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M-payments surging ahead: distinct opportunities in developed and emerging markets

Global M-Payment Report Update – 2009

This report is authored by and draws upon research and analysis of Arthur D. Little. The conclusions are the results of the aggregation of public materials and information provided in the course of recent interviews with a sample of industry players. At no point in the development of this report was access given to the research team to client confidential information held by Arthur D Little as a result of our recent and ongoing consulting work in this area. Use of this report by any third party for whatever purpose should not, and does not, absolve such third party from using due diligence in verifying the report’s contents.

Any use which a third party makes of this document, or any reliance on it, or decisions to be made based on it, are the responsibility of such third party. Arthur D. Little, its affiliates and representatives accept no duty of care or liability of any kind to any such third party, and no responsibility for damages, if any, suffered by any third party as a result of decisions made, or not made, or actions taken, or not taken, based on this document.

Arthur D. Little does not make investment recommendations, in this report or otherwise, and nothing in this report should be interpreted as an opinion by Arthur D. Little either on market forecasts or on the prospects of specific companies.


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in the last five years, m-payment markets have matured with a variety of players entering the industry value chain and new services being launched. Initially, it was a market entrance game and rivalry between different technological propositions that would facilitate mobile transaction channels. Today, we observe in many cases that only one or two dominant payment platforms have prevailed in national markets, and key issues being addressed are cross border interoperability and standardiza-tion. While, the prevailing financial crisis poses challenges to value chain players, we still believe that m-payment services will significantly grow over the coming years with the rise of mobile internet, the continuous improvement of mobile handsets and the younger generation’s preference for mobile services. We believe that these prevailing trends will positively affect m-payment uptake in the coming years.

Similar to previous m-payment reports published in the years 2004, 2005 and 2006, this year’s edition aims at providing insights into the current stages of the m-pay-ment market development in different continents and countries. We conducted qualitative interviews through Arthur D. Little’s global office network with selected experts from various industries: Mobile operators, banks, credit card companies, payment service providers, mobile equipment suppliers and regulators. The feed-back gathered through these interviews, as well as numerous industry reports and case studies present the basis for our analysis and identification of major trends for the future market development.

Our team would like to thank all those who contributed to the Arthur D. Little Global M-Payment Report Update 2009. We are convinced that by reading this report leaders in many industries will be able to leverage the potential of m-payment services and identify ways to strengthen the value of their business.

Yours sincerely, April 2009

Karim Taga Gregory Oswald

Dear readers,

Table of contents

Executive summary 4

Introduction 8

1. The global m-payment market and dynamics 9

1.1 Players within the m-payment value chain 9

1.2 M-payment services offered and volume development 10

1.3 Factorsinfluencingtheregionalmarketdevelopment 14

1.4 M-paymentvolumedevelopmentbyregions 16

2. Trends in developed markets 18

2.1 M-paymentswillnotsubstituteexistingtransactionchannels,asadoptionis limitedtoconvenience-enhancingapplicationsandnichesegments,butwill ratherputpressureonexistingtransactionchannelmargins 18

2.2 Despitethecurrenthype,wedonotexpecttoseeamassiveNFCadoptionin the majority of developed countries until 2011 at the earliest 21

2.3 Inordertopromotemarketadoption,marketplayersneedtoleveragetheir existingcustomerrelationshipsandmotivateretailers 24

2.4 Improvedregulationsandmovementstowardsamoreliberalecosystemwill encouragethedevelopmentof“cross-border”m-paymentsolutions 26

3. Trends in emerging markets 28

3.1 M-paymentserviceswillbecomethefirstwide-spread,cashlesstransaction system,enablingcosteffectiveandsecuretransactions 28

3.2 End-user’sbenefitswillmainlybecreatedthroughlow-value,buthigh-frequency transaction services 30

3.3 NewKnow-Your-Customer(KYC)normswillbedevelopedforcingmarket playerstofindabalancebetweenconvenienceofuseandsecuritycontrols 31

3.4 Remittancewillbethestronggrowthdriverform-paymenttransactionvolume and cross border cooperation 33

4. Conclusion 35

Appendix A: Country profiles and ranking 40

A.1 Globalranking 40

A.2 Countryoverview 41

A.2.1 AUSTRIA:NFCroll-outonacommercialbasis 41

A.2.2 BELGIUM:Serviceinteroperabilityontrial 42

A.2.3 CHINA:M-paymentisstillinthedevelopingstageand acoupleofchallengesneedtobeovercome 43

A.2.4 FRANCE:AleapfrogtowardsafutureNFC-basedm-paymentmarket 44

A.2.5 GERMANY:Transportationindustrystilldrivingmassmarketdevelopment 46

A.2.6 ITALY:PosteItalianeaspiresinnovationwithm-payments 47

A.2.7 JAPAN:Steadybuild-upofausageenvironment 48

A.2.8 MALAYSIA:Marketmovementsindirectiontowardsmorecooperation 49

A.2.9 MEXICO:Remittancepotentialstillunexploited 50

A.2.10 NETHERLANDS:Marketinitiativesmainlyledbythefinanceindustry 50

A.2.11 NIGERIA:Animmenseunbankedpotential 51

A.2.12 NORWAY:ImprovingtheNordicm-paymentchannel 51

A.2.13 PHILIPPINES:Hotmarketforremittancebusiness 52

A.2.14 PORTUGAL:Telemultibancoasoneofthemarketpillars 53

A.2.15 SINGAPORE:AimingatreplicatingtheJapanesesuccessstory 53

A.2.16 SLOVENIA:Stillleadingthem-paymentmarketintheCEEregion 54

A.2.17 SOUTHAFRICA:Fruitfulgroundform-banking 54

A.2.18 SOUTHKOREA:MarketpotentialtobeexploitedthroughNFCtechnologyadoption 55

A.2.19 SPAIN:Increasinginteroperabilityspeedsupthemarketdevelopment 56

A.2.20 SWITZERLAND:Limitedm-paymentservicessofar 56

A.2.21 TAIWAN:NewAsiantestareaforNFCapplications 57

A.2.22 UK:Manyinitiativesformarkettesting,butdevelopment,limitedby lackofcoordination 58

A.2.23 USA:Afterinitialfailure,m-bankingisnowtakingofffuelledbynewtechnologies, entrepreneurialcompaniesandthemobile-orientedhabitsofyoungercustomers 59

A.2.24 OTHERCOUNTRIES 61

Appendix B: Contributors and references 64

B.1 Interviews 64

B.2 Secondaryresearch 64

Appendix C: Definitions and acronyms 67

About the authors and Arthur D. Little 70

Contacts 71


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As in our previous m-payment reports, Arthur D. Little’s M-Payment Update 2009 is based on qualitative and quantitative interviews conducted through Arthur D. Little’s global office network and on numerous industry reports and case studies. We rely on feedback from more than 70 industry experts from diverse industries, including inputs from mobile operators, banks, credit card companies, payment service providers, suppliers and regulators of 35 countries worldwide.

In this report, Arthur D. Little set out to address four primary questions:

1. How is the global m-payment market characterized concerning the services offered and factors influencing its development?

2. Which geographical regions and offered services show the highest growth rates and where is the highest transaction volumes generated?

3. What are the current trends in developed markets?

4. What are the current trends in emerging markets?

The global m-payment market and dynamics

� The m-payment value chain consists of six main players; the market driver and the distri-bution of power along the value chain vary by market. The m-payment value chain is made upofmobileoperators,financialinstitutions(e.g.banksandcreditcardcompanies),independentserviceproviders,merchants,equipmentsuppliersandindustryassociations.Marketplayerstakeonavarietyofrolesfromfacilitationtoauthorization,andaccessprovisiontoservicepro-motion.

� Arthur D. Little expects total m-payment transaction volume to reach almost USD 250 billion in 2012 growing at 68% p.a., starting at USD 29 billion in 2008. Overall,weexpectthetotaltransactionvolumetogrow68%p.a.from2008to2012andtoreachalmostUSD250billionby2012.Proximitypaymentswillrepresentbythen51%ofthetotalm-paymenttransactionvolume.Furthermore,webelievethosefigurestomaterializeinthefuturedespitetheprevailingfinancialcrisis,astelecommunicationcompanieshaveanincentivetolaunchm-paymentservicesinordertotakeadvantageofthecurrentwindowofopportunity.Additionally,webelievethattransactionvolumewillkeeprisingasm-paymentswilltakeovermarketsharefrombankingtransactionsdueto lower service prices and from online-payment services due to increased mobility.

Executive summary


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� The majority of m-payment services are still focused on a business to person environ-ment, and are equally balanced between remote and proximity services. Concerningthetransactionvolumedevelopment,remittanceswillgloballybethestrongestgrowthcontributorwith25%p.a.overthenexttwoyears,beforeretailpurchaseswilltaketheleadwith77%p.a.growthuntil2012.

� The developments in individual markets in both developed and emerging countries are influenced by economic, technological, social and cultural factors. Akeyfactorinfluencingthepotentialform-paymentsinanymarketisthebankinginfrastructure;m-paymentshaveagreateropportunityinmarketswithrelativelylessdevelopedthebankingnetwork,whichactsasa competitive service channel.

� We expect m-payment transaction volume in developed markets to grow at 56% p.a. representing 35% of the total transaction volume in 2012, compared to emerging markets with a 76% p.a. growth, and accounting for 65% total volume in the same year.

� The biggest transaction volume share in 2008 comes from the developed country cluster Japan, South Korea and Australia with 24%. WesternEuropeisinthe2ndpositionwithashareof13%,butwillbecomethebiggesttransactionvolumecontributorwithashareof17%by2012.ItwillbecloselyfollowedbySouthAmericawith12%andNorthAmericawith11%.

Trends in developed markets

� M-payments are unlikely to substitute existing payment systems, as massive adoption is limited to convenience enhancing applications and niche segments, but will put pressure on existing transaction channel margins.Inthenexttwoyears,m-paymentswillremainacomplementarytransactionchannelindevelopedmarkets.Inorderforanm-paymentsolutiontobeadoptedonamassscale,itmustfulfillthekeysuccessfactors,offeringunmatchedmobility,user-friendlyinterface,ahighnumberofcontactswithbanksandoperatorsandespeciallyanewlevelofconvenience.Mostofthem-paymentapplicationssupplynichesegments.

� Despite the current hype, we do not expect to see a massive Near Field Communication (NFC) adoption in a majority of developed countries until 2011, at the earliest.WebelieveabroadadoptionofNFC-basedm-paymentsisstilltwoyearsaway,duetoadelayinhardwarestandardization,thelimitedavailabilityofNFC-enabledhandsetsandissuesinthedevelopmentofaviablebusinesscaseforallstakeholders.


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� It is critical for market players to leverage their existing customer relationships and moti-vate retailers, in order to encourage market adoption. Keysuccessfactorsformarketplayerstoenableamassivem-paymentadoptionwillbethecapabilitytoleveragetheirexistingcustomerrelationships,includingreducingthebarriersforserviceadoption,andtomotivateretailerstodeployPOS(pointofsale)readers.

� Improved regulations and movements towards a liberal ecosystem will push market de-velopments into going “cross-border”. AsseenintheEU,m-paymentmarketdevelopmentdependsonthecreationofaliberalregulatoryframework,enablingincreasedcompetitionandaimingatstreamliningcross-borderm-paymenttransactions.

Trends in emerging markets

� M-payment services will become the first widespread cashless payment system in many emerging countries, enabling cost-effective and secure transactions. As already seen from severalsuccessfulservicelaunches,emergingmarketsareafertilegroundforthedevelopmentofm-paymentsolutionsduetotheirlimitedbankinginfrastructureandgrowingmobilepenetra-tion.

� End-users’ benefits will mainly be created through low-value but high-frequency transac-tion services. Serviceproviderswillcontinuetofocusonsimple,low-value,buthigh-frequencytransactionswhileleveragingtheircustomerrelationships.Regulatorsandgovernmentsarees-tablishingalegalenvironmentwhichencouragesafurtherdevelopmentofm-paymentservices.

� New Know-Your-Customer (KYC) norms will be developed, forcing market players to find the balance between convenience of use and security concerns. The development and imple-mentationofKYCnormswillremainacomplicatedmatterinm-payments,particularlyinemergingmarkets.Regulators,operators,banksandotherplayershavetofindtherightbalancebetweenmakingtheserviceveryconvenientandloweringbarrierstoadoptionononeside,andappropriatesecurityandanti-fraudcontrolsontheotherside.Hence,valuechainplayersshouldtakeanactiveroleindefiningtheKYCnormsinordertosecuretheirinfluenceonthe development.

� Remittance will be the strong growth driver for m-payment transaction volume and cross border cooperation.Globallygrowingmobileremittanceswith146%p.a.growthwillbethetargetareaform-paymentservices,andwillleadtotheestablishmentofinternationalstrategicpartnerships.Thereby,itwillpositivelyinfluencethem-paymenttransactionvolume.


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Conclusion

� While m-payments are growing globally at 68% p.a. and are expected to reach approxi-mately USD 250 billion in total transaction volume by 2012, m-payments are developing differently in emerging and developed markets. Indevelopedmarkets,m-paymentservicestendnottosubstituteexistingpaymentsystems,andmassiveadoptionwillbelimitedtonichesegments.Inemergingmarkets,m-paymentserviceswillbecomethefirstwidespreadcashlesstransaction system.

� Mobile network operators should focus on low-value, high-frequency transaction services in emerging markets, and especially on remittances.Playinganactiveroleinshapingtheregulatoryenvironmentiscrucialtopreservethelong-termmarketdevelopmentpotentialandensuringinter-countryoperabilitywillensurethesuccessofremittanceservices.

� In developed markets, mobile network operators need especially to focus on reaching the required critical mass in terms of retailing partners, as we expect a shift from predominant low-value services to Near Field Communication (NFC)-enabled high-value services. Part-nerships with independent payment service providers are one way to speed up the value chain networkbuild-up.

� For financial institutions, m-banking and related m-payment services can be a differentiat-ing factor and a chance to tap into the trillion US$ market of micro cash payments.

� For merchants, it is best to evaluate the m-payment channel as a means to increase con-sumer convenience, mobility and accessibility of their services and goods.

� We recommend independent payment service providers to increase their partnerships in order to become well-integrated and hence to increase their bargaining power concerning value chain margin distributions.

� Suppliers should participate in Near Field Communication (NFC) trials in order to improve their readiness for market growth.


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Introduction

Arthur D. Little’s Global M-Payment Report pro-vides an overview of the global m-payment market and dynamics, strategic and operational issues, as well as major challenges and opportunities for the future.

The purpose of this year’s Arthur D. Little M-Payment Report Update is to provide an overview of developments in m-paymentservicesglobally,aswellasinindividualmarkets,sinceourlastreportin2006.

Inthisreport,ArthurD.Littlesetouttoaddressfourprimaryquestions:

1. Howistheglobalm-paymentmarketcharacterizedconcerningtheservicesofferedandfactorsinfluencingitsdevelopment?

2. Whichgeographicalregionsandofferedservicesshowthehighestgrowthratesandwhereisthehighesttransactionvolumesgenerated?

3. Whatarethecurrenttrendsindevelopedmarkets?

4. Whatarethecurrenttrendsinemergingmarkets?

This year’s Report Update is structured into three main parts:

Inthefirstpartofourreport,wefocusontheglobalm-paymentmarketanditsdynamics.First,wewillexaminewhichrolestherelevantmarketplayerstakewithinthem-paymentmarketvaluechain,anddefineandcategorizethecurrentm-paymentservices on offer. The report will then focus on the potential of thedifferentservicesconcerningtheirfuturegrowthandvolumedevelopment.Wewillalsoassesstheeconomic,technological,social and cultural factors that have a direct influence on m-paymentmarkets.Finally,wewilldetailgrowthandvolumeforecastsfordifferentgeographicalregions.

Thesecondpartfocusesontrendsindevelopedmarkets.Weaddress the potential for the m-payment channel to substitute forexistingtransactionchannels,whenweexpectNFCtobeadopted on a mass scale and what value chain players have to dotospeedupmarketadoption.

Inthethirdpart,wefocusontrendsinemergingmarkets,assessingthepotentialform-paymentstobethefirstwidelyusedtransactionchannel,whichserviceshavethegreatestpotentialandwhichfactorswillinfluencethefuturedevelopment.

Intheappendix,wewillprovideanupdatedviewonourrankingofthenationalm-paymentleadercountriesandpresentoverviews of the current m-payment related activities in some of themostinterestingm-paymentmarkets.


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Over the last few years, the m-payment market development has led industry players to position themselves differently along the value chain. A range of factors, such as the level of development of the banking sector, has led to very distinct develop-ments of m-payments in developed and emerging markets. Globally, m-payment transaction volume is expected to grow at 68% p.a., reaching almost USD 250 billion by 2012.

1.1 Players within the m-payment value chain

The m-payment value chain consists of six main players; which player acts as market driver and the distribution of power among the key players often varies by market.

The m-payment value chain consists of six main players: mobile operators,financialinstitutions,merchants,independentpaymentserviceproviders,suppliersandprofessionalorganizationsandforums.

Mobile operators

Theroleofmobileoperatorsinanyparticularmarketdependsonthem-paymentsolutionprovidedandthetechnologyinvolved.Typically,MNOsprovideeitherauthorizationoraccesstom-paymentsolutions.Insomecases,theymayactasfullserviceproviders.Therearesomerareexamples,suchasinJapanandAustria,wheremobileoperatorscapturedadominantroleinthem-paymentvaluechainbyacquiringexistingorestablishingtheirownfinancialclearinginstitutions.

Financial institutions

Whileoftennotthedrivingforceforthedevelopmentofm-payments,banksgenerallylinktheirexistingclients’personalaccounts with m-payment services and enable primarily macro payments,aswellasthehandlingofclearingservices.

Belgium’sBanksysisonerareexamplewherebankshavejoinedforcestotaketheleadinshapingthemarketdevelopmentandmovebeyondamerefacilitatingrole.Similarly,inPortugal,themainmarketforceisSIBS,aninter-bankingassociation,whichhasworkedtogetherwiththemobileoperatorstoestablisha

commonframeworkformobilepayments,evolvingfromitsmature card-payment infrastructure.

Majorcreditcardcompanies,likeMasterCardorVisa,haveaggressivelybeentestingnewsmartcard-basedcontactlesspaymentsolutionsinseveralcountriesandarehencetryingtooccupy a more central role in the m-payment value chain. This isaclearindicationthattheyhaveakeeninterestincapturingashareofsmallpayments(lessthanUSD5equivalent),whichamounttoacurrentmarketvalueofUSD1.7trillionannually.

Merchants

Merchantshaveakeyroleinthem-paymentvaluechainduetotheirdirectcontactwithconsumersand,inthisregard,theynormally act as service promoters. In the transportation sector inGermany,merchants,suchastheregionaltransportnetworkRhein-Main-Verkehrsverbund(RMV),aretakingtheinitiativetopushthedevelopmentofNearFieldCommunication(NFC)-basedm-ticketingsolutions.Moreover,DeutscheBahnhasbeenfocusingwithitspartnersonthedevelopmentofcontactlessm-payment solutions on trains.

Independent payment service providers

Independent Payment Service Providers are often called third-party solution providers and are usually start-ups with aserviceplatformdesignedfortheprocessingofpaymentsbetweenbanksandend-users.Oftentheyarealsoactiveinthedevelopmentoffront-endapplications.InChina,forexample,themainm-paymentdevelopmentpushhassofarbeencomingfromindependentserviceproviders,whichhaveestablishedpartnershipsonaregionalbasiswithoneofthetwomobilecarriers,ChinaUnicomorChinaMobile,andretailbanks.Thislackofanationalsolutionhasleadtoafragmentedmarket,hinderingthecoordinatedm-paymentdevelopmentinChina.

