Mobile payments 2013

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3 Δεκ 2013 (πριν από 3 χρόνια και 6 μήνες)

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1



Mobile payments 2013


Changing checkout







2



Mobile payments 201
3

Changing checkout










Publisher:

Innopay BV

Editors:

Chiel Liezenberg and
Shikko Nijland

(Innopay)

Authors:

Alessandro Longoni

(Innopay) and Monica Gâza (The Paypers)



Edition

Version 1.0

March 2013

ISBN
9
78
-
94
-
90587
-
09
-
3

Copyright © Innopay BV

All rights reserved






3



Preface

Innopay present
s

the new edition of the ‘Mobile payments 2013


Changing checkout’, which
aims to provide an overview of the
main

developments in t
he area of mobile payments
worldwide.

In 2012 we introduced a new format for the ‘Mobile payments’ report, with an overview of the
global developments and chapters specifically aimed at covering regional trends. This year we
tweaked
the

format to give, in
the first part, an overview of the developments we see in
Developed and Emerging markets; while the second part is still
centred

on

the developments
in the different
regions
.

Though many things
have
change
d

last year
, some of the identified trends and tech
nologies in
our previous report have not
. Therefore some of the content might look familiar. We have also
chosen to use the same analytical context framework since it has proven to be still valid and
insightful.

We believe all professionals active in the p
ayments and transaction services industry
can

benefit from reading this document, including people employed at banks, policy makers,

payment schemes organizations and
payment service prov
iders
.

This report, as every other publication by I
nnopay
,

is strictl
y independent and
aim
s

to give a
comprehensive and unbiased overview of the market and its participants. For this reason we
based our analysis on information available publicly at the moment of writing the document.

This report has been written

with the h
ighest degree of care. In case you, despite our efforts,
happen to find information which you deem unclear or
perhaps

not 100% correct, we
appreciate your feedback. If you have any suggestion or questions regarding the text, please
don’t hesitate to email
us at
info@innopay.com

We hope you will enjoy reading this report and that you would be able to learn new aspects of
this interesting area of transaction services.


Amsterdam,
March 2013


Chiel Liezenberg


Founding
Partner

Shikko Nijland



Managing

Partner







4



Innopay
c
onsulting

Innopay is an independent full service consultancy firm specialised in payments and related
transaction services

such as e
-
identity and e
-
business
. It is our vision that:



Globalization

increas
ingly leads to a network economy and electronic infrastructures
enable industries to coope
rate in networks, in real
-
time.



(Mobile) Internet is developing into true transaction channel, creating new transaction
contexts. New contexts require new transaction

services and new optio
ns emerge in
existing contexts.



Transaction services are part of two
-
sided markets, with sophisticated network effects.
Development of successful transaction services requires thoroug
h understanding of the
context.

Innopay has been a
ctive in mobile payment since 1999. Several of our consultants have
experienced the rise and fall of the first wave of mobile payment initiatives and the current
upcoming second wave first hand.

Based on our experience we have created the ‘Innopay Transac
tion Context Model’ to better
understand the success factors for mobile payment services development. Our
consultancy
services address three domains:



Help you as a professional or regulator to ‘structure & understand’ the mobile payment
services industry.



Help you as a provider to ‘develop & manage’ mobile payment business, services and
products.



Help you as a corporation to ‘choose & use’ mobile payment solutions.

Innopay’s other key
consultancy
practices include: online payments, e
-
invoicing, e
-
identity,
cards and related regulation.

For more information visit
www.innopay.com

or contact us directly at
info@innopay.com

or
+31 20 6580651.










5



Co
ntents

Preface

................................
................................
................................
................................

3

Innopay consulting

................................
................................
................................
..............

4

Management summary

................................
................................
................................
........

7

PART 1: GENERAL TRENDS AND DEVELOPMENTS

1

Changing checkout

................................
................................
................................
.....

11

1.1

Payments are context dependant

................................
................................
...............

11

1.2

Mobile payment: more than a financial transaction

................................
...................

15

1.3

Smarter technology is not always better

................................
................................
.....

17

1.4

S
takeholders determine speed of change

................................
................................
...

20

2

Developed markets: lagging commercial adoption
................................
.......................

22

2.1

Focus on Proximity, B2C payments

................................
................................
.............

22

2.2

Accelerating commercial adoption

................................
................................
..............

24

2.3

Cash is king?

................................
................................
................................
.................

27

3

E
merging markets: beyond empowering the underbanked

................................
..........

30

3.1

Reaching the underbanked

................................
................................
..........................

31

3.2

Developing markets push global volume gr
owth

................................
........................

35

3.3

BRIC countries: great growth pace, blurring opportunities

................................
.........

36

3.4

Rest of emerging countries is catching up quickly

................................
.......................

43

3.5

Leading the mobile banking revolution

................................
................................
.......

44

PART 2: TRENDS AND DEVELOPMENTS PER REGION

4

Europe: on the edge of convergence

................................
................................
...........

48

4.1

Coalitions of the willing

................................
................................
...............................

49

4.2

United in Diversity

................................
................................
................................
.......

51

4.3

Multi
-
stakeholder collaboration on implementing NFC

................................
..............

55

4.4

CASE STUDY: iZettle, Mobile Point of Sale from the Nordics

................................
......

57

4.5

M
-
SEPA: p
iggybacking on standardization

................................
................................
..

58



Mobile payments 2013

-

Contents





6



5

North America: epic battle for consumer ownership

................................
....................

60

5.1

Overview of the North American mobile

payments landscape

................................
..

61

5.2

Smartphones taking over the US market

................................
................................
.....

65

5.3

Hoping for the “American dream”

................................
................................
...............

73

5.4

The mobile PoS revelation

................................
................................
...........................

75

6

Asia
-
Pacific: taking the lead in m
-
payments growth

................................
.....................

76

6
.1

Differentiation based on market segmentation & the urban


rural divide

...............

77

6.2

Three main regional models

................................
................................
........................

79

6.3

Countries vary

between sophisticated and simple services

................................
........

83

7

Africa: pace is slowing down

................................
................................
.......................

87

7.1

GSMA: Africa poised to become world’s 2
nd

larg
est mobile market

...........................

87

7.2

Untapped potential
................................
................................
................................
......

88

7.3

Key players take decisive steps

................................
................................
....................

91

7.4

The success story of M
-
PESA

................................
................................
.......................

93

7.5

West Africa on its way to becoming Africa’s hottest market

................................
......

93

8

Latin Am
erica: still in development stage

................................
................................
....

96

8.1

Typical emerging markets outlook

................................
................................
..............

96

8.2

Economic and social context shape mobile financia
l services

................................
....

97

8.3

Brazil leading the way

................................
................................
................................
..

99

8.4

Various speeds of development

................................
................................
................

100

PART 3: ANNEXES

Annex 1: Glossary

................................
................................
................................
............

103

Annex 2: References

................................
................................
................................
........

108

Annex 3: About the editors and publishers

................................
................................
.......

109









7



Management summary

Both online and offline

checkout experiences are evolving: technological innovations allow for
new services and solutions to be integrated at the payment, be it online or at the counter. The
payment interactio
n is now becoming a point of contact with the client, where loyal customers
are being recognized and rewarded for coming back, and new customers are offered come
-
back discounts.

