Mobile as a Payment Method. Contents Introduction Mobile as a payment method at physical retailers - Value Chain & Economics Mobile as a payment method.

Mobile as a Payment Method

Contents

• Introduction

• Mobile as a payment method at physical retailers - Value Chain & Economics

• Mobile as a payment method at physical retailers - Key Players

• Mobile as a payment method to friends

Mobile as a payment method

Introduction

The Changing Face of PaymentsTechnology review…

As we.

NFC still very slow uptake• Electronic Wallets or eWallets using NFC being

surpassed by other technologies

Contactless• Low spending threshold

Direct Mobile banking• Paym (UK Banking initiative using Mobile phone numbers)• Venmo

QR Codes • LevelUp • Zapper

Major EventsOnline / Mobile Payments

Industry StatisticsPayment Instrument Use in the United States

Industry StatisticsNFC Capable Devices, Mobile Payments

Momentum in mobile payments is expected to continue with total global mobile payments volume expected to increase from $172bn in 2012 to $721bn in 2017 (CAGR = 38%)

• For low-value payments, consumers in the United States still prefer to use cash; electronic and check payment instruments are used mostly in larger payment amounts

• The average value of a cash transaction is $21, compared with $168 for checks and $44 for debit cards• Cash use in the United States is an important factor to consider in the success of the mobile wallet industry; for example,

Apple Pay’s partnership with McDonald’s may familiarize the consumer public with using mobile wallets, which emulate debit and credit cards, for smaller transactions

Mobile as a payment method at physical retailers

Value Chain & Economics

M-Payments Value Chain

Momentum in mobile payments is expected to continue with total global mobile payments volume expected to increase from $172bn in 2012 to $721bn in 2017 (CAGR = 38%)

M-Payment Value ChainSample Apple Pay Transaction Value Chain Economics

M-Payment Value ChainMobile Payments Value Chain

Mobile Payments Value Chain

RevenuePlayers in the Value Chain

Manufacturer of Handset

Terminal Reader Solution Providers

Mobile Operator

Agents

Merchants/ Sellers

Customers Banks or FinancialInstitutions

Payment GatewayCompany

Retailers

M-Payment Value ChainPlayers in the Value Chain

Mobile Payments Value Chain

RevenuePlayers in the Value Chain

• Provides infrastructure, communication & e-money as per regulations.• Draws money ecosystem together & advises other businesses with their strategies for

revenue.

Mobile Network Operators

• Offering bank services via digital mobile platform.• Maintains the financial sector regulation on one hand & handles risk on the other.

Bank/Financial Institutions

• Intermediaries between Operators, Financial Institutions, Regulators & Customers.• Identifies new opportunities in the current market.Agents

• Authorizes the payments for the businesses and facilitates the transfer of information between a payment portal and the Front End Processor or acquiring bank.

Payment Gateway Company

• Use the platforms as provided by Mobile Network Operators to improve on their ways of living.Consumers

M-Payment Value ChainPlayers in the Value Chain

Mobile Payments Value Chain

RevenuePlayers in the Value Chain

Revenue• Closed-loop stored-value card such as is offered by

Starbucks, which receives accelerated and incremental revenue when customers shift their purchase to the Starbucks card and the company avoids paying interchange fees on those transactions.

• In another example, companies such as Square and Dwolla offer free or a low flat-fee pricing for processing payments.

• As per an article of Wall Street Journal : Apple Pay will generate revenue of $118 million in 2015 and $310 million in 2016—less than 1% of Apple’s estimated revenue of $180 billion in the fiscal year ended Sept. 27.

• The mobile-payments market will probably more than quadruple to about $90 billion by 2017, according to Forrester Research.

Revenue Model • The arrangement builds on the existing fee structure for credit and debit

cards in the U.S., according to the people. Merchants there typically pay fees totaling about 2 percent of the purchase price for credit-card transactions. The swipe fees, also known as interchange, help card-issuing banks cover fraud costs and fund reward programs.