Insomecases,ratherthanfragmentingamarket,independentserviceproviderscanunitecompetingmobilecarriersbyofferingthemanopenserviceplatform.In2007,theGermancompany,paybox,focusedonthedevelopmentofmobilepaymententerprisesolutionsbyinitiatingthem-paymentalliance“mpass”,encompassingVodafoneGermanyando2.Theinitiativeaims to set up a nationally interoperable mobile payment system for remote and proximity payments.

1. The global m-payment market and dynamics


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Independentserviceproviderscanplayagreaterroleinthem-paymentvaluechainthanjustprocessingpayments.EspeciallyconcerningthediscussionsaroundNFC,anindependentpaymentservicesproviderintheformofa“TrustedServicesManager”(TSM),mightbebeneficialforallasahostedservicetoissuersofcontactlessapplications.Paybox,however,wasrecentlyacquiredbySybase365,asubsidiaryofSybase,Inc.,thegloballeaderinmobilemessaginginteroperabilityanddataroaming.Thismergercreatesapotentialgloballeaderinprovidingend-to-endmobilecommerceservicestomobileoperators,financialinstitutionsandmerchantswithafocusonm-banking,m-paymentsandm-remittancesinbothemerginganddevelopedmarketsaroundtheworld.

Suppliers

Thereareawidevarietyofsupplierscontributingtothem-paymentvaluechain,includinghandsetvendors,chipvendors,SIMcardvendorsandPOSterminalvendors.Fromatechnologicalpointview,thesecompaniesprimarilyoccupyafacilitationroleinmobile-basedtransactions.Nevertheless,theinvolvementoftheseplayersintheindustrystandardizationprocessisimportantforthespeedofmarketdevelopment.

A shorter adoption process was the main reason why the independentserviceproviderObopay(US)partneredwithoneofthemajorPOSterminalvendorsViVOtech.ThepartnershipensuredObopay’suserstheaccessto160,000retailoutletsacrosstheUS,allofthemequippedwithViVOtechPOSdevices,andsubsequentlyledtohigherserviceadoptionrates.ObopayhasclosedanimportantadditionalindustrypartnershiptroughasignificantdirectinvestmentofNokiaintothecompany’sproductandmarketexpansion.

The role of suppliers in the m-payment ecosystem may evolvefrompuretechnicalfacilitationtoprocessmediation,characteristicforaTSM;arecentexampleisthecaseof

GemaltowithintheFrenchNFCPayezMobileinitiative.

Professional organizations and forums

Independent bodies often play a facilitation role when it comes tointer-industrynegotiationsandthedevelopmentofindustrystandards.AswepredictedinourlastM-Paymentreport,no

successorofSimpayhasemergedsofar.SimpaywaslaunchedasajointinitiativeofVodafone,T-Mobile,TelefonicaandOrangewiththegoalofdevelopinganinteroperablem-paymentplatformfortransactionrouting,clearingandsettling.Asthisinitiativehasfailedonitspromisetodevelopastandardizedm-paymentsolutionforitsstakeholders,theoperatorshavebeenfocusingmeanwhileonthedevelopmentofnationalm-paymentsystems(remote,SMS-basedm-payments)adaptedto local needs and payment specifics.

Intheareaofproximitym-payments(RFIDbased),theGSMAssociationandETSI(EuropeanTelecomsStandardisationInstitute)havecontributedverymuchtothedevelopmentofmobileNFCstandards.GSMAlaunchedaninitiativein2007andETSIachievedanagreementonhardwarestandardizationin2008.GSMA’sinitiativeandETSI’sstandards,supportedbymainindustryrepresentativesandotherprofessionalorganizations(e.g.NFCForumandGlobalPlatform),areexpectedtoleadtoanagreementonasingleglobalapproachforenablingproximitym-payments within the near future.

1.2 M-payment services offered and volume develop-ment

Arthur D. Little forecasts that remittance will be the strongest contributor to transaction volume growth globally in the next two years. After 2010 when proximity payments are rolled-out commercially, we expect retail transactions to be the major growth driver.

Arthur D. Little’s previous M-Payment Reports have been focusedprimarilyonm-paymentapplicationsencompassingservicesfromm-parkingtom-banking.However,inordertobetterassessfuturemarketdevelopments,webelieveitisnecessarytodistinguishm-paymentfromm-bankingservices.

Withinm-bankingservices,weconsiderservicessuchasaccountbalancereports,posttransactionSMSnotification,moneytransfer(largerfunds)andotherinformationservicesrelatedtoabankaccount.M-bankingservicesaretypicallybank-centric,implyingthatbanksarethekeydriversforinnovation,while other value chain players in the transaction rather play a facilitatingrole.Bankshavenotidentifiedmobiletransaction


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channelsasakeygrowthbusinesswiththeexceptionoftheiractivitiesinemergingmarkets.Instead,theyareinvestinginm-bankingservicesasameanstoanendforpreservingtheircompetitivepositionandenhancingcustomerrelations.Therefore,ourreportwillbemainlyfocusingonm-paymentservices,whereweexpectmoreinnovationcomparedtothem-bankingarea.

In terms of m-payment services,wemakethedistinctionbetweenapplicationsforremotepayments,characterizedbyaprevalenceofSMStechnology,andproximitypayments,whichwillinthefuturebedominatedbyNFCtechnology.EachserviceinbothofthesegroupscanfurtherbecategorizedaseitherP2P(persontoperson)orB2P(businesstoperson)services.

Sofar,thefocusinm-paymentshasbeenputonB2P-transactions.Nevertheless,P2Papplicationsand,especially,remittanceserviceswillhaveanincreasingsignificanceforthefuturegrowthofm-paymentservices.Insummary,onecangrouptheofferedservicesintooneoffourclusters,definedby the distinction in B2P vs. P2P and remote vs. proximity payments as shown in Exhibit 1.

ThisservicecategorizationtakesintoaccountchangesthatNFC(NearFieldCommunication)isexpectedtobringindevelopedmarketsworldwideinthenearfuture.Forexample,purchasesatvendingmachinesisexpectedtomigratefromremote(mainlySMS-based)toproximitypayments(mainlyNFC-based).NFCisaRFID-basedtechnology,andprovidesshort-rangewirelesscontact and communication between electronic devices in proximity(<20cm).

NFCisacombinationoftheSmartcardtechnology,oftenusedintheUS,andcontactlessconnectiontechnologies(e.g.GSM).NFCdevicescan,incontrasttoSmartcards,changetheirrolesandbeusedasbothreaderandtransmitter(active-activeandactive-passivesituations)whereastheSmartcardtechnologyisactive-passivebasedandnomobilephoneisrequired.Additionally,NFCsupportsothernetworkprotocols.Theinitiationofanactivityitselfrequiresnolaunchofanotherapplication,butinordertoavoidunwantedtransactions,atransactionisonlyexecutedaftertheuserhasconfirmedtheaction(e.g.bypushingabuttononhismobilephone).

Exhibit 1: M-payment product matrix with a majority of services applied in the B2P environment

Source: Arthur D. Little analysis

Prevalence of SMS (rarely IVR or WAP) technology

Remote payments Proximity payments

Future dominance of NFC technology

Business to person (B2P)

Person to person (P2P)

Remittance

?Top-up

credit transfer

M-parking (open area)

Vendingmachines

On-linepurchases

Air-timetop-up

Utility bills‘payment

M-parking (closed area)

Event ticketing

Transportationticketing

Shopping

Restaurants

Membershipcards

Telco VAS services

Key messages – Chapter 1.2: Exhibit 1


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Hence,NFCallowsuserstoinitiateanactivity,suchasapaymentorinformationrequest,byplacingtheirelectronicdeviceorpaymentcardnexttoareaderdevice,whichisembeddedwithanNFCtag.Thesystemestablishestheconnectionbetweentheinitiatingandreadingdevicewithinmillisecondswithoutcomplexsecurityprocedures,suchasidentification verification. After confirmation by the user via SMS orWAP-page,thetransactionisexecuted.

InourM-PaymentReportUpdate2005and2006,westatedthatagrowinginterestinRFIDwillleadtothedevelopmentofnew applications and will eventually result in the substitution ofcertainSMSservicesbyNFCtechnology.OneexampleistheexpectedreplacementofSMS-basedpurchasesatvending

machinesbyaNFC-basedpurchaseprocess.

Remote payments


ThemajorityofB2PservicesarecurrentlybasedonSMS;someapplicationsmayrequirejava-enabledphones.Examplesofcurrent SMS-based services that we expect to be offered also in thefutureare:paymentofutilities,typicaltelcovalueaddedservices(e.g.ringtones),airtimetop-up,m-parkinginopenareas,onlinepurchasesandpurchasesatvendingmachines.

InAustria,oneoftheleadingm-paymentmarkets,thedominantserviceprovider,mobilkom,hasenableditsuserstopurchasesnacksanddrinksthroughNFCtouchpointsat415Selectavendingmachinesacrossthecountry.AlthoughNFCtechnologyisinthiscaseonlyusedforserviceinitiation(wavingaNFCphonenexttothevendingmachine’sNFCtag)andtherestofthetransactionprocessstillreliesonSMStechnology(sendinganordermessagetoavendingplatform),webelievethattheSMStechnologywillbecompletelysubstitutedbyNFCsolutionsinthefuture.Hence,paymentsatvendingmachineswill move from remote to proximity m-payment applications as shown in Exhibit 1.

Person to person (P2P)

IntheP2Parea,remittance(strictlyP2Ptransactions)iscurrentlythedominatingserviceandisexpectedtoremainso.InthePhilippines,theprovidersGCASHandSMARTmanagedthroughtheirm-paymentchannelroughlyUSD3billioninP2Ptransactions,whichaccountedforalmost20%ofthecountry’stotalremittancevolumefor2007.Furthermore,thePhilippineremittancetransactionvolumeisgrowingatapproximately10%p.a.Besidesremittanceservices,weseeairtimetop-upcredittransfersbetweenpersonsasanadditionalservice,whichwillin

thefuturealsorelyonSMStechnology.

Proximity payments


There exist vast potential for new applications for proximity payments within the B2P environment. As predicted in our last M-PaymentReportUpdate,lowvaluepayments,suchasforparkingorpublictransportation,havedominatedthegrowthinm-payments.Fromaglobalperspective,mostoftheseservicesarecurrentlybasedonSMSoronIVRorWAPtechnology.However,inthenexttwoyears,weexpectthatlowvaluepaymentswillbeincreasinglyrelyingonNFCtechnology.

Inadvancedmarkets,suchasJapan,over18milliontransactionspermonthweremadein2007usingtheSuica,apublicNFC-basedtransitpaymentsystemoperatedbyJRRailway.SimilarservicesarealsoplannedtorolloutinWesternEuropeancountries.T-Mobile,inGermany,forexamplehassupportedRMVforthedevelopmentofaNFC-basedpublictransportationsolution“HandyTicket”,whileVodafonepartneredwithDeutscheBahnforthedevelopmentofitsNFC-based“Touch&Travel”ticketingsolution.OtherservicesthatwillbepaidbyNFC-enabledphonesinthefuturearetaxis,retail-shoppingpurchases(alsoovertheinternet),eventtickets,servicesinrestaurantsandbars,m-parkinginclosedareasandtheusageofmembershipcardsembeddedonaNFCchip.


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Atpresent,NFC-basedm-paymentsolutionshaveonlybeentargetingretailers(B2P),andnoP2Papplicationshaveemergedsofar.WhileNFCwilllikelydominate,wedonotexpectittobetheonlytechnologyutilizedintheproximity/P2Parea.Weanticipatethatsomesortofproximity-based,P2P-relatedremittanceservicestobedeveloped,whichmaybebasedontechnologyotherthanNFC.

Intermsofproximitypayments,suppliershavebeensofarmostlyfollowinga“Wait-and-See”strategy.However,asmajormilestonesareachievedinthedevelopmentofNFC-technologyandrelatedservicesinthecomingyears,wearelikelytowitnessmajorhandsetsupplierslaunchingdifferentNFC-enabledmobilephonesbythebeginningof2010.Inthisfirstphaseofnewtechnologyintroduction,thosevendorswhoactivelyparticipatedinnumerousgloballyon-goingNFCtrialswillbebetterpositionedthantheirrivalsintermsofmarketinsights,experienceandrequiredtime-to-market,oncetheNFCtechnologyisreadyforbroadmarketintroduction.

In2008,weestimatethattheshareofproximitypaymentsinoveralltransactionvolumesharehasreached23%,whichis much lower than previous forecasts. This is primarily due

tothesignificantincreaseintheremoteservice“Paymentofutilitybills”.Utilitybillsm-paymentshaveseenamuchhigherthanexpectedtakeupamongthepopulationwithoutabankingaccountindevelopedmarkets.Paymentofutilitybillsoverthemobilephoneencompassedroughly35%oftheoverallm-paymenttransactionvolumein2008.

Basedonourmarketanalysis,weforecastthatremittancewillbethestrongestcontributortotransactionvolumegrowthgloballyinthenexttwoyears,withaCAGRof25%.After2010,when proximity-based payments will have been massively rolled outonacommercialbasis,weexpectretailpurchases(e.g.shopping,restaurantpayments)willbecomethemajorgrowthdriverfortransactionvolumewithaCAGRof77%.By2012,weexpecttheglobalm-paymenttransactionvolumetoreachalmostUSD250billion,increasingfrom2008to2012by68%p.a. (see Exhibit 2).Proximitypaymentsarethenexpectedtoaccountfor51%andremotepaymentsfor49%ofthetotaltransaction volume.

Exhibit 2: Remittance as the fastest growing m-payment service according to the global transaction volume growth split into different services



Global m-payment transaction growth by services

0

50

100

150

200

250

300

2008 2009 2010 2011 2012

M-ticketing (parking+ticketing)

Retail purchase

Utility bills payment

Remittance

Telco related (top-up+VAS)

$ billions

CAGR 08-12:

249,1

28,944,6

96,8

163,1

65%

124%

38%

146%

15%

Proximity payments

118%

Remote payments

52%

CAGR 68%


14

ArthurD.Littlebelievesthatthem-paymentmarketgrowthwillmaterializedespitethecurrentglobalfinancialcrisis.Asm-paymentservicesrequireanew,oftencomplexandexpensiveorganizationalandprocesssetup,telecommunicationcompanies will be tempted to postpone the introduction ofm-paymentservicesinordertocutcosts.Operatorsneverthelesshaveanincentivetolaunchm-paymentservices,asthewindowofopportunityformarketentryandexpansionisnow.Inemergingmarkets,theunderlyingbusinesscaseisdefinedandthereislimitedcompetitioninregardtocompetingtransactionchannels.Indevelopedmarkets,somemobilecarriersmayapplya“Wait-and-See”strategy,butwiththelaunchofNFCsolutions,theperspectivesforlaunchingm-paymentservicesindevelopedmarketswillalsobecomehighlyattractive.Therefore,webelievethatinvestmentsinm-payments will continue to be part of telecommunication companies’strategyinthenearfuture.

Althoughthefinancialcrisiswillhaveanegativeimpactonconsumerconsumption,whichwillaffectfinancialtransactionsingeneral,m-paymentserviceswillstillhavepotentialforgrowth.Duetotheircheapertransactioncosts,theywillbeabletograbmarketsharefromtraditionalbankingservicesanddue

totheirbettermobility,theywillgrowfasterthanlessmobilepaymentchannelssuchason-linepayments.Additionally,onthesupply side telecommunication companies have an incentive to pushm-paymentservicesasapromisingnewrevenuesource,astheyfaceoftenstagnatingrevenuesintheircorebusiness

segmentsoffixedandmobiletelephony.

1.3 Factors influencing the regional market development

A range of factors, such as development of the banking sector, mobile penetration, and rate of emigration, affect the potential for m-payments in any individual market.

Regionalm-paymentmarketsareexpectedtocontinuetodevelopdifferentlyduetoavarietyofunderlyingeconomic,technologicalandsocial-culturalfactors.Thesefactorshaveabroadinfluenceontheeconomicenvironment:influencingmarketdemand,impactingtherangeofservicesofferedandaffectingthenearandlong-termpotentialform-paymentdevelopment.Wehavegroupedkeyfactorsaffectingthem-paymentsectorintoeconomic&technologicalandsocial&culturalfactors,andillustratetheirimpactondevelopedandemergingmarketsinExhibit 3.

Exhibit 3: Different economic & technological and social & cultural factors behind the m-payment market in emerging and developed countries



Developed markets Emerging markets

Eco

no

mic

&

tech

no

log

ical

fac

tors

So

cial

&

cult

ura

lfac

tors

Developed banking infrastructure

Regulatory restrictions

High internet penetration

High mobile penetration

Credit-card usage legacy

High computer literacy

Technology savvy (especially in East Asia)

High percentage of emigration

Low computer literacy

Cash based societies

Low penetration of banking infrastructure

Low income per capita

Low internet penetration

High mobile penetration

Stimulating m-payments Inhibiting m-payments


15

Economic & technological factors:

Economicandtechnologicalfactorswhicheffectthedevelopmentandgrowthofm-paymentsinclude:

� Thelevelofbankingsectordevelopment

� GDP per capita

� Regulatoryenvironment

� Leveloftechnology

Level of banking sector development

Themostimportantfactorinfluencingthedevelopmentofm-paymentservicesistheunderlyingbankinginfrastructureofacountry.Developedmarketsarecharacterizedbyarelativelystrongnationaleconomy,whichisbasedonamaturebankingindustrywithafullyestablishedinfrastructure,suchasATMterminalswidelyavailablecountrywide.Suchanexistingbankinginfrastructure enabled an easy adoption of cashless transaction systemsbasedoncreditanddebitcards.Regionswithawell-developedbankingsystemincludetheUS,mostofEurope,countriesinFar-EastAsia,suchasJapanandSouthKorea,andAustralia.

Incontrast,amajorityofAfricancountriesiseconomicallyandfinanciallyweak,withoutaneffective,cost-efficientbankingsystemandintegratedinfrastructure.InChinaandIndia,forexample,thereare96and28installedATMs,respectively,foreverymillioninhabitants.Incomparison,theratiointheUSismuchhigher,1,300ATMspermillioninhabitants,andinSouthKorea,thenumberofATMsincreasestoalmost1,960permillion.

Thedegreeofdevelopmentofbankinginfrastructurehasadirect,inverseimpactonthedevelopmentofm-paymentservices.Astrongbankinginfrastructurerepresentsacompetitive product to m-payment services and hence hinders itsdevelopment.Forthisreason,m-paymentshavemuchgreaterpotentialinemergingmarkets.However,therearecountriesinemergingmarkets,suchasLatinAmerica,EasternEurope,ChinaandIndia,withrelativelydevelopedbankingsystems,whichpossessthepotentialforaparalleldevelopmentof two alternative payment systems.

GDP per capita

AsimilarlogicappliestothedifferenceinGDPpercapita.TheGDPpercapitaislowerinemergingcountriesandhenceend-usershavenormallyahigherpricesensitivityconcerningtheirspendingincludingfinancialtransactionservices.Traditionalbankingservicesgeneratehighercostsforend-usersthanm-paymentservices.Forexample,m-paymenttransactionstroughAfricanWIZZITserviceis50%cheapermonthlythanthroughtraditionalbankaccounts.LowerGDPpercapitaandrelatedhigherprice-sensitivityarereasonswhym-paymentservicestendtodevelopfasterinemergingcountriescomparedto developed nations.