The checkout experience in this report can include

payment and delivery in the

case of an
offline in
-
store transaction
. P
lacing an order and completing the payment in the case of online
transactions, is a process that is being affected by new paradigms in marketing campaigns, and
enriched by the evolution of mobile payment technolog
ies. These new technologies allow
more services to be included in the checkout experience: coupons can be redeemed, loyalty
points stacked, and everything is integrated in the payment procedure.

Many merchants are also operating in both online and offline
environments, thus making it
more difficult to identify customers across channels
. W
e aim at identifying the main trends and
developments in the area of mobile payments, in any channel or environment that they may
be used in. For this purpose, we
use

the I
nnopay

context model

that we already introduced in
2011.

This model

helps categorizing
the mobile payment methods available according to the
relationship between the two parties involved and their relative location. Different reports and
analysis availabl
e in the market use different methods to
analyze

the same topic, and we
believe that our model effectively allows to identify and describe the solutions currently
available in the market but also allows us to be technology agnostic and therefore reuse it t
o
describe future mobile payment solutions.

W
e
also
make a distinction between mobile payments in developed
markets and emerging
markets.
While in developed
markets

we argue that users have more sophisticated needs,
which derives from the fact that there i
s a wider choice of payment instruments (cash, cards,
cheques, e
-
wallets…), in emerging economies this choice is much narrow and the evolution of
mobile technologies enable a leap forward for retail payments.

Developed markets seem to struggle with commerc
ial adoption. In those countries m
obile
payments are currently focused on creating more value at the point of sale, fueled by the
developments around contactless technologies. In order for mobile payment methods to take
over traditional ones, more value ha
s to be added to the
payment
.
Many

initiatives
have
understood this and bundle

loyalty offers, advertising platforms and other value added
services to the payment transaction.

E
merging markets

are quickly moving beyond empowering the underbanked. M
obile
pa
yments are a striking success because they enable cashless transactions with technology
which is becoming cheap and ubiquitous. The cost of owning and using a mobile phone is low
enough even in those countries, enabling almost every individual to use one,
even in rural
areas. This has become an important factor for people
who

have for long been unable to get
access to basic financial services, such as a bank account, let alone a payment card. By


Mobile payments 2013

-

Management summary





8



transferring

electronic money through cheap SMS messages, loca
l shops and booths are able
to accept payments and transfers without the need of expensive terminals. This also allows
long distance money transfers, which has become an important trend over the past years for
improving the life style of less affluent peop
le often living outside cities. As an example, mobile
payments are being deployed in rural areas to buy basic food such as bread and milk without
the need of cash, which is often not as accessible as in more affluent cities. Mobile payments
have therefore
been playing an important role not only for the retail experience, but as an
economic lifeline for disadvantaged areas

In our analysis we cover the
main
trends we see in local regions around the world. Not only
trends differ due to economic advancement of
a particular country, but they are also
influenced by the overall economic activity and cultural envi
ronment that they are bound to.

In Europe

we see movement towards convergence, also enable
d

by

developments
driven by

the
implementation of
Single Euro Pay
ment Area (SEPA). As SEPA is reducing the
fragmentation of local payment methods, by requiring interoperability across the region, new
occasions arise. One interesting
aspect

regarding this region is the
increasingly
collaboration
-
friendly mindset that the

players in the financial sector
seem to develop
, which is a strong
differentiating factor with the American region.

In North America, unlike what happens in Europe, a wealth of initiatives have been launched
by various different players (banks, startups,
corporates…) and every single one of them shows
a ‘winner takes it all’ attitude. This has an important consequence in the fact that mobile
payments have been hyped for a long time, but they are still falling short the high expectations
that analysts aroun
d the world had and keep on having. M
-
payments are still growing strongly
across the region, but as surveys show, EMEA is already ahead in terms of total volumes.

NFC is also what North American companies
almost all are

focused on. Card schemes have
been p
lacing big bets and big money on marketing campaigns around the benefits that NFC
payments can bring to the market, but still they are failing to reach critical mass. New players
are now focused on exploiting different technologies (such as the ubiquitous
internet
connection) to enable mobile payment methods, which because of this technological choice
can enable payment methods across different contexts and channels.

In Asia
the head start of mobile payments is still helping the developed countries in the r
egion
to maintain the lead. The Asia
-
Pacific region is also home to a diverse range of countries in
different economic states. Japan and South Korea, for example, show high modernization and
newer technologies adoption, while areas in inner China or rural
India show a much different
picture. In India, similarly to what has happened in Africa, mobile payments enable entire
villages to adopt basic financial services which have been unable
to reach

far
-
away locations.

In Japan instead, mobile payments have bee
n introduced in the market many more years
ahead of what has happened in the Western world. M
-
payments have become successful in an
era when card payments were still not as common as in the USA, therefore encountering less
competition. Contactless payments

have also found a facilitating factor in the compatibility
with solutions for the transportation industry. By storing payment information and transport


Mobile payments 2013

-

Management summary





9



tickets under the same device,
users adopted those methods as their preferred ones, leading
to NFC beco
ming the de
-
facto standard method for mobile payments in the country.

In the African continent, m
-
payments mostly come as m
-
banking solutions

and though still
large in transaction volume, the growth pace seem to cool off
. Due to the poor economic
performan
ces of countries in this region, financial services have been often limited especially
for inhabitants of rural areas. Enter the mobile devices, which represent a cost
-
effective way
to reach almost an entire country, and smart solution providers have been
quick to monetize
on the opportunity. Where retail banks cannot arrive, mobile phones are a more
-
than
-
adequate solution to offer basic financial services. The lack of choice also makes an important
factor for a solution’s success, as limited other options
are available for users to choose from.
No wonder, then, some of the most successful and famous mobile payment solutions come
from this area, M
-
PESA above all.

Latin America

is overall still in development stage
,
but
shows strong potential for growth. The
region consists of large and fast growing economies such as Brazil,

but also
included
, less
quickly
-
growing countries, such as the
Caribbean

ones. The region shows an important trait
common to a high number of emerging countries: mobile penetration being
higher than fixed
internet adoption.

This important aspect has been a fueling factor for the development of
mobile payment solutions in areas such as Africa and Asian economies, and it is expected to be
an important one also for the development of the Sou
th American region. Latin America also
hosts some of the
friendliest

legislations for mobile operators to take the lead in mobile
payments. Large mobile number operators are expected to come out as leaders in this mobile
payments game, as they carry a much

higher number of users than w
hat banks are able to tap
into.








10



Part 1

General trends and developments







11



1

Changing checkout

The use of the mobile phone as a tool for financial transactions has had and will continue
to
have a disruptive effect on both the payments industry and the way commerce is done. This is
increasingly showing in the way we deal with the checkout both online as offline. Examples of
this can be found in developed economies: think of what Square has

done in the POS market
for small merchants as well as in emerging ones: M
-
Pesa solving liquidity problems of entire
rural villages in Kenya.

The mobile phone as a transaction channel means different things to consumers
and
merchants
in different regions o
f the globe. For sophisticated consumers in developed
markets, it is mainly an alternative tool whose benefits lie in its ability to provide access to
value
-
added services. For consumers in developing economies, it is a channel for financial
inclusion and
oftentimes it means better quality of life. From a quick and accessible channel
for banking and financial inclusion to a sophisticated tool for shopping, price comparison and
ultimately buying, the saga of the mobile device is an on
-
going story.

The main g
oal of this report is to create more insight

in the way checkout is changing

by:



Offering a clear analytical framework in which concept of ‘contexts’ is introduced to
provide an solution for the confusion of tongues the debate is characterised by;



Revealin
g drivers for growth of mobile payments given the different contexts;



Providing an overview of the ‘state of play’ for the various regions.

