PAYMENTS Insight. Opinion. VOL 13 CONTENT THE CURRENT STATE OF MOBILE WALLETS 1 THE CURRENT STATE OF MOBILE WALLETS Andreas Habersetzer discusses the current state of mobile wallets and compares the different players and products ANDREAS HABERSETZER personal financial management on a mobile device. present in the market. Partner So far, four players that control the operating sys- tem (OS) and in some instances the hardware of a 3 PUBLIC MARKET VALUATIONS AND THE mobile device have launched their wallet initiatives: MARKET ENVIRONMENT According to Apple CEO Tim Cook, 2015 should have ApplePay, AndroidPay, SamsungPay and Hua- Markets have shown a recovery since reaching a low point been the year of ApplePay. But how did the much weiPay. Further players including LG, Xiaomi, ZTE, in mid-February. Markus Massem takes a look at valuation hyped payment initiative of the tech giant really fare and Lenovo are reported to be working on the initia- drivers and benchmarks the different groups within the and how can the status quo of other “Pay”-Initiatives tion of their mobile wallet services. Of the already payments universe. be evaluated? Secondly, this article tries to define a launched initiatives, Apple has currently the broad- way forward for the main initiatives. est geographic coverage and has been able to con- 5 M&A ACTIVITY What are the key drivers of M&A and IPO activity? Which transactions made headlines in the 1st Quarter of 2016? Bank wallets OS wallets MNO wallets What are recent takeover rationales? Robert Kayser, Launched by banks that want to Opportunity to use the device for Used by MNO’s to increase product Apostolos Psaras and Philipp Steinbrück answer these participate in the growth of wallets payments as a way to increase breath beyond voice and data to not get side-lined stickiness and drive hardware sales questions. 7 VENTURE CAPITAL Once again Stefan Thomalla and Eduardo Cenci review the latest payment startup funding activity. The article Merchant wallets Scheme wallets Tech and digital wallets considers the payment segments in which investors were most interested in, headline startups and the larg- Wallets operated directly by the Mobile wallets launched by the Wallets operated by technology merchant to increase customer major card schemes players with a pure focus on est deals of the last quarter of 2016. stickiness and loyalty payments 9 DEAL ACTIVITY M&A Transaction overview 12 VC ACTIVITY Figure 1: Overview of the payment wallet landscape Transaction overview The number of mobile payment wallets launched by vince the largest majority of card issuers in its banks is limited. The most noteworthy example is launch countries to support its wallet initiative. probably ChasePay that aims to leverage the more However, despite considerable support for issuers than 90 million issuing customers of the bank. Fur- and merchants right from the start, ApplePay’s thermore, Chase is able utilize its Visa partnership to usage is currently very limited. Figure 2 shows the minimize transaction costs for the merchant. Few current state of ApplePay with regard to its existing other banks have scale comparable to Chase. It is for and expected geographic coverage and user base. that reason that banks focus on partnering with the All other initiatives run on (different versions of) likes of Apple and other wallet providers to give their Android, which controls approximately 80% of customers access to a mobile wallet solution. global smartphones. Theoretically, AndroidPay – Furthermore, a bank’s focus is typically primarily on Google’s second attempt to succeed in the mobile its mobile banking application, where mobile pay- wallet space - should have the largest consumer ments can be integrated to facilitate a comprehensive reach of all initiatives, but uptake by both PAYMENTS Insight. Opinion. 2 consumers and merchants is currently limited. One jointly initiated by major US retailers, doesn’t seem propositions are currently offered by Chinese wallet big advantage of SamsungPay is its independence of to get out of the block and now MCX’s founding solutions that control entire payment and commerce NFC. Thanks to the “magnetic secure transmission” members Walmart and Target announced their own ecosystems and have become an integral part of technology Samsung acquired when it bought Loop, “Pay” solutions. This is one more example that illus- every aspect of the daily life of its users. WeChat, at SamsungPay works on every terminal. Samsung trates how difficult joint ventures are to operate on a the core a mobile messaging system, has estab- recently reported that over 5 million users regis- day-to-day basis, although a joint initiative of indus- lished WeChatPay, that is used to conduct any type tered and that it processed more than USD 500 try leaders makes a lot of sense theoretically. In of business transaction between users and autho- million in the first six months since its launch. Europe, no major wallet initiative has been launched rized merchants that have established applications until