Mobile Payment: a Shifting Landscape

A Future in which Cash is Mobile

Author: Shanty Elena van de Sande Payvision

PAYVISION Global Card Processing A Future in which Cash is Mobile

Contents

1 Management summary 2 2 Mobile Payment is The Future 3 2.1. The Mobile Revolution 3 2.2. The Public Appeal 6 2.3. The Challenges 8 3 Risk Management and Compliance 14 4 Global mobile Payment Landscape 16 4.1. Regional trends 16 4.1.1. APAC 16 4.1.2. EUROPE 19 4.1.3. LATAM 21 4.1.4. MEA 22 4.1.5. uSA & CANADA 24 5 A battle between David and Goliath 27 6 Mobile Payment: Methods and Technologies 30 6.1. Stealth mobile Payments Start-Ups 33 6.2. Time to Market (TTM) 35 6.3. Looking in the Crystal Ball; Future Payment Solutions 36 7 About the publisher 40 7.1. About Payvision 40

PAYVISION 1 A Future in which Cash is Mobile

1 Management summary

Mobile phones are becoming preferred smart payment devices. 87% of the world owns a mobile phone and according to Gartner Research estimates, sales of smart- phones will continue to grow by 75% each year. In 2009, 4.7 Billion people owned a mobile phone; by the end of 2011, this number had reached 6 Billion, an increase of 1.3 Billion subscriptions in only 2 years.

The first Billion mobile Marketing research confirms that mobile subscriptions took over users tend to trust m-Payment solutions which are driven by finan- 20 years, while the last cial institutions, banks and/or credit Billion took only 15 card companies. There are several factors contributing to the months. adoption of an innovative mobile payment method; trust and transparency are crucial for With these numbers in mind, the question customer acceptance. A product needs to prove arises, which markets will be most affected its added value by being cost-saving, while by this mobile revolution and which regions; adding to the user’s comfort; the interface the developed countries, attracted by the has to be both intuitive and multifunctional. comfort of additional financial services and User friendly APIs are more appealing, than trendy gadgets, or the unbanked developing solutions which require additional (vulnerable) markets, led by the emerging BRICS (Brazil, hardware and/or complex installation and inte- Russia, India, China, South-Africa)? Giant Telco gration procedures. operators and hardware providers initiated this m-Payments revolution. Major stakeholders Old and new technologies are being explored; have engaged in exciting joint ventures, but secure SD cards hidden in stickers, Quick heavily funded start-ups, led by young innova- Response Codes (QRC), Near Field Commu- tors are ready to compete with these industry nication (NFC), Mobile Wallets, a variety of giants. hardware plug-ins, to be attached to smart- phones and innovative mobile solutions based We expect that innovative on image recognition. JUMIO NetSwipe offers start-ups, in alliance with consumers the possibility to pay by simply scanning their credit card in front of their financial institutions, will webcam. A webcam converts mobiles into a drive this mobile payments payment device, without having to install or plug-in additional tools. Some start-ups, such revolution into the next as Jumio and Stripe, are heavily funded by phase. smart investors. Another indication that the

PAYVISION 2 A Future in which Cash is Mobile

1 “Davids” may be in a favorable position to industry giants and small innovative start- compete with the “Goliaths”. ups, have to be aware of huge differences in regional user’s needs, concerns and expecta- With market leaders focusing on the needs of tions. technologically developed regions, we will see how the masses in the developing regions are This Paper explores these regional differences pushing this mobile revolution in yet another and sheds light on the challenges and business direction. In order to be successful, both opportunities ahead.

2 Mobile Payment is The Future 2.1. The Mobile Revolution

Gartner estimates reveal that Mobile Payments worldwide mobile payment transac- tion values are expected to surpass could exceed $1 USD 171.5 billion in 2012, a 61.9 percent increase from 2011 values trillion by 2015 of $105.9 billion. At the same time, and M-Commerce the number of mobile payment users is expected to reach 212.2 million in is predicted to 2012, up from 160.5 million in 2011. reach $119

Mobile payment transaction volume is expected Billion in 2015, to increase at an annual rate of 40% - 60%. The amount of mobile payment users has with Japan in the exploded; from 73 million in 2009, 141 Million in 2011, an expected 190 Million mobile lead, followed payment users in 2013, up to 448 million mobile payment users in 2016. In 2014, the by China. amount of mobile internet users will exceed the amount of desktop users worldwide.

PAYVISION 3 A Future in which Cash is Mobile

2.1. New technologies offer exciting business from urban family-members, P2P payment, opportunities in the developed countries, transferred over great distances (mobile remit- where a majority of consumers is banked. In tance). cosmopolitan areas, where the pace of living is fast, m-Payment offers banked smartphone M-Remittance is expected to grow three times users, trendy alternative payment methods, faster than m-Banking, due to a huge market providing value-added financial services, extra of mobile unbanked people in the developing comfort and the appeal of attractive sales regions. In 2010 World Bank remittance offers through coupons and customer loyalty amounted to $325 Billion. programs. Future developments and success of m-Banking, m-Wallets, contactless - and By 2014 it is expected that around other alternative mobile payment methods 75 million foreign workers will use vary per geographical region and they depend m-Remittance to transfer payments on several factors, which together contribute from Europe, the US, Australia, to global growth of alternative m-Payment Japan and the United Arab Emirates methods in the near future. to India, China, Mexico, Indonesia and the Philippines. Nine of the ten Industry giants are eager to tap into highly nations at the top of MasterCard’s evolved markets and form joint ventures recent “Consumer Readiness” (to with other industry leaders; ventures which adopt m-Payments) rankings come require complex synchronization of business from Asia/Pacific, the Middle East, models, integration of a variety of applications and Africa. The mobile revolution and time-consuming alignment of business will deeply affect the unbanked, processes. Young start-up companies, spon- developing regions of the world, led sored by major investors, may prove to take by the emerging markets. advantage of their flexibility as a small agile company. These young innovators can take the lead in this mobile revolution, by listening care- While developing markets are interesting fully to region-specific user needs of the young for m-Payment methods which bank the and trendy, who are attracted by ease-of-use unbanked, developed markets offer favorable gadgets, transparency and comfort. conditions for the success of trendy high-tech mobile payment methods which require both For the unbanked masses in the developing high mobile and high banking penetration. countries, m-Payment forms an easy and transparent way to gain access to a variety of M-Payment offers a variety of stakeholders a payment methods previously unavailable. In wide spectrum of innovative business oppor- 2015, an estimate of 750 million consumers tunities, varying per region and depending will have access to m-Banking and Mobile on different factors which contribute to the Financial Services (MFS); a market, dominated potential success of a specific payment method. by Asia, where Mobile Operators drive initia- Whether consumers live in urban or rural tives to bank the unbanked. In rural developing areas, in technologically developed or devel- areas, where millions of mobile users are still oping regions, each market holds great prom- unbanked, consumers use their mobile phones ises for a variety of new technologies developed as an alternative banking device. A simple in the m-Payments industry. mobile enables rural farmers to receive money

PAYVISION 4 A Future in which Cash is Mobile

MOBILE PHONES ARE BECOMING PREFERRED SMART PAYMENT DEVICES. 87% OF THE WORLD OWNS A MOBILE PHONE.

PAYVISION 5 A Future in which Cash is Mobile

2.2. The Public Appeal

Mobile phones were initially built as mobile communication devices. As phones became “smarter”, consumers started using their mobiles as time- and contact-managers, game & entertainment apps, for multi-media purposes, as a camera or a social media device. Consumers would rather leave their wallets at home, than their smartphones. 66% of mobile users take their smartphones into their bed- or bathroom. The urge to check messages and engage through social media has become a powerful drive, transforming our mobiles into social tools, which sometimes seem to control our lives.

The comfort of securely managing bank Mobile phones have the account(s), spending and transactions on a potential to empower 2.5 smartphone has become very appealing. Most billion unbanked people, armed people carry their smartphones around 24/7. with mobile phones, in coun- Transforming mobile phones into m-Banking tries like Kenya, South Africa, devices, contactless payment devices or simply India, the Philippines, Mali, into a mobile wallet has changed a phone into Pakistan and Bangladesh, a convenient all-in-one Point of Sale (PoS) Where Western Union domi- device and an easy alternative for cash & cards. nated the remittance market From a consumer perspective, the appeal of by offering exchange, mobile the various m-Payment methods depends users in developing markets on the added value these methods have to can make use of their mobiles offer. Banked smartphone users with access to transfer cross-border to modern financial products & services have payments through m-Remit- different expectations from innovative mobile tance. payment methods, than mobile users who do not have access to a bank account. A combination of high mobile penetration and low access to financial services creates a fertile market for m-Payments, especially in maturing markets, such as the emerging BRICS.