In the first paragraph we introduce
our
how our
widely used
Transaction Context Model

is
applied

to
segment ‘
mobile
payment
s’
. This provides us with a comprehensive framework for
analysing the great variety of payment solutions and making them comparable. Subsequently
in paragraph 2, mobile payments are defined in terms of process steps and some adjacent
areas. In the t
hird paragraph, technologies that enable most mobile payments are covered.
Finally, in paragraph 4, we present the relevant
f
actors that determine the landscape.

1.1

Payments are context depend
e
nt

Mobile payments can be
used

at a supermarket to pay for the gro
cery, to split a bill with a
friend at a restaurant, or to order products online. It’s obvious that these different situations
pose different requirements on payment instruments. Transaction services are always subject
to the context in which they are oper
ated. ‘Mobile payments’ cover several types of payments
that can be carried out in different contexts with different technologies. This context defines
what people expect from a service, demand from technology and what business case can be
applied. It will

be clear that mobile payments have to be tailored to the conte
xt they are going
to be used in
.




Mobile payments 2013

-

Changing checkout





12



Of course there are endless alternative ways to slice and dice the mobile payments landscape.
We could
have
start
ed

from technology making NFC, SMS, WiFi and o
ther communication
technology the dominant discriminators or list the various channels that

commonly fall under
‘mobile’. Instead we

have

decided to u
se our proven

Transaction Context Model

to structure
this report. Contexts are expressed in terms of the
parties involved in the transaction and their
relative location. This discrimination allows to clearly distinguishing four context quadrants
where to easily and clearly place different mobile payment scenarios. The figure below
highlights those four contex
ts.


REMOTE
PROXIMITY
B
2
C
P
2
P
3
4
1
2
Mobile online payment
(
m
-
commerce
,
bills
,

)
Mobile money transfer
(
remittances
,

)
a
.
Contactless payment
(
in store
,
...)
b
.
Mobile card payment
(
on site
,

)
a
b
Contactless transfer
(
peer to peer
,

)

Figure
1
: Mobile payment categories
. Source:
Innopay
Transaction
Context Model, 2010.


In this part we aim to categorise the various contexts. In the Innopay context model payments
can either be ex
ecuted in proximity, for example at the counter in a shop, or remotely, for
example paying online via a mobile phone. Please note that most models only distinguish
Remote and Proximity while we believe that
also recognizing

the difference between
consumers

(P2P or C2C) or between consumers and companies (B2C) is
even more insightful
.

The rise of omni
-
channel and wallets may eventually require adding an additional context to
the
model
. However considering the current speed of development and volume
of omni
-
c
hannel transactions
we have decided to keep
the model

as crisp as possible
for now and thus
not to explicitly include

it
, yet.






Mobile payments 2013

-

Changing checkout





13



1.1.1

Remote
P2P

payment

For a long time, when private people wanted to send each other money, the dominant
payment methods have bee
n cash, bank transfers and remittances. Recently the mobile phone
has found its way into this context also. We particularly deal with mobile remittances and
mobile banking.


Mobile money transfers

Mobile money transfers include services to transfer money f
rom one account to another.
These services can transfer money stored directly in bank accounts or in other virtual wallets
(e
.
g
.
: currenc
y stored on a prepaid simcard).

Examples of such services include both international money transfers (remittances) and
local
mobile transfers, which have become very successful in countries suffering from low financial
inclusion. Mobile money transfers can be used to transfer money between cities and rural
areas of a country, allowing consumers to easily transfer money to
relatives living in areas
hardly served by bank branches.

An important aspect of mobile money transfers is that they can be used for both long distance
remittances and to pay for a service or product in
-
store. As they are location independent,
they represe
nt a very flexible payment instrument.


BelCash

is a mobile wallet software solution developed in Ethiopia for the domestic market, which
enables

consumers to transfer money between mobile phones and agents. Currently BelCash has
partnership agreements wit
h major financial institutions in Ethiopia.


More information on remittances can be found in chapter on Asia.


1.1.2

Remote
B2C

payment

Mobile online payment

(‘m
-
commerce’)

Mobile online payments are payments initiated through the mobile device.

They can be used

to purchase goods to be delivered at a later moment or to pay for digital
goods that will then become available for the user to consume.

The first example is what we call m
-
commerce. Due to its really similar nature to online
commerce, companies active in

the online payment arena developed specific propositions for
the smaller screens.

Digital goods represent a fast growing sector for mobile purchases. This includes purchasing
apps, music, books or magazines through a mobile device like a smartphone or ta
blet device.


Mobile payments 2013

-

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14



Because of the smaller screen sizes and different interaction method required, solution
providers tend to enable transactions by storing credit card details or by linking prepaid
vouchers and cards to users’ accounts.

M
-
commerce is by nature a
n extension of what has started as online commerce. This is also
highlighted in the fact that many of the leading players and enablers of m
-
commerce
payments are the same players that became successful in the online commerce arena. What
separate online com
merce from mobile commerce are screen size and the interaction method
with the device, therefore the interfaces have to be redefined.


Clicks
-
in
-
bricks

Clicks in Bricks provides interactive kiosks which
enable in store mobile commerce. By
using tablet devi
ces and unattended POS terminals, consumers are able to shop the merchant’s virtual
store, which could include a wider range of products, other merchant’s items, or simply enable new
electronic payment methods for physical checkout


For more insights about

online commerce and the opportunities that mobile channels are
unlocking, please refer to our Online Payments 2012


Moving beyond the web report
1


Mobile banking

Mobile banking is a recent trend of people using their internet enabled phone to operate the
ir
bank account. Through mobile banking, the whole suit of contexts ‘traditionally’ serviced in the
customer’s online banking environment is transposed to the mobile channel. Mobile banking is
an important trend that has been unlocked by the availability o
f smartphones and ubiquitous
internet connection, it enabled users to have a better overview of their balance and
expenditure, but we see this trend to be, once again, a natural extension of online banking.
Moreover, initiating a mobile banking payment wil
l result in transaction carried out via the
same payment instruments that and online banking payment would use. For more information
about this topic, please refer to our Online Payments 2012


Moving beyond the web report


1.1.3

Proximity P2P
payment

The term ‘
proximity payments’ refers to all payments where payer and payee have to be near
each other,
i.e.

in the same room or at arm’s length.

A small group of payment methods available for
P2P

payments actually require the actors to
be close to each other. An exa
mple for this category is
Bitcoin or
Bump
2
.




1


Innopay


‘Online Pa
yment 2012 Moving beyond the web
’, 2012

2


http://bu.mp/company/labs




Mobile payments 2013

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15



1.1.4

Proximity
B2C
payment

This is a larger group of payment methods that comprise the extremely visible category of
contactless. Although the division of roles is totally different, we also fit the mobile POS into
th
is category.


Contactless payments

Some examples are paying at PoS by holding your mobile phone in proximity or by paying your
metro ride by holding your phone at the reader. In the coverage of mobile payments, a lot of
attention is now put on contactless
technologies.


LevelUp
offers an iPhone and Android QR code mobile pay app for consumers and a terminal system for
merchants to process payments. By holding the user’s pho
ne screen in front of the LevelUp

terminal,
users are able to pay, accumulate loyalty

points and redeem offers all at once. LevelUp is also offering
merchants ‘zero interchange fees’ for payments, enabling free credit card transactions.