• Google doesn't currently charge users or merchants for access to Wallet, and plans to make money by offering sponsored ads to their users.

Mobile Operators

Banks & Financial Institutions

Rental or Fees per Transaction

Halo Effect towards bank

Interchange Fee

Churn Rate is reduced as the customers

become more loyal

Rental or Fees per Transaction

Handset & Infrastructure costs

Key Costs

Key Costs

Key Costs

Suggested models as per Research by EDC

• Rental of SIM space based on Usage Volumes• Rental of SIM Space Based on number of Accounts• Hybrid: Per Transaction Charge plus Percentage of

Transaction Value• Percentage of Transaction Value• Per Transaction Charge

Mobile as a payment method at physical retailers

Key Players

Competitive ProfileApple Pay

• Announced with great fanfare in September, Apple’s first mobile wallet could prove a tipping point in ushering in new ways to pay.

• Apple Pay uses NFC, requiring owners of the new iPhone 6 (and the upcoming Apple Watch) to tap their device at an enabled terminal.

• To push wide acceptance, Apple is partnering with American Express, Visa and MasterCard, along with major retailers like Target, Macy’s and Whole Foods.

• Apple touts the system as easier than traditional payment methods as well as more secure and private, thanks to the back-end technology it’s using and “touch to authenticate”—users must confirm a purchase via the fingerprint reader.

Challenges• Apple has to prove that their clients’ data is secure in order for it’s competitive strategy to

work. With this new payment method, • Apple will own client payment data in addition to their biometrics-- potentially opening

another can of worms. • It will be interesting to know how Apple intends to manage customer payment data,

despite recent breaches of celebrities photos through iCloud.

Competitive ProfileApple Pay - How Paying with Apple Pay Works at the Point-of-Sale

Competitive ProfileApple Pay - Apple Pay Key Partners

Competitive ProfileApple Pay Value Proposition and Potential Challenges

Competitive ProfileGoogle Wallet

• Google launched its NFC-based wallet in 2011 and folded Google Checkout into it; in August 2012, the Company announced that the Google Wallet Offering was updated to a cloud-based system

• In November 2013, Google switched to host card emulation (HCE) for Google Wallet, which allows Android devices to emulate cards and financial institutions to host payment accounts in the virtual cloud

• Provides for the mobile storage of credit and debit, loyalty, offers and gift cards

• Allows users to pay in-store, online and transfer money to anyone with an email address – the integration of Google Wallet with Gmail in May 2013 enabled users to send money through Gmail attachments at no charge

• Enables merchants to add their loyalty programs through the Wallet Objects API; allows sellers to acquire new users by showcasing their programs in the Google Wallet application

Challenges• The company makes most of its money from ad revenues: after all it is a search engine

giant. This raises concerns in the mind of merchants about the intentions of Google. For them, it sounds like making a deal with devil that can use all data against them and offer competitive products / services.

• As per Google Wallet website, “Google Wallet records information about your purchases, such as merchant, amount, date and time, method of payment, and, optionally, geo-location.” which may be a problem when compared to Apple which doesn’t store any information

Competitive ProfileMCX Wallet

• Digital wallet platform created by retailers led by Walmart, 7/11 and Target with the intention of simplifying and securing their customers’ shopping experience

• In September 2014, MCX launched CurrentC, its mobile payment network

• The mobile application works with most existing POS and payment terminals, allowing merchants of all sizes to enter the mobile payments movement

• Consumers will be able to gain access to the entire CurrentC network through the CurrentC app or through participating merchants’ mobile applications that utilize the CurrentC functionality

• User information will be stored in its cloud vault – the app uses a token placeholder to facilitate transactions

• At full scale, the application will be accepted in more than 110,000 merchant locations across the country and offer merchant loyalty programs and instant coupon savings

Challenges

• MCX suffered a data breach last year when hackers obtained the email addresses of some of CurrentC's pilot users. This does not bode well for the company.

