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Mobile Payments Intensive

The business case for mobile payments in Europe Chris Jones eFinance and Law – 13

th

May 2008

Some views of the mobile payments business case

v1 09/05/08  “[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… 2 PSE – Mobile Payments Business Case

What will make the mobile payments business case?

v1 09/05/08 Criteria Utilise Existing Assets Provide Openness Description • • Leverage current device technology and payment methods such as Faster Payments, contactless cards, direct debits credit transfers Support/ extend existing security environments • • • • 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 • • Create positive network effects Align fees with cost and/or risk Incentivises All Stakeholders Be more attractive to use Deliver security Reduce Time to Market • • • Simple/cheaper to use than nearest comparable alternative Enable clear customer support model Offer payment immediacy (if not settlement) • • Ensure that end users trust the brands, frameworks and services Use appropriate authentication • • • 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 correct 3 PSE – Mobile Payments Business Case

How do the current offerings perform?

Illustrative Samples – Fit and Breadth of Offer

High

MoniLink Visa PayWave MCI PayPass

Low Focussed

Low Payforit PayPal Mobile PayMate M-PESA MobiPay Obopay Osaifu-Kaitei

Broad Breadth of Solution

High

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 v1 09/05/08 No one is delivering a mass market solution for mobile payments today that will suit Europe PSE – Mobile Payments Business Case

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What type of business models will succeed…

Model Financial Institution (bank) led model Telecoms led model Value Transfer Existing interbank assets initiated / confirmed by mobile device Subscribers phone account, via mPSPs and MNOs Benefits  Reliable/secure infrastructure  Remote (e.g. Faster Payments)  Proximity (NFC)  Re-use of existing assets  Utilises existing assets  Proven business model Drawbacks  Both parties must use the solution for a payment to be effected Examples  Monilink  Obopay  PayMate  PayPass  payWave  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 Co-operative Model Telecoms and/or bank accounts linked via telecoms/bank infrastructure  Creates shared business model between FI and MNO  High charges for consumers  Possible security issues  Paypal Mobile  Decisions always need to be made in multi party environment  Mobipay  M-PESA 5 PSE – Mobile Payments Business Case

Payment Type Peer to Peer Low Value High Value

…and where?

Consumer to Business Low Value High Value Remote Payments Proximity Payments eCommerce Model Unclear Bank/ eCommerce Model Unclear MNO Model Bank Model Bank/ MNO Model Bank Model v1 09/05/08 Patchwork of differing solutions likely to continue, with significant uncertainty over proximity peer to peer payments 6 PSE – Mobile Payments Business Case

How will opportunities emerge in Europe?

Option

C2B before P2P

  Strengths Leverages existing four party model Could utilise aspects of NFC PayPass/ payWave infrastructure

High Value before Low Value Remote before Proximity

    Higher value payments more attractive to merchant community Less competition with cash payments 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     Weaknesses 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 Cash displacement will only be successful if mobile payment can out-perform cash in low value payments Major area within mobile payments will be excluded in early phases v1 09/05/08 Phased development concentrating on C2B, High Value, Remote transactions first may enable a more rapid got to market approach 7 PSE – Mobile Payments Business Case

What are the immediate opportunities for players?

Issue Slow roll-out of contactless acceptance Nascent agreement between MNO’s and banks on the business model Potential Approach 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.

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.

v1 09/05/08 The phone as a PIN entry device (PED) Secure OTA application provisioning 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.

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 uptake 8 PSE – Mobile Payments Business Case

What about outside Europe?

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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 9 PSE – Mobile Payments Business Case

Still slim evidence of a business case?

WIZZIT Transaction Profile per Month v1 09/05/08

Source: CGAP The Early Experience with Branchless Banking April 2008

Non-banks look like they may get more from mobile payments the developing world than banks – but still not a gold mine 10 PSE – Mobile Payments Business Case

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Chris Jones

Director

+44 (0) 20 8891 6244 [email protected]

11 PSE – Mobile Payments Business Case