Mobile card payment:
Mo
bile phone used as a PoS device

Over the past years, smart engineering allowed c
ompanies to develop products to accept
credit card payments by swiping cards into dongles attached to internet
-
connected
smartphones. This development paved the way for various companies to lower the prices that
banks usually charged to accept credit card
payments. By providing ‘just’ a piece of plastic to
be attached to the merchant’s smartphone, there is no need to rent an expensive terminal.
This means that more merchants, such as micro
-
businesses and single individuals, can now
accept credit and debit c
ard payments, increasing the total size of the served market.


PayLeven

is a Mobile POS company offering a solution for SMEs to accept credit and debit cards
payments on the merchant’s smartphone. PayLeven offers a dongle to swipe the client’s credit card
and
a wireless terminal with dedicated pinpad to accept chip and pin transactions. Unlike other players,
PayLeven routes debit card transactions in Direct Debits into users’ accounts, effectively reducing the
cost of the transaction. Interesting show case
in The Netherlands is the implementation of Payleven
mobile PoS solution by the Rotterdam Taxi cooperation.

1.2

Mobile paymen
t: more than a

financial transaction

Related to the problem of categorising the vast terrain we call ‘mobile payments’, is the lack of
clear definitions. This adds to the confusion and hinders the better understanding of the issues
which drive the change of check
out. Therefore, this chapter aims to clarify the various aspects


Mobile payments 2013

-

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16



of mobile payments and classify the services, methods and stake
holders. Together with the
distinction between the four quadrants from paragraph 1.1, this will help readers to get a
better understanding of the mobile payments ecosystem, and enable readers to put the
developments described in the rest of this report int
o perspective.

Mobile devices can be used for multiple processes in financial transactions. In this report we
distinguish between different processes, which we categorise as follows:




Mobil
e payment:

a payment, defined as a transfer of funds in return for
a good or service,
where the mobile device is involved in both the initiation and confirmation of the
payment. The location of the payer and supporting infrastructure is not important: he
may or may not be ‘mobile’ or ‘on the move’ or at a Point of Sale (P
oS); the payment may
be processed by credit cards or by a prepaid wallet. Example: funds are transferred and
deducted from the prepaid amount or billed by the MNO.



Mobile ordering:

transactions where the mobile phone is used to initiate the order but
not t
o make the payment. Example: food ordered online via the mobile phone and paid at
delivery.



Mobile delivery:

transactions where the mobile phone is used to receive delivery of goods
or services without making the payment. Example: an event ticket is issued

on the mobile
phone.



Mobile authentication:

use of the mobile device to authenticate the user either as part of
a payment transaction or to give access to some information or functionality. Example: a
code is sent to a mobile phone which the user types in

online to verify his identity.



Mobile banking:

access to banking functionality via the mobile phone. This includes the
provision of part or all of the banking functionality already provided by banks over the
internet in the form of online banking but also

other methods of telephone banking.
Example: view account balance and transaction history via the mobile browser or app.
Note that a mobile payment can also be executed within the mobile banking
environment.



Mobile loyalty:

a mobile device could be used t
o store and redeem loyalty points, but not
to make the payment.



Mobile RoPo:

mobile devices are ever more used in store to find relevant information
regarding a product the user is looking to buy. This has been dubbed as ‘Research Online,
Purchase Offline’
. Since the advent of smartphones and mobile internet, mobile phones
enabled this practice anywhere, anytime.

The applications shown above often use the mobile phone to
initiate

the payment. Only a few
of them include the mobile as a
payment

instrument. Mo
st of the applications for mobile
payments make use of mobile devices to authenticate the consumer, identify the payee and
delivery the service/content.



Mobile payments 2013

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17



The term ‘mobile payment’ is often used in an array of circumstances, including mobile
banking, orderin
g and authenticating. This one label oftentimes causes confusion as per what
it is truly meant and what is required. Even in our specific industry, by using one single term
we usually blur the lines of specific needs of each function and process.

1.3

Smarter
technology is not always better


Figure
2
:
Mobile payment enabling technologies.


As we discussed in the previous paragraph, mobile payments come in different forms. In order
to enable them, various technologies could be used. In
this paragraph, we provide an overview
of the main enabling technologies for mobile payment services.

Different contexts require different propositions for a payment method to succeed and ‘win’
the market. For example, remote P2P transactions require a com
pletely different technical
solutio
n than a proximity B2C payment.


1.3.1

Text messaging via SMS & USSD

Short Message Service (SMS) is a communication protocol allowing for the interchange of short
text messages between
mobile telephony devices
. SMS is available

on almost all modern
mobile phones. Most SMS messages are mobile
-
to
-
mobile text messages, though the standard
also supports other types of broadcast messaging as well, for instance mobile to landline or
mobile to computer.



Mobile payments 2013

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18



A similar method to SMS is Unstr
uctured Supplementary Service Data (USSD). USSD is a
capability of all modern GSM phones. It is generally associated with real
-
time or instant
messaging type phone services. USSD is a standard for transmitting information over
GSM

signaling channels. It is mostly used as a method to query the available balance and other
similar information in pre
-
paid
GSM

services. The function that is trigger
ed when sending USSD
is network dependent and depends on what kind of services the operator has made available.
Some operators have not activated this possibility.


1.3.2

Mobile internet

High speed broadband internet is increasingly available on mobile devices.
In parallel, mobile
devices are becoming increasingly like laptop computers in terms of the functionality they
offer.

Figures about mobile internet show how quickly this access method is being adopted and
growing. Reports show that in 2011, mobile interne
t has been adopted by more than 1.2
B
users worldwide
3
. Moreover, in May 2012, mobile internet accounted for 1 in 10 of all Web
page views, according to StatCounter
4
.



Figure
3
:
Internet access from Desktop vs Mobile devices.
Sour
ce: StatCounter
, 2011.


Because of their particular cultural aspects, Africa and Asia’s mobile internet penetration is
growing at a much higher pace, as users have access to mobile devices, but not to PCs, as the



3


ITU


‘ICT Facts and Figures’, 2011


4


Statcounter


‘Mobile Vs. Desktop Internet’, 2012

0%
20%
40%
60%
80%
100%
Mobile Vs. Desktop Internet

Desktop
Mobile


Mobile payments 2013

-

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19



costs are much higher.

In a country like In
dia mobile internet accounts for almost 50% of all
internet use!

It is widely believed that the emerging convergence among the internet and mobile
technologies will lead to the emergence of a wireless broadband internet platform
. Such a
platform

will
provi
de

ubiquitous access and a wide range of new value
-
added services, many of
which would be settled via payment systems based on the platform. Future developments
could lead to real time online banking with your mobile phone, which would be an enabler for
po
int of sale payments.


1.3.3

Near Field Communication

Near Field Communication (NFC) is a radio frequency technology that allows different devices
to communicate with each other wirelessly in a short radius. It has its origin in the Radio
Frequency Identificati
on (RFID), which is an application of contactless technology for both
proximity and vicinity communication. RFID is used extensively in areas such as product
tracking, passports, animal identification, libraries, etc. However, the restriction of RFID has
a
lways been that it is a one
-
way communication standard; from the code to the reader.

Critical developments of two
-
way communications have made contactless technology ripe for
use in payments: by allowing faster data transfer speed and increased data securi
ty,
communications between NFC
-
enabled devices are now being used to transfer confidential
payment information. These developments have been the catalyst for an explosive growth in
the use of contactless technology for payments with the volume of contactle
ss cards growing
to hundreds of millions helped in part by strong marketing pushes from the major card
schemes.


