WAR OF THE WALLETS

Whitepaper

www.juniperresearch.com WAR OF THE WALLETS 1

deliver this message to potential end users) stand the best chance of capitalising on the opportunities that wallets have to offer. 1.1 Introduction

The emergence of several high profile services, including 1.2 The Contactless Wallet Wars , Samsung Pay and Android Pay, has provided the sector with fresh impetus. Although the failure of several MNO (Mobile Network Since the start of 2015, the contactless wallet space has developed Operator)-led ventures meant that, in the offline space at least, mobile significantly: payments plateaued for several years across Europe and North America, the space is now experiencing strong growth.  That year was the first full calendar year of activity for Apple Pay in its home market and the launch of its service in the UK, and Furthermore, the accounts (or wallets) used to store consumer credentials . are now seeing an integration of offline and online payments, enabling users to access them both for remote purchases and instore.  Another leading OEM (Original Equipment Manufacturer), Samsung, introduce its own NFC payment service. In several other regions, mobile wallets have already achieved astonishing levels of adoption across an array of use cases. Whereas Kenya’s  It was the year when activity based around HCE scaled up significantly, M-PESA led the way in Sub-Saharan Africa, focusing initially on P2P with more than 50 banks engaged in commercial deployments and, (Person to Person) money transfer services, ’s achieved crucially, with Google relaunching its wallet in the form of Android Pay. critical mass as the default payment mechanism in the country’s Subsequently, Apple, Samsung and Google have all expanded their burgeoning eCommerce market. range: by the end of 2016, the services were available in 13, 8 and 9 Meanwhile, the Indian wallet market has seen dramatic growth over the markets respectively. Between them, they have rapidly scaled their active past 2 years, in part fuelled by the liberailsation of the country’s finance user base, which had reached an estimated 74 million by the end of 2016. sector and the government’s demonetisation policy.

In all cases, the key to deploying successful mobile wallets is ensuring their relevance to, and support in, local markets. Wallet providers that recognise this and can deliver integrated accounts that combine payments with tailored, targeted loyalty solutions to consumers (and, crucially,

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Figure 1: Contactless User Base (m), , Samsung Pay remember a 4-digit PIN. Hence, US customers now use Chip & signature & Android Pay, 2014-2016 instead of the more secure alternative.

80.0 The transition to EMV has reportedly provoked a degree of resentment 70.0 amongst US consumers and merchants, in part attributable to the greater 60.0 time taken to fulfil a transaction (7-10 seconds vs 2-3 seconds for 50.0 traditional swipe card). Hence, if transactions can be fulfilled more quickly 40.0 (and the transaction speed for offline Apple Pay transactions is typically 2-3 seconds) then merchants can benefit from greater throughput at POS. 30.0 20.0 Figure 2: US Market Snapshot 10.0 0.0 2014 2015 2016

Apple Wallet Samsung Pay Android Pay

Source: Juniper Research

1.2.1 Apple & the US Wallet Opportunity

The evolution of offline payment in the US has lagged behind that in other developed markets, with EMV only mandated from October 2015. After that point, if merchants had not introduced processing systems to faciliate chip-based payments, then liability for fraud would pass from the card Source: Juniper Research providers to those merchants. While this would also be true of a contactless card transaction, the belated Even with the onset of EMV, banks were reluctant to move towards Chip & migration to EMV has meant that there is a paucity of contactless cards in PIN, apparently concerned that their customers would be unable to the US market (an earlier iteration of contactless based on mag-stripe

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technology was not successful). This means that Apple Pay, and the Increasingly, consumers have opted to use their mobile devices to make wallets that have followed in its wake, have the opportunity to establish online payments via PayPal: themselves as the contactless mechanisms of choice.  In 2015, 28% of all PayPal transactions (or 1.37 billion) occurred via a The challenge facing Apple and its rivals is to ensure that the infrastructure mobile device; is in place for consumers to make instore payments. According to Head of Apple Pay Jennifer Bailey, the proportion of US retailers supporting the  Juniper Research estimates that PayPal’s Total Payment Value via service had risen from 4% at the end of 2014 to 35% in late 2016, mobile devices in 2016 reached $102.2 billion. amounting to 4 million physical locations. Although a majority of the Figure 3: PayPal One Touch Users (m), 2015-2016 remaining US retailers are now believed to own POS terminals capable of fulfilling contactless transactions, a significant number have not yet 35 activated the technology. 30 However, we believe that as contactless usage gains traction and consumers/merchants recognise the speed and convenience it offers, 25 then, as in European markets, there will be a further and significant 20 increase in availability at POS. 15 32 1.2.2 PayPal Opts for HCE 25 10 21 Arguably the primary challenger for Apple Wallet, Android Pay and Samsung Pay in the wallet wars is PayPal, the established international 5 10 leader in online payments. Founded in 1998, the company was spun off 0 from long-time owner eBay in July 2015 and in 2015 processed Q4 2015 Q1 2016 Q2 2016 Q3 2016 $281.8 billion in payments; by the end of September, the service had 192 million active wallets worldwide, including 13 million merchants. Source: Juniper Research derived from PayPal data

