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Mobile Payments:An IBM Point of ViewDr. Mark ShermanLars van DamIBMWebSphere Strategy
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 2
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Overview of retail payments: Participants Cardholder
Merchant
AcquirerCard NetworkIssuer (Bank)
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Overview of retail payments: Merchant, acquirer, networkand issuer interactions
Batches of transactions are queued by the
merchant, including a $100 transaction
by Hans
Card network distributes each transaction to the issuer, including Hanss
$100 purchase
$100
Card network routes funds to acquirer
$100
http://www.creditcards.com/credit-card-news/how-a-credit-card-is-processed-1275.php
Issuer subtracts processing fees ($1.70) which are
exchanged with the card network and submits funds, including funds for Hanss
transaction
$98.30
Merchant sends a batch of transactions to the acquirer to
receive payment
Acquirer subtracts discount fees ($0.50) and pays
merchant
$97.80
Acquirer submits batch of transactions to card networks
$$$$
Acquirer submits batch of transactions to card networks
$$$$
Note: Names and fees are illustrative and are not from any particular vendor or relationship
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 5
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Mobile money market: what is mobile money
Mobile Banking
Balance inquiryAccount applicationsAccount transactions
Bank locationsAlerts
Mobile Commerce
PromotionsBehavior trackingLoyality programs
Mobile Payments
Person to person transfersBill pay
Payment at POSIn application payments
Mobile Wallet: linking mobile device with accounts and account activity
Bank accounts
Credit cards
Loyality cards
Bank balances
Credit balances
Gift cards
Receipts
Credit limits
Phone balances
Using a mobile device as payment vehicle
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Mobile money market: payments are accelerating in major markets
PayPal processed $4 billion worth of mobile payments in 2011*$750 million in 2010*$141 million in 2009*David Marcus, vice president of PayPal Mobile*
Starbucks Mobile Application with rewards and mobile paymentsStarted with Northern California and SeattleNow available nationwide in the USMobile application is available on apple and blackberry
Juniper Research reports consumers will use mobile payments to pay for $670 billion worth of goods and services by 2015.
Google Wallet payments are now supported by Toys R Us, Macys, and Bloomingdales
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Mobile money market: emerging markets
Application of mobile money varies greatly among geographies
Emerging markets have a combination of circumstances that encourage adoption of mobile money
2012 IBM Corporation 8
Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets
Formal banking reaches about 37 percent of the population 1 branch and 1 ATM per 10,000 people
Mobile phones have a penetration rate of 50 percent 5,100 mobiles phones per 10,000 people
Very small deposits and loans are not profitable for traditional delivery models1.7 billion people in emerging markets have a mobile phone and no access to banking services
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Mobile money transaction volume growing at greater than 50% CAGR thru 2015 Mobile payments are projected to be between 15% and 20% of total consumer
payment transaction volume by 2020 Mobile payments made by over 1 billion users by 2016
Mobile money market: sizing the market
2012 IBM Corporation 9
Global mobile transaction volume Mobile transaction volume as a % of non-cash consumer payments by
geo in 2015
Mobile money is modest now but growing rapidly
Sources: Gartner Forecast: Mobile Payments, Worldwide, 2008-2015; Pub May 2011; Winning After the Storm, BCG Global Payments Report, 2010, Portio Research, Mobile Payments 2012-2016 Analysis and Forecasts for the Worldwide Market for Mobile Payment Services, 2012.
$B
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 10
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Mobile money opportunities: overview
Customer Care and InsightMobile money software gives a holistic, single view of the customer and glean deeper insight into customer needs, so you can innovate with less risk. Develop high quality, tailored services to restore customer confidence, increase loyalty, and drive revenue.