1.3.4

Barcodes & QR Codes

QR (Quick Response) codes are a two
-
dimensional codes initially developed for manufacturing
purposes, which can carry a lar
ger storage capacity than a regular UPC barcode. Only in recent
years have QR codes become common as a result of the widespread adoption of smartphones.
Consequently, QR codes are now being used over a much wider range of applications,
including commercial

tracking, entertainment and transport ticketing, product/loyalty
marketing, in
-
store product labeling and even as enablers of payment transactions.

Over the past years, QR codes have also emerged to have an unusual and yet interesting
applicability in the

mobile payments ecosystem. They have literally acquired the ability to
transform consumers’ mobile devices into virtual wallets, allowing them to pay for products
and services, transfer money and take part in loyalty programs.




Mobile payments 2013

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20



1.3.5

Mobile POS

Mobile POS
-
enabl
ing technologies could come in the form of magnetic stripe readers, that
transform the information stored in the magnetic stripe in audio signal (similar to what used to
happen with cassette tapes) to be sent to a mobile device. Other enabling technologies

include
chip
-
reading devices that can be connected to a mobile device to acquire data included in the
credit card chip.

1.4

Stakeholders
determine

speed of change

1.4.1

Providers of mobile payment services

Mobile network operators (MNO’s)

Mobile network operators a
re the, because of their nature, directly interested by mobile
payment developments. MNOs are usually the first point of contact for mobile devices related
issues for the consumer, and therefore an important player in the mobile payments game. By
subsidizi
ng mobile phones with mobile payments capabilities, MNOs can increase (or reduce)
the chances of a mobile payment method to become successful, and therefore are one of the
most important players in the value chain.

MNOs are also interested in the mobile pa
yments debate as they can enable direct carrier
billing, becoming in fact a ‘creditor’ for the payee, therefore increasing the average revenue
per user, one of the key performance indicators in the mobile industry

Financial institutions

Financial instituti
ons are interested in mobile payments as a new channel for retail payments.

From a retail banking point of view, financial institutions are primarily focused on protecting
the current account and surrounding loan products.

Mobile payments also hold the all
ure for financial institutions of assisting in the ongoing battle
to reduce the use of cash and its associated costs. For this reason, credit card schemes are
currently heavily involved in new payment solutions development, and often have high stakes
in co
mpanies playing in this field.

Furthermore in developing geographies mobile payments offer financial institutions the
opportunity to cost
-
effectively capture and service unbanked and underbanked communities.

Handset manufacturers (OEMs)

Handset manufacture
rs (or Original Equipment Manufacturers, shortly OEMs) produce the
mobile devices and thereby determine their capabilities and usability. The success of the use of
the mobile device for payments has the potential for resulting in a substantial increase in
both
sales to new customers but also for the renewal of existing devices in the market to ones that
are payment capable.





Mobile payments 2013

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21



Technology providers

Technology vendors are one of the enablers of mobile payments: chip manufacturers enable
secure storage of payme
nt information in the secure element, while the Trusted Services
Manager (TSM) is the party involved in allowing access to the chip itself and managing the
communication flow.

All t
hese organisations are positioning themselves to provide the infrastructure

and messaging
for mobile payments and in the process offering to act as a trusted intermediary between the
banks and the mobile network operators.

Startups & Corporations

While financial institutions are probably some of the most important players in the
chain,
there also are other types of companies moving into the mobile payments space, such as
startups (Square, Stripe…) and corporations (Google, Apple, Starbucks…). Startups are often
creating innovative ways to enable mobile payments, and corporatio
ns a
re often investing in
them:
Paypal’
s recent acquisition of Card.io
.


1.4.2

Demand side

Merchants

Merchants are one of the two key customers for mobile payment developers. By adopting new
payment instruments at the Point of Sale, they enable clients (the second c
ategory of key
customers) to use mobile payments.Merchants are interested in new payment methods that
help them provide faster throughput at checkout, easier user experiences and to better serve
customers vi
a targeted marketing campaigns.

Consumers

Consume
rs are more and more adopting mobile devices as payment instruments, most of the
times even without recognising it: the recent trend of purchasing music or apps via the mobile
phone requires the user to pay via the mobile device, through a one
-
click experi
ence. But
consumers are also interested in using the mobile phone at the physical checkout, therefore
eliminating the need to carry two separate objects: a wallet and a phone.

For consumers, the mobile device is also a mean to get suggestions where to spen
d their
money, or to receive coupons and discount codes that can be easily redeemed when making
the purchase.

However, does this mean that end consumers are ready to abandon the wallet and rely
primarily on the phone, which is more a lifestyle or leisure t
ool, for the important
task of
handling their payments.








22



2

D
eveloped market
s
: l
agging commercial adoption

Mobile payments, as we already anticipated, come in different flavours. Some of those have
specific affinities with developed countries and follow simi
lar trends across those regions. In
this chapter we will discuss the main trends in developed
markets
, highlighting what the
drivers are that facilitate those trends and the factors that contribute to the adoption of
mobile payment solutions, from a mercha
nt as well as a consumer perspective.

In developed markets, mobile payments are still not as commonly used as in emerging
countries, as a lack of standardization is limiting their commercial adoption. One of the main
reasons why mobile payments are still l
agging behind in those countries has to do with the
conflicting interests of the main stakeholders involved (e.g. Telecom operators, Banks,
Financial Institutions)
5

especially with regards to

commercial decisions. This trend is also
stronger in American ma
rkets than in European ones, as we will discuss later in this chapter.

Even though these issues impede swift adoption of mobile payments, forecasts are still
showing a positive outlook for the next years, mainly for three reasons:

1.

Converging focus on proxi
mity, B2C payment;

2.

The value added that mobile payments could bring to merchants and consumers;

3.

The ever going trend of consumers preferring cashless payments
6
7
.

2.1

Focus on Proximity, B2C payments

One of the most visible trends in mobile payments that can be

identified when talking about
developed countries is the focus on the interaction between the consumer and the merchant
at the Point of Sale. Various initiatives have been launched to facilitate this interaction and to
exploit the full potential of mobile

devices in such a context, in fact, this is the context where
the most initiatives are being represented, out of the four identified in our model
.

If in developed markets the focus is on the interaction at the POS, in emerging markets the
attention is shi
fted towards enabling remittances between peers. The reasons behind this
important difference have to be found in the level of access to financial services in the two
cases: in our developed markets, financial services are readily available. Therefore mobi
le
payment solutions should focus on creating additional value for users. For emerging markets
the main proposition is to allow users to get access to these services, which are not as
available.





5


For an overview of players involved in the mobile payment ecosystem, please find more information in Chapter 1.

6


IBM


‘Cashless self checkout
’, 2011.

7


Aite Group R
esearch



‘Report Less
-
Cash Society’, 2011.



Mobile payments 2013

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Developed markets: lag
ging commercial adoption





23



REMOTE
PROXIMITY
B
2
C
P
2
P
3
4
1
2
Mobile online payment
(
m
-
commerce
,
bills
,

)
Mobile money transfer
(
remittances
,

)
a
.
Contactless payment
(
in store
,
...)
b
.
Mobile card payment
(
on site
,

)
a
b
Contactless transfer
(
peer to peer
,

)

Figure
4
: In developed markets,
the focus is on Proximity B2C mobile payments


The drivers behind this focus on proximity B2C payments also rely on the availability of
advanced technologies: contactless technologies, first implemented in the credit cards, and
the availability of the same

solutions embedded in mobile devices, created an opportunity
which was identified by various different players (examples in this use case are: Google Wallet,
UK’s QuickTap by Orange…). Unfortunately, despite the large investments in NFC
-
based
solutions, t
his paradigm is still struggling to succeed.