PAYVISION 6 A Future in which Cash is Mobile

2.2. ATTRACTIVENESS MATRIX

HIGH ATTRACTIVENESS Low Germany Mexico Russia Philippines Brazil China

India Average Kenya

UK Competitive Intensity Japan Austria USA High

LOW ATTRACTIVENESS Mature Developing Early stage Embryonic

Market Maturity

Degree of service sophistication Source: Arthur D. Little analysis

MOBILE PHONE PENETRATION VS. ACCES TO FINANCIAL SERVICES

Russia

Brazil Mexico Avg developed countries

China India Mobile phone penetration in %

Other emerging countries 0 40 80 120 160 0 20 40 60 80 100

Acces to financial services in %

Population size Source: Arthur D. Little analysis

From a consumer’s perspective, mobile the various geographical regions and a great payment solutions may be very appealing, but variety of business needs versus available infra- the various stakeholders investing in mobile structure in the emerging (BRICS) Markets. payment solutions, know that the enormous business opportunities this innovative market Another important key element in the success segment offers equals the challenges, posed by of m-Payments is merchant’s acceptance. the great difference in business needs within Merchants will not be interested in offering

PAYVISION 7 A Future in which Cash is Mobile

2.2. consumers (C2B) Mobile Payment methods, tions from all its customers, regardless of unless some key requirements have been their mobile operator, card issuer, or handset met. In the end of the day – mobile payments manufacturer. In order to be an accepted new should make life easier for both merchants and payment method, C2B m-Payments should customers alike. speed up payments, because both merchants and consumers dislike queues, and more Mobile payments should be universal. A importantly, security and privacy concerns merchant needs to be able to accept transac- should be addressed.

2.3. The Challenges

In order to turn a mobile phone into PoS, the payment transac- tion has to be initiated, authenticated and authorized. Mobile Operators and Financial Institutions will have to work together with Money Transfer Schemes. In the next chapters, will see how Legal entities, which traditionally fish in the same pond, must learn to work along a collaboration model. This involves Enterprise Application Integration (EAI), synchronization of business processes and alignment of business models; processes and procedures which can get rather complex.

There is a distinction between three select. In order to be competitive, an enterprise basic business models within the must be competent in product management, mobile payments eco-system customer services and in operational excel- lence, but to be a market leader, an enterprise must excel in just one single discipline. PSPs • Operator-Centric and ISOs who are getting overwhelmed by • bank-Centric a huge diversity of payments methods and • Collaborative merchant’s growing expectations, may need to focus or partner to ensure market leadership. Business Models can be driven by Mobile Strong assurance from independent trusted Operators, by Payment Service Providers, or by third parties may be required to encourage Financial Institutions. Business models differ, widespread consumer adoption. each with a different value chain system and revenue sharing model. Consumer concerns about data breaching, security and privacy issues, ID theft, fraud According to the Tracey and Wiersema Value- and cybercrime need to be addressed, for Discipline Model, enterprises must make a m-Payments to become mainstream. key strategic choice, which value discipline to

PAYVISION 8 A Future in which Cash is Mobile

2.3, A Mobio Insider Survey revealed tremendous potential of mobile payments at an that 94% of Americans would early stage and have been investing in vertical use m-Payments, if they could be integration. In line with this strategy, Master- Card’s bought DataCash and VISA bought sure the system is secure. 73% CyberSource. of those surveyed pointed out, that security and privacy remain In Autumn 2012, VISA will launch V.me, a their main concerns. European answer to PayPal and Google Wallet. V.me is a digital wallet, allowing consumers to Marketing research indicates that consumers store the details of a number of cards in their have a strong preference for a Model, driven by own mobile wallet. Financial Institutions (i.e. Banks or Credit Card companies). Card schemes have recognized the

MOBILE PHONE PENETRATION VS. ACCESS TO FINANCIAL SERVICES Population size MOST TRUSTED BRANDS IN MOBILE PAYMENTS

USPS VISA MASTERCARD AMERICAN PAYPAL APPLE EXPRESS Mobile phone penetration in %

MICROSOFT GOOGLE MOTOROLA EBAY FACEBOOK

Source: ROAM Data

Partnerships between key-players in the mobile • Mobile Network Operators (MNO): the payment eco-system will accelerate consumer vital technology channel, own customer readiness. Each Business Model needs to billing infrastructures, have experience with handle a secured flow of privacy sensitive data, authentication and value added services, between the different stakeholders involved. In but MNOs are new to financial services. order to understand the collaboration model, • Handset Manufacturers: Secure SIM, one has to differentiate between required micro SD and NFC enabled Smartphones stakeholders without whom mobile payment compliant to MNO and Payments Certifica- solutions cannot be realized and stakeholders tion. which make increased functionality possible. • Trusted Service Managers (TSM): creden- tials and security requirements, customer service & support.

PAYVISION 9 A Future in which Cash is Mobile

• Regulators must be proactive, anticipate • Payment Service Providers provide tech- 2.3. and develop a regulatory framework, nology for financial services and play a vital define legal responsibilities around liability, in the mobile payments supply chain. address consumer concerns privacy issues • Card Schemes are fundamental to card and protect consumers and stakeholders payments and are free to choose a busi- against financial (cyber) crime. ness model in which they partner with • Financial Institutions (FI): Decades of mobile operators and/or with banks to experience with enhanced due diligence, provide consumers with mobile wallets. customer authentication and authoriza- • Last but not least, Consumers will tion flows, risk management programs and only accept mobile payments if added corporate security, fraud prevention and features offer increased convenience AML. and cost saving alternatives for the wide • Merchants trust and acceptance of Mobile range of existing payment methods. Payments is key to mass adoption of NFC This last condition differs per Region (% of at Point of Sales (POS). Banked/Unbanked Population)

AT LEAST NINE STAKEHOLDERS MAY COOPERATE

Application Providers

Payment processor Issuing Bank Issuing SIM / payment Bank software Payment developers Network Mobile Payment Operator processor Trusted Service Manager Merchant

Acquiring Bank Consumer

Required stakeholders Transit Operator Optional additional stakeholders

Source: Mobitech

Mobile phones become (secure) payment processed between Issuer and Acquiring Bank devices if Mobile Operators collaborate and (on behalf of Merchants). integrate with Card Issuers and Payment Service Providers, by offering a secure Payment Network enabling consumers to make Payment Transactions which need to be

PAYVISION 10 A Future in which Cash is Mobile

2.3. FINANCIAL ECOSYSTEM

Issuing Payment Acquiring bank networks bank

MOBILE ECOSYSTEM Customer

NFC chip Handset Mobile Resecg makers OEMs carriers Card Citi

RETAIL ECOSYSTEM

POS Merchants providers Merchant

Source: SearchEngineLand

M-Payments Underwriting protocols for Iden- MasterCard’s recent tification, Validation and customer acceptance Mobile Payments Readiness have to be aligned. Business processes need to be defined, managed and streamlined Index ranks global and innovative technical solutions have to be Consumer readiness at integrated. Risk and Liability has to be defined and shared. Software and Hardware providers 33.3%. need to build solutions in compliance with the *see Appendix highest security standards. Marketing strategy should be focused on The general public wants to be confident about highlighting the benefits of alternative payment the safety of Mobile Payment solutions. Key methods, while avoiding industry specific termi- Security concerns have to be addressed by the nology and abbreviations (ea. NFC, QRC, etc.). various entities involved, in order to ensure global consumer acceptance. Last but not least, investments have to be made to improve User Experi- ence of consumers interested in WHAT IS THE MOST IMPORTANT using Mobile Payments. FACTOR TO YOU WHEN MAKING MOBILE PAYMENTS

Security Speed Simplicity Choice of payment Other

Source: Mobio Insider PAYVISION 11 A Future in which Cash is Mobile

2.3. WHO WILL DEFINE THE MOBILE PAYMENT/COMMERCE SPACE?

OPERATORS (E.G. ISIS)

FINANCIAL GUYS (E.G. VISA)

GOOGLE

AMAZON

APPLE

PAYPAL

FACEBOOK

MICROSOFT/NOKIA

STARTUPS

OTHERS

2011 2012

Source: KPMG

Mobile operators formed ventures and defined the initial developments around mobile payments, but from 2012 onwards these giants will feel increasing competition from financial institutions, cards schemes and heavily funded innovative start-ups engaging in successful partnerships.

WHAT WILL BE THE BREAKTHROUGH CATEGORY IN MOBILE IN 2012?

OTHERS

LBS

MOBILE ADVERTISING

MOBILE VOIP

AUGMENTED REALITY

MOBILE COUPONS

NFC

MOBILE ENTERPRISE

MOBILE HEALTH

MOBILE COMMERCE

MOBILE PAYMENTS

2011 2012

Source: SHARMA

PAYVISION 12 A Future in which Cash is Mobile

MOBILE USERS TEND TO TRUST MOBILE PAYMENT SOLUTIONS WHICH ARE DRIVEN BY FINANCIAL INSTITUTIONS, BANKS AND/OR CREDIT CARD COMPANIES.

