¢ Regulatory restrictions ¢ Low income per capita c & a


c ¢ High internet penetration ¢ Low internet penetration l i a m c ¢ ¢

i High mobile penetration High mobile penetration o g n o o l c o E n








t & c

l a f a i l c a r o u

S ¢ ¢

t Credit-card usage legacy High percentage of emigration l

u ¢ ¢ c High computer literacy Low computer literacy ¢ Technology savvy (especially in East Asia) ¢ Cash based societies

Source: Arthur D. Little analysis Stimulating m-payments Inhibiting m-payments

8 2 Market growth and perspectives – Many local solutions

In the last few years, initiatives have been developed mainly locally

Not exhaustive Initiatives at a global level of mobile payment and other cashless initiatives with possible evolution to the mobile











Source: Mobipay, Juniper Research, Arthur D. Little analysis 9 3 Key success factors – Payer/Payee’s perspective

For a service to become popular it must add value to both payer/s and payee/s

Payer/s perspective Payee/s perspective

¢ Convenient, understandable and ¢ Attracts payers easy-to-use ¢ Safe and secure: payment is ¢ Liquid, underwritten by a credible 3rd guaranteed, Payment value integrity party ¢ Low associated costs of acceptance: ¢ High level of adoption by merchants equipments, subsidies, transaction and coverage by region, segment fees, compatibility with existing etc. Key success instruments/systems ¢ Safe and secure: Loss of value, factors for ¢ Practical to use: Fast, accurate, leaves an audit trail, error-free general payment efficient, reliable, transactions instruments ¢ Accepted by merchant banks ¢ Low cost product ¢ Leaves audit trail ¢ Protects privacy: Personal and ¢ transaction information Limited paper work

10 3 Key success factors – Market push & market pull

In order for m-payments to become successful and widely adopted in the market, both a market push by operators and a market pull by consumers / merchants are needed

1st 2nd Market push Market pull

¢ Increase of customer loyalty / churn ¢ Consumers need to understand and D r

reduction through increased trust by value m-payment services (e.g. i v

conducting financial transactions via an simple, universal, secure, fast) e r s

MNO -> added brand strength f o s ¢ Merchants must see potential im- r r


¢ c t ARPU increases (e.g. higher SMS- provements in business processes o a r volume for granting transactions): M-payment (e.g. higher customer through-put by n e s p – GSMA estimates an increase of up success shorter transaction times) u o m

r to 74% of mobile money users vs.

through… e

o ¢ Offering a clear value added f r

non-users s s

compared to existing transaction r & e ¢ Increase of multiple SIM-user: channels (e.g. credit cards, cash) is m v i r – GSMA estimates: 25% non-users key e D r having multiple SIMs vs. 44% of c -> Consumers & merchants needed to be h mobile money users a offered a clear value added first, before n t -> MNOs need first to push it into the they will crave for services and s market before the fruits can be reaped! increase their usage!

MNOs are in a favorable position to first push m-payments into the market through their existing customer relationships and network capabilities

11 3 Key success factors – Triggers for m-parking services

The use of m-payment solutions for m-parking services can be triggered by a variety of reasons m-parking business models 1 2 Convenience (Croatia) Revenue and vandalism protection (Serbia)

¢ Simpler and faster parking payment ¢ More secure and safer parking – No coins or chip cards – Parking ticket does not display time of absence – No need to search for parking machine or fill out ticket – No cash/ no machine means no potential vandalism ¢ Remote payment ¢ Additional parking payments and lower costs – No need to be next to the car to pay for Triggers for – Easy coverage of new areas parking or to renew parking m-parking – Higher motivation for payment via mobile – Possible to pay for any car within coverage – Reduction of operating costs

3 Pricing innovation B2B service: billing and 4 (US/CAL Univ. of Berkeley) clearance (Finland)

¢ Dynamically adapt parking rates and zones ¢ Integrated m-parking solution – Parking rates can be easily adapted according to – Managing services for public transportation traffic situation or special events companies – stimulate usage, reduce black – Different parking restrictions can be applied (e.g. traffic, reduce operational costs maximum parking duration of 1 hour for zone 1 etc.) – Billing and clearance between shops and closed m- ¢ M-parking offers highly flexible pricing system parking operators can be significantly simplified. e.g. – Immediate information on parking situation shops within a shopping center can grant its customers a – Target different segments (Professor, Students, Guests) special promotional code lowering the overall parking fee

Source: Arthur D. Little analysis

12 3 Key success factors – Case study Croatia

Since its launch in 2001, m-payment has reached 75% of all parking places in Croatia and almost 50% of parking is paid via Vipnet's mobile solution Case study M-parking in Croatia

Overview ¢ An SMS based payment service was introduced in Croatia in 2001 by Vipnet ¢ 75% of all parking spaces in Croatia is now covered ¢ Near 50% of parking turnover via m-parking, with Dubrovnik leading with 75% m-parking share ¢ Parking penalties down by 5% ¢ Educational element – SMS is not used only by youth anymore ¢ Simple business model – revenue share Benefits ¢ Easier way of parking payment (no more looking for coins, no need for parking chip cards, no more looking for parking machines, no more filling parking coupons) ¢ Reminder when parking ends, convenient and easier way of prolonging parking remotely ¢ Availability 24 hours a day / 7 days a week, Possibility of getting parking status