Another trend that has been developing over the past years is the use of mobile devices to
acquire credit card based transactions at a fraction of the costs usually applied by traditional
service providers. By
using one’s own mobile device with a special designed dongle where to
insert the customer’s credit card, there’s no need for merchants to sign costly and long
-
term
contracts, therefore creating the opportunity also for smaller entrepreneurs or single
indiv
iduals to finally accept credit card based payments.

These two developments, both focused on the interaction at the POS system, suggest that
mobile payments are considered to be a new channel where existing financial players can play
a role in, by extendi
ng their current offers.

The limited attention on other contexts of mobile payments, such as P2P remote payments is
justified by the difficulty in creating a profitable business model around those use cases. In
developed markets the need for a solution th
at covers those uncommon cases is limited;
therefore such a payment solution will address a limited subset of the population (which, most
of the times can get access to cheap, commoditised existing payment instruments like bank
transfers).

Last but not le
ast, in developed economies, the high adoption of smartphones, the ubiquity of
the internet connection, and the flexibility of digital banking channels, led most of retail banks


Mobile payments 2013

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Developed markets: lagging commercial adoption





24



to provide some form of mobile banking functionality to their customers. The c
onversion of
these drivers enabled consumers to be closer to their money and have better access to their
accounts, an offer that has been well received by the audience. Mobile banking adoption in
Europe, for example now stands at 21% of the connected popul
ation
8
.

As we anticipated in chapter 1, however, mobile banking is developing as a channel for users
to access banking capabilities on the go, which in fact is ‘just’ an extension of the already
available online banking capabilities, on a different device
.
9

The main drivers in those markets can be therefore identified in:



Cross
-
selling of marketing solutions:

this enables merchants to gain more insights in
consumers’ spending patterns and therefore getting access to more data about their
customers;



Lowerin
g credit card
-
transaction costs:

by using new technologies to enable card
-
based
payments, innovative companies are empowering individuals and small merchants that
were put off by the high fees connected to those transactions.

2.2

Accelerating

commercial adopt
ion

Mobile payments enable merchants, and especially marketers, to better understand consumer
behaviour, as they enable tracking of the process that leads to the purchase (i.e. process from
advertising to checkout). As a result, merchants will be better ab
le to analyse the results of
their campaigns, promotions and loyalty bonus schemes, in such a way that would not be
possible without the use of smartphones for the entire mobile commerce experience.

This trend has been dubbed ‘closing the loop’ by marketee
rs and by solution providers and it
refers to one of the biggest opportunities businesses have when integrating mobile
advertising, loyalty measures, and payment programs. Put differently, closing the loop refers
to enabling merchants to track and link adv
ertisements to actual sales, through offer
redemptions, loyalty points, check
-
ins, hence providing them with tools to target their
marketing budget far more efficiently.

This issue is growing ever bigger, as retail strategy is going more and more ‘multich
annel’, with
businesses offering their services and goods via online and offline channels, where the
checkout processes are completely different, but the advertising strategy and the target
audience might overlap easily.

Some businesses already started inc
luding analysis tools and sophisticated CRM solutions in
their POS, with the aim to get mobile commerce data from apps, about the interaction and
experience from the consumer side, in order to have a more holistic view of the purchasing



8


Forrester


‘The state of mobile banking in Europe’, 2012

9


For more insights in this as
pect, please refer to our Online Payment 2012 report, available on our website



Mobile payments 2013

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Developed markets: lagging commercial adoption





25



process, rather tha
n silos of data. Most of those businesses, however, have been big retailers
so far, who can invest heavily the in
-
house de
velopment of such a solution. .

Smaller merchants do not have the firepower that
giants

like Wal
-
Mart or Tesco might have,
but they ar
e also interested in getting some high
-
level information on the ROI of their
campaigns. Small
-
Medium Enterprises (SMEs) are particularly concerned about correctly
evaluating relevant KPIs of advertisement campaigns and promotions, to better manage risk
and

fraud that negatively affect their return on investment. This includes developing some
solutions for POS systems that enable tracking of coupons in order to prevent consumers from
sharing them, but that are light enough not to require integration budget.

SMEs are concerned about fraud related deals and promotions and sticking within a budget for
their campaign. Protection against fraud requires removing used offers from the market and
preventing re
-
use or unauthorized sharing of deals. This requires some l
evel of tracking within
the basic POS systems that small businesses use without getting into an expensive integration
project.

Solutions in this area started to appear in the market and the most notable companies who are
already at the forefront of the im
plementation of these services are:



PayPal
: recently introduced PayPal InStore (in the UK), which allows users to download an
app on their smartphones to be linked to their PayPal accounts. Participating merchants in
the initiative (initially only Oasis) a
re able to send offers (also geo
-
localised) to customers,
who then can store them and redeem their discounts or benefits when using their phone
to pay. With this solution companies like Oasis are able to fully track the buying behaviour
of their cust
omers
and analyse those metrics;



Square
: after launching their successful mobile POS replacement in 2010, which enables
every user to accept credit card payments
10
, the company gained momentum and
started developing solutions that give merchants access to various

marketing tools.
Square launched the ‘Square Wallet’ in May 2011, which enables users to register their
credit card details and profile pictures in their virtual profiles. The app makes use of the
GPS functionalities of current generation smartphones to a
llow merchants to send
customised offers and coupons when clients pass by their stores. Integration with punch
card
-
like services complete the loop of marketing tools aimed at maximising consumer
loyalty and relative data analysis.


2.2.1

Value Added Services

Va
rious additional ‘value added services’ can be integrated in mobile payment solutions.
Currently, the most successful mobile payment initiatives offer merchants with at least one of
them. Integrating a mix of value added services in a mobile payment soluti
on radically
increases the chances of success.




10

Currently limited to users in the US, owners of valid bank accounts



Mobile payments 2013

-

Developed markets: lagging commercial adoption





26



Merchants are ready to pay premium prices for services that can increase in
-
store traffic and
average turnover per user, but not for just another payment method that only replaces
existing ones.

Value added s
ervices come in different flavours to cover different needs and enable different
types of transactions. Below we highlight some examples of value added services included in
mobile payment initiatives currently available in the market
:



Loyalty
, rewards
:
eve
n before integrating loyalty solutions in mobile payments, companies have
been exploiting the technology included in mobile phones to replace loyalty management solutions
such as punch
-
cards and reward points. An example of this trend is the acquisition of

Punch’d by
Google. Punch’d offered a platform to use smartphone cameras to scan QR codes that represented
points for a virtual punch
-
card. Google quickly acquired the company to integrate this service in its
mobile wallet proposition.



Coupons
, offers
:
sim
ilarly to tickets, various other products can be redeemed by using a mobile
phone as a presentment method. For example, coupons and offers can be bought or stored in
mobile devices and then shown at the point of sale to be converted in the actual discount
or
product associated with them. By including these services in a mobile payment proposition,
merchants can better manage their campaigns and reconcile the redeemed offers with the relative
payments.