PAYVISION 13 A Future in which Cash is Mobile

3 Risk Management and Compliance

Smartphones are built with capabilities similar to the personal computers, which were built some years ago. Mobile phones get easily lost or stolen and by adding additional functionality which requires software, smartphones have become vulnerable to malicious code.

Juniper Networks estimated a 400% increase mobile services and a secure transfer of private in Android malware. Wi-Fi attacks by hackers data and confidential content. paid to retrieve private data and SIMS Trojans which trigger automated messages, have resulted in cyber-attacks against unsuspected mobile users. In autumn 2010, the Merchant Risk Council (MRC) warned attendees of their yearly Conference to prepare for serious cyber- In May 2012, The PCI Security Standards attacks and data breaches. Council issued a new document which explains its views on Mobile Payment security, and Even though IP mobile network architecture, provides guidelines for online merchants, which the adoption of a mobile VoIP infrastructure accept payments through mobile devices, such and the connection to Cloud services leave as smartphones or tablets. “The ability to use Smartphones vulnerable to threats, decades smartphones and tablets as PoS terminals of experience with computers and electronic to accept payments in place of traditional devices have led to growing expertise in cyber- hardware terminals offers great flexibility,” a crime. This enables mobile operators to take prepared statement reads. “As mobile tech- counter measures and develop ultra-secure nology continues to change at a rapid pace, the software and hardware in order to mitigate Council continues to work with the industry to risk. We believe this could ultimately lead to ensure data security remains at the forefront of a world in which smartphones become more mobile evolution.” secure than PCs.

The explosion of mobile banking and e-commerce requires specific security protocols and a new set of rules and regulations. Fierce competition urges providers to develop new technologies which offer consumers extended

PAYVISION 14 A Future in which Cash is Mobile

3 Global Platform is a cross industry, not-for- devices will be built with integrated payment profit association which identifies, develops and capabilities. In order to prevent Fraud, it would publishes specifications which facilitate the secure help to allow data-sharing between Merchants, and interoperable deployment and management Payment Solution Providers and Law Enforce- of multiple embedded applications on secure ment, but depending on the region, Privacy chip technology. Global Platform was established Laws tend to restrict such data-sharing. to address key issues around interoperability at the chip component level. Issues which are best solved by bringing banks, operators, platform providers, software vendors and chip manu- facturers together and collaborate to improve industry standards on a non-profit base. Global Platform identifies, develops and publishes technical specifications and market configura- tions which facilitate the secure and interoper- able deployment and management of multiple embedded applications on secure chip technology.

In order to address these security issues, Global Platform, introduced the concept of a Trusted Execution Environment (TEE), a storage area on the processor where sensitive data is stored in a protected environment. The security provided by TEE combines hardware and soft- ware integrated on one platform.

Furthermore, a compliance certification program will assess and verify end-to-end security on the TEE, leading to a complete infrastructure including a standardized oper- ating environment. The demand for such certification becomes higher, as more mobile

PAYVISION 15 A Future in which Cash is Mobile

4 Global mobile Payment Landscape

4.1. Regional trends

4.1.1. APAC China Mobile, which dominates the vast Chinese is the most populous region in the world. China market space, planned to make a move into and India have a population of approximately the mobile payments industry, with proprietary 2.5 billion people, which form a third of the contactless technology. Pressure from the entire world population (7 billion). centralized government convinced China Mobile, to abandon its RF-SIM technology in favor of KPMG differentiates between “the leaders” standard NFC. (Japan and South Korea), “the giants” (China, India, Indonesia and the Philippines), “the UnionPay Co Ltd. is moving into the huge tigers” (Hong Kong, Singapore and Taiwan) mobile payment arena, independent of China and the “mid-markets” (Malaysia, Thailand and Mobile or other Chinese Telco’s. UnionPay holds Vietnam). a monopoly position in China as a single one Pay-ment Processor. By collaborating with Japan and North-Korea are leading, but with a Taiwan- based HTC, millions of mobile payment population of approximately 2.5 billion, China enabled smartphone are launched, which make and India accounted for 200 million new mobile Cards obsolete. There are around 700.000 subscriptions in 2010. This region holds great PoS machines in China and UnionPay provides potential for the future of mobile payments. payment services in 120 countries in the world.

Even though China outshines the USA as the Since CEPA, A Bilateral Trade Agreement largest potential mobile market worldwide, between Hong Kong and China, e-Commerce penetration of smartphones among Chinese in that region is expected to skyrocket. With consumers is still below 10%. A prognosis a population of 1.3 billion, of which 500 made by Asian Research Agency Kapro- million have got internet access and 900 nasia, indicates a virtual doubling on a yearly million use mobile phones, a study by PwC basis. The Chinese mobile payment market predicts that e-commerce represents the next is expected to be worth more than USD 80 major market for retail growth in Asia. Apart billion, with 441 million smartphone users by from Retail, Online (sub-scription) Gaming is 2015. Their report predicts that the Chinese immensely popular in this region. The number mobile payment market will rise to USD 84 of subscribed gamers rose to 40 million and billion by the end of 2015. sales of online games in China topped $1.45

PAYVISION 16 A Future in which Cash is Mobile

4.1.1. billion last year (61% growth). Gamers prefer to Japan has a very sophisticated mobile phone download their Games as apps on their Smart- market with a largely urbanized population. phones. Only 5% of Japan is employed in agriculture, which is why business opportunities and Location Based Social services are also trending consumer needs differ from India. Japan has in China. A Chinese answer to FourSquare, 100 million mobile subscribers, a quarter of Jiepang is such a LBS, with 1.5 million users which have chosen for Apple iPhones. In addi- in Greater China. Jiepang provided 3000 tion, Sony, NTT and Japan Railways own Felica, merchants in 6 major cities - including Hong a proprietary technology offering Japanese Kong- with windows stickers which allow users a combination of payment methods, consumers to engage with their social network. including Loyalty Discounts (Osaifu Keitai Jiepang doesn’t charge the merchants, but Service). Japan is ready to deploy future mobile instead, benefits from partnerships with major payment methods which offer great alterna- merchants, who profit from consumer profiles tives and attractive financial services to Japan’s and valuable marketing information generated cosmopolitan consumers. by Jiepang’s (social network) services. In Japan, a consortium has been formed, Like Hong Kong, Macau is a special administra- to coordinate the move to standard NFC tive region of the People’s Republic of China. and in South Korea, SKT launched a mobile The Portuguese, who ruled Macau, legalized wallet solution in 2005, followed by prox- Gambling in 1847. Gambling makes up 40% imity payment methods in 2009 (T-Cash). of Macau’s GDP and is four times bigger than In Malaysia, Mobile Money allows registered Las Vegas. This gave Macau the nickname: “the consumers to pay for products and services via Monte Carlo of the Orient”. In 2011, Macau’s SMS, by using their personal 6- digit security Gambling Revenue grew with 35%. However, PIN code. Consumers do not need to disclose online gambling has yet to be legalized in their private credit- or debit card data, the Macau. In spring 2011, the Macau branch of participating banks bill these registered users at Wing Hang Bank introduced WHBMAC, the the end of each month. Such a method can only first mobile application offered by a Macau be successful in a region where the majority of bank. Monitise, a global mobile money solutions consumers have a bank account. provider, entered a partnership with JETCO, a leading network of ATMs in Hong Kong and In urban areas, NFC has successfully been Macau, to launch mobile commerce services. developed and implemented to facilitate payments in the transportation industry of Japan and South Korea adopted Mobile Japan, Singapore and South Korea. Singapore Payment methods at an early stage and were is the capital of iOS devices and as such it is leading the way through business models which often used as a unique setting to test innova- were primarily driven by Mobile Operators. tive pilots. PayPal launched a trial allowing 45 Million Japanese have adopted tap-and- smartphone users to download a QR Code go phones. After a period of experimentation, (QRC) Reader which allows users to shop on including a large number of NFC Trials, the the go, by scanning the barcode of the many rest of the world is catching up with these sales offers, advertised in Singapore’s 15 Metro two market leaders. The market is maturing (SMRT) Stations. and business models are being standardized through the collaboration of partnering stake- The metropolitan areas of Japan, Taiwan, holders which form an eco-system based on a Hong Kong, Singapore and South Korea, where clear revenue share. NFC is commonly accepted by masses of