Regulatory environment

Theregulatoryenvironmentplaysanimportantroleinthedevelopmentofm-paymentservicesinbothemerginganddevelopedmarkets.Inemergingmarketstheexistingregulatoryenvironmentisnotasstrictlydefinedasindevelopedmarkets,andhenceoffersgreatermarketopportunitiesforinnovativeservicessuchasm-payment.Althoughtherehasbeenconsiderableefforttoliberalizeregulationinthefinancialandtelecommunicationmarketsoverthelastfewyears,theregulatorystructureindevelopedmarketsaregenerallymorerestrictivethaninemergingmarkets.Therefore,regulatorypolicyinemergingmarketsisincreasinglyallowingnewcompetitiveserviceslikem-paymentstoemergeandcompetewithexistingpaymentchannels.

Level of technology

Theleveloftechnologicaldevelopment,specificallyinternetandmobilepenetration,alsoplaysanimportantroleinfluencingthedevelopment of m-payment services. Internet penetration correlatespositivelytothelevelofeconomicdevelopment,whichmeansthatdevelopedcountrieshavenormallyahigherinternetpenetration.Becausehighinternetpenetrationfacilitatesinternetbankingservices,m-paymentservicesaremorelikelytodevelopincountrieswithalowerinternetpenetration.InSlovenia,wheretheinternetpenetrationis37%,the Moneta m-payment platform was able to increase its penetration26timeswithinoneyear.Vodafone’sM-PesainitiativeinKenya,whereinternetpenetrationisonly8%,managedtoincreaseitspenetration42times.


16

Mobile phone penetration is the basis for any m-payment services,asmobilephonesarethecorecarrierdevicesforanym-paymentservice.Hence,ahighmobilephonepenetrationiscriticalinordertoprovidethebasisforsuccessfulgrowthofm-payment services.

Social & cultural factors:

Social and cultural factors which effect the development and growthofm-paymentsinclude:

� Early adopters

� Use of credit and debit cards

� Degreeofemigration

Early adopters

CountrieslikeJapan,SouthKoreaandSingaporeareconsideredtohaveaverytech-savvypopulationwithhighproportionofearlyadoptersamongtheaddressablecustomers.Thismakesanearlyacceptanceofm-paymentservicesmorelikelyinthesecountries.Developedcountriesoftenhaveahigherpercentageoftech-savvypeopleandhigherlevelofcomputerliteracy,whichmakesaquickmarketacceptancemorelikelythaninemergingmarkets.

Use of debit and credit cards

IntheUSandScandinavia,debitandcreditcardsaretheleadingday-to-daypaymentinstruments.Peoplehavebeenusingthemforsuchalongtimethatitbecameapartoftheirspendingculture and tends to hinder the development of an alternative transactionchannel,suchasm-paymentservices.Thesituationinemergingmarketsdiffershowever,astraditionalpaymentchannels such as debit and credit cards have often not yet reachedasignificantmarketpenetration.

ManyAfricancountriestendtobecash-basedsocieties,becausepeople tend to handle their daily transactions in cash and prefer tokeeptheirsavingsliterallyathome.Thearesomecases,mostnotablyinSouthAfricaandKenya,whenm-paymentandm-bankingserviceshavesuccessfullypositionedthemselvesinthesemarketsasthedominantchannelforfinancialtransactions,significantlyreplacingcashinfinancialtransactions.

Degree of emigration

Duetothefrequentsocialandpoliticalinstabilityinemergingcountries,theyareoftenwitnessingahighlevelofemigration;In2007,theaveragenetmigrationonaverageinAfricawasat-0.27/1,000people,comparedto1.6/1,000peopleintheEU.Emigrationisanopportunityforthedevelopmentofm-paymentservicesinemergingcountries.Manyexpatriatesindevelopedcountriessendremittancesbacktotheirfamilies.In2007,79%oftheUSD318billioninglobalremittanceswassettoemergingcountries.Highemigrationcanhencepositivelyinfluencethedevelopment of m-payment services as an effective means of sendingremittancesbackhome.

Aswehaveseen,theeconomic,technological,socialandculturalfactorsinfluencingm-paymentsdifferindevelopedandemergingcountries.Thisleadstodifferentinitialmarketconditionsandfuturechallengesfordevelopmentofm-paymentservices.Therefore,inthesubsequentchapters,wewillfirstassessthedevelopmentofm-paymentservicesindevelopedcountries,andsecondattheadvancementinemergingcountries.

1.4 M-payment volume development by regions

Arthur D. Little estimates that global m-payment transaction volume reached USD 29 billion in 2008, less than the USD 37.1 billion that we had forecast in our previous reports. The difference stems mainly from an underperformance in developed markets, especially in Western Europe. The ongoing fragmentation of national markets, without a critical mass of retailers that could support a massive service up-take, resulted in a 40% lower transaction volume than previously forecast.

Wehaverecently,however,witnessedstrongerthanexpectedm-paymentgrowthinemergingmarkets.Thevastly-populatedcountriesofChinaandIndia,togetherwithotherboomingnationalmarkets,suchasthePhilippines,MalaysiaandTaiwan,areexpectedtocontribute20%morethaninitiallyexpectedtothe overall transaction volume.


17

Bytheendof2012,weexpecttoseeafurtheraccelerationinthegrowthofm-paymentsinemergingmarkets,whichwillresultinemergingmarketsaccountingforaglobaltotaltransactionvolumeshareof65%in2012.Overall,weforecasttheglobalm-paymenttransactionvolumetoreachUSD249billionin2012,growingatanannualgrowthrateof68%from2008until2012.Exhibit 4

Exhibit 4: Emerging markets as the main growth drivers of the global m-payment transaction volume



Global m-payment transaction growth by regions

0

50

100

150

200

250

300

2008 2009 2010 2011 2012

AfricaSouth AmericaMiddle EastEastern EuropeRest of AsiaJapan, South Korea and AustraliaNorth AmericaWestern Europe

$ billions

249,1

28,944,6

96,8

163,1

CAGR 68%

56%

87%

27%72%

78%

73%

155%86%

Developed markets

Emergingmarkets

56%

76%

CAGR 08-12:


18

The take-up of m-payment services in developed countries has been limited by the availability of other transactions channels, as m-payments have had difficulty competing with already established payment channels. A massive NFC adoption, which could further promote m-payment services, is still likely two years away.

Indevelopedmarkets,wehaveidentifiedfourtrendsthatwillshape the development of m-payments in near-term:

� M-paymentswillnotsubstituteexistingtransactionchan-nels,asadoptionislimitedtoconvenience-enhancingappli-cationsandnichesegments,butwillratherputpressureonexistingtransactionchannelmargins;

� Despitethecurrenthype,wewillnotseeamassiveNFCadoption in the majority of developed countries until 2011 at theearliest;

� Inordertopromotemarketadoption,marketplayersneedtoleveragetheirexistingcustomerrelationshipsandmotivate

retailers;

� Improvedregulationsandmovementstowardsamoreliberalecosystemwillencouragethedevelopmentof“cross-bor-der”m-paymentsolutions.

2.1 M-payments will not substitute existing transac-tion channels, as adoption is limited to convenience-enhancing applications and niche segments, but will rather put pressure on existing transaction channel margins

In the next two years, m-payments will remain a comple-mentary transaction channel in developed markets, because only those applications that fulfill the key success factors will be massively adopted, and most of the m-payment applications will remain focused on niche segments.

Marketdevelopmentshavesofarshownthatbothproximityservices,suchasm-parking,andremoteservices,suchasm-remittance,couldonlyprevailovertraditionaltransaction

channelsifend-usersrecognizedandvaluedtheservice’snew,unrivaled convenience.

Keysuccessfactorsforamassiveuptakeofm-paymentservicesareanenhancedconvenienceandunmatchedmobility,auser-friendlyinterfaceandahighnumberofcontactswithbanksandoperators.Inthisregard,wedistinguishbetweenm-payment applications that contribute to a massive mobile marketuptakeandthosewillbeonlyapplicabletonichesegments.ThefollowingExhibit 5givesageneraloverviewofm-payment services specifically offered in developed countries.

WhethermerchantswillbewillingtowidelydeployPOSreadersdoesdependontheunderlyingmarginsqueeze;merchantswillbasetheirdecisionofofferinganewpaymentpossibilityonthechannel’stransactionmargincomparedtoothermeansofpayment.Ofcourse,POSmanufacturersalsoinfluencetheattractivenessofm-payments,byofferingoperationally-andfinancially-appealingPOSreaders,buttheycanonlypositionthemselveswithinacertainmarginbreadth.Hence,aviablebusiness case for all value chain players is mandatory for a successfuldevelopmentofm-paymentservices.Inouropinion,m-paymentwillnotsubstituteforexistingpaymentchannels,suchascreditcards,butwilllowerARPUovertimeduetoincreased channel competition.

Applications driving a broad up-take of m-payments

The m-payments which have seen most success in developed countrieshaveofferedenhancedconveniencethroughunmatchedmobility,user-friendlyinterfacesandcontractswithnumerousoperatorsandbanks.Theapplicationsthathavebeendrivingabroadup-takeofm-paymentsindevelopedmarketsare:M-parking,M-ticketingandremittance.OurinterviewswithexecutivesofleadingglobalMNOsconfirmedthatairtimetop-upandvalue-addedservices(VAS)offeredbymobileoperatorshavealsobeenmajoruptake-driversofm-paymentservicesindevelopedmarkets.

M-parking

M-parkingsolutionsareoneoftheapplicationsdrivinguptakeand,asalreadymentionedinourpreviouseditionsoftheM-PaymentReportseries,theseapplicationshavealreadybeen

2. Trends in developed markets


19

implementedacrossUS,AustraliaandinmanyEuropeancountries.M-parkinghasfueledthegrowthofm-paymentswiththeirvaluepropositionofbeingbothmoreconvenientforconsumers,andabletosubstantiallyreducecostsforparkingserviceproviders.Companiesspecializedinparkingservicemanagementrevealedthatcostreductionsof30-40%areachievable in comparison to traditional offers that are based on cash payments.

IncountrieslikeAustriaandCroatia,wherem-parkingserviceswerefirstintroduced,traditionalpaymentsystemswerebypassed,andm-parkingisnowthemostfrequentlyusedservice.InZagreb,thecapitalofCroatia,m-parkingserviceshavemassivelygainedinmarketpenetration;from20%in2002to71%in2007.ThisrepresentsaCAGRfrom2002to2007of28.8%.Atthesametime,thesaleofparkingticketsthroughkiosksalmostdisappearedasadistribution/paymentchannel(-22.9%p.a.).Exhibit 6 overleaf

M-ticketing

M-ticketinghasbeensuccessfullyimplementedlargelybecauseitcanleadtoasignificantreductioninoperatingcostsfortransportationcompanies,aswellasmakingtheuseofthe

servicesmoreconvenientforconsumers(e.g.eliminatingqueues).

Intheairlineindustry,forexample,whichhasbeenundertremendouscostpressure,theInternationalAirTransportAssociation(IATA)estimatedthatsavingsfromashiftfrompaperticketstoanalternativeticketingsystemcouldleadtocostreductionsofUSD3billionglobally.ManyairlinecompaniesintheEU,Japan,ChinaandIndiahavealreadyrecognizedthisopportunityandintroducedm-ticketingsolutionsinparalleltoe-ticketing.

Besidesm-parkingandm-ticketingservices,ourinterviewswithexecutivesofleadingglobalMNOsconfirmedthatairtimetop-upandvalueaddedservices(VAS)offeredbymobileoperatorshavealsobeenmajoruptake-driversofm-paymentservicesindevelopedmarketsuptonow.

Remittance

Remittanceisplayinganimportantroleinboostingm-paymentusageinemergingcountries,buthasalsobeenimplementedtoalesserextentindevelopedcountries.Obopayforexample,anindependentAmericanserviceprovider,isprimarilyfocusingon

Exhibit 5: Main m-payment services offered in developed countries (e.g. Austria)


Source: www.A1.net, Arthur D. Little analysis

M-payments for fun and traveling M-payments supporting households

M-payments simplifying the business day

Train ticket purchase (m-ticketing)

Music download (Telco VAS service)

Concert ticket purchase (m-ticketing)

Tram ticket purchase (m-ticketing)

Pre-paid credit transfer (P2P m-payment)

Insurance payment (bills payment)

Parking fee (m-parking)

Cigarette purchase (vending machine)

Highway toll fee (m-ticketing)

Lotto ticket purchase (m-gambling)


20

remittingservices.InEurope,companieslikeCrandyandLUUPofferremittingservicesaswell.ButunliketheirpeersintheUS,theyhaveproblemsreachingacriticalmarketsize,sincetheirservice applicability is limited to countries where they have partnershipagreementswithnationalcarriersandbanks.

WiththeimplementationoftheEuropeanCommission’sPaymentServiceDirective(PSD)intheEUmemberstates,whichisexpectedbytheendof2009,thecurrenthurdleforcross-bordermarketexpansionswilllargelybeovercome.Hence,remittancecanandwillbeanimportantm-payment

marketuptakedriver.

Applications in niche segments

Mobile-basedsolutions,suchaseventticketingorproductordering,havenotbeenassuccessfulinreplacingtraditionalpaymentchannels,andoftenonlyremainsuccessfulinnichesegments.Mobilephonesaspaymentinstrumentshaveonlymanagedtoeffectivelysubstituteexistingchannelsifthecurrentlevel of convenience is unsatisfactory to the consumer. The purchaseofcinematicketsbycall-inbookingisoneexamplewhen m-payments were able to offer more convenience and satisfaction to the consumer.

Theorderingoffoodvialandlinephonesissowidelyaccepted,usedandconvenientthatitisveryunlikelythatanyuserwillmigratetoatextbased(e.g.SMS,WAP)ordering/paymentchannel.E-purchaseofbooks,DVDs,CDs,aswellasthecommonlyusedonlineticketing,showalsolimitedpotentialforanm-paymentmarketuptake,mainlyduetotheexistinghighinternetpenetrationindevelopedmarkets.

SMS-basedproximitym-paymentservices,suchasforthepurchaseofsnacksandsoftdrinksfromvendingmachines,havenotbeenaswidelyusedacrossEurope,andremainedsofaranichesegmentascomparedwithFar-EastAsianmarkets.RareexamplesamongEUcountriesareAustriaandSloveniawhereasolidbaseofPOSreadersforproximitym-paymentshasbeeninstalledacrossthecountry.Inmanyothercountries,though,onlytrialswithNFCsolutions,asanalternativetoSMS-basedpayments,havebeenconducted.However,inthesecountriesacommercialservicerolloutisstillaheadofus,atleastuntilaviableNFCbusinesscasehasbeendevelopedandawiderangeofNFCcapablephonesbecomeavailable.

Inthecaseofproximitym-paymentservicesinretailareas,asforexampleshops,restaurantsorbars,solutionsbasedonthe

Exhibit 6: Strong m-parking penetration growth has led to dominance over other parking payment channels in Zagreb


Source: Infoart, Arthur D. Little analysis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007

M-parking Parking machines Sale trough kiosks

Penetration level CAGR 02-07:

Penetration development of parking payment channels 2002 – 2007 in Zagreb

-22.9%

-17.7%

28.8%


21

contactlesssmartcardtechnology(withRFIDtagsintegratedintheidentificationcard)dominateindevelopedAsiancountries,incontrasttocountriesinEuropeandNorthAmerica.Inthelattermarkets,wehaveseenaratherlimitedofferandadoptionofforemostSMS-basedproximitym-paymentservices.InJapan,however,NTTDoCoMohasofferedthe‘iD’creditpaymentserviceforlowvaluepurchasessincetheendof2005.Onlyinthefirstquarterof2008,thecompanymanagedtoincreasethe number of iD-enabled payment terminals at retailers by morethan40%,whichamountsnowintotalto300,000units.Inparallel,thenumberofsubscribershasgrownbymorethan30%toreach5.64millionusersinQ12008.

Themainreasonforthelimitedglobalservicesuptakeofproximitym-paymentssofaristhelackofaglobalstandard.Such a standard would boost the motivation of retailers to invest innewequipment,asitwouldensureaubiquitoussoftwaresolutionforallendusers’mobilephonesandPOS.Asaresult,theachievementoftherequiredcriticalmassinordertobecome accepted and profitable would be easier. The European TelecommunicationsStandardInstitute(ETSI)hassignificantlycontributedtowardsresolvinghardwarestandardizationissuesthroughthedevelopmentoftheirSWP(single-wireprotocol)standard.However,anuncleardivisionofrolesandownershipofcostsbetweenthedifferentvaluechainplayers(especiallyformarketingactivities)havesofarmadethenewbusinesscasetoocomplexforasuccessfulrealization.

Inthenexttwoyears,mobilebankingisalsonotexpectedtobecomeamassivelyadoptedserviceintheEU,USandinthemajorityofotherdevelopedmarkets.Theexistingbankinginfrastructure already offers an easy service access and the highinternetpenetrationhasenablede-bankingtobecomeawidelyaccepted,inexpensiveandconvenientwayofconductingtransactions.Thisistrueforhome-aswellasforwork-relatedapplications.Althoughestimationsshowedthatmobilebankingcostscanbeasmuchas10%lowerthanthecomparabletransactionsinanormalbankbranch,Europeanretailbankshaveintroducedm-bankingservicesmainlyforthepurposeofenhancingcustomersatisfactionandmobilizingexistingcustomerrelationships,complementingtheexistinge-bankingchannelandimprovingtheircompetitiveposition.

Anexampleofnewcustomeracquisitionsthroughm-paymentchannels,whichwasidentifiedinoursurvey,istheofferofbankingservicestochildren,whoarenotlegallyeligibleforaregularcreditcard,butoftenhaveamobile.Byofferingm-credit-cardservicestochildren,banksarewideningtheirproductportfolio,butnotjeopardizingtheirexistingservicesandsaleschannels.

Arecentsurveyhasshownthatoutof92leadingbankinginstitutionsintheworld,onlyone-thirdplanstointroducem-bankingservicesin2008to2010.Therefore,weconsidertheintroductionofm-bankingservicesbymajorplayersratherasatacticalandreactivemovetochangesinthecompetitiveenvironment.WecanalreadywitnessthismoveintheUSwhere,forexample,BankofAmerica,WellsFargoandCitibankhavelaunchedtheirm-bankingservicestomaintainandimprovetheir competitive position.

2.2 Despite the current hype, we do not expect to see a massive NFC adoption in the majority of devel-oped countries until 2011 at the earliest

We believe a massive adoption of NFC-based m-payments to be still two years away due to delayed hardware standardization, the current limited availability of NFC-enabled handsets and issues in the development of a viable business case for stakeholders.

CreditcardcompaniesaregloballydrivingNFC-basedpaymentsolutions,theonlyexceptionamongdevelopedmarketsbeingFar-EastAsia,whereMNOshavetakentheleadinthepast.Thepathtofastmarketadoptionandgrowth,however,isrocky;delayedhardwarestandardizationhashinderedcommercialdeployment,lackofcross-borderinteroperabilityleadstolimitedserviceapplicabilityandtherearenoNFC-enabledhandsetswidelyavailableyetinthemarket.Inaddition,thefinancialcrisishasnegativelyaffectedconsumerbehaviorglobally,whichhasresultedinaprolongationofthenormalhandsetreplacementcyclewhichwillimpactNFC-basedm-paymentserviceuptake.