Ticketing:
mobile devices are often used to pay and rece
ive digital content and store purchased
material such as music and ticket passes on the go. Not only using a mobile device is convenient to
browse and purchase, for example, movie tickets but it is often used to present these passes at the
door to be grant
ed access. The advantages of those solutions have also been adopted by the airline
industry, that ever more often allows passengers to store their plane tickets as emails displayed on
their phones. In particular countries, especially in Asia, mobile device
s are used to store public
transport tickets that can be then used via the contactless technologies widely available in those
countries.


In developed markets, integration with value added services seems conditional for the success
of a mobile payment solu
tion. As discussed earlier, retailers are interested in mobile payments,
as they allow a much deeper interaction with clients and buying behaviour patterns.

There are also solutions available that focus on value added service, but that lack the actual
paym
ent functionality. Examples include the new Apple Passbook and Google owned
Punch’d
11
, but these solutions often need to be integrated with solution that support payment
services in order to truly become successful. Examples in this area include Square, whi
ch
started as a mobile PoS solution only capable of accepting card based payments, and then
included a wide array of value added services (such as loyalty points, advertisements and
offers) to become one of the most successful companies in that area.




11

http://getpunchd.com




Mobile payments 2013

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Developed markets: lagging commercial adoption





27



2.3

Cash
is king?

2.3.1

Consumers are increasingly willing to go cashless

Our developed societies are already embracing the idea of going cashless, as only a small
fraction of our payments are done by using cash. In the
US, it is estimated that only 7%
of all
transaction
s are carried out with cash, while the ave
rage European figure is around 9%
. There
are even countries trying to go 100 cashless: Sweden is the most advanced European country
when it comes
to cashless payments, as only 3%
of the transactions involve cash, a
nd the
nation is expected to go cashless in the near future. Swedish churches even started adopting
POS devices to accept credit card payments, recently
12
.

Consumers are more and more willing to go cashless, as the convenience of not carrying
change and the

speed of transactions are driving the adoption of alternative payment
methods. A recent report published by MasterCard shows that more than 1 in 3 Americans are
using less cash today than 10 years ago
13
.

Cards are the first example of a cashless payment me
thod that is already widely accepted by
consumers. The recent introduction of the same contactless technology in both cards and
mobile phones enabled companies to envision new and integrated cashless mobile payments.
This also enables consumers to replace
their physical wallet, which is usually clustered with
cash, coins and all sorts of loyalty cards, receipts, business cards, with a more convenient
digital solution on their mobile phone. This sort of convenience renders the former obsolete
and is driving
interest and acceptance of innovative solutions as a large number of consumers
already made the switch to a digital version of their wallet.


Regulatory reforms are another important driver for the mass adoption of cashl
ess payment
methods.
As more and mor
e regulators are trying to fight tax fraud, countries are introducing
new laws to ban cash transactions above certain thresholds. In Spain, for example, the use of
cash has been recently outlawed for transactions above 2,500 Eur
14
, while in Italy, a similar

ban has been imposed for transactions above 1,000 Eur
15
. A push from the top, as is happening
in these two countries, would definitely spark change and adoption of cashless solutions
(otherwise businesses and individuals alike are bound to

face felony issu
es), such as credit
cards and mobile payments. We expect a slight increase of card transactions in these
countries, not a complete expansion, as most of the card transactions will still be ATM
withdrawals. The lower limit would probably reduce the average
value of the transaction size,
but increase the
overall number of transactions.






12

CBS



‘Sweden moving towards cashless economy’, 2011

13

MasterCard


‘Cashless Americans’, 2011

14

The Daily Bell


‘Spain Bans Cash’, 20
12


15

PaySys


Italian government restricts cash payments’, 2012



Mobile payments 2013

-

Developed markets: lagging commercial
adoption





28



2.3.2

Mobile phones are driving ‘cashless’

The mobile phone certainly has the potential to contribute to the emergence of a new brand
of cashless consumers, for whom convenience an
d convergence are key attributes that define
everyday life. To that end, a recent analysis conducted by ABI Research
16

has found that a key
factor that is likely to have a strong impact on consumer adoption of mobile
-
enabled payments
has to do with how vari
ous and disparate elements coexist digitally for a consumer. The study
has found that consumers are unlikely to respond favourably to ‘mobile wallets" that only
work for one payment card and / or loyalty card, or which can only be used in isolated
merchant

locations. However, consumers are most likely to respond to entities that can
aggregate a wider array of (virtual) payment tools and functionalities, including multiple cards,
loyalty and reward programs, etc.

For merchants, mobile devices have emerged as

a gateway via which they can reach
consumers directly via services, such as mobile wallets and location
-
based services. A study by
Jiwire
17

indicates that as mobile device adoption among US consumers grows, so does the use
of mobile wallets and location ba
sed ser
vices. The report found that 47%
of US smartphone
owne
rs also own tablets, up from 32%
in Q4 2011. Tablet ownership, in general, is expected to
continue its growth throughout 2012. Gartner, in turn, estimates that 118
.
9
M

units will
be sold
worldwide

in 2012, a 98%
increase compared to 2011.

Mobile wallets are also becoming quite popular among Chinese consumers. This strengthens
our idea that mobile payments adoption has more to do with the context they are created for,
rather than the economic develo
pment of the countries they are introduced to. Despite China
being one of the emerging BRIC countries, mobile wallet adoption is on the rise. A survey
commissioned by Assurant Solutions
18

found that over half (52%) of Chinese respondents are
mobile wallet u
sers compared to a combined total of 12% within the four other countries
surveyed, namely Spain, Germany, the US and Argentina. The survey defines mobile wallet
users as “consumers who regularly carry out three or more m
-
wallet transactions such as
online
banking, bill payment, online purchases, NFC
-
based in
-
store purchases, or peer
-
to
-
peer
transactions”.


In the UK, younger consumers and students in particular are embracing mobile money
technology at a fast rate and show the highest willingness to use thei
r smartphones to manage
their finances compared to any other group of UK consumers, found a report issued by digital
banking services provider Intelligent Environments (IE)
19
. The IE research found that 53%
of UK
students who own a smartphone would manage t
heir bank accounts via their mobile devices
,
if they could, compared to 44%
of employed consumers. A quarter (25
%
) of polled students



16

Mobile Wallet Strategies


‘Payments, Coupons, Offers, Loyalty and Rewards Programs
’, 2011

17

J
iwire


‘Mobile Audience Insights Report’, 2012

18

Assurant Solutions, 2012

19

Intelligent Environments


‘UK Mobile market study’, 2012



Mobile payments 2013

-

Developed markets: lagging commercial adoption





29



with a smartphone, meanwhile, said they would use their mobile device for pe
er to peer
transfers, versus 22%
of people in
full or part
-
time employment.

Moreover, the report has found that British consumers who own a smartphone are
increasingly seeking convenient solutions to meet their busy and demanding lifestyles. Half

of
workers (49%
) and students (47
%
) admitted they would

be interested in using their mobile
devices, if possible, to and pay at the PoS for goods or services. The s
urvey has also revealed
that 51%
of British consumers now own a smartphone compared to a third (33
%
) in 2011.

A growing user acceptance of mobile b
anking services and a sharp rise in smartphone adoption
are expected to drive the number of users of transactional mobile banking services up from
185
M

in 2011 to over 550
M

in 2016, data from Juniper Research
20

suggests. The report
indicates that mobile pho
ne banking is gaining considerable traction,

due to the exploitation of
advanced functionalities such as banks bundling mobile bill presentment and payment services
within their overall mobile banking platform and additional momentum from easy
-
to
-
use
smart
phone apps.