PAYVISION 17 A Future in which Cash is Mobile

4.1.1. urban consumers, the market is ready for new of billions of unbanked mobile consumers technologies which offer additional comfort. spread out over millions of villages. The Payment methods, such as offered by hot simplicity of mobile banking has given these start-ups will find a fertile ground. These urban unbanked villagers access to modern financial consumers are ready for innovative mobile services, such as m-Remittance. payment solutions, which offer comfort, speed and ease-of-use in combination with social Millions of Filipino, Indian and Indonesian services. migrants use their smartphones to communi- cate with and transfer cross-border payments In APAC we have seen immense opportuni- to their family members left behind in their ties for mobile payment solution providers, due home towns. Mobile payments offer cosmo- to the popularity of NFC, Mobile Wallets and politan workers the possibility to transfer part mobile Social Media. In Japan, Hong Kong and of their monthly wage to their relatives, living South Korea, market shares have risen above in rural areas in countries like India and China Europe and the USA. where distances are enormous. This saves urban workers long journeys, visiting relatives Australia is yet another fertile ground for to pay their bills in cash. It also forms a great m-Payments. Gross transaction value of mobile alternative for remittance via pre-paid cards. payments in Australia is expected to rise to $19.5 billion in 2015. Two Australian banks SMART Padala introduced m-Remittance, are leading, namely Commonwealth Bank of where 1% is charged for each money transfer Australia, with its Kaching app and ANZ Banking through text messaging, a service made Group with its goMoney application. Paypal available in 19 countries. M-remittance has recently launched its own m-Payment device boomed, because of the many migrant workers in Australia, Hong Kong, the US and Canada. who transfer payments from the developed This device enables merchants to accept credit USA, Japan and Gulf States to their dependent or debit card payments anywhere, anytime. and largely unbanked families back in the Phil- “PayPal Here”, comprises of a mobile phone ippines. Research and Markets predicts gross applica-tion and a thumb-sized triangular card transaction value of mobile payments in the reader, which can be attached to the smart Philippines to grow to $5 billion in 2015. phone. The merchant swipes the card through the card reader that is plugged into the smart According to World Bank estimates, officially- phone, and accept payments via PayPal. recorded remittance flows in 2010 totaled over $440 billion worldwide. By 2014 it is to be 31% of APAC’s internet users, neither expected that around 75 Million foreign workers own a laptop, nor a PC. These consumers will use m-Remittance to transfer payments exclusively rely on their mobile to surf the from Europe, the US, Australia, Japan and the Web. This is especially true for India, where United Arab Emirates to India, China, Mexico, a vast percentage of the population lives in Indonesia and the Philippines. Developing rural areas. The APAC region is incredibly markets may have favorable conditions for diverse in terms of market type, business type increasing success of specific mobile payments, and consumer profile, with huge differences conditions such as a high penetration of mobile between urban and rural areas. Different areas devices and relatively low banking penetra- require different business models. In urban tion, but for payment methods which require a areas consumers enjoy the benefits of high- user’s bank account, the mature markets in the tech telecommunication systems and modern developed countries are most promising. transport systems, while the rural areas consist

PAYVISION 18 A Future in which Cash is Mobile

4.1.2. EUROPE Republic and Deutsche Telekom, Vodafone The European m-Payment landscape is typi- and Telefonica launch NFC Payments for cally a landscape in which established, mature the German Market under the brand name and emerging markets form a diverse mobile M-Pass, offering Mobile Payment solutions to ecosystem. Fifty countries, a great variety of 85 million consumers right away. languages and cultures once divided by the Iron Curtain has created a strong division between In Europe, alternative mobile payment methods East and West in terms of economic, social and such as NFC are not yet as accepted and insti- political development. There is the European tutionalized as in Japan and South Korea, but Union consisting of 27 countries unified by business opportunities in the richest region in SEPA (Single Euro Payments Area) which the world are huge, once legislative obstacles adds another layer to a fragmentized mobile have been solved. payment landscape consisting of developed and a developing markets and infrastructures. A decision by the European Commission’s anti- trust authorities to launch an investigation into Forrester Research estimates mobile the proposed NFC m-commerce joint venture opportunities in Western Europe by the UK’ s three largest mobile operators at Û6B by 2013. In the UK, mobile network could prove to be a major set-back in NFC roll- operator Orange teamed up with Master- outs in the UK, a delay which will affect similar Card, Barclaycard and Dutch security provider Telco initiatives in Germany, Sweden, Denmark, Gemalto (providing TSM) to launch a contact- Hungary. This could also impact Sixpack in less mobile payment service. Gemalto is devel- The Netherlands, a partnership between Telco oping similar partnerships in Eastern Europe, giants KPN and Vodafone and ABN Amro, ING deploying NFC payment programs in a region and RABO (T-Mobile pulled out), which wants where smartphone often are the main access to launch mobile e-commerce solutions. to internet for a population far more unbanked than in Western Europe. In 2012, Dutch Card schemes have been more successful. PayPlaza is launching contactless NFC Cards, to MasterCard partners with major payment service its clientele. service provider Ogone to launch PayPass Wallet and MasterCard invests in i-Zettle, the In Germany, leading international full-service Scandinavian answer to Square. I-Zettle is provider for mobile and interactive value-added expanding its footprints from Scandinavia into Services, Net-Mobile AG took over Werther Europe, by launching its card readers into the AG, now called Privatbank 1891. A retail and UK market. commercial bank founded in 1877 with a full banking license, enabling the bank to operate In the EU Market, the majority of people own throughout the EU. N-Mobile will boost its bank accounts and use cards as a preferred m-Payment platform, offering direct debit and payment method. Therefore, we expect the credit card transactions and developing various EU to become a fertile ground for innova- means of settlement. tive payment methods which require a credit card. Following in iZettle’s Scandinavian steps, Austrian Mobile Payment solutions provider we may see other red-hot start-ups, such as DOMICO has expanded its footprint into Stripe Zooz and Jumio to expand their footprint 23 countries including 600 million mobile into the European market space. subscribers. Telefonica O2, T-Mobile and Vodafone developed a joint platform in Czech

PAYVISION 19 A Future in which Cash is Mobile

4.1.2. Gartner predicts that Eastern somewhat more coordinated approach than Europe will see the highest user for example in the UK. This approach seems to growth between 2011 and 2016. Poland have been rather successful as we can see in is an interesting market in which providers of this picture. contactless payment solutions have taken a

Lessons Learned - Polish and UK Launches Poland (2010) UK (2008)

Issuance Co-ordinated - Mass UnCo-ordinated - Partial

Geography National Regional

Merchant Focus Tier 1 - National Acceptance Tier 2 - Regional Acceptance Single Transaction Limit 50PLN - Appropriate for market £10 - Too low for merchants/consumers Commercial Framework Ad valoreum Same as tor high value

POS Solution Proven reliable solutions Unproven pilot solutions

The dynamic growth of VISA contactless Nonetheless, Russia is modernizing at a fast payWave Cards in Poland combined with a high pace and due to its large population Russia is mobile penetration is an indication of the huge the 7th largest internet user community in the potential this country holds for m-Payments. world. The amount of Polish contactless VISA card- holders quadrupled, while the average value As one of Russia’s largest mobile opera- of contactless transactions in 2011 amounted tors, QIWI has been successful in offering to 43 times that of 2010. In Poland, 50.000 Russians a variety of payment methods, such terminals accept VISA payWave. With a high as payment via QIWI Kiosks or QIWI Wallets. 129% mobile penetration rate and over 1 Russians tend to be reluctant to shop online. million of Polish laborers working abroad, Due to historical and political reasons, Russians Poland is ready for an explosive growth of lack trust in purchasing products and services m-Payments. through online payment transactions. However, this doesn’t stop Russians to use the internet As one of the BRICS Emerging Markets, Russia to plan and buy travel arrangements, which has a population of 170 Million. Russia’s vast accounts for a large percentage of Russia’s rural areas have been neglected by a central- online payment transactions. ized government policy which focused on the development of Russia’s cities. This accounts for the country’s low internet penetration. A majority of Russians remains unbanked.