Payments via the PayPal wallet can be funded through a variety of One of the primary objectives for PayPal has been to reduce the level of mechanisms, including linking it to a bank account, cash in or adding friction in online checkout. With this is mind, the company introduced One credit/debit cards. Touch in March 2015, allowing consumers to pay for goods across

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multiple mobile apps and websites with a single log-in. The service has Figure 4: Mobile Wallet Transaction Value, 2017 ($1.35 trillion), scaled rapidly, as figure 3 above demonstrates. Split by 8 Key Regions

PayPal has stated that, by the end of September 2016, approximately 4 million merchant accounts had opted into One Touch, a figure it expected to reach 5 million by the end of 2016. Indeed, comscore data from a survey conducted in March 2016 suggested that PayPal’s conversion rate was 87.5%, against 51.1% for Visa Checkout and 45.6% for ‘other forms of payments.’

1.3 Market Forecasts

We would envision that total mobile wallet transactions will reach $1.35 trillion in 2017, up by 32% on the $1.02 trillion recorded last year.

It should be observed that the majority of these transactions will be accounted for by online payments for physical goods (43% of transactions by value) and domestic money transfer (39%). Conversely, NFC retail payments currently account for just 5% of wallet payment values, although North America Latin America West Europe this is expected to increase to 12% by 2021. Central & East Europe Far East & China Indian Subcontinent As with transaction volumes, China accounts for the largest share of values (52% in 2016) although this falls gradually over the forecast period. Rest of Asia Pacific Africa & Middle East

Several regions will experience average annual growth in excess of 30%, including the Indian Subcontinent, which should achieve 11% of total Source: Juniper Research transactions by value by the end of the forecast period, up from 8% in 2017.

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1.4 Who are the Leading Wallet Providers? The 12 wallet leading providers are:

The mobile wallet space is both expanding and evolving at a rapid rate.  Alipay  Players from an array of different backgrounds (including handset vendors, card providers, banks, network operators and Over the Top providers) have introduced their own offerings, with varying degrees of success.  Android Pay  Samsung Pay Some have focused primarily on instore, offline payments; others have initially approached the market from the perspective of enabling remote  Apple Wallet  Visa Checkout payments, be those money transfers or goods’ purchases. Increasingly, however, the focus is on providing an integrated wallet experience, allowing consumers to use their stored payment credentials for both  Masterpass  Vodafone M-PESA proximity and remote payments, whilst also enabling related services such as loyalty.  Orange Cash  Vodafone

Our Mobile Wallets research gives an in depth analysis of 12 wallet leading providers. It has individual and comparative assessment of these  PayPal  Weixin (WeChat) players, focusing on factors such as the range of services delivered, their reach across national and international markets and our views on the scale of their opportunities. It provides a clear understanding of the players currently winning the mobile wallets war and the opportunities open to them in the future.

It culminates in our Wallet Provider Leaderboard, separating players out based on the range and quality of their wallet capabilities and their deployments to date. This Leaderboard, together with a heatmap-based assessment of the wallet capabilities and the analysis behind the scoring that underpins it, can be found in the Mobile Wallets research.

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Order the Full Research What’s in this Research?

Juniper’s new Mobile Wallets research provides the most comprehensive  Market Research Report – Includes key trends in the mobile wallet analysis of the mobile wallet space available today. It enables industry space, extensive comparative analysis of 12 leading wallet providers stakeholders to understand the implications of disruptive trends ranging and 6 year market leading forecasts. (PDF). from market deregulation to the emergence of integrated wallet offerings.  Interactive Forecast Excel – Highly granular dataset comprising The new study, Mobile Wallets: Contactless & Remote Payments more than 2,200 data points, allowing clients to compare select 2017-2021, provides a comparative, heatmap assessment of the products markets side by side in customised charts and tables (Interactive XL). and services offered by 12 leading players in the international wallet Publications Details space, including handset vendors, card providers, network operators and Over the Top providers, gauging their respective opportunities in the short Publication date: February 2017 and medium term. Author: Windsor Holden Key Features Contact Jon King, Sales & Marketing Manager, for more information:  Comparative assessment of leading players: focusing on factors [email protected] such as the range of services delivered, their reach across national and international markets and our views on the scale of their opportunities. Juniper Research Ltd, Church Cottage House, Church Square, Basingstoke, Hampshire RG21 7QW UK  ‘Wallet Wars’: analysis of leading player innovations, strategies and opportunities. Tel: UK: +44 (0)1256 830002/475656 USA: +1 408 716 5483 (International answering service) Fax: +44(0)1256 830093  Market dynamics assessment: across a series of key countries including China, and the US. http://www.juniperresearch.com

 Market forecasts: for mobile wallet users, contactless adoption, wallet usage levels and transaction values, split by 8 key regions and by 12 national markets.