Mobile Banking Branch of the Future Mobile Payments Mobile Commerce Mobile Agents/Claims
Store of the Future Virtual currency Location based shopping Personalized campaigns Mobile cross-sell, up-sell
Mobile Network Monetization Mobile field-force enablement
Retail
TelecommFinancial Services
Healthcare Mobile check-in, Mobile prescriptions Mobile payments Mobile Health Monitoring & Prevention Mobile enabled Clinicians
Virtual currency FF Miles Customer Loyalty programs Ecommerce Ticketing, Entertainment
Travel &Transportation
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Banks - leverage the users financial profile data Help banks protect and grow revenue by maintaining brand
relevance and leveraging emerging business models Provide a safe way to transact business, secure assets, reduce
fraud, ensure compliance Offer secure digital vault services to aggregate coupons, transport,
loyalty rewards, traditional currencies
Merchants - leverage the users shopping patterns Drives a more customer centric view; control point shifts to the
end-user with the mobile device. Shift more towards one to one marketing and leveraging the
value of intelligent data from digital currency
Telcos - Leverage subscriber base and delivery channel
Mobile Money will allow MNO's to increase customer retention and generate new revenue through value added services
Mobile money opportunities: key players
Create new value by aggregating data and applying insights across the enterprise,
Provide secure, high availability, large scale transaction processing
Leverage Smarter Commerce
New mobilemoney entrants
transform business
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 13
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Application scenario: consumer on-line purchase with tablet
In the last year, tablets commerce traffic increased 348% Tablets converted visits into purchases at a rate of 3.23
percent, well ahead of smartphones at 1.39 percent. Payment processing for tablets mirrors web on line
purchases Special considerations beyond web experience
Exploitation of location information More accessible than PCs Need tablet-aligned gestures (e.g., sweeps) Need visually large carts
2012 IBM Corporation 14
Customer Merchant Acquirer Credit Card Bank
Source: Monetate, Couch Commerce: How Tablet Shoppers are Changing Online Sales, 2012
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Application scenario: mobile banking
Customers interact directly with bank like on the web
Special considerations beyond web experience Diversity of devices beyond browsers Smaller screen UI redesign necessary Location awareness enables services
such as ATM and branch locations Authentication streamlined for mobile
devices 2012 IBM Corporation 15
Customer Bank
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Application scenario: consumer purchase at retailer NFC (Near Field Communication)
Mobile device uses information in mobile wallet to act as credit card Communicated at POS thru NFC Much hyped, little used
Not a compelling convenience compared to a credit card
Gartner Hypecycle: For the past decade, NFC has been a technology looking for a solution
May revive for virtual currency (loyalty points)
2012 IBM Corporation 16
Customer Merchant Acquirer Credit Card BankMobile Wallet
Source: Gartner, Hype Cycle for Mobile Device Technologies, 2011
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Application scenario: consumer purchase at retailer bar code platform control
Merchant generates transaction information Customer uses custom app to send to mobile
payment platform Mobile payment platform also serves as acquirer Purchase confirmation sent to merchant thru different
path Mobile payment platform may require return path to
go through its system
2012 IBM Corporation 17
MerchantMobile
paymentplatform
Creditcard
BankCustomer
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Application scenario: consumer purchase at retailer bar code merchant control
Merchant generates transaction information Customer uses custom app to send to mobile
payment platform Mobile payment platform provides wallet information
to merchant Merchant processes transaction as if credit card
presented
2012 IBM Corporation 18
MerchantMobile
paymentplatform
Merchant Conventionalprocessing
Customer
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Application scenario: consumer purchase soft goods
Soft goods include tickets, phone cards, music
Mobile device uses information in mobile wallet to act as credit card number Communicated thru web interface Optional documentation back thru mobile wallet
2012 IBM Corporation 19
Customer Merchant Acquirer Credit Card BankMobile Wallet
Inventory
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Application scenario: consumer to consumer payments telco mediated
Common scenario in emerging economies for P2P payments
Agents conduct the cash-in and cash-out functions, enabling customers to convert cash into electronic money and back again at convenient locations
Telcos arrange funds transfers among their accounts
2012 IBM Corporation 20
Payer PayerTelco
PayeeTelco
PayeeAgent
PayeePayerAgent
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Application scenario: consumer to consumer payments mobile platform mediated
Emerging scenario in both established and emerging markets Requires established accounts
with either bank or mobile money platform vendor
2012 IBM Corporation 21
Payer PayerBank
PayeeMobileMoneyPlatform
PayeeBank
Source: Venture Beat
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Application scenario: transformative scenarios Mobile devices have unique properties beyond credit
