28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com1

The Trusted Service Manager - Pivot Point in Mobile Payments

Near Term Opportunities for Banks

Chip Wickendencwickenden@gmail.com

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com2

NACHA Morning Announcements

• Please turn off all cell phones or mobile devices• All conference attendees will have free access to PAYMENTS 2010

conference session recordings. Attendees that registered onsite will receive details to access the session recordings within 10 days.

• Should you wish to purchase a CD-ROM, a special conference rate is offered to all conference attendees.

• Most of the education sessions at the conference can be counted towards your continuing AAP accreditation. The AAP Documentation of Attendance can be found in the onsite guide.

• Please take a moment to complete session evaluations! Each evening attendees will receive an email link to access session evaluations that are offered each day. Attendees are automatically entered into a daily drawing for a chance to win a $50 gift card.

• We hope to see you all next year at PAYMENTS 2011 in Austin, Texas April 3-6, 2011

• Thanks to all of our track sponsors throughout the conference!

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Agenda

• Definition and types of Mobile Payments

• How the Mobile Payments space is developing

• What’s changing - the Trusted Service Manager

• What banks need to do now

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A Working Definition for Mobile Payments

• Digital exchange of value at a point of sale

• At least one party using a mobile device, such as a mobile phone, smartphone or PDA

• Excludes web based purchases using a mobile device

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M-Pesa is a Widely Used Premium SMS Solution

• Popular mobile solution in Kenya developed by the leading mobile network operator, Safaricom, a Vodafone subsidiary.

• Outgrowth of an informal remittance solution based on transferable and refundable mobile minutes.

• Solution includes P2P, Point of Sale, Remittance, Bill Payment, Mobile top-up, ATM withdrawal

• Customer downloads a simple applet to pay

• Inputs receiver’s mobile phone number and amount

• Receiver can present the SMS confirmation to an M-Pesa agent for cash – over 10,000 agents in Kenya~40% of Adult Population

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Paypal Uses WAP (Wireless Application Protocol) Technology in its New Mobile Solution

• Extends a very popular notional payment scheme into the mobile space

• Primarily focused on P2P, not necessarily merchant acceptance

• Also an SMS solution available

Wireless Transaction Protocol

Wireless Transport Layer Security

Wireless Datagram Protocol

***Any Wireless Data Network***

Wireless Application Environment

Wireless Session Protocol

WAP

* The iPhone uses a similar technical stack that is proprietary to Apple

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mFoundry Offers a 2-D Barcode Payment Solution

• Merchant signs up and provisions POS scanners.

• Consumers sign up and download applet to their mobile device

• At the point of sale, the consumer starts the applet, a bar code appears and is scanned to effect payment.

• Linked with value added services to enhance the customer experience

• Key Value Point – No POS hardware upgrade necessary

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NFC is the Most Widely Recognized Mobile Payment Initiation Method

• NFC or “Near Field Communication” transaction technology is based on standards developed for smart cards and for contactless cards (primarily ISO 14443). The technology can be built into a simple card, token, sticker, or integrated into a another device, such as a mobile phone.

• NFC uses Radio Frequency ID chips to communicate the unique identifiers and other information necessary to do a transaction.

• Integration into a mobile phone can be done through the handset manufacturer, or through a specialized SD card used in an expansion slot, or integrated into the SIM card itself.

Some of the Standards Bodies involved in NFC:ETSI / SCP : Interface between the SIM card and the NFC chipset.GlobalPlatform : Multi-application architecture of the secure element.EMVCo : Impacts on the EMV payment applicationsNFC Forum : Ensure interoperability GSMA : Common global approach to using NFC technology ISO/IEC/ ECMA : Transport, NFC Interface andProtocol

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Payment Methods

Bill Through Carrier • Simple and Easy• Carrier holds risk & cost of funds• Merchants must subscribe

Closed Loop Notional Account

• Franchise may go beyond mobile

• Risk is managed based on program specifics

• Program carries cost of funds• Merchants must subscribe

General Use Payment Methods• Franchise extends into mobile• Risks and cost of funds are well

understood and managed• Broad merchant acceptance

• The method of payment is not necessarily linked to the means of effecting payment

• The complexity of implementation for a given payment method is directly related to the level of acceptance

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Hmmmm – Interesting Perspective

BTW – You can still donate $10 to the Red Cross Haiti relief fund by sending a text to “90999”

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com11

A 2007 GSMA Whitepaper Defines 9 Entities With a Stake in NFC Mobile Payments – The Many-to-Many Problem

This means that in order for a mobile transaction to occur between a merchant and a consumer 7 other entities need to either coordinate their actions, and have a financial reason to act, or have their needs addressed in some other fashion. This complexity is magnified by multiple real entities for each logical entity represented here.