In the same report, Juniper also estimates that users who engage in bill payments are expected
to continue conducting transactions actively and aggressively, as they become more
accustomed to usage. As consumers engage in increasingly mobi
le li
festyles, approximately
80%
of total mobile banking customers will pay their bills via mobile devices by 2016.
However, the report warns that user security concerns, heightened by the rapid growth in
spyware and malware, could act as a brake on adoption, p
articularly amongst older
demographics. It is argued that this situation will continue unless and until consumers are
convinced that mobile device security is of thesame grade as online security, if not better.




20

Juniper Research ‘Mobile Banking for Developed & Developing Markets’, 2012







30



3

Emerging
markets
: b
eyond e
mpowering the
unde
r
banked


Unlike developed markets, where mobile payments must fight to carve out a role for
themselves among a variety existing, mainstream payment instruments, the role of mobile
financial services in emerging markets is traced along a different set of co
ordinates. In
developing economies such as those in Latin America, Africa, Asia
-
Pacific and Central and
Eastern Europe, mobile payments are establishing themselves as a cost
-
effective, secure
channel for various types and sizes of (cashless) payment transa
ctions whose main virtue is
that they provide access to financial services to the under
-
banked and the unbanked.

The life
-
changing potential of mobile financial services is perhaps more immediately evident
for consumers in developing markets than for users

in developed ones. In developed countries,
mobile constitutes an alternative or a substitute for any number of other readily available
payment instruments such as cards or cash. In emerging markets, mobile financial services are
often the only viable alte
rnative to otherwise hardly available, low
-
quality and inaccessible
financial services; they have developed to become accessible and affordable precisely because
they make the difference between existing and not existing from a financial standpoint. Mobile

financial services make use of the abundant mobile infrastructure and render dedicated
payment/financial
infrastructure that

are

not readily available, obsolete.

The differences between emerging and developed economies exists at multiple levels and
range
from
banking infrastructure development

(or lack thereof) to
the behaviour, degree of
sophistication and preferences exhibited by consumers. Also relevant are the many differences
in market requirements, available technologies and local regulations that se
t developing
markets apart from their more developed counterparts. On the whole, mobile financial
services continue their expansion in emerging economies. They are becoming agents for
change, empowering the unbanked and enabling the fast, reliable disburse
ment of funds from
governments and NGOs.

This chapter is dedicated specifically to mapping out the characteristics, prospects, drivers and
inhibitors of mobile financial services in emerging economies. In order to better understand
how these factors conve
rge or diverge, this chapter will take a more in
-
depth look at BRIC
countries (
Brazil, Russia, India, China) before examining the state of affairs in Africa, Central
and Eastern Europe, Asia


Pacific and the rest of Latin America. This differentiation bet
ween
BRIC economies and the rest of the emerging nations worldwide was deemed necessary given
that BRIC markets
-

India and China in particular but not exclusively


merit specific attention
due to their combination of economic factors and consumer profile
s which have the potential
to shape and influence the development of unique mobile financial services ecosystems.
Moreover, as the world’s most populous regions, China and India are two of the markets which
drive the continued adoption of mobile services i
n the developing world


as opposed to
developed economies where the mobile market has already reached saturation.



Mobile payments 2013

-

Emerging markets: beyond empowering the underbanked





31



3.1

R
eaching the underbanked

Emerging markets are characterised by a generalised lack of infrastructure regarding financial
services, which have

been, in most of the cases, outperformed by developments in the
telecommunication infrastructure. This aspect is fundamental to understand the main
difference in drivers between developed and emerging countries.

In emerging countries, like the African on
es, the lack of bank branches has been a bottleneck
not only on economic but also cultural developments. Access to basic services like cash
handling has been limited by the lack of financial services of the most basic type. The large
demand for local servi
ces to suffice those needs has encountered on the other side, little
response from financial services suppliers. The cost of serving such a widespread consumer
base with classical brick and mortar bank branches have always been too high, therefore
creating

the opportunity for other non
-
bank solution providers to tackle this problem.

In recent years, the telecommunication infrastructure in those countries has evolved at a much
higher pace. The cost of owning a mobile phone has been decreasing steadily and th
e
geographic coverage has been increasing at the same pace of demand for it. Some mobile
number operators realized the opportunity that mass adoption of mobile phones brought to
the emerging countries and capitalized on it by enabling phone users not only
to call each
other, but also to transfer balance between themselves.

The large number of individuals without access to financial services but with mobile phones
has been an important driver for the development of specialised mobile payment solutions in
th
ose areas. According to the International Telecommunication Union estimates
21
, at the end
of 2011 there were 4.5
B

mobile subscriptions in the dev
eloping world, representing 76%
of all
global subscriptions. Mobile penetration in the developing world now is c
urrently estimated at
79
%
. With developed economies no longer providing sustainable growth rates for mobile
network operators and mobile services providers in general, attention is shifting fast towards
the developing world.

Such an offer has provided cust
omers with an efficient and effective way to transfer funds
between peers, without the need to travel for it. This service has proven to be such a success,
that in some countries (Kenya above all, with its M
-
Pesa example) it evolved to become the
favourite

way of settling B2C transactions.

Those examples coming from emerging countries hav
e important lessons to be learned

for
solution providers in developed ones:



Alternative mobile payment methods have bigger chances of success when they

a
re
solving a tangib
le problem for the users. In economies where credit cards are not widely
available, the banking infrastructure is not as developed as in the western world, there is
a gap where mobile payments f
ound an opportunity to flourish;




21

ITU


‘ICT Facts and Figures’, 2011





Mobile payments 2013

-

Emerging markets: beyond empowering the underbanked





32





Flexible technologies allow t
he same payment method to be successful in different
contexts. If the same technology can be re
-
used to extend the same payment method for
different contexts (ie: Remote vs. Proximity), chances of success increase accordingly.
There is evidence in the mark
et showing that there is no need to introduce new, costly
technology to allow mobile payments.

Therefore, players competing (or planning to compete) in developed markets have to keep an
eye on emerging markets. The business models developed in Africa can b
e studied and
reshaped to be applied to the global markets, bringing the benefits of scalable, flexible mobile
payment methods to economies where massive investments still have to show their returns.


3.1.1

R
ise of emerging
market

mobile users

Figures released
by the International Telecommunication Union estimate that in 2011, there
were 6
B

mobile subscriptions worldwide
22
, compared to 5.4
B

in 2010 and 4.7
B

mobile
subscriptions in

2009. This is equivalent to 87%
of the world population. The same statistics
indica
te that in developed markets, the number of mobile subscribers has reached saturation,
with at least one mobile subscription per individual


which means that growth is mainly being
propelled by the development of mobile phone usage and adoption in develop
ed markets,
which include some of the world's most populous nations


India and China. Additionally, as
consumers use multiple devices, the number of mobile phone subscriptions worldwide is on
pace to exceed the entire population of the planet very soon, t
he World Bank report has
found.

According to analyst firm Ovum
23
, the number of mobile phone users continues to increase
steadily in emerging markets, while operators switching to 3G and 4G mobile broadband
networks will also help to drive growth. Shipments

of mobile broadband
-
enabled handsets are
expected to grow by a compound annual growth rate of 15.1
%
, to r
each 962
M

units in 2016.

While it is difficult to quantify the impact of mobile services on innovation and productivity in
any type of environment, r
esearch carried out by the GSM Association (GSMA)
24

estimates that
a developing country that had an average of 10 more mobile phones per 100 of population