• MXC has been accused of anti-competitive practices when two of its merchants, the Rite Aid and CVS drugstore chains, blocked Apple Pay by disabling NFC, or near field communication, terminals in October 2014

Competitive ProfileSoftcard

Challenges• Softcard currently receives a “B” rating on CardPaymentOptions.com, scoring a

“B-” for is features, an “A” for its security, and a “B-” based on its user feedback. The reviewer cites the app’s requirement of a PIN and a Secure Element chip as major factors in its favor, but notes that Softcard’s limited compatibility and middling user reviews may diminish its long-term potential. 

• Additionally, its use is limited to some combination of three wireless carriers, one operating system, three banking partners, and a certain range of hardware.

• Softcard, formerly known as ISIS, was formed as a joint venture among major telco carriers including AT&T, T-Mobile and Verizon

• The Softcard Mobile Wallet is a free app that allows users to pay with their NFC-enabled phone anywhere contactless payments are accepted

• On September 9, 2014, the Company announced that it will actively work with Apple to integrate Softcard on the iPhone in 2015 – using a secure SIM-based hardware solution

• Users can add their American Express, Chase or Wells Fargo credit cards to their Softcard Wallet

• Compatible with Android platform phones equipped with NFC and an enhanced SIM card with a secure element from the users’ carrier; iPhone users are required to use the Isis Ready Case with a built-in NFC antennae

Competitive ProfileStarbucks

• Starbucks launched its mobile card payment app in early Spring 2009. The Company’s QR code-based mobile card app enables users to pay at the register by scanning their unique QR code and earn rewards. Users can upload their Starbucks gift card to the app or load their mobile card with their credit or debit card

• Customers continue to embrace Starbuck’s mobile application in increasing numbers. Starbucks announced in Dec 2014 that it will soon no longer accept Square's mobile payments as the company looks to build and distribute its own "mobile ordering solution, leveraging our own mobile app and world-class loyalty system

• The Company reports 12mm active users of the mobile app in North America as of July 2014

• Mobile payments account for over 15% of all transactions in the U.S. company operated stores; Starbucks processes 6mm mobile transactions on average in the U.S. per week

Clearly, Starbucks' move to ditch Square was motivated by the fees associated with mobile payments. In 2013, the Starbucks app apparently "accounted for 90% of the $1.3 billion [Starbucks] made through in store mobile payments," meaning the coffee chain "processed $1.17 billion in mobile transactions that year." With Square out of the picture, Starbucks can now keep every dime.

Competitive ProfilePayPal

What’s the Latest - Dine and Go• Some see a role for payment apps beyond the fast food sphere, with

patrons at bars and restaurants harnessing mobile to more quickly and easily settle their checks.

• MyCheck, which has a partnership with PayPal, launched its app in Israel in 2012 and has moved into a few cities in the U.S., the U.K. and Brazil. Users have the option to settle the bill using PayPal (users of PayPal’s app will find MyCheck integrated within). Similar services include Cover, Dash and TabbedOut, which claims more than 5,000 bars and restaurants in the U.S.

• Introduced in September 2013, PayPal’s mobile app enables users to wirelessly transfer money from their account to a PayPal merchant

• Mobile app also enables users to tap into savings at hundreds of stores

• In 2013, the Company reported $20bn spent globally on mobile devices with the mobile application

• PayPal has historically not been focused on NFC as a payments technology; will be interesting to see how the Company responds in light of Apple Pay’s reliance on NFC