Theinitiative“Pay-Buy-Mobile”leadbyGSMAgiveshopeforasuccessfulbusinesscase,whiletheEuropeanTelecommunicationsStandardsInstitution(ETSI)significantly


22

contributedtowardsresolvinghardwarestandardizationissuesthroughthedevelopmentoftheirSWP(single-wireprotocol)standard.TheprotocolenablestheNFCchiptocommunicatedirectly via the mobile phone’s antenna with the reader device withoutusingthephone’sownsoftware.Hence,mobilephoneswill communicate based on the same standard as they are circumventingthedivergingmobilephonesoftwareversions.AlthoughETSI’sachievedhardwarestandardizationin2008andgloballyconductedNFCtrialswithinGSMA’s“Pay-Buy-Mobile”initiativeareveryimportantachievementsforthefuturepositioningofmobilephonesasthemainNFCtechnologycarriers,weseeamassiveadoptionofNFCphonesstilltwoyears away.

Credit card companies or mobile operators in the driv-ing seat?

Inthepast,creditcardschemeshaveplayedamajorroleintheUSandtocertainextentinEuropeinpushingNFCpaymentcardsintothemarkets.MasterCard,forexample,commerciallyrolledoutandtesteddifferentPayPass-relatedprogramsinmorethan20countriesworldwide.Onagloballevel,MasterCardmanagedtodistributeover20millioncontactlesscardsbytheendof2007,whichrepresentsalmosta100%growthfrom11millioncardsdistributedin2006.ThetrialsofNFCpaymentmodels,supportedbycreditcardcompanies,madeitunclearwhether mobile operators as part of the value chain will only haveafacilitatingroleoriftheywillbeabletocaptureanadequateportionoftherevenueshare.

Inthisnewpaymentchannel,themobilenetworkoperators(MNOs)willenterthemarketasadditionalvaluechainplayers.Traditionally,thereareonlyfourmainplayersinvolved:thecreditcardcompanyasissuer,theconsumer,themerchantandbanksasintermediaries.Increasingthenumberofinvolvedplayersleadstotwopossiblescenariosconcerningtherevenuedistribution;eithertheoriginalvaluechainplayerswillfacelowerrevenuesastheMNOsclaimtheirshareorend-userswillfacehigherservicecosts(bytransferringthecostsontotheend-user).Atpresent,itisnotentirelyclearhowtherevenuewillbeshared.TheonlyadditionalrevenuesourcesforMNOswouldbeissuingfeestousers,over-the-air(OTA)services,processfeestocardissuers(asrealbenefitsthatcanbeofferedonamobile

phoneincomparisontoaplasticpaymentcard)andfinallysubscription- based monthly fees for value added services to end-users.WeexpectcreditcardcompaniestoremainasthedominantmarketplayerintheUSandEurope.

IncontrasttocasesintheUSandEurope,theFar-EastAsiancountrieshavesuccessfullyimplementedNFCbusinessmodelsthathavebeendevelopedbyMNOs,whilethebenefitswerereapedjointlybymobileoperatorsandbanks.InthecaseofJapan,onesuccessfactorwastheproprietarynatureofthe“Felica”contactlesssmartcardsolution.ItconsistsofonlyoneuniqueTSM(trustedservicemanager)ownedbythecontactlessprovider,oneMNOandonetransitnetwork.ThisenabledDoCoMoasthedominantJapaneseplayertocover95%ofthetotalservicemarket.Itisunlikelythatthisecosystemcanbesuccessfully replicated in other countries as it evolved at a time wherelittleattentionwaspaidtom-payments,andthealreadydominantplayerDoCoModidnothavetomakecompromises.

Main obstacles for massive adoption of NFC-based m-payment services

TwomainhurdleshavebeennegativelyinfluencingthedevelopmentofNFCsolutions:adelayedhardwarestandardizationandrelatedlimitedinteroperability,andtheunavailabilityofawiderangeofNFC-enabledhardware.Besidesthosetwomainhurdles,therearealsoissuesinthedevelopment of a viable business case.

RecentlyconductedfieldtrialsconcerningNFCm-paymentoptions,whichwerepartofthestrategicinitiative“Pay-Buy-Mobile”,ledbyGSMAand46globalmobilecarriers,aswellasmajorhandsetvendorsandcreditcardcompanies,haveproventhatinteroperabilityandstandardizationhavebeentwokeyobstacles.Cross-borderusageisanotherimportantdriverofm-paymentuptake,butinordertoenablesuchusage,POSterminalsneedtobestandardizedtoavoiddifferentinterfacesand limited interoperability.

In comparison with previous attempts to create a uniform serviceplatform,suchasSimpayinEurope,the“Pay-Buy-Mobile”initiativegatheredthecriticalmassintermsofthenumberofinvolvedfuturestakeholdersandhasintroducedtheroleofaTrustedServiceManager(TSM).ATSMoccupies


23

theroleofatrustedthirdpartyandservesasasingletouchpointbetweenmobileoperatorsandserviceproviders,suchasbanks,transportationcompanies,etc.,whichwilllaunchtheirapplicationsonNFC-enabledphones.TheroleofaTSMsmoothestherelationshipswithinthem-paymentecosystem,and hence contributes to the establishment of a viable business casefortheinvolvedstakeholdersbyservingasamoderator.

Franceisagoodexamplewherehighcollaborativeeffortwasundertakenwithinthe“Pay-Buy-Mobile”initiative.NumerousNFCfieldtrialsarebeingexecutedwiththegoalofcreatingasingleserviceplatformthatwilldojusticetothebusinessinterestsofallstakeholders.Inordertoensurethisrequirement,multipleTSMs,MNOs,handsetvendors,chipmanufacturersand retailers have been involved in these trials. For the first timesinceSimpay’sfailure,theinitiativeofGSMA,aimingatastandardizationoftechnologyandprocesses,canprovideboththe financial and the mobile industry with a clear path for the developmentofasustainablebusinesscaseandNFCserviceplatform.

Delayedhardwarestandardizationcouldnowbeovercome.Handsetsuppliersnowhaveaclearermarketpathaheadofthem,duetothestandardizedsingle-wireprotocol(SWP)andHostControllerInterfacebyETSIin2008,followedbyannouncedhandsetreferencedesignsthataretobelaunchedbyglobalopen-standardcontactlessplatformdeveloperssuchasINSIDEContactless.Thismayleadtocostreductionsinproductdevelopmentforhandsetsuppliers,aswellastoashorteningoftheirtime-to-marketprocessduetothedefinedstandards.

However,thelackofNFC-enabledmobilehandsetsinthemarketis the second main hurdle on the path of a massive m-payment uptake.InadvancedNFC-marketslikeTaiwan,wheretheecosystemiscompletelypreparedforserviceapplications(POSreaderswidelyavailableandthethreemajoroperatorsacceptingallexistingstandards),nomassiveuptakeofm-paymenttransactionvolumehasbeenyetrecognizable.ThereasonliesinthelackofavarietyofNFC-enabledhandsets.OnecanobserveasimilarsituationinSingapore,Malaysia,andAustralia,wherethereisnowahighpenetrationofinstalledNFCPOSterminals,but only limited m-payment volume is observable.

Itwilltaketimetoconquerthemassmarketandsuppliersneedfirstafirmsignalfromotherm-paymentmarketstakeholdersthataviablebusinesscaseexistsforallpartiesinvolved,althoughthestandardizationissuecouldbesolved.Newproductsneedfirsttobedeveloped,producedandlaunched,whichwilltaketime.InterviewswithindustryexpertsshowedthattheentireNFCmobilephonedevelopment-to-marketprocesstakesaboutonetotwoyears.Asthestandardwassetattheendof2008,arangeofnewprototypesisexpectedbytheendof2009andmarketlaunchofnewphonesearliestinthebeginningof2010.Educatingconsumersconcerningthenewtechnologyandconvincingtheretailmarkettosupportthenewpaymentchannelwilltaketimeaswell.Additionally,marketpenetrationgrowthwillbeslowedasweexpecthardwarevendorstobeaffectedbyaprolongationofthenormalhandsetreplacementcyclecausedbylowerconsumerspendingasaneffectofthefinancialcrisis.Therefore,weenvisagethatamassiveNFCserviceuptakewillhappenearliestin2011.

Recentinterviewswithsuppliersandexistingsourcesindicatethatmorethan520millionNFC-enabledphonesareplannedtobeshippedgloballybytheendof2012,fuelledbyamassiveserviceuptake.However,ArthurD.Littlebelievesthatone-thirdofthatismorerealistic,orapproximately170millionNFCenabled phones by the end of 2012. Exhibit 7 overleaf

Mobile phones as future dominant technology carriers

Althoughwearecurrentlysomeyearsawayfromamassivem-paymentserviceadoption,webelievethatNFC-enabledphones will in the future not only serve as simple m-payment instruments,butalsoincorporateawiderapplicability,suchasinadvertising,healthcareservicesetc.).O2,theUKsubsidiaryofTelefonica,hasbeenconductingpilotsinnewareasofNFCapplicationsin2008,oneofthembeinghealthcareservices.OneexampleistheequippingofhealthcareworkerswithNFC-enabledphonestoaccesspatientrecords.Thisandotherapplications in the healthcare field are built on the anticipation thatmobiletechnologywillenableeasyaccesstoinformationon the move and therefore enhance the convenience for both patients and medical professionals.


24

Inthemarketingfield,newNFC-enabledhandsets,capableofperformingadvancedgraphicalandinteractivefeatures,willmaketheuseofnewservicesmoreappealing(e.g.smartadvertisingpostersinteractingwithmobilephones)andincreasecustomerloyalty.NFCtechnologywillhenceenablemoreelaboratedhandsetfeaturesleadingtoahigherinteractivitywith end-users and eventually provide mobile phones with advantagesovercreditcardsastheNFCtechnologycarriers.

2.3 In order to promote market adoption, market players need to leverage their existing customer relationships and motivate retailers

Key success factors for market players to enable a massive m-payment market adoption will be the ability to leverage their existing customer relationships, reduce barriers for service adoption and motivate retailers to deploy POS readers.

Basedonoursurvey,wehaveidentifiedsevenkeysuccessfactors for a successful adoption of m-payment services in developedmarkets(Exhibit 8).Ahighbankaccountpenetrationtogetherwithasoundlegalenvironmentareimportantinordertoenableproviders,notonlylegallybutalsooperationally,toofferm-paymentservicesthroughtheintegrationofbanks.

Acleardefinitionofrolesamongthevaluechainplayersisnecessary for the development of a solid business case. A criticalmassofapplicationsandhighlevelofstandardizationaresignificant,andsimplifytheattainmentofthetwomostimportantkeysuccessfactors:communication/acceptanceofbenefitsandcriticalmassofusers.Theessentialpreconditions,easeofuseandconveniencefortheadoptionofend-users,whichwehighlightedinpreviouschapters,arecoveredbythekeysuccessfactorcommunication/acceptanceofbenefits.

Thefindingsofourstudyimplytwoimportantmessagesforvalue chain players:

� Itiscriticaltoleverageexistingcustomerrelationshipsinordertoreachahighcommunication/acceptanceofbenefitsandcriticalmassofusers;

� Inordertoincreasethechancesofreachingtherequiredcriticalmassofusers,itisnecessaryform-paymentserviceproviders to push retailers for the adoption of m-payment readersintheirstores.WhethermerchantswillbewillingtowidelydeployPOSreadersdependsonthemarginsqueezeofthetransactionchannel;merchantswillonlybewillingtodeployPOSreaders,ifm-paymentismoreoratleastequallyprofitableforthemthanotherchannels.

Exhibit 7: NFC-enabled mobile phones will grow strongly and reach a considerable volume after 2010


Source: Bear Stearns, Interviews, Arthur D. Little analysis

1.046 1.131 1.094968 977

51 215 5217 445

0

200

400

600

800

1.000

1.200

1.400

1.600

2008 2009e 2010e 2011e 2012e0%

5%

10%

15%

20%

25%

30%

35%

40%

Normal mobile phones NFC enabled mobile phones NFC mobile phone's penetration

Penetration rate

Mobile phones shipped worldwide and penetration of NFC enabled phones 2008 - 2012

Units (m) CAGR 9.2%


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Leveraging existing customer relationships

Inordertobestleveragetheirexistingcustomerbase,itiscriticaltomakeaccesstom-paymentservicesaseasyaspossible.VodafoneandO2inGermany,haverecognizedthis,and have automatically cleared all their post-paid users for m-payment services on offer. The same approach has been takenbytheSlovenianoperator,Mobitel,whichbeganofferingitsm-payment“Moneta”servicein2001directlytoitsexistingcustomers.Duetothistacticalmove,morethan50%ofMobitel’s postpaid users have already conducted at least one m-payment transaction.

Incontrast,theadoptionofm-paymentsinBelgium,whereBanksyslaunchedbothinter-bankandinter-MNOoperablesolutions,hasbeennegativelyeffectedbyacomplexactivationprocess;theuserneededtogototheoperators’owndealershipsinordertochangetheirexistingSIMcardtoam-banxafe-enabled SIM.

Oncetheadoptionbarrierisremoved,m-paymentservicesoftenencouragecustomerloyaltyanddecreasechurnrate,aslongastheyhavebeentargetedattherightmarketsegment.TheapplicationofNFC-basedmobilepaymentsinthefuturewill

opengatesforawiderangeofnewmobilephoneapplicationsthat can positively influence customer loyalty and create new revenue streams.

Motivating retailers to adopt POS readers

ThewideavailabilityofPOSreadersinretailoutletsisacriticalprerequisiteforthewideserviceadoptioninretailstores.Merchants with an m-payment terminal benefit from contactless paymentsolutionsthroughareductionoftherequiredthroughputtimeforeachsingletransaction.Therefore,theincreased use of m-payment solutions can enable retailers to improvetheiroperatingprocesses.

NumeroustrialsthathavebeenconductedworldwidehaveprovedthatNFCphonesandcontactlesspaymentcardscansignificantlydecreasethetimerequiredforconductingfrequentdaily low-value transactions. An example is the process for purchasingcoffeeasshownintheExhibit 9 overleaf.Whencomparedwithtraditionalcashbasedpayment,thepurchasetimedecreasesfrom25to5seconds,makingitadvantageousfor both retailer and service users.

Exhibit 8: Main key success factor is the communication/acceptance of benefits, besides reaching a critical mass of users


Source: Arthur D. Little analysis; *Users include retailers and consumers

2,1

2,9

3,5

3,6

3,9

4,3

4,4

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5

Bank account penetration

Legal environment

Clear roles of players

Critical mass of applications

Standardisation

Critical mass of users*

Communication/acceptance of benefits

not important very important

Key success factors for m-payment services in developed markets (2008)


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M-payments can also offer additional benefits to the merchants’ business operations in the form of value-added services. An example for that would be automatic turnover and inventory controlsforcompaniesthatmanagevendingmachines.

Theadvantagesoutlinedabove,however,donotnecessarilyguaranteethattherequiredcriticalmassofretailerscanbeachieved to support the further development of m-payments. ThesignificanthurdleforretailersisthecostofnewPOSreaders.WhileNFCPOSreadersarenotmuchmoreexpensivethannormalPOSreaders,theydorepresentanadditionalinvestment.Forthisreason,inmanycases,theinstallationcostsofnewPOSreadersmighthavetobeatleastpartiallycoveredbyMNOsandfinancialinstitutions.Thismightalsoincludethemarketingcostsforthepromotionofnewservices.Forinstance,partofthecreditforNTTDoCoMo’smarketsuccessinJapangoestothedecisiontopursueamarketing-pushstrategybysubsidizingmerchantswithPOScontactlesscardreadersandconsumerswithtechnology-readymobilephones.Insummary,althoughthesystemitselfdoesdeliverbenefitsforretailers,m-paymentserviceprovidersdohavetopushretailersandmightevenhavetomotivatethemfinanciallytoinstallPOSreaders.

2.4 Improved regulations and movements towards a more liberal ecosystem will encourage the develop-ment of “cross-border” m-payment solutions

The EU example shows that the m-payment market development will depend on the creation of a liberal regulatory framework, enabling increased competition and aiming at streamlining cross-border m-payment transactions.

Theimportanceofcrossbordercooperationinprovidinganadditionalpushforserviceadoptionisundoubtedlyhigh,yetregulatoryframeworksneedtobefine-tunednationallyandalignedregionallyinordertooffernetworkeffectsforestablishedandnewplayers.Forthistohappen,internationalorganizations,suchastheEuropeanCommission,haveinitiatedregulatorychangesandeffectsaretobeseeninthecomingtwoto three years.

Thelegalandregulatoryenvironmenthasbeenidentifiedasanimportantsuccessfactorform-paymentmarketdevelopment.Anoptimallegislativeframeworkneedstoconsiderstandardrulesofoperationsforbothtelecommunicationandbankingcompanies.

Exhibit 9: Time savings while buying coffee through an NFC enabled mobile payment system



25 seconds

Getting cash out of purse and

wallet

Waiting for the change

Getting receipt

Reduction of ordering & processing time

5 seconds

Ordering coffee

Ordering coffee

Tapping on the NFC reader with mobile

and getting a receipt promptly

Cash vs. NFC mobile based coffee purchasing


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IntheEU,thiswasuntilrecentlynotthecase.TheeMoneyDirectivelaunchedin2000didnotrecognizethenewplayersinthem-paymentindustry,andhencedidnotclearlydistinguishbetweenfinancialandnon-financialplayers.Forinstance,itrequiredmobileoperatorsandindependentserviceprovidersenteringtheindustrytohaveasignificantdeposit(morethanUSD1.4million[EUR1million]),whichisusuallyrequiredforabank.However,itdidnotallowmobileoperatorsase-moneyissuerstoinvesttheirdepositsinthecapitalmarkets,althoughretailingbanksarenormallyallowedto.ItfurthermorerequiredMNOstodefinethee-moneyissuanceactivitiesastheirprimarybusinessline,whichisillogical.Allthispreventedmanysmallermobileoperatorsandnewstart-upsfromenteringthem-paymentmarket.Insomecases,asinFrance,banksevenlobbiednationalregulatorstoaggravatetherequirementsforadditionalplayerstoenterthemarket.

TheEuropeanCommissionhasproposedthePaymentServiceDirective(PSD),whichisbroaderinscopethantheeMoneyDirective,andisexpectedtobeadoptedbyallEUmembercountriesbytheendof2009.Nevertheless,thePSDdirectiveprovidesratherguidelinesthanstrictregulations,andthuscanbeappliedtothem-paymentmarketinaveryliberalfashion.Inaddition,thedirectiveisapreconditionfortheestablishmentoftheSingleEuroPaymentsArea(SEPA),aninitiativebythebankingsectorinEuropethatseekstoestablishthesameproceduresandobligationsacrossallEUcountries.SEPAtargetscredittransfersaswellasdirectdebitsandpaymentcards.

Inthemeantime,theEuropeanCommission(EC)hasbeenrevisingthecurrentversionoftheeMoneydirectiveandaddressingallitsnegativeaspects.ThisresultedinECpublishingaproposal,theRevisedEMD,forthereplacementoftheE-MoneyDirective(EMD).TherevisedEMDismorealignedwiththePSDdirective.Webelievethatfromaregulatoryperspective,thisadoptionwillakeymilestonethatwillsupportthe m-payment development.

