Mobile Payments A Comparative study between European and Non-European Market SIDDHARTH RATHINAM KARTHIKEYAN Master of Science Thesis Stockholm, Sweden 2012 MOBILE PAYMENTS A Comparative study between European and Non-European Markets Student Siddharth Rathinam Karthikeyan Supervisor Jan Markendahl Examiner Mark Smith School of Information and Communication Technology, KTH-Royal Institute of Technology Stockholm, Sweden. 2012 ABSTRACT ‘Mobile Payments’ is a new technological mantra not only for researchers, innovators, company executives, but also for every household across the globe. True to the statement, Mobile payments are in the verge of taking a giant leap towards a cashless society. Accordingly, mobile payment services are still followed in both developed and developing countries. In the developing economies, mobile based payment services has reached a pinnacle of success in a short span of time due to the favouring conditions such as very few banked people with more mobile phone penetration etc. But in the developed markets such as Europe, USA etc., with more advanced technology and payment solutions find it difficult to reach a steady growth. In this thesis, the main objective is to find out the factors that are hindering the uptake of mobile payments in European market. This is done by comparing the Non-European market with the European one and analysing the factors for success in the developing market and this success factors are considered for the European market which can be the lessons learnt for a better uptake of mobile payments. For this, four countries are selected in each of the markets. This analysis is made by diving into two phases. In the first phase, different cases of mobile payment present in both the markets are taken and analysed. In the second phase, factors considered for influencing the success of mobile payments such as Socio-economic conditions, Technology and Hardware used, Actors involvement, Pricing, Regulatory issues and Consumer acceptance are collected, analysed for both the markets. The analysis is done for two phases and for each phase a separate framework is used. Once the analyses are done, a summary of the results are produced. Based upon the summary of both the phases, the overlying factors causing success in Non-European market are identified and explained. Then they are compared with the European market to identify where certain suitable lessons can be learnt from the developing market. The identified factors are considered as the lessons to be learnt for a big break in mobile payment industry. In the future work section, Contactless mobile payments (CMP) is explained and their future scope in mobile payment ecosystem is discussed. i ACKNOWLEDGMENT This thesis has been written as a part of the curriculum for the completion of the master’s program in Network Services and Systems at Kungliga Tekniska Högskolan (KTH), Stockholm, Sweden. It has been composed at Wireless@KTH Research Lab under the guidance and supervision of Prof. Jan Markendahl from February 2012 to August 2012. I would specially like to thank Associate Professor Jan Markendahl for his consistent guidance and support throughout my work. His supervision helped me to amend and improvise making it much better. At this moment, I would also like to thank Professor Mark Smith, Professor Per Andersson and Docent Niklas Arvidsson of Kungliga Tekniska Högskolan (KTH) for their valuable ideas, which helped to shape up my final thesis. Last but not the least, I would like to extend my warm thanks to my parents, friends, colleagues, without whom it wouldn’t have been possible to accomplish this thesis. I also hope that this thesis will help researchers and other companies trying to find out the hindering factors present in the European market for mobile payments. Siddharth Rathinam Karthikeyan ii TABLE OF CONTENTS ABSTRACT ............................................................................................................................. i ACKNOWLEDGMENT ...................................................................................................... ii LIST OF FIGURES ............................................................................................................. v LIST OF ABBREVIATIONS ........................................................................................... vi CHAPTER 1: INTRODUCTION ..................................................................................... 1 1.1 BACKGROUND ......................................................................................... 1 1.2 PURPOSE AND RESEARCH QUESTIONS ................................................. 2 1.3 RESEARCH METHODOLOGY .................................................................. 3 1.3.1 Data Collection ....................................................................................................... 4 1.3.2 Data Analysis ......................................................................................................... 5 1.3.3 Conclusion .............................................................................................................. 9 1.4 STRUCTURE OF THE THESIS ................................................................ 10 1.5 CONTRIBUTION OF MY WORK .............................................................. 12 CHAPTER 2 MAJOR DEFINITIONS ........................................................................ 13 2.1 E-COMMERCE ....................................................................................... 13 2.2 M-COMMERCE ...................................................................................... 13 2.3 MOBILE PAYMENTS ............................................................................. 14 2.3.1 Types Of Mobile Payments ............................................................................... 15 2.4 TECHNOLOGIES USED IN MOBILE PAYMENT SYSTEM .................... 16 2.4.1. SMS/Direct Mobile Billing: ............................................................................. 16 2.4.2. Unstructured Supplementary Service Delivery (USSD): ......................... 16 2.4.3 Mobile Web Payments/Mobile Wallets: ........................................................ 17 2.4.4 Contactless Near Field Communication (NFC): .......................................... 17 2.5 PLAYERS INVOLVED AND THEIR ROLES IN MOBILE PAYMENTS ....... 17 2.5.1 Mobile Network Operators (MNO): ................................................................ 18 2.5.2 Financial Institutions: ....................................................................................... 18 CHAPTER 3 DEVELOPED VS DEVELOPING COUNTRIES............................ 19 3.1 Mobile Phone Usage Index ........................................................... 19 3.2 Mobile Payment Penetration Rate ................................................. 21 CHAPTER 4 CASE STUDY OF MOBILE PAYMENTS ........................................ 23 4.1 EUROPEAN MARKET ................................................................. 23 4.1.1 United Kingdom ................................................................................................... 23 4.1.2 France .................................................................................................................... 24 iii 4.1.3 Sweden ................................................................................................................... 26 4.1.4 Poland .................................................................................................................... 27 4.2 NON-EUROPEAN MARKET ......................................................... 28 4.2.1 Kenya .....................................................................................................................28 4.2.2 India ......................................................................................................................30 4.2.3 Turkey ................................................................................................................... 32 4.2.4 Philippines ........................................................................................................... 33 4.3 ANALYSIS ............................................................................... 34 4.3.1 SIMILARITIES ..................................................................................................... 35 4.3.2 DIFFERENCES .................................................................................................... 36 4.3. SUMMARY ............................................................................. 37 CHAPTER 5 FACTORS CONSIDERED FOR THE SUCCESS OF MOBILE PAYMENTS .........................................................................................................................38 5.1 DETAILED DESCRIPTION OF THE FACTORS .................................. 38 5.1.1 Socio-Economic Conditions: ............................................................................. 38 5.1.2 Pricing .................................................................................................................... 39 5.1.3 Technology And Hardware Used ..................................................................... 41 5.1.4 Actors Involved: .................................................................................................. 42 5.1.5 Marketing Strategy ............................................................................................. 44 5.1.6 Consumer Acceptance .......................................................................................