PAYVISION 20 A Future in which Cash is Mobile

4.1.2. With a Mobile penetration rate of 160% and and rural family members as an alternative to a young generation open to innovation there transferring cash over large distances. are great opportunities for the m-Payment industry. Russia is an interesting Market for a variety of mobile payment methods, including m-Remittance for transactions between urban

4.1.3. LATAM for Mobile Payment Solution providers in a (South-, Central America and the Caribbean) country where 46% of urban Brazilians are interested to purchase goods and services via The potential success of mobile payment solu- online payment. 42% of Brazil’s almost 200 tions in an Emerging Market can be measured million have internet access at home, 25% of along a set of parameters which include; mobile Brazil has a Facebook account and 45 million phone and internet penetration, the existence Brazilians regularly shop online. Brazil repre- of service providers and a financial infrastruc- sents 50% of all e-Commerce in Latin America. ture, controlled by a defined set of rules and These parameters form key factors for regulations. m-Payments to conquer the Brazilian market in the near future. As an emerging market, Latin Americans tend to own more than one Brazil holds great potential. In 2011, Brazilian mobile phone. Prepaid cards are popular. e-commerce amounted to $11 Billion, 26% up Internet penetration is still in the developing from the previous year. With 115% mobile phase, especially in the rural areas and the penetration, Brazil offers great majority of Latin Americans do not have a bank business opportunities for mobile account. With a very high mobile penetration, a payments and the industry giants. large percentage of LATAM consumers depend Blackberry and Telefonica run an on their mobile phones as their main access NFC Pilot in Brazil and they launched portal to surf the internet. a Mobile Wallet solution for the Brazilian Market. Telefonica has also Let us focus on Brazil as one of the Emerging partnered with MasterCard in a joint venture BRICS markets. Due to geographical factors, they named “Wanda”. The Open Model ensures there will be a growing demand for P2P interoperability between the banked and the payment solutions. Positive developments unbanked in the 12 Latin American countries within the Mobile Payment sector will have to where Movistar operates. Mobile Remittance be leveraged by Financial Institutions in compli- can reach a potential market of 87 million ance with Brazil’s regulatory landscape. Anti- consumers. Interoperable, it will be linked to a corruption laws such as the FCPA (US Foreign mobile wallet or prepaid account that will allow Corrupt Practices Act), the UK Bribery Act for money transfers, mobile credit reload bill and high taxation, could potentially scare off payment and retail purchases, among other international companies interested in Brazil’s services. The execution will be in the hands attractive business climate. Enhanced Due Dili- of MPS, which has a global agreement with gence to prevent risk, imposed by 3rd parties in Movistar. This Mastercard/Telefonica Joint the value chain, is crucial. Venture will be headquartered in Miami, USA. Furthermore, BrasPag formed a partnership Governmental initiatives to decrease financial with SafetyPay and in 2011, Terra partnered exclusion are fundamental to pave the way with PayPal.

PAYVISION 21 A Future in which Cash is Mobile

4.1.3. America Movil launches a mobile payment and any payment method which makes life venture with CitiGroup, named “Transfer”. This less com-plicated will fall in fertile ground in scheme will be available in Mexico, after which a continent, which is eager to engage in social it will be rolled out over the entire LATAM media and in online shopping. In the over- Market. It will provide users with cash transfer populated metropolitan areas of Brazil, Mexico, and m-Remittance in collaboration with Trac- Argentina, Co-lombia and Chile, internet - and fone, a US based company. mobile penetration is high. This market could be interesting for small innovative start-ups This should not stop innovative start-ups to which offer merchants and consumers ease- explore the opportunities of a market with of-use payment methods, which require credit great potential. Latin Americans love gadgets cards.

4.1.4. MEA lation of 150 million. Only 22 million Nigerians Middle-East & African mobile landscape has have a bank account, promising considerable changed dramatically from close to zero mobile opportunities for mobile payments. Aware penetration back in 2000, to half-a-billion of the immense opportunities, the Central mobile users in 2010 in Africa alone. With a Bank of Nigeria has issued seven approvals to banked population-rate of only 25% , low credit m-Payment solution providers, one of which is card penetration and a relatively high mobile UK-based Monitise. penetration of up to 50%, Mobile Payment offers consumers financial services, such as the Another major player which has penetrated possibility to received cross-border payments the West African mobile payment market is in addition of the ability to communicate over Orange Money, actively engaging in the fran- large distances from and to the remotest and cophone countries such as Ivory Coast, Mali most isolated rural locations. and Senegal, in partnership with BNP Paribas. These developments will have a huge impact With years of experience in an equally chal- on Africa as a developing continent. lenging marketing landscape, India’s Bharti Airtel acquired mobile telecom giant Zain in Gross m-Payment Transaction Value is 2010, which served 40 million consumers expected to have tripled from 2008, reaching across Africa. Teaming up with Standard USD 28 billion in 2012. Due to the large Chartered Bank and MasterCard Airtel Africa number of transient workers transferring launched a mobile wallet solution in 2011. payments to theirs families at home, 84% of In South Africa, MasterCard also launched a m-Payment typically consists of m-Remittance. Mobile Payments service dubbed MasterCard There are 40 million migrant workers living Mobile in agreement with financial services in MEA Region, promising rapid growth of provider Oltio. m-Payments. Orange, Glo, Zain and Vodafone (M-Pesa) have tapped into this poten- Vodafone’s Kenyan affiliate Safaricom expanded tial market by offering m-Payments to an its M-Pesa service from Kenya into South increasing area within MEA. Africa, facilitating mobile payment transac- tions of urban workers to their family members living in remote rural areas. In West Africa, Nigeria has 90 million mobile users on a popu-

PAYVISION 22 A Future in which Cash is Mobile

INNOVATIVE START-UPS, HEAVILY FUNDED BY MAJOR INVESTORS, IN ALLIANCE WITH FINANCIAL INSTITUTIONS, WILL DRIVE THIS MOBILE PAYMENTS REVOLUTION INTO THE NEXT PHASE.

PAYVISION 23 A Future in which Cash is Mobile

4.1.4. Africa comes second, after Asia Pacific, in the network, allowing its users to order food & number of mobile users. The two regions beverage, shop, park, fuel and make online combined are expected to account travelling reservations. for more than 60 percent of the global mobile payments volume in Israel-based DigiMo launched P2P and P2B 2016. Even though m-Payment business solutions which enable interaction between opportunities in MEA are growing rapidly, any mobile device with any PoS. Based on those investing in MEA Market do face some QRC technology, DigiMo offers consumers, a challenges. A lack of technological aware- safe mobile wallet, customer loyalty (coupons) ness amongst a large part of those interested programs and NFC adaptability. Merchants do in m-Payment may require investment into not need to adopt PoS hardware changes, card education, the adaption of interfaces and readers or NFC terminals, resulting in a speedy technology. In order to reach a wider audience, TTM implementation cycle. through local distribution channels, ISO’s need to be convinced to partner up via attractive Israeli start-up ZooZ offers a comprehensive commission structures and low start-up costs. end-to-end payment solution which allows The amount of payment methods offered; need m-Payment and check-out functionality via to be targeted to service a largely unbanked Android or iOS apps through a multi-platform population. An evolving regulatory framework SDK. ZooZ aggregates multiple payment including enhanced due diligence through KYC sources, such as credit cards and PayPal in programs put into place in order to prevent one universal solution and integrates fraud Money Laundering and terrorist financing may detection. All sensitive data is stored in a PCI form an additional challenge for fast integra- DSS-compliant cloud environment. tion. The rich Gulf States offer a m-Payment landscape similar to that of other developed Israel’s mobile payment landscape forms an regions. VeriFone, together with Network exceptional hub within the geographical Middle International, a leading payment service East. However, with its highly developed provider in the Gulf and Middle East region, financial system, a solid banking infrastructure agreed to roll out the industry-leading and PCI and high mobile- and internet penetration, DSS-compliant VeriFone Vx 670 m-Payment Israel is more similar to Europe and the USA system. Based in the United Arab Emirates, offering equally versatile business opportuni- Network International is part of Emirates Bank ties. Cellenium is an Israeli pioneer which has Group, a payments solutions provider with a invested in innovative m-commerce solutions recognized presence among the region’s retail by developing a device independent messaging and financial institutions. technology, which can hook up to any mobile

4.1.5. USA & CANADA of payment transactions on a large scale as In order to understand the US mobile payment would possibly be expected landscape a few misconceptions have to be corrected. Although 3G mobile penetration in The variety of services offered to fulfill the USA is very high, with a highly developed merchant, consumer and business needs is financial system in one of the most developed great in a highly competitive market, with markets in the world, consumers do not use mobile financial services accounting for 35% of their smartphones to carry out a great variety all mobile payment transactions.

PAYVISION 24 A Future in which Cash is Mobile

4.1.5. Only up to 15% of US consumers A nationwide study: “Mobile Payments: use their smartphones to access Consumer Benefits and New Privacy Concerns” their bank accounts and of those revealed that 74% of US respondents said interested to use their mobile as a it is unlikely they will adopt mobile payment payment transaction device, the great systems due to serious data breach & privacy majority is aged between 18 and 34. This concerns. Almost two-thirds of US consumers generation is attracted by mobile payment are not interested in having mobile payment methods as offered by Square and Intuit. These technology integrated in their mobile phones, offer mobile users small devices to be attached according to new research by Harris Interactive, to smartphones allowing consumers to make deeming the functionality “not at all important”. credit card payments. Users are charged with a 2.7% transaction fee. In terms of Consumer Readiness to adopt m-Payments, the US barely makes the Top PayPal is experimenting with “couch 10. However, Pew Research Survey shows commerce”: people sit on their couch and buy that 80% of American adults use the Internet, products and best offers with their mobile and 71% of those use it for online shopping. phones or laptops, by scrolling through Notwithstanding the reluctance to engage virtual shopping malls. Notwithstanding these fully in mobile payments, North America is the successful start-ups, US researchers notice third-largest region by value in 2016, being a great reluctance to use smartphones for twice the value of Western Europe. payment services.