Regulationsinotherdevelopedmarkets,suchastheUSandsomeAsiancountries,havebeenlessofanobstacleforthedevelopmentofm-payment.InJapan,theregulatory

environment set non-discriminatory rules for the entrance of othermarketplayersthanbanksinthecreditrevolvingbusiness.NTTDoCoMoexploitedthispotentialandtooktheinitiativeindevelopinganMNO-dominatedm-paymentecosystem.IntheUS,m-paymentserviceprovidersarerequiredtoregisterattheFinancialCrimesEnforcementNetwork(FinCEN)asamoneyservicebusiness(MSB),buttheregulatoryactsassuchdonotspecificallycoverthem-paymentarea.Therefore,itisexpectedthatfutureregulatoryframeworkswillspeciallycoverm-payments and release more precise operational rules for service providers.

Theregulatoryframeworkisanimportantenablerforanycross-borderm-paymentmarketdevelopment.Hence,marketplayersneed to watch the development closely in order to be ready whenthemarketstakeoff.


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In emerging markets, the adoption of mobile pay-ments as a first widely spread cashless transaction system will be driven by low-value, high-frequency transactions. Therefore, remittances will the strong growth driver for transaction volume, encouraging international cooperation.

Further near-term expansion of mobile-based transactions in emergingmarketswillbecharacterizedbythefollowingfourtrends:

� M-paymentserviceswillbecomethefirstwidespread,cash-lesstransactionsystem,enablingcost-effectiveandsecuretransactions;

� End-user’sbenefitswillmainlybecreatedthroughlow–val-ue,buthigh-frequencytransactionservices;

� NewKnow-Your-Customer(KYC)normswillbedevelopedforcingmarketplayerstofindabalancebetweenconveni-enceofuseandsecuritycontrols;

� Remittancewillbethestronggrowthdriverform-paymenttransaction volume and cross border cooperation.

3.1 M-payment services will become the first wide-spread, cashless transaction system, enabling cost effective and secure transactions

Severalsuccessfulservicelauncheshaveshownthatemergingmarketsareafertilegroundforthedevelopmentofm-paymentsolutionsduetotheirlimitedbankinginfrastructureandgrowingmobile penetration.

Relativelylowmobilepenetrationinemergingmarkets,compared to developed countries (Exhibit 10),hasthusfarlimitedthetake-upofm-paymentservices.Basedonoursurvey,mobilepenetrationratesinemergingmarketsshouldcontinuetoincrease,reachinglevelswhichwouldfurtherstrengthenthem-paymentmarketdevelopment.

Anotherimportantfactoraffectingm-paymentsinemergingcountriesisthatbankinginfrastructuretendstoberatherundevelopedintermsofnetworkofbankbranchesandnumberofATMs(bankingpenetration).

Internetpenetrationinemergingmarketsalsotendstobeverylow.InAfricaforexample,averageinternetpenetrationwasat4.8%in2006,whichwasalmost8timeslowerthan

3. Trends in emerging markets

Exhibit 10: The specific combination of mobile and banking penetration of emerging countries make them attractive for m-commerce growth than developed countries


Source: World Bank, Arthur D. Little analysis

Mobile and banking penetration in emerging and developed countries in 2007

0

20

40

60

80

100

120

0 10 20 30 40 50 60 70 80

Number of mobile phones/100 inhabitants(mobile penetration)

Number of bank branches & ATMs/100.000 inhabitants(banking penetration)

Bangladesh

EgyptChina

Philippines

Kenya

Mexico

USA

UK

High attractiveness for m-payment services development

Low attractiveness form-payment services development

Highly attractive for m-payment development


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theEuropeanaverage.Incomparison,mobilepenetrationwas21.6%in2006onaverageinAfrica,whichwasalsoslightlymorethan4timeslowerthantheEuropeanaverage.

Thesepreconditionsincreasetheattractivenessofemergingcountriesforthedevelopmentofm-paymentandm-bankingsolutions. Research has shown that countries with a relatively highmobilepenetrationandalowdegreeofdevelopmentoftheirbankingsectorhavethebestpreconditionsforadevelopmentofm-paymentsolutions,andthisisthecaseinmanyemergingmarkets.ThePhilippines,asoneoftheleadingm-paymentmarketsinemergingcountries,supportthisassessment.China,IndiaandKenyaarealsoexpectedtobecomekeydriversofm-paymentgrowth.

Retailbanksthatoperateinthesemarketsoftendonothaveenoughbranchesoutsideofhighlydenseurbanareas,toenable them to facilitate countrywide cashless transactions. M-paymentsolutions,therefore,donotneedtocompetewithexistingbankinginfrastructure,andbecomemoreattractivetoplayersinthemarket.

Evenifcreditcardsareavailableinthesemarkets,themajorityof the people are reluctant to use them because ATMs and POSterminalsarealsomainlyconcentratedinurbanareas.Thisleavesagreatpartofthepopulationlivinginruralareaswithoutbankingservices,andhasleadtoacash-basedsociety,asitisthecaseinAfricaandtosomedegreeinAsia.Thenon-bankingpopulationhasshownastronginterestinanalternativesolutionthatcouldenablefast,cheap,convenientandsecurecashlesstransactions. M-payment represents a viable solution that can address all those aspects.

PeopleinSouthAfrica,forexample,oftenpaycouriersaroundUSD40foraphysicalcashtransfer.Withmobiletechnology,they could transfer money at a cost of only USD 0.50. The South AfricanproviderWizzitchargesm-paymentfees,whichareonaverage20%lowerthantraditionalchargesbybanksand,asaresult,wehaveseenhighadoptionratesofm-paymentservicesinthismarket.

InKenya,Vodafone’sM-PESAsolutionhasbeenaddingonaveragearound200,000subscribersmonthlysinceitslaunchin

2007andhasreachedmorethan2,000,000customersinjustoneyear,whichrepresentsroughly50%ofthetotalpopulationusingbankingservices.AnotherexamplecanbefoundintheRepublicofZambiainsouthernAfrica,wherethem-bankingsolutionproviderCelpaycurrentlymanagesmorethan5%ofcountry’sGNPthroughitsm-paymentplatform.

Somemajorsuppliersofmobilephones,likeNokiaandMotorola,developedspecially-designedhandsetforthesemarkets,focusingonthedevices’durability,functionalityand relatively low purchase price. This enabled low-income consumerstoequipthemselveswithmobiledevicesoruseasharedaccess,whichalsodrovetheadoptionofm-paymentservices.

Localgovernmentsandregulatorshavealsoplayedanimportantroleinthedevelopmentofm-paymentservicesbyprovidinganinvestment-friendlyenvironment.Inmostcases,centralbanksandregulatoryagenciesgoverningthetelecomindustrydonothaveverystrictlawsandregulationsthatwouldinhibittheentrance of non-traditional players in the financial sector.

InChinaandsomeemergingmarketsinAfrica,suchasKenya,governmentsaretakinganactiveroleinshapingmarketconditions in order to provide similar access to financial services inruralandurbanareas,reducingthedigitaldividebetweenregionswithinacountry.Throughsuchabehavior,regulatorsinemergingmarkets,incontrasttoregulatorsindevelopedmarkets,haveindirectlysupportedthedevelopmentofmobilepaymentandbankingservicesintheircountries.Onecanobservethatglobally-activeMNOsarerecognizingtheinherentgrowthpotentialinemergingcountriesandareincreasinglypenetratingthosepromisingmarkets.

OneyearafteritssuccesswithM-Pesa’scommercialrolloutinKenya,VodafonelaunchedthesameserviceconceptinAfghanistanandTanzania,andhasplansforaserviceextensiontoIndiaandGhana.OrangeisalsoactiveinemergingmarketswhereitsoperationsinAfrica,Middle-EastandAsia(AMEA)achieveda50%growthintheircustomerbase,aswellasa15%salesgrowthfrom2006-2007.Theirpilotserviceoffer,OrangeMoney,intheIvoryCoastallowsuserstoperform


30

financialtransactionswiththeirmobilephone,suchaswithdrawalandmoneytransfer,billspayment,purchasesataffiliatedPOS,airtimecreditandtransfer.OrangeplanstorolloutOrangeMoneycommerciallyinthismarketafter2009,andtosubsequentlyintroduceitinthreeothercountries:Jordan,MaliandSenegal.

Insummary,growingmobilepenetrationratesandalimitedbankinginfrastructureincreasetheattractivenessofemergingcountries for the development of m-payment services. Interna-tional value chain players are well-advised to watch the future de- velopmentcloselyinordertotakeadvantageofastronggrowth opportunity as m-payment services will act as the first wide-spread cashless transaction system in many of these countries.

3.2 End-user’s benefits will mainly be created through low-value, but high-frequency transaction services

Service providers will continue to focus on simple, low-value, but high frequency transactions while leveraging their customer relationships. Governments and regulators will continue to encourage further development in m-payment services should be expected.

Intheemergingmarkets,m-paymentsolutionsarestillasupplementary,butstronglygrowingtransactionchanneltotheexisting,butunderdeveloped,bankingsystem.Thecorevaluepropositionthatm-paymentiscurrentlyofferingarefast,cheapandsecuretransfersofcashlessmoney.ThefollowingExhibit 11 givesanoverviewofcurrentlyofferedm-paymentservicesinemergingmarkets.

Uptonow,low-value,buthigh-frequencytransactionswereinthespotlightofthemainvaluechainplayers.TheKenyanM-PESAproduct,forexample,gained111,000usersinthefirstthreemonthsafteritslaunch,conductingtransactionsworthroughlyUSD15onamonthlybasis,generatingtotalrevenuesofUSD6millionwithinthesameperiod.Becausethecurrentlyused mobile phones are mostly simple devices that support onlyvoiceandSMS/USSDfunctions,weexpectthattheservicewillstillbeprovisionedthroughSMSandUnstructuredSupplementaryServiceData(USSD)channelsinthenearfuture.

Onefundamentalmarketconditionforthedevelopmentofthesuccessful m-payment business case by Globe Telecom in the PhilippineswastheheavyusageofSMSbytheirmobileusers.With400-500millionSMSsentperday,itssubscribersholdtheworld’sleadingpositioninshortmessagetraffic.

Exhibit 11: M-payment services offered in emerging countries (e.g. Kenya)



Mother pays by mobile for daily and monthly living costs Father utilizes mobile phone for branchless financial transactions

Son uses his mobile phone for taxi services and remittances

Electricity bill payment (utility bills’ payment)

Grocery shopping (shopping)

Micro-loan repayment (m-banking)

Satellite TV bill (utility bills’ payment)

Sending money to parents(P2P transfer/remittance)

Taxi-Income (transportation ticketing)

Pension disbursement (remittance)

Pre-paid credit purchase (Airtime top-up)

Insurance payment (bills payment)


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InadditiontoahighusageofSMS,twootherimportantpreconditions for a successful service launch and expected uptakeinemergingmarketsare:

� Thedevelopmentofawidelydispersednetworkofsalesagentswhoenablecash-inandcash-outservicesbothinurbanandruralareasofacountry;

� The education of the population on the basic features offered bythisinnovative,butsimpletransactionservice.

Despitethestronggrowthofandinterestinm-payments,theprimaryserviceofferedinemergingmarketswillremainsimplemoneytransfers.ThisisasapplicablefortypicalMNOm-paymentserviceproviders(e.g.M-PESAinKenya,ZambiaandAfghanistan),asitisfortypicalm-bankingproviders(e.g.WizzitinSouthAfrica)andindependentm-paymentserviceproviders(e.g.mChek,Obopay,PayMateinIndiaandMoneyBoxinNigeria).

Inadditiontomoneytransfers,activeplayersarecurrentlyofferingoraremovingintoairtimetop-up,virtualwalletandbillpayingservices.Orange,ontheotherhand,usedairtimetop-up as the first offered service in African countries in order to educateconsumersinusingtheirmobilephoneasapaymenttool. Airtime top-up is very well-suited to be the Trojan horse for enteringthem-paymentmarket,withalargebaseofprepaidusers,andlow-value,butfrequenttransactions.

AdditionalexpansionpossibilitieslieintheB2Barea.Vodafone,forexample,hasgainedsomeexperienceinthisareawithitsM-PESA;thecompany’slocalpartnerinKenya,Safaricom,uses its payment platform for the distribution of salaries to their seasonalworkers.InAfghanistan,VodafonehascollaboratedwithalocaloperatortoofferalsoB2Bapplications,suchassalarydisbursementandairtimedistributionthroughitsM-PAISAbrandedmobiletechnologyplatform.

Besidesmarketdemandandcompetition,regulatorframeworkisanimportantfactorinfluencingthem-paymentserviceoffer.Inemergingmarkets,thegovernmentalbodiesoftenpushforaredirectionoffinancialtransactionsintoe-channels,becauseelectronically they are easier to trace and thus increase the economy’stransparency.Therefore,marketplayersshould

expectlegislatorsandregulatorstofurtherencouragethedevelopment of m-payment solutions.

Wefurthermoreexpectthatestablishedplayerswilltrytoleveragetheirexistingcustomerrelationshipsandloyaltyandtrytomoveintomoresophisticatedbankingservices,suchasbankloans.OneexampleisSmartCommunicationinthePhilippineswherem-paymentservicesarealreadycontributingtoanincreaseincustomerloyalty.Churnratesof0.5%forusersofSMARTMoneyservicesareconsiderablylowerthanthe3%for other users.

Whilestillasupplementarytransactionchannel,m-paymentsolutionsaregrowingstronglyinemergingmarkets.M-paymentsareespeciallywell-suitedforlow-value/high-frequencytransactions,whichwillremainbasedonSMS&USSDtechnology.Althoughthemainserviceofferedwillremainbasicmoneytransfers,airtimetop-upiswellsuitedtobetheentryserviceofferedforenteringthem-paymentmarket.Ifthethreeconditions,highusageofSMS,widelydispersednetworkofsalesagentsandeducationofthepeople,aremet,afurtherstronggrowthofm-paymentservicesistobeexpected.Liberalregulationsandopenauthoritieswilltherebyfurthereasethemarketdevelopment.

3.3 New Know-Your-Customer (KYC) norms will be developed forcing market players to find a balance between convenience of use and security controls

The implementation and further development of KYC norms will remain a complicated matter in m-payments, particularly in emerging markets, as governments, regulators and market players have to find the right balance between convenience of use, low adoption barriers and appropriate security and anti-fraud controls.

Thestronguptakeofm-paymentandbankingservicesinemergingmarketshasraisedalotofpublicattentionabouttheissueofprotectingversusrevealingprivatecustomerdata.Today,nationalstakeholdersaredebatingaboutthisissue,andgovernmentsofdevelopedcountriesalsoareconcernedaboutthepotentialofusingm-paymentchannelsforillegalactivities.


32

Thepurposeof“KnowYourCustomer”norms(KYC)istoprovideguidelines,whichwilllimittheuseofm-paymentchannelsforillegalandfraudulentactivities.Foralongperiod,retailbanksworldwidehavebeenrequiredtoestablishguidelinesandprocedures in order to enable the identification of possible moneylaunderingschemesandtofileadequatereportstotheirnationalgovernmentbodies.KYCguidelinesareconsideredasapropertoolfordetectingsuspiciousactivitiesofbankaccountholders.KYCnormsareusuallynotuniversallydefined;eachbankorotherfinancialinstitutionisallowedtosetupdifferentprocedures that fit their own operations.

Companiesprovidingm-paymentsolutionsinemergingmarketsoftenhavevaryingguidelineswithrespecttoKYCrequirements:

� MTNMobileMoneyinSouthAfricausesitsroamingagentswiththeirmobilephonestoopencustomerbankaccounts.Meanwhilethecompanyalsoutilizestechnologythatallowsapersontoopenabankaccountviahandsetswithnodirectbankinteraction,whichrepresentsaratheropenprocedure.

� CelpayinZambiautilizestheembeddedmobilephonecam-era to capture the documents and picture of a person prior totheaccountregistration.

� PhilippineserviceprovidershaveworkedcloselywiththeCentralBankfordefiningtheKYCpolicies.Theauthorizedsubscribermustregisterinpersonattheserviceproviderandpresentavalidphotoidentificationdocumentduringcashinandcashoutactivities.Inaddition,thesizeofthecustomer’s e-wallet is limited.

Allstakeholdersinvolvedinthem-paymentmarketareawarethathavingstrictandcomplicatedKYCnormsinplacecouldinhibitthegrowthofm-paymentservices.Forthisreason,m-paymentandm-bankingserviceprovidersaretryingtolimitKYCnormsasmuchaspossibleinorderforitnottoeffectitsacquisitionofcustomers.

Inthatregard,itistobeexpectedthatnewmarketentrantswillimposelesscomplexandstrictKYCnormsthantheonesimposedbytraditionalretailbanks.Therefore,weexpectthattraditionalretailbankswilltrytopushregulatorstoenact

stricterKYCrequirements,andtherebylimitthepotentialofthem-paymentchannelforproductup-salesintobankingservices.

Providersofm-paymentandm-bankingservicesarefacingpressurefromtwosides:fromnationalgovernmentsofcountrieswheretheyoperate,andfromtheinternationalcommunity.Thepressureiscomingfromconcerns,especiallyfromtheUS,thatthepromisingm-paymentgrowthinemergingmarketsofAfricaandAsiawillleadtoanabuseofthecashlesstransaction system. There are some indications that crime proceedsorcontributionstoterroristorganizationscouldinthefuturebetransferredbythelessregulatedm-paymenttechnology.

ProportionateKYCrequirementsshouldthereforebeappliedinordertofightpotentialmoneylaunderingactivities,butatthesametimekeepingtheserviceactivationprocessassimpleaspossible.ThisimpliesthattransactionsinvolvinghigheramountsofmoneymustrequiremorestrictKYCnorms,evenifitcomesathighercostforserviceprovidersandendusers.

Mostoperatorshavealreadyelectronicsystemsinplace,whichareconstantlyanalyzingcustomer’stransactions.Thesesystemstrackthetransferfrequenciesandalertiftherearemanysuspiciouslow-value,buthighfrequency,transactionsbyonesingleindividual.Thesetrackingsystemsarenotwithoutany benefit for the service providers. It enables them to have a betterinsightintoconsumerbehaviorpatternsbytrackingandidentifyingtheflowoffunds.Ithencerepresentsapowerfulmarketingintelligencetoolaswell,inadditiontobeingusedfortrackingpotentialcriminalactivities.

Overall,KYCwillremainacomplicatematterinm-paymentsparticularlyinemergingmarkets.Pushedbyforeigngovernmentsandtheinternationalcommunity,localgovernments,regulators,operators,banksandotherplayershavetofindtherightbalancebetweenconvenienceofuseandlowbarrierstoadoptionononesideandensuringappropriatesecurity and anti-fraud controls on the other side.


33

3.4 Remittance will be the strong growth driver for m-payment transaction volume and cross border cooperation

Globally growing mobile remittances with 146% p.a. will be the target area for m-payment services and will lead to the establishment of international strategic partnerships. Thereby, it will positively influence the m-payment transaction volume.

OneofthemostattractiveP2Pm-paymentservicesisremittance.Remittingmoneyisawidely-usedpracticeinallemergingcountriesofAfrica,AsiaandSouthAmerica.Moreover,thesignificanceofmoneyremittanceisgrowingduetotheuneveneconomicdevelopmentofdifferentcountries,which increases the need for fast and easy remittance services tobridgesalarydifferences.Strongmigrationtrendsareagainincreasingtheimportanceofremittance.