Source: European Local Transport Information Service, Vipnet, Arthur D. Little analysis

13 3 Key success factors – Case study M-Pesa – Service uptake

User numbers continuously increased after service launch: 12 months after launch M-Pesa already had more than 1m users, 24 months after launch more than 6m

M-Pesa service uptake

Users (m) 8 7.7m

6.3m 6 4.8m 4.2m 4 3.1m 2.1m 2 1.1m 0.4m 0 0 3 6 9 12 15 18 21 24 27 30 Months after launch September 2009

¢ M-Pesa quickly proved to be a huge market success – After only 12 month M-Pesa already had more than 2m users – M-Pesa registered more than 11,000 new users per day between its launch date and Jul ‘09 – Safaricom was able to convert 40% of its mobile subscriber base to M-Pesa users

Source: Pulver, FSD Kenya 2009, Arthur D. Little analysis

14 3 Key success factors – Case study M-Pesa – Application areas

Today M-Pesa offers a wide range of services making everyday life easier for all Kenyan family members

Mother pays by mobile for daily and monthly living Father utilizes mobile phone for branchless financial costs transactions ¢ Electricity bill payment (KPLC) ¢ Pre-paid credit purchase (utility bills’ payment) (Airtime top-up) W X ¢ Sending money from one SIM to the other at home before ¢ Grocery shopping traveling (Safety remittance) (shopping, 2010) ¢ Paying his employees ¢ School fees W (utility bills’ ¢ Making a payment) ¢ Collects money ¢ Sending money Donation ¢ Drinks in Pub from friends for to parents (shopping) shopping in bulk (P2P transfer/ (shopping) remittance)

¢ Micro-loan repayment ¢ Satellite TV bill (m-banking) (utility bills’ payment)

Son uses his mobile phone for taxi services and remittances

Source: , National Daily, Ludwig, S. (2009), Univ. Vienna, Arthur D. Little analysis

15 “Click on the pictures to see the video clips”

16 4 The m-payment value chain – Overview

The m-payment value chain involves a larger number of players than traditional payment methods and introduces changes in the role that each of them play

M-payment value chain

Associations and Forum


Transaction Banks service providers

Mobile Merchants New players Customers operators

Credit cards Inter-banks

Middleware/ Platform vendors Terminal vendors applications

17 4 The m-payment value chain – Cash vs Card transaction

The traditional payment value chain consists of the consumer and the merchant for cash transactions plus the acquirer, the issuer and the clearing house for card transactions

Payment value chain Comments

¢ In a cash transaction a consumer receives the goods n

o and/or services from a merchant in exchange for cash i t Payment c

a ¢ In a card transaction a consumer receives the goods s Merchant Consumer n and/or services from a merchant, but the payment is a

r Transfer of

t done to the consumer’s bank that issued the card, and goods and h the issuing bank transfers the payment to the merchant’s s services a bank, the acquirer, using a clearing house to facilitate C the processing ¢ The institutions involved in a card transaction charge a Interchange fee for each transaction (either fixed or a percentage of Payment the value) n

o – Discount rate: the fee charged to the merchant i t c

a Acquirer Clearing Issuer – Interchange: the fee transferred to the issuer from the s

n acquirer a

r Discount Pay- t rate ment Branding fee Network fee Payment – Branding fee: the fee paid by the acquirer to the d r

a clearing house C Merchant Consumer Transfer of goods and – Network fee: The fee paid by the issuer to the clearing services house

Source: Payment Forum, Arthur D. Little analysis 18 4 The m-payment value chain – Market scenarios

The identified four value chain development scenarios describe different futures where either the banks or the MNOs have the power

MNO has power over the value chain

Multiple sharing MNO rule

¢ Mobile payments part of existing payment ¢ Mobile payments only partially part of value chain (many actors involved) existing payment value chain (fewer players ¢ MNO owns the customer relationship and is involved) issuer of mobile payment solutions ¢ MNOs own the customer relationship and (competitor with existing card issuers) acts as both issuer and clearing house ¢ Integration of existing card products in the ¢ Possibility of converging initiatives on to one mobile telephone payment solution Evolution Revolution

Banks rule War in the market

¢ Mobile payment part of existing payment ¢ New actor takes the power in the value value chain chain ¢ Existing financial actor owns the mobile ¢ The new actor owns the relationship with payment solution the customers ¢ MNO could cooperate with issuers and act ¢ Possibly several payment solutions in as m-wallet aggregator, providing the financial parallel payment solution in the mobile phone

Banks and the financial actor has power over the value chain

19 5 Conclusion

M-payment has a huge potential and each market will do it differently – “local” prevail

Key take aways

¢ M-payment is becoming a reality, mainly exploding in emerging markets reaching a CAGR of 76% by 2012, mainly coming from the proximity payments ¢ M-payment is a “local” business – a proximity business involving “local” partners and a “local” eco-system, with few services such as remittance ¢ Different business models can be considered and pushed through in a country for one and the same application ¢ The global market is substantial and can make a fundamental “social-behavioural” impact in a given country that can completely shift the core of its transactions into “a mobile payment” mainly cannibalizing cash ¢ The eco-system has to be considered very carefully, several scenarios can be derived depending on how the market players organize themselves (risk and lead) – within the regulatory given framework

Source: Arthur D. Little