MobileOperator

IssuingBank

ConsumerMerchant

AcquiringBank

PaymentNetwork

HandsetMfr

SIM/UICCMfr

POSSupplier

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com12

The Many-to-Many Problem in Developed Markets

If the Bank market is segmented like this:

And the Mobile market is segmented like this:

Ban

k M

arke

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Mobile Network Market Share

The dynamics make it almost impossible to form a critical mass of market share

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com13

Collaboration Between Two Participants Yields Results, but a Broader Solution is Required for Success

Ban

k M

arke

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Mobile Network Market Share

The joint services offered through such binary relationships are typically governed by a Service Manager function.

The Trusted Service Manager has been developed to identify the common governing entity to support market wide adoption.

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The Role of a Trusted Service Manager

Transaction processing is typically handled through traditional methods not through the TSM

Trusted Service Manager

Consumer

Carrier

Carrier

Carrier

Bank

Bank

Bank

Entity Validation, Security & Permissioning

Telecom servicesServices/Billing

Over-the-airManagement

Service Negotiation & Provisioning

Service Negotiation & Provisioning

• Intermediation between banks, carriers and other service providers

• Cryptographic key management

• Application management

• Value-added services

Airline

App Provider

Merchant

- The TSM role can exist between two parties or many

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com15

The European Payments Council and the GSMA are Collaborating on TSM Business Component Definition

Ban

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arke

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Mobile Network Market Share

The industry is coalescing around “Trusted Services Manager” as the title for this entity and defining roles and options

EPC - GSMA Trusted Service Management Requirements and Specifications European Payments Council & GSMA, Jan 2010Whitepaper that defines specific functions and requirements for each role in the ecosystem

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The TSM Role Becomes a Coordinating Point for the Ecosystem, Addressing the Complexity

MobileOperators

IssuingBanks

ConsumersMerchants

AcquiringBanks

PaymentNetwork

HandsetMfrs

SIM/UICCMfrs

POSSuppliers

TrustedService

Manager

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com17

Developing Economies Have Fewer Dominant Players - Banks and Telecoms, So the TSM can Occur by Default

Ban

k M

arke

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Mobile Network Market Share

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There is a Debate Forming Globally About the Form That a TSM Should Take in a Given Market

Trusted Service Manager - The Key to Accelerating Mobile PaymentsFirst Data Corporation, May 2009Whitepaper that discusses market acceleration and the revenue opportunities in the TSM role

Portals and Rails: Coordinating Roles in Mobile Payments- Who Will We Trust? Sept 2009, Federal Reserve Bank of AtlantaWhitepaper that discusses appropriate entities to fulfill the TSM role

The central question is whether a TSM should be a for-profit entity or a not-for-profit entity. There is no single “right answer” – it will be different based on economic, social, regulatory and competitive factors. There may also be multiple solutions in a given market.

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com19

2010 2011 2012 2013 2014

An Idea of How the Mobile Payments Market Could Evolve

TSM Deployment, Rationalization

Developed Economy Pilots, PoCs

Developing Economy Production Deployments – Telco & Bank

Developed Economy Telco Production Deployments

Developed Economy Bank Production Deployments

Market Disruptors, Value Add 3rd party Provider Deployments

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com20

As Mobile Payments Emerge, Banks Need to Anticipate the Challenge to Their Payments Business

While the market is adjusting to the emergence of Trusted Service Managers and banks are determining their relative position in that regard, there are a number of tactical steps that can be taken to add value and strengthen banks’ market position.

Mobile Payments

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Any stakeholder interested in participating in mobile payments should put together a business program to associate and validate these two data elements. As well as a foundation for mobile payments, capturing this intersection provides a foundation for delivering related services and maintaining market position.

Broader View of the

Customer

The Intersection Between Identity from the Bank and the Mobile Operator’s Point of View is Critical

Mobile Phone Number

Account Number

Mobile IdentityBank Identity

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com22

Key Value Points of Mobile Technology

• Networked– Mobile devices are an absolute model of cloud

computing delivering as much functionality as needed at the point of service

• Intelligent – Mobile devices carry their own storage and processing

capability as well as being connected to the cloud• Locationally Aware

– Mobile phones provide locational information which can be a powerful tool for customer insight and marketing, as well as risk management

• Versatile – At a minimum, mobile devices have keypad and voice

input and screen and sound output. Cameras and expansion capability offer even more flexibility

The key to understanding mobile technology is to comprehend the power that this unique combination feature and function delivers

Mobile Technology is:

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com23

Banks Have the Opportunity to Surround Future Mobile Payment Offerings with Value Now