The amount of money remitted on an annual basis from developedtoemergingcountriesintheperiodfrom2004to2008hasgrownat14.8%p.a.reachinginUSD283billionin2008(see Exhibit 12).Regionally,weobserveddisparitiesinthegrowthofremittances.AsianandEuropeancountrieshavesofar

beenthemaingrowthdriversforglobalinflowofremittances.ThegrowthofremittancestocountriesinSouthAmericaslowedinthelasttwoyears,mainlyduetotheweakeningU.S.economy,especiallyinconstructionandrealestate,andatighterenforcementofimmigrationlaws.Thegrowthofremittancestootherregions,however,remainedhigh.MainfactorscontributingtogrowthweretheboomingeconomiesinAsiaandsomepartsofEuropewithaCAGRfrom2004to2008ofabove23%.

EfficientcrossborderremittanceservicesrequirethecreationofinternationalmobilepaymentnetworksthroughpartnershipsbetweenMNOsandfinancialinstitutionsaroundtheworld.Theestablishmentofinternationalnetworksisthereforecriticalforasuccessfulgrowthofthisservice.

Weexpectthegrowthofremittanceflows,however,totemporarilyslowdownin2009,asaresultoftheglobaleconomiccrisiscausedbymajorbankruptciesintheUSfinancialindustryin2008.Nevertheless,onamid-tolong-termbasis,weexpect the remittance flow to increase steadily.

Inordertocapturethisgrowth,today’sm-paymentserviceprovidersareestablishingstrategicpartnerships.Arecentexample of cooperation is the partnership between Philippine

Exhibit 12: From 2004 to 2008, total remittance flow to emerging markets has been steadily growing at 14.8% p.a., Asia and Europe being the main growth drivers


Source: World Bank, Arthur D. Little analysis

0

50

100

150

200

250

300

2004 2005 2006 2007 2008e

South-east Asia and Pacific Latin America and Caribbean Europe and Central Asia Middle East and North Africa Sub-Saharan Africa

$ billionsCAGR 04-08:

Development of remittance-inflows according to emerging markets

25.7%

11.1%

13.5%

9.8%

23.8%163

195

229

265283

CAGR 14.8%


34

GlobeTelecom,LariExchange,theleadingfinancialexchangeintheU.A.E.,andGermanheadquarteredpayboxwiththestrategicgoalofincreasingmoneytransfersthroughmobilechannelsbetweenthePhilippinesandsendermarketsinAsiaandtheMiddleEast.WesternUnionhasalsorecentlyfinalizedapartnershipwithGlobeTelecom’ssubsidiaryG-XchangeaspartoftheGSMAssociation’sMMT(MobileMoneyTransfer)strategicinitiativeforthedevelopmentofasimplesecuritysystemforsendinginternationalremittancesviamobilecommunicationchannels.Bothpartnershipsaimtoleveragetheircomparativeadvantagesincross-borderremittanceservices:G-Xchange’s1.5millionGCASHserviceusersononesideandWesternUnions’widenetworkofagentsontheotherside.Moreover,WesternUnionhasalsoclosedapartnershipwith the second Philippine m-payment service provider Smart Money in order to secure and increase its national exposure.

Remittance is the most attractive m-payment service in emergingmarketsandhasbeengrowingat14.8%p.a.;AsianandEuropeancountriesbeingthemaingrowthdrivers.Duetotheglobalfinancialcrisis,weexpectremittancestoslowdownin2009,buttakeupagaininthemidtolong-term.Inordertocapturetheinherentgrowth,m-paymentserviceprovidersareseekingtoestablishstrategicinternationalpartnerships,whichwill in turn positively influence m-payment transaction volume. Foranyvaluechainplayer,itisimportanttosecureaccesstotherightpartnershipstoeffectivelytakepartinthetrend.


35

M-payments are growing globally at 68% p.a. and are expected to reach almost USD 250 billion by 2012, but are developing differently in emerging and developed markets. In developed markets, m-payment services will not substitute existing pay-ment systems, as massive adoption will be limited to niche segments. In emerging markets, m-payment services will become the first widespread cashless transaction system.

Wegroupedm-paymentsservices,differentiatedfromm-bankingservices,intobusinesstoperson(B2P)orpersontoperson(P2P)services,aswellasintoeitherremoteorproximitypayments.MostservicesaredesignedforaB2Penvironment,suchaspurchasesatvendingmachinesorticketing.Inthefuture,however,wealsoexpectthedevelopmentofP2Pproximitypaymentservices,whichsofardonotexistinthemarket.Hence,firstmoveradvantagesexistforanyvaluechain player who is able to launch successfully a new P2P proximityservice.Furthermore,wehaveseenthatdifferenteconomic,technological,socialandculturalfactorsinfluencethedevelopmentofeconomicmarketsandnewservices.Anymarketentrystrategyorconsiderationoffurtherinvestmentsshould therefore assess those factors in order to evaluate the marketattractiveness.

Intermsofmarketandservicegrowth,remittanceswillgloballybethestrongestcontributortotransactionvolumegrowthinthenext2yearswithacompoundannualgrowthrate(CAGR)of25%.Asof2010,whenproximity-basedpaymentsareexpectedmassivelyrolledoutonacommercialbasis,retailpurchases(e.g.shopping,restaurantpayments)willbecomethemajorgrowthdriverfortransactionvolumewithaCAGRof77%.In2012,weexpect m-payment transaction volume to reach almost USD 250 billion,growingat68%p.a.WeenvisageproximitypaymentstogrowthwithaCAGRof118%andremotepaymentswith52%withinthesametimeframe,representing51%and49%respectivelyofthetotaltransactionvolume.AlthoughArthurD. Little expects proximity payments to outperform remote payments,valuechainplayersshouldmaketheirservicefocus

countrydependent.Inemergingcountries,remittances,asaremotepayment,showsthehighestgrowthratesandissecondinabsolutevolumeby2012.Indevelopedcountries,proximitypaymentssuchasm-ticketingshouldratherbeinfocus.

Lookingindetailatthetransactionvolumesplitintodifferentregions,thestrongestgrowthareawillbetheMiddleEastwithaCAGRfrom2008until2012of155%.Inabsolutevolumehowever,thebiggestsharein2008goestothegroupJapan,SouthKorea,Australiawith24%andtothe“RestofAsia”with29%.Thedistributionisexpectedtochangeby2012,when“RestofAsia”willstillleadwith33%,andWesternEuropewillmovetosecondpositionwith17%.Overall,weexpectemergingmarketstogrowthfasterwith76%p.a.comparedto56%p.a.indevelopedcountries,andrepresenting65%ofthetotaltransactionvolumein2012comparedto35%fordevelopedmarkets.Ifvaluechainplayersplantofurtherinvestintom-payment,emergingmarketsarefromapuregrowthrate and transaction volume perspective more attractive than developed countries.

Theglobalfinancialcrisisisalsoaffectingthetelecommunicationindustry,althoughwithaslightdelay.However,ArthurD.Littlebelievesthatthem-paymentmarketgrowthwillmaterializedespite the current financial crisis. Telecommunication companieswillbeforcedtoorarealreadycuttingtheircapitalexpenditures(CAPEX).Asm-paymentservicesrequireanew,oftencomplexandexpensiveorganizationalandprocesssetup,telecommunication companies will be tempted to postpone the introduction of m-payment services in order to cut cost. They have nevertheless an incentive to launch m-payment services as thewindowofopportunityformarketentry/expansionisnow.Inemergingmarkets,theunderlyingbusinesscaseisdefinedandthereislimitedcompetitioninregardtocompetingtransactionchannels.Indevelopedmarkets,somemobilecarriersmayapplya“Wait-and-See”strategy,butwiththesolvingofNearFieldCommunication(NFC)technologyuncertainties,theperspectivesforlaunchingm-paymentservicesinwillalsobecomehighlyattractive.Hence,webelievethattelecommunicationcompaniesmakem-paymentinvestmentrestrictionsnottheirfirstpriority.Additionally,althoughthefinancialcrisiswilllowerconsumerconsumption,whichwill

4. Conclusion


36

affectfinancialtransactionsingeneral,m-paymentserviceswillstillbeabletogrow.Duetotheircheapertransactioncosts,theywillbeabletograbmarketsharefromtraditionalbankingservicesandduetotheirbettermobility,theywillgrowfasterthan less mobile payment channels such as on-line payments. Additionally,onthesupplysidetelecommunicationcompanieshaveanincentivetopushm-paymentservicesasapromisingnewrevenuesourcefacingoftenstagnatingrevenuesintheircorebusinesssegmentsoffixedandmobiletelephony.

Situation in developed markets

M-paymentserviceswillnotsubstituteexistingpaymentsystemsindevelopedmarketsformainlytworeasons:First,amassivemarketadoptionislimitedtoconvenience-enhancingapplications,whicharedifficulttobuildconsideringthealreadyhighlyelaboratedtransactionchannelsinplace,suchascreditcards,e-bankingetc.Ourstudyshowedthattheacceptanceofbenefits(convenience)isthemostimportantkeysuccessfactoramongthesevenprimaryfactorsforthedevelopmentofm-paymentservicesindevelopedmarkets.

Second,amassiveadoptionislimitedtonichesegmentswherean increase in the current satisfaction level is easier to achieve. Keyformarketplayersisnotonlytofulfillthesevenkeysuccessfactorsbutalsotoleveragetheirexistingcustomerrelationshipsand motivate retailers in order to reach a critical mass of users andsupporters.OneoptionwouldbetodirectlysupportretailersfinanciallybysubsidizingthedeploymentofPointofSale(POS)readers.

IfmerchantswillbewillingtowidelydeployPOSreadersdoesdependontheunderlyingmarginsqueeze,butonlyawidedeploymentwillenableastronggrowthofm-paymentservices.Assaid,inouropinionm-paymentwillnotsubstituteexistingpaymentchannelsbutwilllowertheirARPU(averagerevenueperuser)overtimeduetoincreasedchannelcompetition.

ConcerningNearFieldCommunication(NFC)-basedm-paymentservicesindevelopedmarkets,ArthurD.LittleseesamassiveadoptionofNFCbasedm-paymentservicestakingplaceearliest in 2011. The main reasons for this are delayed hardware standardization,therelatedunavailabilityofawide-rangeof

NFC-enabledhandsetsandthelackofinteroperabilitybetweencountries.Valuechainplayersshouldparticipateintrialsinordertobenefitfromearlymarketinsights,inordertobepreparedwhenallissuesareresolved.Thestrategicinitiative“Pay-Buy-Mobile”isalreadytryingtosimplifyglobaltechnologystandardizationandspeedupmarketadoption,butitisnotyetfullyeffective.RecentinterviewswithsuppliersandexistingexternalsourcesindicatethatNFCenabledphoneswillreachaglobalpenetrationof35%in2012.ArthurD.Littlebelievesthatonlyonethirdwillberealistic,meaningroughly170millionNFCenabledphonesrepresentingan11%penetrationratebytheend of 2012.

ImprovedregulationsandmovementstowardsaliberalecosystemliketheGSMAinitiativeortheplannedPaymentServiceDirective(PSD)guidelinewillpushmarketdevelopmentsintogoing‘cross-border’.Indevelopedmarkets,weseeashiftoffocusfromgainingfirstmoveradvantagesandestablishingadominantmarketpositioninonemarkettowardsageographicalexpansionensuredthroughcross-borderandcross-industrycooperation.ArthurD.Littlethereforeadvicesmarketplayerstobuildupnetworkeffectsbyestablishingpartnershipsto enable international usability of their services.

Situation in emerging markets

M-payment services will become the first widespread cashless transactionsystemenablingcosteffectiveandsecuretransactions.Emergingmarketswiththeirlowbankinginfrastructure,butmoderatetohighmobilepenetrationofferfertilegroundforthedevelopmentofm-paymentsolutionsandareoftenmoreattractivethandevelopedmarkets.ArthurD.Littleexpectsfurtherstronggrowthinthosemarkets,andsoitisnosurprisethatinternationalmobilenetworkoperators(MNOs)arealreadyincreasinglypenetratingthosemarkets.Asthey are pressured by established competitive payment channelsindevelopedcountries,internationalmobilenetworkoperatorshaveastrongincentivetoofferm-paymentservicestoemergingmarketswherebothregulatoryandmarketconditionsarebeneficial.Wehencerecommendinternationalvaluechainplayerstowatchmarketdevelopmentscloselyinordertonotmissgrowthopportunities.


37

Growthandmarketadoptionwillbeaccompaniedbythedevelopmentandimplementationofproportionateknow-your-customer(KYC)norms.Regulators,operators,banksandotherplayershavetofindtherightbalancebetweentwopoles:Ononeside,thereistherequiredconvenienceofuseandlowbarrierstoadoptionand,ontheotherside,thereistheneedtoensureappropriatesecurityandanti-fraudcontrols.Hence,valuechainplayersshouldtakeanactiveroleindefiningtheKYCnorms in order to secure their influence on the development.

Inemergingmarkets,enduser’sbenefitswillmainlybecreatedthroughlowvaluebuthighfrequencytransactionservicessince m-payment solutions are still a supplementary transaction channeltotheexistingbutunderdevelopedbankingsystem.Uptonow,low-value/highfrequencytransactionswereinthespotlightofmarketplayersandArthurD.Littleexpectsthemtoremain so. Mostly because simple money transfers will remain the main service offered. Especially remittance services are thesectortowatchastheyhavebeengrowingat14.8%p.a.,fuelingtransactionvolume.Additionally,theywilldrivecross-bordercooperation.Valuechainplayersshouldthereforesecureaccesstotherightpartnershipssoastoeffectivelyparticipateincross-borderremittancegrowth.

Implications for value chain players

Aswehaveseen,mobile network operators (MNOs) are alreadymovingintoemergingmarketswithm-paymentoffers.Forthevastmajorityofthosemarkets,MNOswillbeinclinedtoplaythefirst-to-marketgame.Thisisprimarilycausedbyfavorablemarketdemandattractingnewplayersandbyminimalcompetitionfromconventionalpayment-channelsenablingfastmarketsharegains.Regulatoryactionsandpoliciespushedbythecompetingfinancialindustrymay,however,limitthemarketdevelopmentpotential.Therefore,topreservethelong-termmarketpotential,itwillbecrucialforMNOstoplaycontinuouslyanactiveroleinshapingtheregulatoryenvironmentinemergingmarkets.Inordertobenefitbestfromtheinherentgrowthinregardtothechoiceofservices,MNOsshouldfocusonlowvalue/highfrequencytransactionsandhaveaspecialfocusonremittancesinemergingmarkets.Thesuccessofremittanceservices will be especially dependent on the international

usability.MNOsshouldthereforecontinuetobuildupcross-border partnerships to ensure inter-country operability.

Indevelopedmarkets,weexpectMNOstoshiftfrompredominantlow-valueservices,suchasparkingandtransportationtickets,tohigh-valueservicesenabledtroughNearFieldCommunication(NFC)technology.Retailm-payments,forinstance,willbesuchaservicethatwillcompetewithexistingconventionalpaymentchannelslikecreditcardsorATMs(AutomatedTellerMachine).Therefore,itisveryimportantforMNOstomotivateawiderangeofretailerstoreachtherequiredcriticalmassforasuccessfulgrowthofm-paymentservicesindevelopmentmarkets.Thiscanbeachieved,forexample,bysubsidizingthedeploymentofPointofSale(POS)readers.Onanationallevel,successfulcasesofm-paymentservicedevelopmentindevelopedmarketshaveprovedthatcooperationbetweenMNOsintheadoptionofaninteroperablemobilepaymentplatform,istheonlywaytoassureforbroadmarketsuccessofm-paymentchannels.Themorecompetingcarriersparticipateinthedevelopmentofasinglemobileplatform,thefasterandmoresuccessfulwilltheservicetakeupbe.Notonlycansuchcooperationachieveanextendedcustomerreach,butitwillalsolowerthetechnicaladoptionbarriersandcreateamoreconvincingvaluepropositionfor retailers.

The adoption of an interoperable mobile payment platform willconsequentlyleadtoanevenmarginlevelamongmultipleMNOs.Ifthismaterializes,MNOscannolongerdifferentiatethemselves in terms of prices as all face the same cost structure.MNOsshouldinthatcasestarttocompetebycreatinginnovativeproductbundlesthatarehardtocopyandmoveawayfromsingleproductpricecompetition.

Financial institutions arefarbetterpositionedforshapingthem-paymentandm-bankingmarketdevelopmentindevelopedthaninemergingcountries,becausetheycanbuildonastronginfrastructurethatincreasestheirbargainingpower.However,the reluctance often showed by the financial industry in this marketstemsfromthefearthatm-paymentservicesmaycannibalizetheirexistingbusiness.Uptonow,m-bankinghasbeenthemostinterestingforfinancialinstitutionsprimarilyasa


38

complementarychannel,andmostlyonlyinreactiontomovesofcompetitors.However,m-bankingandrelatedm-paymentservicescanbeadifferentiatingfactoramongcompetitorsandapowerfultoolforcustomerretentionandacquisition.Themajoradvantageis,however,thenewmobilityofthem-bankingservices,whichgivesfinancialinstitutionsthechancetotapintothesizableUSmicrocashpaymentmarket.Thisrepresentsanattractivepaymentmarket,whichhasbeendominatedupto now by simple cash. Major credit card companies have identifiedthispotentialasasignificantrevenuegrowthpotentialandaretakingoneoftheleadingrolesinbringingtheNearFieldCommunication(NFC)basedpaymentstoconsumers.Furthermore,throughpartnershipswithmobilenetworkoperators,bankscanincreasetheirexposuretoabroadercustomerbaseandpushcross-sellingpossibilities.Overall,werecommend financial institutions to overcome their reluctance tom-paymentservicesandtakeamoreactiveroleinthem-paymentdevelopment,inordertooccupyacentralroleinthevaluechain,whilestilldecidingonacase-by-casebasisifaninvestmentisnetpresentvalue(NPV)positive.

Merchants have a very important role in the development of them-paymentmarketbecausetheyare,formanym-paymentservices,thesingleconnectionpointbetweensuppliersandend-consumers.Althoughitisnotentirelyclearwhetherthem-paymenttransactionchanneloffersmerchantshighermarginscomparedtoothertransactionchannels(e.g.creditcards),there are additional financial opportunities for these value chainplayerstoexploit.Parkingmanagementcompanies,forinstance,haverealizedbothincreasingratesofcollectedfeesduetoincreasedserviceconvenienceandsignificantoperationalcostreductions,whichtogetherledtoanimprovedoperationalprofitability.Asimilarlogicappliestotransportationcompaniesofferingm-paymentservices.Therefore,werecommendmerchants to evaluate the m-payment channel as a means to increaseconsumerconvenience,mobilityandaccessibilityoftheirservicesandgoodsincontrasttoseeingonlythecostside.Weexpectthatanincreasingnumberofdifferenttypesofmerchantswithinthevaluechainwillrealizeasignificantupsidepotentialfortheirbusiness,oncetheNearFieldCommunication(NFC)technologytakesoff.

Weseeevennowthatinthehealthcarefield,forinstance,numeroussoftwareapplicationsarebeingdevelopedrelyingonmobilephonesandtheNFCtechnology.Formerchants,itishowever advisable to wait until clear m-payment standards have beendefined,NFC-basedapplicationshavebeensufficientlytestedandfirstconsumer-pullsignsarise.

Innumberofcases,wehaveseenthatindependent payment service providers play an important role in the development ofm-paymentmarkets.Theirmarketpotentialliesmainlyinthe possibility to establish partnership relations with otherwise competingmobilenetworkoperatorsandbanks.Overall,theysupportthemarketdevelopmentintwoways:First,theyareabletocontributetoaneasierandfastermass-marketserviceadoptionbybeingamediatorwithinthecomplexm-paymentvaluechain.Second,astheyhaveoftenmoreexperienceinbroadlyacquiringmerchantsindifferentmarketsegments,theymakeiteasiertoachievetherequiredcriticalmassforamassiveservicetake-up.Therefore,werecommendindependentpayment service providers to focus on the establishment of the requiredpartnershipsinordertocompileanessentialrolewithinthe m-payment value chain. This in turn will enable them to becomenon-exchangeableandincreasetheirbargainingpowerwhennegotiatingmarginshares.