cards, cash, banks and PCs Omnipresent: people always carry their phone with them Personal: mobile identifies the specific person Context: mobile has location, acceleration, orientation
information Multiple inputs: gestures, audio, video
Everyday micropayments Parking (knows your car), vending
Location and destination based pricing Bus, subway and train fares
Delivery of gift cards over the phone Integration of loyality, context and location for
promotion Streamline general admission event ticketing Credit extension based on mobile activity Competitive interception based on mobile application
activity Multichannel offerings
Prepare then retrieve ATM withdrawal Preorder fast food
Reminders to replace consumables Personal credit card acceptance
Square
ShopSavvy
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 23
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Card Holder
Credit/Debit Card Payment
Mobile Payment
Merchant Acquirer Credit Card CompanyIssuer
Telco
Payment Provider
Payers Payees Facilitators Fund Holders
Major Market
Emerging Market
Market Dynamics Shift from cash and checks to cards and electronic payments Mobile and social commerce are creating a discontinuity in the market. Agents in Emerging Markets play an important role in distribution and liquidity
Impacts: new paths for payment processing introduced
Acquirers and credit card companies can
be utilized by or disintermediated by telcos and payment providers in mobile
transactions
Agent
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Impacts: consumer and retail experiences are transforming
Swipe
NFC
OTA
In-Person Transactions
Online Transactions
Context-Aware Marketing
RetailersConsumers
Interactive
Non-interactive
Non-location-aware
Location-aware
P2P B2B
Optical Scan
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Acquirers
Impacts: retailers, banks and facilitators look to expand their roles
BanksRetailers
Payment Providers
Credit Card Companies
Telcos
Both Acquirers and credit card companies can be utilized in or disintermediated from electronic payments
In major markets banks act as the fund holders
Telcos and payment providers can either access payers funds directly through banks or indirectly through acquirers and credit card networks
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Outline
Overview of retail payments Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 27
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Some signs to track Know-Your-Customer: black lists Account activity: mobile banking supports easy account creation and dormant accounts
could be used for laundering Behavior profiles of customers: amount, timing, velocity, source and destination
location of transactions Behavior profiles of agents: in addition to customer checks, looking for splitting
payments to increase fees
Mobile devices offer additional capabilities to manage security Faster data on location for potential intercept Potential use of biometrics (e.g. face image) to reduce false positives Remote management
Operations: security and fraud detection Mobility adds additional vectors to
conventional fraud Technical
RFID jamming Nishing Data validation: ensure all formats adhered to Malware
2012 IBM Corporation 28
Source: McAfee Threats Report: First Quarter 2012
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Operations: Support of parallel channels Expectation of consistency across
multiple channels Pay bills anywhere
Expectation of cross channel interaction Finish ATM, food order or
application transaction Video interaction with call center
from tablet and ATM Need one view of the customer
maintained across all systems supporting channels Including in-flight interactions
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Operations: scaling to meet transaction volume
About 750B global mobile money transactions expected in 2020 About 25,000 transactions a second
Likely to grow rapidly for use in micropayments
Currency equivalents, like loyalty points, drive the number higher
2012 IBM Corporation 30Source: BCG Global Payments, 2011
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Operations: ensuring availability
31 2012 IBM Corporation
Qualities of service can be insufficient in emerging markets
Sources: http://www.informationweek.com/hardware/data-centers/data-center-outages-generate-big-losses/229500121; World Bank, Underpowered:The State of the Power Sector in Sub-Saharan Africa, 2009;
Total data center outages occurred once a year on average. An average data center outage for an e-commerce company costs more than $1 million. Poneman Institute, 2011
Sub-Saharan Africas manufacturing enterprises experience power outages on an average of 56 days per year. World Bank, 2009
India loses power to 600M people for up to two days. NYT and CNN, 7/31/2012
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Operations: integration driven by partnerships
Many interconnected players Merchants, banks, telcos, mobile
payment platforms, acquirers, credit card companies
Many interconnection systems ACH, ATM, Swift, EDI, SMS
aggregators, 3rd party financial interconnection networks
Competing wallets Connecting with large number of
mobile wallets will be challenging
2012 IBM Corporation 32
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2012 IBM Corporation
1962: IBM created the Sabre airline reservation system for American Airlinesa precursor of everything from the ATM to e-commerce
Operations: How can IBM help
"Visa relies on System z for global transactions processing--and confirmed the ability to handle the 2010 Christmas peak of almost 11,000 transactions a second.".