today. within WeChat’s mobile platform. Today, more than 200 million of its approximately 650 million users have signed up for WeChatPay. UK Launch Jun 14 CHINA Total iPhones 17m CANADA Launch Feb 16 Enabled for payment ˜4m Total iPhones 230m Launch Nov 15 ˜ Merchant acceptance 250k+ Bank participation Total iPhones 8m 19 (# locations) (# card issuers) Bank participation 15 Retailer acceptance 16 USA (# card issuers) (# chain) Launch Nov 14 Total iPhones ˜85m Enabled for payments 23m ˜ AUSTRALIA Used for payments ˜3.5m Launch Nov 15 Merchant acceptance 1m+ (# locations) Total iPhones 7m Bank participation 400+ (# card issuers) Expected 2016 launch countries are shown in dark grey MNOs (mobile network operators) were probably Scheme wallets like Visa Checkout (formerly V.me), In particular the comparison with tech wallets illus- among the first that identified mobile payments as Masterpass and American Express Checkout aren’t trates what is currently missing at ApplePay and area for growth that could help to compensate for really wallets in a narrow sense, but rather the other newer initiatives: a compelling value proposi- declining revenues in their core business. All major attempt to stay relevant in an e-commerce environ- tion and true value-add compared to existing means operators started initiatives, either stand-alone or in ment through a facilitated secure checkout that lim- of payments. Today, users often conceive a card- joint-ventures with other operators, to benefit from its the credentials required for user authentication. based contactless payment as more convenient the expected growth in Visa and MasterCard are than a payment by phone. Furthermore, a direct mobile commerce. MNOs Of the already expanding the geo- connection with existing merchant loyalty programs seemed to have all the right graphic reach of their is often lacking. Therefore, we currently see three launched initiatives, assets in place to become checkout-products con- steps in the mobile wallet evolution: step 1 is a pure major mobile payment Apple has currently tinuously and are report- payment proposition, in most instances covering players – large customer the broadest geographic ing increasing user multiple channels, from POS over remote and in-app bases which include both coverage and has been able numbers and merchant payments. The step 2 includes the seamless integra- consumers and merchants, acceptance. tion of payments and loyalty / reward programs. to convince the largest majority and control over the secure Tech or digital wallets Looking at Apple Pay, it seems logical that the firm element of the SIM-card. of card issuers in its launch are the pioneers of would combine the Pay-initiatives with its wallet However, propositions with countries to support its wallet mobile payment wallets (formerly Passbook) that is already preinstalled on limited added value that initiative and therefore have every phone. Additional payment functions, like P2P- typically included a stored- reached the highest payments, are often popular initiatives for user value account together with a (digital) pre-paid card degree of maturity with regard to their value proposi- generation at this stage. Lastly, in step 3, additional and the introduction of HCE eliminated the inherent tion, geographic coverage and customer base. Today, services beyond payments and commerce are MNO-advantage. Today, only Vodafone and Orange PayPal has 179 million active users in 203 countries integrated into the wallet, ranging from financial seem to further pursue their initiatives. and is continuously investing in its value proposition. services to health related propositions that cover a Following the acquisitions of Braintree / Venmo and wide range of everyday life (the respective apps are Until today, very few merchants got engaged in the Xoom, the company is now offering “One Touch” already pre-installed on the iPhone – facilitated by an mobile wallet game, but with Starbucks, a merchant and P2P-payments, and is working on its omni-chan- invisible “payment process”). probably operates one of the most successful initia- nel strategy through partnerships with Discover, tives. Another very prominent initiative called MCX, First Data and others. The most sophisticated PAGE 1 PAYMENTS Insight. Opinion. 3 PUBLIC MARKET VALUATIONS AND THE MARKET ENVIRONMENT On other market news, exports data showed that beginning of the year, jumped almost 10% upon MARKUS MASSEM Chinese exports expanded in March for the first the release of its latest quarterly results, beating Manager time in 9 months, calming fears that the country’s analyst guidance on both revenue and earnings. economy is slowing down rapidly. However, US Also fiscal guidance for the year was raised and Following a rough start into the year, overall markets retail sales in March were weaker than expected, the acquisition of Heartland Payments is expected have been able to bounce back and recover some or raising concerns that consumers continue to be to close in the next quarter, boosting revenue.