Additionally,werecommendindependentpaymentserviceproviderstocooperatewithasmanymobilenetworkoperators as possible. This is their major value contribution to end-consumers since they offer them m-payment services compatiblewithallmajormobilenetworks,whichishardtocopybyasinglemobilenetworkoperator.

Inthepast,suppliers’ involvement in the m-payment value chain was limited. As the main services were predominantly remotem-payments,whichreliedonalreadyexistingtechnologiessuchasSMS,BluetoothorInfrared,noadaptationofcurrentlyofferedhandsetswererequiredand,thus,nosupplierinvolvementneeded.However,thesituationhaschangedwiththeintroductionofRadio-FrequencyIdentification(RFID)andtheevolvementoftheNearFieldCommunication(NFC)technology,andtoday,chipvendors,PointofSale(POS)terminal suppliers and handset manufacturers are more active.


39

Onceagain,wewitnessthebattleforanindustrystandardconcerningPOSterminalsandthesecureelementembeddedin mobile phones. European Telecommunications Standards Institute(ETSI)has,throughtheirSingleWireProtocol(SWP)standard,easedthewayforamorealignedNFCdevelopment.Nevertheless,werecommendsupplierstoparticipateactivelyinNFCtrialsinordertobuilduppracticalexperience,improvetheir products and to establish important relations with other value chain players. This will improve their readiness for massive marketgrowth.

Additionally,theirparticipationinpilotscanhaveapositiveeffectonearlycustomerawareness,whichishighlyvaluableinthemarketgrowthanddeploymentphase(e.g.merchants’preference for point of sale terminals and end-user’s preference forcertainhandsets)andhenceleadtofirstmoveradvantages.However,theappropriatenessofparticipationintrialsdependsonwhichmarketsthesupplierisactiveinandhowlikelythosemarketsaretoadoptNearFieldCommunication(NFC)-basedpaymentsolutions.Consequently,marketassessmentsshouldprecedeanyengagementinNFCtrials.

Finally,professional organizations and forums havebeguninthelastfewyearstoclaimamorecentralroleinsupportingthedevelopmentofm-paymentmarketsonaglobalscale.Similartosuppliers,theirrolehasbecomemoreimportantwiththeevolvementoftheNearFieldCommunication(NFC)technology.Alsointhiscase,acertainlevelofcooperationamongthemwillbenecessaryinordertoavoidlaunchingtoomanyinitiativesandcreatingconfusion,whichwillresultindelayedcommercialservicelaunches.Uptonow,onlyfewindustryorganizationsmanagedtopositionthemselvesasleadersinbringingkeyindustryrepresentativesononetableandtakingovertheroleofmanagingthewholestandardizationprocessasitwasthecasefortheNFCtechnologystandardization.Forotherorganizations,werecommendtostartbyfocusingonthedominantplayerand if this is not possible to identify niche areas for the establishment of first cross-industry relations.


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A.1 Global ranking

Japan and Austria are still the leading coun-tries for m-payment. Furthermore, few countries from both the developed and emerging world have strongly advanced with their positioning on the maturity market curve. When updating the global ranking of m-payment maturity, we assessed each country according to the following criteria:

� Therangeandtypesofservicesoffered;

� Theexistingnumberofpilots&rolled-outmulti-partyser-vicesonacommercialbasis;

� Themutualeffortsundertakenforstandardization;

� Theexistenceofasolidstrategyform-commerce.

Themostdevelopedmarketsintermsofm-paymentsremainJapanandAustria,followedbySingaporeandSouthKorea.Thesecountriesareofferingawiderangeofservices,andeachcountryhasadominantmarketplayerpositionedasthestandardserviceplatformproviderbeingacceptedby

mostcompetitors.ThemarketdevelopmentinSouthKoreamayhoweverbeslowing,astherenowaretwocompaniescompetingfortheprevalenceoftheirserviceplatform.

Insomecountrieswehaveidentifiedahighdevelopmentpotentialduetoeitherextraordinaryserviceuptakeorstrongcommitmentstostandardizationamongindustryplayers.ThePhilippines,forexample,haveseenastrongserviceuptakerecently,andFrancehasexperiencedintensestandardizationeffortsbyallrelevantm-paymentstakeholders.

Most African and Latin American countries have not yet started toexploitthepotentialofm-paymentservicessignificantly.Nonethelessweexpectarapiddevelopmentinthesecountries as soon as an optimal service platform is selected for implementation. (Exhibit 13)

Appendix A: Country profiles and ranking

Exhibit 13: The m-payment and m-banking industry has been growing steadily: Most countries assessed have already entered the developing phase of market maturity curve

Key messages – Appendix: Exhibit 13


M-payment/m-banking country ranking

Market size

Embryonic Early stage Developing Advanced Mature

Market maturity stage

Rel

ativ

e m

-pay

men

t m

atu

rity

0%

20%

40%

60%

80%

100%

Japan,Austria,Singapore,South Korea

Malaysia,Taiwan,Norway,Spain, Slovenia

Finland,Sweden,France,Belgium,Italy,Portugal,Croatia,India,Philippines,China

Nigeria

Mexico,Kenya

Czech Republic,South Africa

UK,Germany,The Netherlands,DenmarkSwitzerlandUSA, Australia


41

A.2 Country overview

A.2.1 AUSTRIA: NFC roll-out on a commercial basis

AustriahasmanagedtomaintainitsleadingpositionwithinEuropeinthepastthreeyears.Inparticular,TelekomAustria’ssubsidiarymobilkomcontinueditseffortsinacquiringm-paymentmerchantsandstrategicpartnersinordertofosteranationwide service adoption. Exhibit 14 provides an overview of m-payment services in Austria.

ThepartnershipconcludedbetweenmobilkomanditscompetitorOrange(previouslyONE)in2005hasbeencriticalasit enabled m-payment service interoperability.

Thisstrategicmoveallowedmobilkomtostrengthentheposition of its paybox platform as the dominant m-payment servicesolution,thoughthedegreeofpopularityandtheutilizationlevelofthepaymentsolutionarestilldeveloping.SinceOctober2008,T-MobileAustriaanditssubsidiarytele.ringjoinedthestrategicservicenetworkand4millionmobilepostpaid customers in Austria can now access m-payment serviceswithoutanysignupbarriers.Consideringthattheclearingcanbedonethroughthephonebillorviapaybox,95%

ofthem-paymentmarketiscovered.ThisoperatorindependentserviceplatformwithmostAustrianMNOsparticipatingcanbeconsideredasthemostsignificantm-paymentcooperationinEurope.

In2006,A1Bank(subsidiaryofTelekomAustria)launchedthefirstmobilee-cashserviceasafast,convenientandsecurechannelfordifferentmicro-andmacro-payments.However,theserviceacceptancesofarhasbeennegligible.

MobilkomAustriaiscurrentlytheonlyEuropeanmobileoperatorthathascommerciallybegunrolloutofNFCserviceswithoutthe direct involvement of credit card schemes. Direct partners fortheservicerolloutareNXPSemiconductors,Nokia,ÖBB(AustrianFederalRailways)andWienerLinien(Vienna’smainpublictransportprovider).WithanupgradeoftheNFCserviceinSeptember2007,mobilkomuserswereenabledtouseexistingservicessuchasmobilepublicparking,mobilelottery,mobilepublictransportationticketingandmobilepaymentatvendingmachinesviatheirNFCtechnology.However,weneedtostatethattheNFCtechnologycomponentinthiscaserefersonlytoserviceinitiation,whileservicedeliveryremainedanSMS(WAP)based service.

Exhibit 14: M-payment users in Austria can spend a day without using any cash



Overview of m-payment services in Austria

In the morning

During the morning

Buys tramway ticket via mobile phone Purchases

cinema ticket

Eats in restaurant. Picks up the tab for friends and pays via mobile phone

Meets a friend in the city and pays parking ticket via mobile phone Needs a present for his

daughter’s birthday andbuys a book

Decides spontaneously to buy flowers for his wife

Buys a coke from vending machine and pays via mobile phone

All purchases are paid for via m-payment

Decides to eat Japanese and pays delivery via mobile phone

Midday

In the evening

Afternoon

Hears from jackpot andpurchases a lottery ticket via its mobile phone

A day in the life of a m-payment user…


42

Inordertoeliminateanyactivationbarrierforthenewservice,mobilkomautomaticallyenableditscustomerstouseNFCfunctionsmakinguseofembeddedNFCchipsinoutdoorinteractive posters. This approach also boosted the sales of the onlycommerciallyavailableNFC-enabledmobilephoneNokia6131.Inthefirsteightmonths,morethan20,000NFCphonesweresold,whichcontributedtooverallmorethan1millionm-paymenttransactionsregisteredonmonthlybasisin2007.

InJanuary2009,mobilkomandÖBBlaunchedafurtherpilotofferingend-to-endNFCsolutionsonSIM-cardbasis.Thesolutionencompassestheentireprocessfromticketorderingtopaymenttoticketcontrol.Incontrasttoprevioussolutions,theticketwillnotbedeliveredviaanSMSmessage,butinsteadwillbesavedintheSecureElementoftheNFCmobilephoneandvalidatedbyone-touch.ThetrialissupportedbyNokiaandwilllastthreemonthsonselectedÖBBtrainsinAustria.

The future development of m-payment in Austria will be determined by the adoption of additional m-payment services andpaymentoptions,asthemarketenvironmentand,specifically,thejointserviceplatformisalreadyconducivetom-payments.TheAustrianmarketisevenmoreexcitingasthreemajormobiletelecommunicationsoperators,Mobilkom(associatedwithVodafone),T-MobileandOrange,areexpectedtofurtherinvestintotheAustrianm-paymentmarketinordertotransfertheknowledgegainedacrossthegroup.

A.2.2 BELGIUM: Service interoperability on trial

Inrecentyears,acoupleofmovementstowardsserviceinteroperabilityintheBelgiumm-paymentmarkethaveledtoanimprovementoftheoverallconditionsform-paymentgrowth.

In2007,Banksys(theinter-banke-paymentcompanythathasbeenboughtbyATOS)teamedupwiththethreemajornationalmobileoperatorsBASE(KPN),Proximus(Belgacom)andMobi-star(Orange)tolaunchanm-paymentplatform.Thegoalwastoenabletheirusersandholdersofnationalbankaccountstoprocesspaymentsviam-paymentchannelsinsteadofdebitbankcards.

TheserviceitselfreliesonaSIMcard,whichisspecificallyenabledfortheproprietarymobilesignaturetechnologyof

Banksys(m-banxafe).AllnewSIMcardsdistributedinBelgiumbyoneofthethreeoperatorsarepre-equippedwithm-banxafe.CurrentlyonethirdoftheBelgianSIMcardsarealreadycompliant.

Inordertousetheservice,end-usersneedtolinkittotheirexistingbankaccounts.ThiscanbedonebytheuserhimselfonATM’s,onPOSterminalsorovertheInternetviathepresentationofthedebitcard.Intheregistrationprocess,usershavetochooseaPINcodethatisusedforallbankingtransactions. M-banxafe payments are based on the same securitylevelastheoneusedforEMVpayments.

Different use cases have been launched based on this technologysuchasthetop-upofprepaidaccounts,bankingoperations(bankbalance,lasttransactions)andthePay2meserviceallowingindependentsandmobileprofessionalswithoutPOSterminaltoacceptelectronicpayments;themobilephoneacts as a payment terminal at the merchant side and as debit card at the customer side.

For a merchant who is a subscriber of one of the three participatingmobileoperatorsandwhohasanationalbankaccount,theregistrationprocessissimplifiedandcanbedoneover the m-banxafe website.

Thepaymentprocessitselfisfairlystraightforward:Themerchantneedstosendapaymentrequestusingthepaymentmenuofhis/hermobilephonetoinitiateatransaction.Afewsecondlater,thecustomerreceivesan“m-banxafe”signaturerequestforthetransaction,whichneedstobeconfirmedbyenteringthepersonalPIN.Finally,boththemerchantandcustomer receive a transaction confirmation by classic SMS.

Pay2mepaymentsareperformeddirectlyfrombankaccounttobankaccount.ThePay2mebusinessmodelisbasedonafixedcostforeachsuccessfultransaction(includingcommunicationandpayment)invoicedontheTelcobillorprepaidaccount.MerchantspaycurrentlyEUR0,49andcustomersEUR0,25for each successful transaction without any additional basic subscriptionfees.Banksysreceivesarefundandpaysaninterchangefeetotheparticipatingbanks.


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In2008,17millionsm-banxafetransactionshavebeenrecordedfrom which most are still related to top up of prepaid accounts andbankingoperations.Newusescaseswillbelaunchedin2009suchasm-billingandinternetpaymentsusingthem-banxafesignature.

Althoughtheserviceusageitselfisfairlysimple,itisbothinter-bankandinter-MNOoperableandprovidesclearbenefitsforcustomers(convenience,speed,safety)andmerchants(securityofpayments),weseepotentialhurdlesforamassiveadoption.Thefactthateachexistingmobilephoneuserneedstogotohis/herownoperatortochangehis/herSIMcardintoanm-banxafeSIMcardisaserviceactivationbarrier,whichmighthinderhighusagerates–especiallyatthisearlymarketdevelopmentstage.

Besidem-banxafeaddressingremotemacropaymentsopportunities,newentrantsalsolaunchedmicromobilepaymentinitiativesinareassuchasparking(MobileFor),ticketing,internet(Tunz).

Belgacomrecentlyacquiredpartofthosecompaniesinordertoregroupthoseinitiativesbehindasinglebrand“PingPing”with a focus on proximity micro payments. They will extend the currentpilotsinthecomingmonths.

A.2.3 CHINA: M-payment is still in the developing stage and a couple of challenges need to be overcome

Aftertherestructuringofthetelecommunicationsindustryandtheissuanceofa3Glicenseattheendof2008,therearenowthreemobileserviceprovidersdominatingtheChinesemobiletelecommunicationsmarketwithacustomerbaseof641million. This solid base enables the mobile operators to position themselvesastheleadersonthenationalm-paymentmarket.

ChinaMobile,thelargestmobileoperatorinChina,triedtoleverageitspositionandestablishedajointventurewithChinaUnionPaycalled“Umpay”in2003.Theserviceofferincludeutilitybills,prepaidcardsales,concertticketing,onlineinsurancesalesandonlinesoftwaresales.Inaddition,ChinaMobilealsoworkswithJMB,athirdpartyserviceprovider,tolaunchthe“PAYEASE”bankcardservice.

BesidesthisinitiativebyChinaMobile,weseethatm-paymentinitiativeshavemainlybeentakenbyindependentserviceproviders. Independent service providers have cooperated with mobileoperatorsandretailbanksonaregionallevel,inordertobalancetheunevenregionaleconomicdevelopmentanddivergentmarketdemandpatterns(elderlypopulationinruralareasvs.young,affluentpeopleinurbanareas).

SmartPay,oneoftheleadingindependentm-paymentcompaniesinChina,hasapartnershipwithbothChinaMobileandChinaUnicom.In2006,SmartPayhasannouncedtoroll-outamobilepaymentserviceinpartnershipwithChinaMinshengBankingCorp.(CMBC).Today,SmartPayhasestablishedpartnershipswithallmajorbanksinChina,includingthefourmajorstate-ownedcommercialbanks,form-paymentservices.ThispartnershipenablesSmartPaytogetaccesstoawidecustomerbaseinChinesemajorcitieswherethepartnerbanksoperate.By2007,SmartPayalreadyhadacquiredmorethan1millionm-paymentusers.Theservicesofferedrangefromsimple air-time top-up or payment of mobile phone postpaid bills,tomoresophisticatedservices,suchaspaymentfordigitalcards,utilitybillsandlotterytickets.Inordertogetmoremerchantsinvolved,SmartPaysetupbranchesin11provincesinorder to pursue local business development.

Oneverywell-acceptedm-paymentserviceprovedtobem-paymentforlotterytickets,especiallyinSouthernChina,wherelotteryispopular.SmartPay’ssolution“LotteryinyourPalm”solvedlogisticproblemsasbuyersfromruralpartsoftheregiondonothavetotraveltodistantsellingpointstobuyticketsandcollecttheirprizes.Asonlinelotterysalesareforbiddenbytheregulatorinthisregion,usingm-paymentforlotteryticketshasauniqueadvantage.

SmartPayalsointroducedamobile-andtelephone-based(viaSMSandIVR)purchaseofairlineticketsin2007incooperationwiththetravelagencyLuHaiKong.Similarm-paymentserviceswerealreadyintroducedinJapanandwedoexpectthatinthenear future more sophisticated services will be launched in Chinatoo.


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NFCtrialshavealsobeenconductedinselectedChinesecitiesin2006.NokialedtheinitiativeincooperationwithChinaFujianMobileCommunications,XiamenE-TongCardCompanyandNXP(formerlyPhilips).Duringthetrialperiod,morethan100volunteersubscribersofChinaMobileinthecityXiamenparticipatedandusedtheirNFCenabledNokiamobilephonetomakepaymentsforpublictransportation,ferryboats,restaurantbillsandcinematickets.Sincethefeedbackreceivedwasverypositive,NokialaunchedfullNFCpaymentservicesinthecitiesXiamen,BeijingandGuangzhouoneyearlater.DuetothecooperationofNokiawithlocaltransitcardcompanies,NFCmobilepaymentcanbeusedforpaymentsatgroceryshops,cinemasanddifferentmeansofpublictransportation(underground,taxi,busetc).

However,Chinaisstillinthedevelopingstageofm-paymentandthereareaseriesofchallengestobeovercome:

1) Modelforco-operationbetweenChinesetelecomoperatorsand financial institutions

Comparedtotraditionalmeansofpayment,telecomoperators are involved in the m-payment process and want apieceoftheprofit,whichusedtobelongtothepaymentservice providers only. If no appropriate cooperation or reasonableprofitsharingmodelwillbedevelopedinChina,there is no incentive for these payment service providers topromotem-paymentandwiththemplayingakeyroleinthem-paymentdevelopment,itwillbedifficulttoboostm-payment business.

2) SimplicityoftheChinesem-paymentprocess

Currentlym-paymentisprocessedmainlybyusingSMSorWAP,whichrequiresconsumerstoentercumbersometextmessagesandtheserviceaccesscode.Afterwards,consumers have to wait to confirm the information sent bytheoperators.Thisleadstoalongwaitingtimeandinconvenience for consumers. Thus a simplification of thepaymentprocessisakeyprerequisitetopromotem-payment.

3) ConsumptionhabitsandconcernsaboutsecurityissuesoftheChineseconsumer

MostChineseconsumersareusedtocashorcreditcardpayments,andtheyarestillrelativelyunfamiliarwithpaymentbymobilephone.Moreover,someChineseconsumers worry about the security of m-payment. As a result,althoughwithsecurityofm-paymentbeingproven,consumers are still reluctant to transmit their confidential informationsuchasidentity,creditcardinformationetc.viamobilenetwork.

Nevertheless,consideringthelargemobilecustomerbase,growingmobilephonepenetrationandrisingdemandfornewpaymentoptionsandincreasedconvenience,weexpectasignificantmarketpotentialandarapiddevelopmentofmobilepaymentinChina.