SEPTEMBER 2011 MOBILE COMMERCE PURCHASES TWO-THIRDS OF SMARTPHONE OWNERS CONDUCTED MOBILE SHOPPING ACTIVITIES IN SEPTEMBER 2011. MOVIES, E-BOOKS AND CLOTHING WERE POPULAR PURCHASES.

DIGITAL GOODS

CLOTHING

TICKETS

DAILY DEALS

GIFT CERTIFICATES

ELECTRONICS

PHYSICAL BOOKS

AIRPLANE TICKETS

FLOWERS

source: comScore

PAYVISION 25 A Future in which Cash is Mobile

4.1.5. Americans use multiple loyalty cards by which Just like in the USA, in neighboring Canada, they voluntarily give stores their private infor- Mobile Payment is yet to gain momentum. mation. Educating the consumer by showing Even though Canada is fully developed in terms the contradiction between the perception of of payment technology, mobile penetration security and privacy concerns is key to the and banking infrastructure, Canadians have success of mobile payment methods in the equally shown reluctance to use their mobiles USA. Initiatives to overcome consumer reluc- as a payment device. In 2011, VISA partnered tance with regards to the above concerns have with Canadian financial institutions and service taken place and online purchases made by providers to develop a Digital Wallet with mobile phones have increased with 67% over added NFC functionality, providing alternative the last year. Forrester Research is optimistic payment solutions to both the Canadian and and expects m-Commerce revenue to grow to the neighboring US Market. RBC launched an $31 billion by 2016. NFC Pilot with Rogers and Citi Cards completed a trial with Bell. In the US a Mobile Payments Industry However, on recent MasterCard “Consumer Workgroup (MPIW) was formed by American Readiness” (to adopt m-Payments) rankings, organizations representing the end-to-end Canada topped the USA Value Chain of Mobile Payments to discuss the ways in which to counter all the challenges which lie ahead. US Legislation has to be ready for the explosive growth of mobile payments. Recommendations such as adapting provisions of California’s Song-Beverly Credit Card Act to mobile payments systems have been made. US consumers welcome Acts which protect their Privacy and “Song-Beverly could be adopted to accommodate those who do wish to share their transaction data.

Handset makers, Mobile carriers, Issuing and Acquiring banks, Payment Processors, Card Schemes, Credential Manufacturers, (Merchant) Trade Organizations, Software providers, inter- national PSPs and Retail Payment Risk Forum met quarterly with Federal Reserve Banks to reach agreements on a number of key vari- ables which could determine mobile payments success in the USA.

PAYVISION 26 A Future in which Cash is Mobile

5 A battle between David and Goliath

WHO IS BATTLING FOR WHAT?

Retailers Google? Facebook? Nokia

Nokia DoCoMo Manufacturer Sprint Sprint

Google AT&T, Verizon, Mobile AT&T Telefónica operators T-Mobile Orange All mobile Apple T-Mobile… operators Pure player

Apple Amazon Mc Donald’s Card issuer Starbuck, Subway Internet Giants Obopay Paypal Paypal Boku, Zong Mastercard, Size Obopay Visa Zong proportional Zong Core business New business to player's

Payment business positioning position A cash cow The OS The internet The big fight for market battle giants game a large market Narrow addressable Application Fixed/mobile market SMS Stores wallet NFC Large addressable Technology market

Source: IDATE

Giant mobile operators, hardware manufac- Giant industry leaders such as Google, Apple, turers, major retailers and financial institutions Samsung, T-Mobile, Orange and large retailers have been anticipating the enormous potential such as Taobao/Alibaba/AliPay, Amazon of m-Payments by engaging in commercial and and e-Bay/PayPal are in for Battle, forming technological partnerships. Mobile payment joint ventures with major Card Schemes. In landscape is constantly subject to changes September 2011, Google launched Google and new developments, with partnerships Wallet, which was developed in partnership announced almost every month. with Citi, MasterCard, First Data and Sprint. Google Wallet wants to offer consumers a This collaboration involves a series of complex secure virtual wallet, which stores the user’s integrations. The SIM/Payment SW developer credit cards on his/her Smartphone. Through a needs to collaborate with the Chip/Handset reader, the consumer pays in-store and online. Manufacturer and the Mobile Operator, all In addition, the user is notified of special offers of which have to partner with Issuing and made available to Google Wallet users. Acquiring banks/financial institutions, a Trusted Service Manager and a Payment Platform Samsung and Visa are teaming up for the provider which processes the payment transac- London Olympics, allowing visitors to pay with tions from the consumer to the merchant. an NFC-enabled handset via VISA’s “payWave”

PAYVISION 27 A Future in which Cash is Mobile

Technology. Alliances are formed; Sprint of m-Payments. Owned by e-Bay, PayPal is 5 became the first mobile operator to roll out the a major global force in e-commerce with 100 AmEx mobile wallet solution called SERVE, to million customers, expanding globally with an be accepted wherever American Express Cards annual growth of 30%. are being accepted.

T-Mobile UK and Orange formed a joined PayPal seems to focus venture called “EverythingEverywhere” which collaborated with BarclayCard to launch UK’s on P2P mobile payment 1st Contactless Mobile Phone Payments solutions, parallel to Service. Isis is another such joint venture in which AT&T, T-Mobile USA and Verizon its investment in the Wireless develop NFC enabled mobile wallets development of future supported by VISA, AMEX, Discover and MasterCard. In February 2012, VISA launched payment methods which mobile services which allow FI’s to offer their allow shoppers to buy account holders Mobile Banking and in collabo- ration with Monitise, Visa offers mobile services products in the aisle which can be accessed from any type of Mobile. of the supermarket via VISA is also developing NFC payment methods and support for “V.me”, Visa’s digital wallet their mobiles. Paypal service. expects to see $7 billion MasterCard and Comviva launched a Mobile in mobile payment volume Money Partnership Program, aimed at providing financial services to the 2.5 billion in 2012. consumers worldwide. Through this Mobile Money program, mobile users will be able to UnionPay holds a monopoly position as the only complete bill payments, remittances, and online Bank/Card organization in Mainland China. The transactions through millions of physical and country’s sole bank card processor collaborated online merchants. Asia, Africa and LATAM are with Taiwan-based HTC Corp which developed primary target for this MMP program. NFC enabled smartphones.

Apple released an update to the Apple App By partnering with China Telecom, consumers Store which allows US customers to walk into are able to make payments via China’s half a an Apple Store and pay through “EasyPay” million POS machines. ABI Research predicts which taps into their Apple ID. The receipts that NFC Payment Transactions in China could are stored in the app. Apple plans to offer NFC top $8 billion by 2014. Hong Kong based- payment methods in their next iPhone. After Wing Hang Bank Ltd. taps into this huge a series of delays in the collaboration between potential by being part of UnionPay Network. Google and Isis, JPMorgan Chase, Capital One As one of ten foreign banks WHB is allowed to and probably U.S. Bank plan to offer their issue UnionPay debit cards in China. contactless-mobile payment applications in the Isis wallet.

Giant internet retailers in the East and the West are aware of the boundless opportunities

PAYVISION 28 A Future in which Cash is Mobile

5 Alibaba.com is the global leader in e-commerce with an online business Taobao Marketplace community. is China's primary C2C online shopping destination.

China Yahoo! is one of the leadlng Taobao Mall is Alibaba Chinese-language China's leading portals. B2C online Group marketplace for Alibaba Group is the world's quallty, brand name biggest e-commerce company goods. and has 6 subsidiaries and 1 affiliate company.

Alibaba Cloud Computing is a developer of advanced eTao is data-centric cloud comprehensivee computing services. shopping search engine

Taobao is a major player very similar to PayPal, Mobile Giants, major Financial Institutions, but focused on the Asian region. Listed on the Card Schemes, TSMs, innovative Chip and SIM Hong Kong stock exchange in 2007, Alibaba manufactures and Giant e-commerce leaders has grown to be valued at more than $18 will partner or compete to win this $ billion billion. Headquartered in China, Alibaba has battle, but however technologically innova- offices in Japan, India, London, the US and tive and “cool” their solutions and joint efforts South Korea. may prove to be and no matter how familiar consumers may become with new mobile China’s answer to USA Giant PayPal’s (100M payment methods; if these Giants are not able users) is AliPay. As Alibaba’s online payment to win the hearts of consumers on a massive platform, scale, their methods will not become main- stream. AliPay offers 550M registered There may be considerable opportunities users a mobile wallet solution for small start-ups, led by young entrepre- including a new barcode neurial innovators, to compete with these industry giants. The flexibility of small teams payment system. Penetrating a of enthusiastic, agile developers, backed by market which consists of 800 major experienced investors, may prove to become surprising factors in this shifting mobile users in China alone, mobile payment landscape, powerful small the growth potential of players with great potential to challenge the established Giants and swing this battle into yet Alibaba through Taobao and another direction. AliPay is enormous.