For 100 years, IBM has advanced payment systems across the world
WebSphere MQ worldwide supported over $1 quadrillion of transactionsCICS software is accessed by virtually every ATM around the world
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Operations: IBM can help bring assets to provide business value
Strategic role in mobile money Neutral provider of capabilities from IBM and
partners, including business consulting, technology consulting and software
IBM middleware can provide the enterprise backbone for mobile money enabling transactional insight and connectivity, and the ability to connect mobile devices to payment interactions
IBM is a thought leader in the space, contributing to standards and driving innovative customer transformation
IBMs Global Business Services provides reference architectures for the mobile money ecosystem
Payers:ConsumersBusinesses
Payees:MerchantsBusinesses
Governments
Fund Holders:Banks
Facilitators
P2P B2B
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Operations: from theory to practice
Customer Merchant Acquirer Credit Card BankMobile Wallet
Transaction/payment processing Messaging and Integration - WebSphere MQ & ESB Transaction processing (CICS & WAS) Financial Transaction Manager Banking industry process and data models WebSphere Decision Management Smarter Commerce: WebSphere Commerce Analytics: Cognos Financial Fraud Detection: SPSS, i2
Consumer payment platform Mobile application platform (Worklight) Integrated buying experience
(WebSphere Commerce) Banking Transformation Toolkit (BTT)
Merchant Consumer Interaction Marketing management (Unica) Analytics and marketing optimization
(Coremetrics, Cognos, SPSS, Tealeaf) Event-driven interactions (Ilog and
WebSphere Business Events) Smarter Commerce
Merchant Point of Sale Point of sale devices, software, integration and
management (IBM Retail Store Solutions/Toshiba) IBM Payment Systems Services -- addresses
merchant/acquirers/credit card processors
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Outline
Overview of retail payments Defining mobile money Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 36
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ING Direct France
Leading iPhone banking app in France with a unique user experience
Flexibility: Valued HTML5, but preferred starting native Mobile adaptation of data integration and authentication layers
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38
Lotte Credit CardAugmenting offerings with IBM Worklight
WSP14583-USEN-00
Solution components: IBM Worklight Finance All Solutions (FAS)
The need: Korean companies are facing a demand for mobile apps from over 7 million smartphone users, up from only 800,000 in 2009, forcing them to vigorously explore options for value-added services.
The solution: To capitalize quickly on this rapidly growing trend, Lotte Credit Card turned to IBM Worklight to develop an advanced application with a rich and engaging user experience using over 100 screens, location-based features and scannable mobile coupons. The application incorporates augmented reality componentsa first in the regionhelping users find the retail locations of its reward partners on the go.
The benefit: Reduced time to market and associated costs Deployment of one of the regions most advanced financial mobile
applications Enabling better customer and employee user experience across more
devices
We chose IBM Worklight because it was the best technology for Lotte to consolidate application development, enhancement and maintenance, while ensuring cost savings and timely delivery to our customers.Kim, Young Sam, IT Planning Team Leader, Lotte Credit Card
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2003 2012 Monitise Group Limited. All Rights Reserved. Confidential.
Architecture for monitise IBM solution39
Worklight Studio
Worklight Server
deploy to app store
provision app
B2B/ B2C
download
Android MATM-265-100JSON/HTTPS
?
IBM MQsecurity/
activation
IBMCICS
DB2
JRULES
pushSMS
email
MESSAGING SERVER
COGNOSDATA WAREHOUSE
monitiseIBM
IBM CICS Adaptor
monitiseENTERPRISE PLATFORM
(WAS)WebSphere Application Server
DataPower
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Visas real-time messaging technology (RTM) creates a seamless experience for merchants who want to increase engagement with their consumers through
Visa provides real-time technology to achieve breakthrough marketing effectiveness for merchants.
Personalized offers
Business problem Merchants operate in a highly competitive environment where the keys to success are bringing customers in the door and then keeping them loyal to the merchants brand.
Solution: Visas real-time messaging technology (RTM) allows merchants to provide more relevant offers to enrolled consumers by combining historical purchasing behavior with real-time purchase location information. Offers are delivered to enrolled consumers through their mobile devices and personalized to them.
Visa created a new revenue stream by maximizing the value of
Real-time purchase location information
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Outline
Overview of retail payments Defining mobile money Mobile money market Mobile money opportunities Scenarios of mobile money
applications Impacts to existing payment
systems Operational issues for
implementing mobile money Case studies Summary
2012 IBM Corporation 41
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Summary
Mobile money encompasses existing and new forms of payment processing
Todays opportunity is modest, but growth in selected applications is expected to be explosive
Many scenarios for mobile money alter existing payment processes while others create new patterns and opportunities for commerce
Deploying mobile money solutions requires a mix of business and technical depth
2012 IBM Corporation 42
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IBM Corporation 2012. All Rights Reserved.IBM, the IBM logo, ibm.com are trademarks or registered trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other logos, product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at Copyright and trademark information at www.ibm.com/legal/copytrade.shtml.
Copyright and Trademarks