Deliver Transaction Information

Mobile Payments

Expand theD

evice

Deliver Locational Value

Leverage theC

loud

- Preemptively protecting the franchise in payments

- Let’s look at some of the opportunities and ideas

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com24

Leverage the Intelligence of the Device to Enhance the Experience

Deliver Transaction Information

Leverage theC

loud

Expand theD

evice

Mobile Payments

DeliverLocational Value

- The device does not have to transact to interact

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com25

Wells and Visa are Leveraging Alerts

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Orange Barclaycard Mashup

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Leverage the Intelligence of the Device to Enhance the Experience

Mobile Payments

TransactionBlocking

SpendingThreshold A

lerts

Large PurchaseValidation

Transaction Alerts

- The device does not have to transact to interact

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com28

Deliver Transaction Information

Leverage theC

loud

Expand theD

evice

Mobile Payments

DeliverLocational Value

Create Value from the Mobile Device’s Locational Awareness

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com29

Mobile Technology is Already Changing the Way We Shop

Context aware ads sent to groups of people based on

matching between their profiles and context of the ads

Customer starts web based research on a given product, either through browsing or by

scanning a barcode

Customer has agreed to locationally aware advertising which triggers offers based on

lingering in a given position

Customer transitions from advertising to interacting with

a product specialist on the mobile device

Customer continues research through social media – blogs,

rating engines, friends and advisors

Retail search solution identifies best product

matches with locational information

Easier to examine the item in the store and then buy in on

line? Shopping can be mixed mode.

Checkout can happen anywhere – which can

completely change the front of the store concept

Analytics

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Banks Can Use Locational Information to Improve Loyalty and Cross-sell

Special rates just for this dealership!

MyBank

Due to size and complexity, consumers often shop separately for mortgages and auto loans .

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com31

Mobile Technology used to Track Bank Robbers

Wouldn’t it just be easier to track the robber’s cell phone?

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com32

Create Value from the Mobile Device’s Locational Awareness

Mobile Payments

Location BasedCustomer Insight

Deliver Insight &

Offers for Locations

Location SpecificC

ouponing

Locational AwareFraud Alerts

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com33

What Value can be Delivered by Combining Consumer Interaction, Location and Analytics?

Deliver Transaction Information

Leverage theC

loud

Expand theD

evice

Mobile Payments

DeliverLocational Value

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com34

Shortcuts.com is a New Program to put CPG Coupons on a Card – Easily Translates to Other Devices

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com35

Blippy – Customer Insight Turned Sideways

This is an application from one of the founders of Twitter that lets your friends follow what you are buying.

. . . However recent investigations have found some security flaws, even by social media standards.

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com36

Bundle.com Examines Comparative Spending Data – and There’s iPhone App

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com37

Mint.com Helps Consumers Manage Spending Too – and There’s an App . . .

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What Value can be Delivered by Combining Consumer Interaction, Location and Analytics?

Mobile Payments

Shopping Lists & Budgets

SociallyFocused Spending

InteractiveC

ouponing

Tools for Financial Management

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com39

Smart Phones are Expandable – How Can That Change the Equation?

Deliver Transaction Information

Leverage theC

loud

Expand theD

evice

Mobile Payments

DeliverLocational Value

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com40

Devices That Combine Mobile Technology and Merchant Acceptance Have Debuted Recently

iPhone credit card swipe war heats up

- This has the potential to change the merchant landscape significantly from a customer profile, risk and acquiring perspective

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com41

Tyfone – Ingenious NFC Workaround

Tyfone creates value by providing a turnkey infrastructure (software on the phone, middleware platform, and a memory card based token for the secure element/contactless payments/NFC). Tyfone’s patented technology combines a smart card chip (secure element), an NFC chip, and a miniature antenna provisioned to a memory card that works in any standard memory card slot. This comprehensive solution enables device independence in an issuer-centric model allowing the issuer to control both the channel and customer.

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com42

Biometric Authentication

At a minimum, any mobile phone can do some level of biometric voice authentication.

StoredBio print

Biometric Applet

Requests Speech

Matches?Y/NInput

Result

Handset

StoredBio print

Biometric Applet

Requests Speech

Matches?Y/N

Input

Result

Handset ValidationServer

Voice match

Facial recognition

Fingerprint

Self contained Network based

• All Phones have a microphone • Smartphones have cameras• Fingerprint readers can be added

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com43

Smart Phones are Expandable – How can That Change the Equation?

Mobile Payments

Shopping Lists & Budgets

Biom

etricA

uthentication

Work-A

round For N

FC

Mobile CardAcceptance

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com44

A Further Suggestion for Your Reading List

One of the best articles that looks at the broad view of where money and the world of payments is headed

28 April 2010 © 2010 Charles Wickenden cwickenden@gmail.com45

Thank You

Chip Wickendencwickenden@gmail.comOffice: 1-904-387-0106Mobile: 1-904-422-1321http://www.linkedin.com/in/chipwickenden