V1 09/05/08 Mobile Payments Intensive The business case for mobile payments in Europe Chris Jones...

v1 09/05/08

Mobile Payments Intensive

The business case for mobile payments in Europe

Chris Jones

eFinance and Law – 13th May 2008

PSE – Mobile Payments Business Case2v1 09/05/08

Some views of the mobile payments business case

“[The] objective of the banking sector is to integrate mobile payments into their portfolio [via a] positive business case”

ECBS 2002

“The … mobile payment market will grow from around 5 billion Euros in 2002 to nearly 55 billion Euros in 2006”

2002 Anon.

“There is no viable business case for mobile payments at present” Ron Karpovich, head of e-Ventures at RBS Group

The past decade has seen much talk but very little action…The past decade has seen much talk but very little action…


What will make the mobile payments business case?

Criteria Description

Utilise Existing Assets • Leverage current device technology and payment methods such as Faster Payments, contactless cards, direct debits credit transfers

• Support/ extend existing security environments

Provide Openness • Support a industry-wide collaborative approach• Enable commercial differentiation and innovation• Align with UK and EU SEPA principles• Encourage the use of current accounts and promote financial inclusion

Incentivises All Stakeholders

• Create positive network effects• Align fees with cost and/or risk

Be more attractive to use • Simple/cheaper to use than nearest comparable alternative• Enable clear customer support model• Offer payment immediacy (if not settlement)

Deliver security • Ensure that end users trust the brands, frameworks and services• Use appropriate authentication

Reduce Time to Market • Support a rapid/phased roll-out by • Deliver ubiquity and interoperability• Enable a balance of competition between service providers and co-

operation around standards

The business case is about much more than just getting the revenue model correctThe business case is about much more than just getting the revenue model correct

PSE – Mobile Payments Business Case4v1 09/05/08 4

How do the current offerings perform?

Illustrative Samples – Fit and Breadth of Offer

Fit Criteria:• Utilise Existing Assets

• Provide Openness

• Incentivises All Stakeholders

• Be more attractive to use

• Deliver security

• Reduce Time to Market

Breadth of Solution Criteria:• Peer to Peer

• Business to Consumer

• Remote

• Proximity

PayforitPayPal Mobile

Obopay

M-PESA

PayMate

MobiPay

MoniLink

MCI PayPass

Visa PayWave

Osaifu-Kaitei

Breadth of Solution

Fit

to

UK

Su

cc

es

s C

rite

ria

Low

High

HighLow

Focussed Broad

No one is delivering a mass market solution for mobile payments today that will suit EuropeNo one is delivering a mass market solution for mobile payments today that will suit Europe

Fit

to

Su

cc

es

s C

rite

ria


What type of business models will succeed…

Model Value Transfer Benefits Drawbacks Examples

Financial Institution (bank) led model

Existing interbank assets initiated / confirmed by mobile device

Reliable/secure infrastructure

Remote (e.g. Faster Payments)

Proximity (NFC) Re-use of existing

assets

Both parties must use the solution for a payment to be effected

Monilink Obopay PayMate PayPass payWave

Telecoms led model

Subscribers phone account, via mPSPs and MNOs

Utilises existing assets Proven business model

Less reliable payment method

Designed for digital products

High cost of delivery

PayForIt MX Telecom Osaifu Keitai

eCommerce led model

Bank products linked to eCommerce account which is used for mobile payments

Extension of existing network of accounts

Simple to use

High charges for consumers

Possible security issues

Paypal Mobile

Co-operative Model

Telecoms and/or bank accounts linked via telecoms/bank infrastructure

Creates shared business model between FI and MNO

Decisions always need to be made in multi-party environment

Mobipay M-PESA


…and where?

Payment Type Peer to Peer Consumer to Business

Low Value High Value Low Value High Value

Remote Payments

eCommerce ModelBank/ eCommerce

ModelMNO Model

Bank/ MNO Model

Proximity Payments

Unclear Unclear Bank Model Bank Model

Patchwork of differing solutions likely to continue, with significant uncertainty over proximity peer to peer payments

Patchwork of differing solutions likely to continue, with significant uncertainty over proximity peer to peer payments


How will opportunities emerge in Europe?

Option Strengths Weaknesses

C2B before P2P Leverages existing four party model

Could utilise aspects of NFC PayPass/ payWave infrastructure

As illustrated on the internet at present consumers like the peer to peer environment

Many cheques and cash transactions occur in the P2P space as there is no immediate alternative

High Value before Low Value

Higher value payments more attractive to merchant community

Less competition with cash payments

Cash displacement will only be successful if mobile payment can out-perform cash in low value payments

Remote before Proximity

Fewer parties required to co-operate (in short term)

NFC trials will act as strong proof of concept and establish an acceptance model without the need for mobile payments

Major area within mobile payments will be excluded in early phases

Phased development concentrating on C2B, High Value, Remote transactions first may enable a more rapid got to market approach

Phased development concentrating on C2B, High Value, Remote transactions first may enable a more rapid got to market approach


What are the immediate opportunities for players?

Issue Potential Approach

Slow roll-out of contactless acceptance

The relatively slow growth in acceptance of NFC technology is likely to mean that remote payments (incl. remittances) solutions should be developed well before proximity.

Nascent agreement between MNO’s and banks on the business model

There are opportunities to use contactless stickers (as in the London Fashion Week) to circumvent problems with Over the Air (OTA) provisioning of SIM based product. Branded instant issuance, disposable products could be offered to fill this need in the short term – both closed and open loop offers.

Lack of merchant acceptance of MNO branded schemes outside digital content

New entrants should focus on developing ICS branded mobile payments rather than developing MNO scheme based solutions.

Failure to agree on low value (<€20) payments model

New entrants should focus on products which support purchases over €10-€20. This overcomes the merchant issues associated with MSCs on lower value purchases.

The phone as a PIN entry device (PED)

There are a large range of security and authorisation/authentication issues given the range of mobile phones in the market. New entrants may need to issue companion cards in the short term, or restrict the value of spend in order to overcome this hurdle.

Secure OTA application provisioning New entrants should support instant prepaid products preinstalled on the SIM – this will require an agreement with an MNO/MVNO/distributor. MPESA has illustrated that if the proposition is strong enough then users are willing to swap/buy a new SIM.

Some immediate opportunities – but restricted by both technology and uptakeSome immediate opportunities – but restricted by both technology and uptake


What about outside Europe?

Source: CGAP The Early Experience with Branchless Banking April 2008

The war for mobile payments will not be won or lost in the Western EU. Developing countries in Eastern Europe and beyond will drive innovation and change

The war for mobile payments will not be won or lost in the Western EU. Developing countries in Eastern Europe and beyond will drive innovation and change


Still slim evidence of a business case?

Non-banks look like they may get more from mobile payments the developing world than banks – but still not a gold mine

Non-banks look like they may get more from mobile payments the developing world than banks – but still not a gold mine

WIZZIT Transaction Profile per Month

Source: CGAP The Early Experience with Branchless Banking April 2008


Chris Jones Director

+44 (0) 20 8891 6244

[email protected]

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