• PayPal parent eBay is planning to split off the company in 2015

Competitive ProfilePayPal Mobile QR Code

Consumers log into their mobile Paypalapp

to retrieve an on-screen QR Code

• Cashier scans mobile phone screen with handheld scanner

• Xstore“Smart Prompt” enabled• Must have compatible 2D scanner

When ready to tender, payment is ready to

authorize once amount is confirmed

Competitive ProfilePayPal Mobile QR Code

Consumers log into their mobile Paypalapp

to retrieve an on-screen QR Code

• Cashier scans mobile phone screen with handheld scanner

• Xstore“Smart Prompt” enabled• Must have compatible 2D scanner

When ready to tender, payment is ready to

authorize once amount is confirmed

Competitive ProfilePayPal Check-in and Photo Payments

Consumers “check-in” via their mobile

Paypal app

Cashier has visibility of PayPal checked in customers, and

selects by picture

Confirms payment with photo verification

Competitive ProfilePayPal Transaction Process Mechanism

Competitive ProfilePayPal Check-in and Photo Payments

Mobile as a payment method to friends

Peer to Peer PaymentsDrivers and Trends…

• Various startups are looking to digitize peer-to-peer transactions, mostly by way of mobile apps. Business Insider estimates the global volume of P2P payments at more than $1 trillion annually, with only “a sliver” made through mobile today.

• Some services, including Dwolla and Ribbon, encompass both consumer transactions and peer-to-peer payments. Others, like Paym and Venmo, position themselves as an easy way to compensate friends or family. Usage skews heavily Millennial.

• In JWT survey, 45% of U.S and U.K. Millennials agreed they would like to use their mobile phone to pay when splitting bills or other expenses with friends, significantly more than older generations

• In JWT survey, around 8 in 10 respondents across generations said they would prefer sticking with cash, debit and credit cards so they don’t have to worry about security and privacy issues.

• By contrast, only around a fifth of respondents are very concerned with fraud when it comes to established forms of payment like bank cards or automatic payments linked to bank/credit info.

• Customers can easily, securely and conveniently initiate or request a P2P payment within a single mobile banking session.Unified User Experience

• Direct benefits from products or services sold and thus helps in bundling

• Lead generation through Customer list integration• Recurring & Pending Payments recovering chances more

Revenue Generation

• Seamless Payment experience through expedited standard payment methods

• Real time notifications & thus complete transactions solutionsWallet of Share increase

• Higher customer satisfaction• Enhanced Customer Relationship ManagementLower Churn Rate

• Less use of paper work & easy ways of Work Orders, Invoices & Bills generations

• Use of the digital media to enhance their reach and provides medium for advertisements & brand building

Going Digital

Peer to Peer PaymentsGeneric Benefits…

Competitive ProfileVenmo

• This U.S. app, owned by Braintree (which in turn is owned by PayPal), lets friends send notes along with payments. Indeed,

• Venmo has become a form of social media, and a way for users to share what they’re up to and with whom. Venmo recently became a pay-out option for sellers using apparel-resale site Twice.

• Venmo has an enthusiastic and growing young customer base that already uses the app to make payments. In fact, Venmo is on track to process $US2.5 billion in 2014.

• Consumers can already use Venmo to pay within some apps such as Uber and recruiting brick-and-mortar merchants would be a natural expansion strategy. Finally, it would be relatively easy to integrate Venmo into mobile point-of-sale devices, which feature Bluetooth LE in increasing numbers.

• Venmo already has a Bluetooth LE feature on iOS that allows users to identify other nearby Venmo users. The same feature would help merchants connect with Venmo users who walk into their stores

Competitive ProfileDwolla

• Vying with PayPal and credit card companies, U.S.-based Dwolla lets users send money to “email addresses, phone numbers LinkedIn connections, Twitter followers and businesses” that accept it.

• Dwolla charges 25 cents for transactions over $10. The company recently raised an additional $9.7 million in funding.

• Dwolla is dedicated to building its own network infrastructure for creating real-time payments between financial institutions.

• The mobile application allows you to see, in real-time, all of the non-profits and merchants near your current location who accept Dwolla (Spots and Proxi), as well as pay them.

• As the transaction increases in value, so does the wallet of the payment network. So, a $10 transaction yields the merchant $9.70 and a $1000 transaction takes $30 from the merchant’s pocket.

• The reason Dwolla is able to offer $0.25 per transaction over $10 is that we have built a network on new technology, and are not reliant on the antiquated money moving systems based on paper and postage.

Thank You