PAYVISION 29 A Future in which Cash is Mobile

6 Mobile Payment: Methods and Technologies

The terms Mobile Banking and Mobile Payment methods, such as proximity Mobile Payment are often used payment require a PoS while Mobile Wallets interchangeably, when in fact offer consumers a variety of financial services they offer different payment and customer loyalty programs, by using their services through different mobile to replace their wallet. Payments can payment methods. When a be made from Person to Person (P2P), from Mobile is used as a banking Person (Consumer) to Business (P2B) and from device through which users Business to Business (B2B). gain access to their bank accounts, from which transac- Contactless NFC payment is possible between tions can be made, alerts can P2P and between C2B and is is particularly be received and one’s balance appealing payment method for public transpor- can be checked, this is called tation, parking or a simple cup of coffee. Mobile Banking.

NFC Payment Mobile Banking Mobile Wallet

Online mobile payments can be made through Online mobile payments from C2B are made money transfers from P2P or from C2B. Mobile when consumers shop online (m-Commerce) remittance is a good example of remote P2P or when consumers purchase digital goods payment, where a migrant worker transfers (games, music, apps, videos) through stored money to a relative in his country of origin, use accounts. This is the fastest growing often a country where banking infrastructure market in mobile payment, ahead of NFC, isn’t very developed yet. m-Banking and m-Remittance. This could be

PAYVISION 30 A Future in which Cash is Mobile

another indicator that innovative start-ups Card schemes have recognized the tremendous 6 such as Stripe and Jumio have developed solu- potential of mobile payments in an early stage tions which could gain enormous momentum in and have been investing in vertical integra- the near future. tion. MasterCard bought DataCash, while VISA acquired CyberSource. This enables these Innovative technology is crucial to process stakeholders to control more aspects of the payments and to store sensitive data. This mobile value chain, while horizontal integra- data can be stored on the Mobile Payment tion allows partnering stakeholders to offer Device or in a virtual Cloud. Mobile Operators, consumers a wider range of m-commerce for example, store the customer’s private data products. on a secure area of a SIM. Google offers both storage options by merging Google-Checkout with Google-Wallet.

Mobile as a sales channel Banking applications, account acces NFC / Proximity Premium SMS / Money payments operator billing transfer and P2P

• Premium text message (P-SMS) is used • The Mobile functions as a direct to charge and accept payments through e-commerce sales channel for merchants, mobile operator enabling its user to research, compare, • Money is being transferred from P2P, shop and buy online. transactions incl. details are being charged and specified on a mobile bill transfer. • A Mobile Banking application enables the user to access and make payment transac- tions from and to bank accounts. • A Mobile communicates with a contact- less device designed to accept and transfer payments from the user’s account to the merchant, usually small amounts, NFC is interesting for F&B and in the Transporta- tion sector.

PAYVISION 31 A Future in which Cash is Mobile

WHILE GIANTS BATTLE FOR THEIR MARKET SHARE, YOUNG INNOVATORS DEVELOP NEW MOBILE PAYMENT METHODS, INSPIRED BY THE FUTURE.

PAYVISION 32 A Future in which Cash is Mobile

6.1. Stealth mobile Payments Start-Ups

For young and innovative Business opportunities around Mobile developers, it can be quite Payments are so attractive that a few ones have relished the challenge, some of these a challenge to enter start-ups, backed by impressive investors the mobile payments The advantage of arena. In order to set up a merchant account, small start-ups which allows businesses is their speed to accept card payments, and flexibility. one must deal with an It takes small, flexible start-ups, managed by extremely fragmented young executives and backed by major inves- industry filled with tors, less time to implement and integrate applications, to align workflows and to synchro- regulations, fees, and nize complex processes and procedures. For compliance standards. Giants, new strategies, changing processes and procedures, need to be approved by vertical One must meet high layers and implemented and synchronized by business standards as different departments across large organiza- tion. Aligning workflows and business processes defined by credit card through a variety of integration models and the schemes and financial definition of key responsibilities can take large companies over a year. institutions. It takes small, flexible start-ups, managed by young executives and backed by major inves- tors, a shorter time to implement and integrate applications, to align workflows and to synchro- nize complex processes and procedures.

JUMIO Camera + Credit Card = Secure Payment! Jumio applies computer vision technology, which allows consumers to make payment transactions simply by holding their Credit Card in front of the Webcam inside their PC, Laptop or Smartphone. Without addi-

PAYVISION 33 A Future in which Cash is Mobile

6.1. tional hardware plug-ins needed, the camera without setting up a merchants account. Stripe simply scans the customer’s credit card and is implemented as a JSON API, so the buyer the customer’s ID is verified through NetVerify, does not leave the merchant’s website. Stripe’s Jumio’s patented KYC solution. After its strategy focuses only on the Web and ignores ‘Netverified’ scan, the stamp of approval guar- the mobile apps market where rival startup antees merchants and end users that Jumio’s Square is making headway. Stripe is guided by ID recognition system has completed one of Andreesen Horowitz and Sequoia Capital, along the most sophisticated security checks available with investments from PayPal founders Elon within a few seconds. Interesting enough, the Musk, Peter Thiel. Bloomberg says that Stripe growth figures Jumio has shown during its attracted $18M in funding and Sequoia valued start-up phase, remind trend watchers of those Stripe at $100M. during the initial stages of successful Social Media start-ups, such as Twitter and Facebook. SQUARE Based in San Francisco, Square Founded in 2010, Jumio already attracted was developed by Twitter-founder Jack $32M in funds and its advisory board includes Dorsey. Mobile payments are made through former executives of Google and Amazon. a Card reading plug-in device attached to the Facebook co-founder Eduardo Saverin and smartphone of the online consumer. Square Scott Weiss, General Partner at Andreessen has been very successful in the US and global Horowitz, have seats on the board of directors. expansion is to be expected.

CARD.io Not funded by the major investors, iZETTLE Endorsed by VISA, MasterCard but based on a similar technology, Card io and EuroPay, iZettle is a Swedish company WebScan does not require a physical device targeting the European market with a payment attached to the smartphone either. Card io method similar to Square. The difference is released an SDK for mobile developers that that iZettle also reads PIN and Chip cards which allowed them to integrate the card-reading are prevalent in Europe. function into their mobile apps. Contrary to Jumio, Card.io started with SDKs for iOS and INTUIT Similar to Square and also based in Android, before moving into web support for California, Intuit offers users a card reader plug e-commerce sites. Recent partnership with in, to be attached to a smartphone. Consumers PayPal will attract the attention of online swipe their card through the card reader. merchants, eager to offer their clients a payment method which doesn’t require addi- tional hardware.

STRIPE The brothers Collison dropped out of MIT and Harvard to start Stripe, a streamlined PCI-DSS Compliant lightweight API that allows web merchants to accept online payments

PAYVISION 34 A Future in which Cash is Mobile

6.2. Time to Market (TTM)

There are several factors manufacturers. To consolidate and define contributing to the TTM responsibilities for Due Diligence processes & procedures, as demanded by Risk management of an innovative Mobile and Compliance departments is very time- Payment Method. Trust consuming and requires tight collaboration and fine-tuning between the various departments and transparency IS of the companies involved.

crucial for customer Business processes need to be synchronized acceptance. A product and Risk and Liability have to be defined and shared amongst the various stakeholders. needs to prove its added Enterprise Application Integration (EAI) can value by being cost-saving become complex. All these factors have an impact on the speed and time to market (TTM). while adding to the user’s comfort; the interface Some of the previously mentioned innova- tive start-ups (i.e. Jumio and Stripe) strongly needs to be intuitive and focus on ease-of-use solutions, which do not multifunctional. require complex EAI of multiple stakeholders. Stripe’s streamlined API offers web merchants Concerns and customer perception around a method to accept online payments without security need to be handled with care. User setting up a merchants account. Jumio preference goes out to a single touch, one click offers online consumers a method which solution, a multiple smart device enabling its doesn’t require more than a webcam, already user to pay for any product and/or service, embedded on PCs, laptops, iPads and smart- from any location. A mobile which gives users phones. This saves the consumer the time access to their bank account, with which needed to buy a plug-in and install and imple- they can transfer money and pay contactless ment this plug-in by following the steps, as through NFC. described in a manual. This saves consumers a lot of time, even compared to payment Most solutions offer either or, few offers all methods involving hardware plug-ins (swipe the desired functionality in one solution. Some devices). methods stash user data on a Cloud while others store user data on the Mobile’s (secure area) SIM Card.

The complexity of integrating business processes, applications and varying secu- rity protocols, demand a tight collaboration between Mobile Operators, Card Issuers, Payment Service Providers, Banks, Service Managers, SIM and secure Mobile Chip

PAYVISION 35 A Future in which Cash is Mobile

6.3. Looking in the Crystal Ball; Future Payment Solutions

As we have seen in the previous chapters, the future development and success of Mobile Banking, Mobile Wallets, m-Remittance, QRC, NFC and new Payment methods involving Image Recognition vary per geographical region and depends on several factors which together contribute to global growth of alternative payment methods in the near future.

Mobile penetration, the percentage of banked Backed by major investors with decades citizens and the available technical infrastruc- of experience and a keen eye for potential ture differ per region. Developing countries success, these innovate start-up may become offer different business opportunities, such as serious competition for those, who miss the payment methods which facilitate remittance flexibility and agility to adapt to consumer’s and mobile banking otherwise unavailable expectations, influenced by regional differences to the unbanked, while high-tech developed and changing markets which are subject to countries will benefit from mobile wallets, QRC constant fluctuations. and innovative mobile payment solutions, as provided by young start-ups, heavily funded by The future is now, times are changing rapidly major investors focused on new trends. and so is technology. Will we be using Google as our #1 Search Engine in five years from While the “Asian Tigers” implemented NFC now? New Apple iPhones come with an Intel- years ago, other developed regions are still ligent Personal Assistant called SIRI, which struggling to overcome market reluctance, makes use of Voice Recognition Technology triggered by public privacy and security to answer all your questions. SIRI listens to concerns. Joint ventures are formed by giant your question, voiced over the speaker of your Telecom, Mobile Operators, Card Schemes iPhone and finds what you are searching for, and Payment Service Providers. Acquirers and it leads you to your desired location, schedules innovative start-ups join the battle for their your reminders, plans your meetings, types share of a booming market* of mobile users, your emails, searches the Web and much more. ready to adopt the smartphones to engage in SIRI integrates with a long list of apps and financial transactions. services worldwide. You don’t need to type, all you have to do is ask! While giants battle for their market share, young innovators develop new m-Payment methods, inspired by the future.

PAYVISION 36 A Future in which Cash is Mobile

6.3. Location Based Services (LBS) such as Four- Bio-technology holds great promises for the Square in the USA and Jiepang in Greater future of innovative Payment methods. Iris China tap into the consumer’s desire to engage recognition, chip implants, Bitcoin, which uses with friends via their mobile social networks. P2P network, digital signatures and cryptog- NFC allows mobile users who have LBS raphy; revolutionary payments methods, which installed, to connect to contact-less terminals only a few years ago, would have seemed part (embedded stickers) at merchant’s locations, of science fiction movies, are becoming reality which inform their social media friends about in a near future in which even m-Payments will their whereabouts Together they can enjoying be part of history. benefits, such as special offers, freebees and special treatments by being part of this social network.

New start-ups such as Square and iZettle, successfully launched innovative mobile payment methods in the USA and in Europe, with trendy gadgets which, attached to your mobile, allow you to pay with the swipe of a card, while Jumio launched a revolutionary method which converts your (mobile) webcam into a secure card reader. This method makes all plug-ins and add-ons obsolete, as it relies on high-tech image recognition technology. Jumio’s first solutions – Netswipe and Netverify – apply computer vision in the sensitive payment and ID verification space.

PAYVISION 37 A Future in which Cash is Mobile

6.3. * Appendix Mobile subscribers; global is being driven by demand developing mobile handset and smartphone market world, led by rapid mobile adoption in share; world’s top 5 operators China and India, the world’s most popu- 1) At the end of 2011, there were 6 billion lous nations. These two countries collec- mobile subscriptions, estimates The tively added 300 million new mobile International Telecommunication Union subscriptions in 2010 – that’s more than (2011). That is equivalent to 87 percent the total mobile subscribers in the US. of the world population. And is a huge • At the end of 2011 there were 4.5 billion increase from 5.4 billion in 2010 and 4.7 mobile subscriptions in the developing billion mobile subscriptions in 2009. world (76 percent of global subscrip- • Mobile subscribers in the developed tions). Mobile penetration in the devel- world has reached saturation point with oping world now is 79 percent, with at least one cell phone subscription Africa being the lowest region worldwide per person. This means market growth at 53 percent.

Key Global Telecom Indicators for the World Telecommunication Service Sector in 2011 (all figures are estimates)

Global Developed Developing Africa ArabStates Asia & CIS Europe The nations nations Pacific Americas Mobile cellular subscriptions 5,981 1,461 4,520 433 349 2,897 399 741 969 (millions) Per 100 people 86.7% 117.8% 78.8% 53.0% 96.7% 73.9% 143.0% 119.5% 103.3%

Fixed telephone lines (millions) 1,159 494 665 12 35 511 74 242 268

Per 100 people 16.6% 39.8% 11.6% 1.4% 9.7% 13.0% 26.3% 39.1% 28.5%

Active mobile broadband 1,186 701 484 31 48 421 42 336 286 subscriptions (millions) Per 100 people 17.0% 56.5% 8.5% 3.8% 13.3% 10.7% 14.9% 54.1% 30.5%

Fixed broadband subscriptions 591 319 272 1 8 243 27 160 145 (millions) per 100 people 8.5% 25.7% 4.8% 0.2% 2.2% 6.2% 9.6% 25.8% 15.5%

Source: International Telecommunication Union (November 2011) via: mobiThinking

The top five mobile network operators world- and data as a percentage of total revenues, wide: by number of subscribers, revenues, according to Portio Research: monthly average revenue per user (ARPU), monthly churn (i.e. loyalist customer base)

Top five operators by different KPIs – worldwide

Rank Subscribers Total revenues Monthly ARPU Monthly churn Proportion of revenues derived from data 1 China Mobile China Mobile 3 UK NTT DOCOMO Japan Smart Philippines

2 China Unicom AT&T US Bouygues France KDDI Japan Globe Philippines

3 Bharti Airtel India Verizon US Vodafone Ireland SingTel Singapore SoftBank Japan

4 AT&T US NTT DOCOMO Japan O2 Ireland Chunghwa Taiwan NTT DOCOMO Japan

5 Verizon US Sprint US Orange Switzerland T-Mobile Germany KDDI Japan

Source: Portio Research (June 2009) via: mobiThinking

PAYVISION 38 A Future in which Cash is Mobile

6.3. mobiThinking note on the Top fives: the most Mobile operators in developed countries could interesting thing is the predominance of Asian run out of profit in the next two to four years mobile operators coming top in both the if they do not change their business models, customer loyalty and data revenues sections. according to research by Tellabs/Analysys Perhaps this represents different and longer- Mason (February 2011). This assumes current term priorities than the European networks trends in demand for data, revenues and costs that come top in average revenue per user. associated with investing in high speed data (Note: the analysis in this report is based on networks. 2008 revenues).

When mobile operators in developed economies are expected to run out of profit (if expenditure, demand and revenue trends remain the same) Region Worst case scenario median Best case scenario

North America Q1, 2013 Q4, 2013 Q2, 2014

Developed Asia Pacific Q3, 2013 Q3, 2014 Q1, 2015

Western Europe Q1, 2014 Q1, 2015 Q2, 2015

Source: Tellabs/ Analysys Mason (February 2011) via: mobiThinking

PAYVISION 39 A Future in which Cash is Mobile

7 About the publisher

7.1. About Payvision

Founded in 2002 by Rudolf Booker, Payvi- Payvision’ s experience in the sion is a fast growing, independent Payment different international regions has Solution Provider specialized in Global Card resulted in a global network of Payments for the e-Commerce market. Payvi- global acquiring banks, connecting sion offers Acquiring Banks, Agents, Payment over 300 trusted business partners Service Providers, ISO, MSPs and their with more than 5000 web merchants Merchants a secure PCI-DSS Compliant, PSD worldwide, for which we process Licensed International Payment Processing over 100 million transactions a year. Network enhanced with innovative technology.

Over the past decade, Payvision has consis- tently expanded its geographical footprint across the continents, resulting in vast know- ledge and insight in the complexity of Card Payments and e-commerce, in a global market subject to great challenges such as unprec- edented technological innovation, changing business needs and an increasingly demanding regulatory landscape.

PAYVISION 40 A Future in which Cash is Mobile

Payvision, an independent global card processor, offers international payment service providers and ISOs unprece dented business opportunities by connecting NE them to acquiring banks in our global card payment network. Payvision has the in-house expertise to offer global domestic O acquiring for cross-border e-commerce. Payvision provides its customers with:

One payment • One single high-end platform for reporting interface for worldwide transactions global card • One internationally processing approved risk and under- writing protocol • gLObal domestic acquiring • Cost reduction and optimi- with the same quality in zation for profitable each region cross-border e-commerce • 150+ transaction currencies • 24/7 support and regional card settle- ment currencies • Risk and fraud management solutions

For more information visit www.payvision.com or contact Shanty van de Sande at [email protected]

PAYVISION 41 A Future in which Cash is Mobile C Desi over g n PhOTO: C : S t ud io o

van u rtesy P elt © Qu , A mster i d, I nc d am . 2012

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