A.2.4 FRANCE: A leapfrog towards a future NFC-based m-payment market

Overthelasttwoyears,FranceintensifieditsambitiontobecomeoneoftheleadingEuropeanm-paymentmarketsfosteringcross-industrycooperationforthecreationofinteroperablem-paymentsolutions.Mostofthelaunchedlarge-scaleinitiativeswereaimedattestingtheapplicabilityofNFCsolutions.UnlikeintheUS,wherecreditcardcompaniestookthelead,inFrancemajormobileoperatorstookaproactiveroleinthedevelopmentofNFCsolutions.

Orange,asthemajorFrenchandinternationalmobilecarrier,recentlytooktheleadinpan-EuropeanNFCtechnologyintroductionthroughtheirinvolvementintheUKmarketinaddition to their activities in France. The company aims to emphasizeinteractivityasadistinctivefeatureofNFCmobilephone-basedpayments,asNFCprovidescommunicationbetweenusersandshops,transportationcompaniesandindustryontheonehand,butalsogathersfeedbackdataoncustomerdemandandcreationofbetterprofiledmarketingcampaignsformobile operators and service providers on other hand.

Afirsttrialwaslaunchedin2006intheFrenchtownofCaen,asajointeffortofOrange,Philips,SamsungandtheretailersGroupeLaSerandVinciPark.Duringthe6-monthlongproject,


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200residentsofCaenusedNFCchipembeddedSamsungmobilephonestoshopinselectedretailstores,payatparkingfacilitiesandtouristsitesaroundthetown.Inaddition,itwaspossibletobuymobilecontentcommunicatedthroughinteractivepostersaroundthetown,aswellasinformationonpublic transportation.

Forexample,inordertobuyaticketattheVinciParkspace,userspassedtheirphoneoveraNFCreaderattheparkingentrance,triggeringtheissuanceofane-parkingticketdisplayedonthephone.Later,whenexitingtheparkingareaandmovingthemobilephoneoverareadingterminal,thesystemautomatically deducts the fee from the user’s season card or mobile pre-paid credits.

A similar application was successfully tested in Bordeaux in 2007andwasthetippingpointforOrangetostarttorolloutNFC-basedmobilepaymentservicescommerciallyforretailshopping,urbantransportandloyaltyservicesin2008.

In2007,multiplerepresentativesofdifferentindustriesgatheredtogethertodiscussoneofthemostimportantfieldtrialsfortestingofm-paymentsystems.Theprojectiscalled“PayezMobile”andconsistedoffourmobileoperators(Orange,BouyguesTelecom,SFRandNRJMobile),representativesofthebankingindustry(CréditMutuel-CIC,SociétéGénérale,BNPParibas,CréditAgricoleandLCL,GroupeCaissed’EpargneandLaBanquePostale)andthecreditcardcompanies(VisaEuropeandMasterCardWorldwide).Theprojectinvolves1,000customersand200salesoutletsinthetownsofCaenandStrasbourgunderthesupervisionoftheSecureElectronicTransactions(TES)clusteroftheLowerNormandyregion.Themaingoalofthe“PayezMobile”fieldtrialsistotestanewmulti-operator m-payment system and to evaluate end-user’s interestinthispaymentsolution.AsthetrialisfocusingonNFCtechnology,variouschipandequipmentvendorsparticipatinginthe project have the chance to test the interoperability of their equipmentanddevicesrequiredforNFCpaymentsolutions.VendorsparticipatinginthetrialareOberthurCardSystemandGemalto(SIMcards&securedapplicationmanagement),Sagem,MotorolaandLG(handsetmanufacturers)andInsideContactless(supplierofdifferentNFCcomponents).

Althoughthe“PayezMobile”projectisstillongoing,coreprojectpartners(BNPParibas,BouyguesTelecom,GroupeCréditMutuel-CIC,CréditAgricole,SociétéGénérale,OrangeandSFR,VisaandMasterCard)havealreadydisclosedhighlypromisingresults.Usersshowedagreatinterestinanewpaymentsolutionduetoitsintuitiveness,processingspeedandpracticality.Moreover,easyusageandan“All-in-One”approachseemedthemostpopular characteristics of the system. Merchants have found the waitingtimereductionasthemostimportantadvantage.Overall,thetestedNFCpaymentsystemachievedcustomersatisfactionratesofabove90%.

The“PayezMobile”fieldtrialissofarthefirstnationalFrenchprojectintegratedinthe“PayBuyMobile”initiativeofGSMA.FollowingthestructureofGSMA’smobileNFCecosystem,the“PayezMobile”initiativemanagedtogatherthecriticalmassofrepresentativesbelongingtothemainentities;theintegratedserviceproviderscover95%ofthetotalretailbankinginFrance.Nevertheless,itisstillnecessarytomonitoroverallinfluenceofvariousplayersontheproject’ssuccess,sinceindividualinterestsneed to be respected as much as possible. (Exhibit 15 overleaf)

WebelievethatiffuturepilotprojectsareconductedinasimilarwayinotherEUcountries,asignificantcontributiontowardstheestablishmentofanm-paymentstandardandEuropeanmarketharmonizationwillbeachieved.

French telecom operators and major chip vendors have also been lookingintotransportationticketingoverthelastthreeyears.MostofstartedtrialshavebeenfocusingontheapplicationofNFC-embeddedm-paymenttechnologyinurbanareas(trams,undergroundandbuses)andonintercitytraintransportation.Thefeedbackgatheredfromparticipatingend-usersconfirmedastrongconsumerappealforNFC-basedm-paymentservices.

In2007,anotherworkinggroup,Ulysse,wasestablished,whichencompassedBouyguesTelecom,Orange,SFR,Keolis,RATP,SNCF,TransdevandVeoliaTranspor.IncontrasttoPayezMobile,UlyssehasgatheredMNOsandtransitauthoritiestodevelopNFCtechnology,whilePayezMobileisheavilyrelyingonthefinancialindustryparticipationbesidesMNOs.Theworkinggroupisexpectedtosupporttheinteroperabilityaspectsofnewsolutions.Consideringthelargeeffortbeingmadebyallkey


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industryrepresentatives,acommerciallaunchofinteroperablem-ticketingsolutionscanbeexpectedinthenexttwoyears.However,Bouygueshasbeentestingm-ticketingsince2005,and has not yet roll-out the service on any mass scale.

A.2.5 GERMANY: Transportation industry still driving mass-market development

TheGermanm-paymentmarkethasbeenmainlydrivenbythetransportationindustryoverthelasttwoyears.UnlikemobilkominAustria,nodominantmobileoperatorhasbeenabletotaketheleadinshapingthemarketdevelopment.Furthermore,multiplayer and cross-industry initiatives have been launched only on a small scale.

In2006,HanauwasthefirstGermantownwhereNFCtechnologywithinapublictransportationsystemhasbeencommercially deployed. It followed a 10-month field trial by a regionaltransportationcompanyRhein-Main-Verkehrsverbund(RMV),Nokia,VodafoneGermanyandPhillips.Thetestedsystemwasevaluatedbymorethan90%oftheprojectparticipantsasaconvenientpaymentsolution,whichtheywouldcontinue to use in the future.

Subsequently,theRMVtransportnetworkcontinueditseffortsindevelopingthe“HandyTicket”solution.In2007,RMVteamedupwithNokiaandT-Systemstofurtherdevelopthesystem,whichhasbeenlaunchedinFrankfurt.TheexistingsystemswerebasedonJAVAMIDlettechnology,whilethesystemontrialalsoincludedNFC-functions.Forthepurposeoftheproject,around600NFCtags(ConTags)wereinstalledat59selectedstopsandstationsinthecityandattheairportofFrankfurt.Thesetagstransmittedtravel-relateddataovershortdistancesautomatically,whilepreviouslyusershadtoenterthesameinformationmanually.Asaresult,end-userhadtospendlesstimeandeffortregardingthepurchasingprocessofaticket.ThesystemwascommerciallylaunchedinthegreaterFrankfurtareain2008.

Apartfromurbantransportation,therealsohavebeendevelopments in the field of cross-industry cooperation for longdistancetravelling.Inthebeginningof2008,DeutscheBahn(DB)partneredwithVodafoneGermanyandT-MobileGermanyforatrialofanNFC-basedmobileticketpilotcalled“Touch&Travel”.OtherpartnersengagedintheprojectwerethepublictransportprovidersVerkehrsbetriebPotsdam,BerlinerVerkehrsbetriebe,Motorola,Atronelectronic(technology

Exhibit 15: Payez Mobile project has been closely following the defined guidelines of GSMA’s Pay-Buy-Mobile initiative



GSMA's "Pay Buy Mobile" initiative applied in the French M-Payment Ecosystem


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partner),Giesecke&Devrient(smartcarddeveloper)andNXP(semiconductormanufacturer).Theprojectincludesatestwith200selectedpersons,whoregularlytravelwithICE,ICandREtrainsbetweenBerlinandHanover.ThepilotcoverspartsofBerlin’sandPotsdam’spublictransportroutes,suchasregionaltrains,S-Bahn,underground,tramsandbuses.Onthedesignatedtransportationroutes,allstationplatformsandbusstopsareequippedwithtouchpoints.Thesystemcalculatestheticketpriceaftereachjourneyandchargesthecustomersviaamonthlybill.Ifthetrial“Touch&Travel”receivestheexpectedpositivefeedback,itisplannedtobeexpandedGermany-widein2010. As two major mobile operators are involved in the project andpublictransportationtestsareplanned,weexpectmoremobileoperatorstojointheproject.Furthermore,webelievethatitwillbecomethestartingpointforadditionalpartnershipsbetweenMNOsconcerningotherapplicabilityareasofNFCtechnology.

Paybox,themostactivedeveloperandproviderofm-commercesolutionsglobally,managedtoformthem-paymentalliance“mpass”togetherwithVodafoneGermanyandO2in2007.Thegoalistosetupanationallyinteroperablemobilepaymentsystem for remote and proximity payments. Because paybox’s solutionsarebeingdeployedinAustriaandotherpartsoftheworld,thispartnershipcouldleadtodeeperinter-regionalcooperationandadditionalnewserviceintroductions(e.g.cross-borderremittanceandinternationalairtimetransfer).WethereforeexpectotherGermanmobileoperators(e.g.E-PlusandT-Mobile)tryingtojointhe“mpass”alliance.

InMarch2009,wehavewitnessedanimportantstrategicmoveofDeutscheBankinthem-bankingmarketwhenitsGlobalTransactionBanking(GTB)divisionmadeapartnershipwithLuup(aninternationalm-paymentserviceprovider)toofferitscorporateandbankingclientsacross-borderm-paymentservice.Troughthisdeal,DeutscheBankbecomesoneofthefirstentrantsintotheGerman(butalsointernational)m-bankingarea.

A.2.6 ITALY: Poste Italiane aspires innovation with m-payments

Until2007,Italianmobileoperatorshadnoparticularfocusonm-paymentservices.ButwiththelaunchofMasterCard’s

PayPasssysteminsomepartsofthecountry,movesbymobileoperatorsweretriggeredandm-paymentexperiencedaconsiderableuptake.

Bytheendof2007,MasterCardenteredintoapartnershipwithPoste Italiane’s business unit Banco Posta and launched its first PayPasspilotprograminItaly.BancoPostaaccountholderswereprovidedwithaNFC-basedPostePayEvolutionMasterCardforretailpurchasesinselectedsupermarketsandcinemas,aswellasfastfoodandrestaurantchainsinasixtoeightmonthsfieldtrial.

Italyhasoneofthehighestpercentagesofcash-basedtransactionsinEurope.Thus,PosteItalianedeemedthefieldtrialtobejustthefirststepinnationallyintroducingnewpaymentchannels.InJuly2008,PosteMobile(theMVNOofPosteItalianeGroup)hasbeensuppliedwithanm-paymentsoftwaresolution from Gemalto. Gemalto’s software enables PosteMobile subscriberstosendaninstructiontomakecertaintransactionsviamobile,suchaspaythemailingofatelegram,afax,totopup prepaid accounts or to transfer money to a third party from theirBancoPostaaccountanddebitcard–PostePay.Withadequatemarketingactivitiesandacceptancebythirdparties,weexpectthisservicetoreachhightake-uprates.PosteMobilehasbeenverysuccessfulinintroducingnewpaymentchannels.Forexample,withinthefirstsixmonthsafteritslaunch,PosteMobileacquired200,000BancoPostacustomersusingitsm-bankingservice,outoftotal250,000newcustomers.

ThefirstimplementationofNFCtransittechnologyinItaly,basedonthepartnershipofTelecomItaliaMobile(TIM)andGemalto,isaveryimportantmilestoneforthedevelopmentoftheItalianm-paymentmarket.Sincethejointprojecthasbeenlaunched,weconsiderTIMtotargetatastrategicpositioningagainstnewmarketcompetition.TIMparticipatedinthebiddingprocessfortheItalianpaymentprocessorSIA-SSB,whichhasbeenputupforsalebyitsconsortiumofItalianbankownersinmid-2008.IfTIMmanagestoacquireSIA-SBB,thiswouldbethefirstcaseforanMNOtoseriouslyenterthewideelectronicpaymentmarketinformofapaymentoperatorinItalyasallowedbythenewEUliberalizedregulatoryframework.


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The launch of the consortium Movincom in the second half of2008isthefirstevidenceofamulti-merchantinitiativeforsupportingtheadoptionofm-payments.InItalyAsacommonpaymentplatform,Movincomaimedatattractingmassivemerchantpools,suchasnationalrailways,localtransport,etc.,inordertobuildanationalstandard.InSeptember2008,TelecomItaliaannouncedanagreementwithPaypassMastercard.

These are all positive indicators for the future development of theItalianm-paymentmarket.However,itisstilltobeseen,ifa common or open service platform between dominant mobile operatorswillemergeinthenearfuture.Weconsiderthistobethekeysuccessfactorforthemassivesignificantserviceuptakein Italy.

A.2.7 JAPAN: Steady build-up of a usage environment

InJapan,theinfrastructureform-paymentservicesisoftenprovidedbyoperators,suchasNTTDoCoMo,KDDI,andSoftbank.Thereasonforthisisthattherearealreadymanyusersof“Osaifu-Keitai”(translation:walletcellphone)whichisacellphonecontainingSony’sFeliCa,andwhichisutilizedform-payment services. The applications for m-payment services andrelatedservicesaredistributedbytransportationoperators,retailers,creditcompanies,e-moneyvendors,andoperators.

Theusersof“Osaifu-Keitai”installthoseapplicationsintotheircellphoneswithsomecombinations.Now,thereareover60million“Osaifu-Keitai”usersamongthetotal100millionmobilesubscribers.Thenumberof“Osaifu-Keitai”isexpectedtocontinuetoriseoverthecomingyears.Therefore,thebasicinfrastructureform-paymentisbeingbuilt-upsteadily.(Exhibit 16)

Service trends: Introduction of various “Points” programs for increasing the number of users

Therearemanykindsofservicesutilizing“Osaifu-Keitai”´,forexampletransportation,shopping,m-ticketing,member’scardsandIDauthentication.Theservicesareprovidedbydownloadingvariousapplicationsfor“Osaifu-Keitai”andaresimilaramongoperators except for a few small differences. There are two primary payment methods for these services. The methods are e-moneyandcredittype;e-moneyisprepaidwiththepaymentsystem provided by the retail and transportation industries and credit is postpaid with the payment system provided by credit companies.

Examplesofe-moneyareSuica(operatedbyJREast,providingconvenienceforpayingrailandbusticketswithe-money),Edy(operatedbybitWalletInc.withover40millionsubscribers)andnanaco(operatedbySeven&iHoldingsCo.).Thee-money

Exhibit 16: Relation between application supplier and infrastructure operator


Source: NTT DoCoMo, Arthur D. Little analysis

Operator

E-money vendor

Infrastructure Operator

Credit company

Retailer

Transportation

Application Supplier

Credit typeE-money type

Suica(JR East)

Edy(bit/Wallet)

iD(NTT DoCoMo)

QUIC Pay (JCB)

Visa Touch (Visa)

WAON (AEON)

nanaco(Seven & iHo)

NTT DoCoMo KDDI Softbank WILLCOM

Application name (Main supplier) Operator name


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service is typically provided by the e-money administrator and affiliatedstores.Thesee-moneyservicesareoftenutilizedasthe method for m-payment because procedures are simple. A fewdrawbacks,suchastherequirementofcharginge-money,however,arefound.

ExamplesofcreditincludeiD(issuedbyNTTDoCoMo),QUICPay(theservicewhichwasputinpracticalusebycreditcardcompanyJCBCo.,Ltd.);VisaTouch(providedbyVisa).Theservice of credit type is typically provided by a brand which managesadministrativeoperations,anacquirerwhichexploitsaffiliatedstores,andanissuer,whichissuescreditrightssuchascreditcard.InthecaseofiD,thebrandisNTTDoCoMo,theacquirerisSumitomoMitsuiCardCo.,Ltd.,andtheissuerisSumitomoMitsuiCardCo.,Ltd.orAeonCreditServiceCo.,Ltd.Whiletheinitiationprocedureisverycomplex,usingtheserviceisveryconvenient;itisnotnecessarytomakeachargetothecardinadvanceforcreditutilization,andamonthlyusageamountischargedonlyonceamonth.

Anotherexampleofaloyaltyprogram,Points,hasbeenintroduced by application suppliers. The Points earned can beusedtopurchasediscountgoodsorsometicketsatthesubsequentpayment.ThesePointsaregivenalongwiththeregulationsofeachpaymentservice.Pointsarecurrentlyexchangedamongotherapplicationsuppliers.Forexample,itispossibletobookaflightwithnochargeifyouhavepurchased

various home electronics.

Technology trends: Development of shared terminal, and progress of NFC

Sony’sFeliCahasbecomethemainchipsetform-paymentinJapan.FeliCaiscomposedofaCPU,amemory,andanRFcircuit.AuserutilizesFeliCabyscanningitwithin10cmoftheterminal.AuserwhousesadifferentapplicationofOsaifu-Keitaiform-paymenttothatoftheterminalwillnotbeabletoperformthetransactionevenifthehardwareusesFeliCa.Forthepurposeofsolvingthisproblem,someaffiliationshavebeenrealized,forexample,thedevelopmentofthesharedterminalforiDandSuicaandLLPamongNTTDoCoMo,NTTData,andJREast.

Regardingnearfuturetrends,NFCwillbeintroducedintheJapanesem-paymentmarketwiththeaimofcompatibilitywithinternational terminals.

Issues for Japanese m-payment: Regulation setting for money equivalent Points

OneofthebiggestproblemsforOsaifu-KeitaiisthatPointshavebecomevalueequivalenttomoney.InitiallythePointsprogramwasjustatoolforpromotion,whereuserswereonlyable to use the Points at a limited amount of stores. For the purposeofincreasingusers,thePointsprogramwasextendedinordertobeabletoexchangePointsatmorelocations.Asaconsequence,Pointsprogramhasbecomecomplicatedanddifficult to be understood by users. There are also Points that can beexchangedfore-money.SomecompanieshaveconsideredsuchPointsshouldbetreatedlikedebts.BecauseofthisnewsituationtheFinancialServicesAgency,METI(MinistryofEconomy,Trade,andIndustry),andJapanFairTradeCommissionhavestartedtoconsiderregulatingPoints.Thesegovernmentorganizationsarediscussingnewregulationscarefullybecausethem-paymentmarketmightshrinkiftheycontrolthePointsprogramintensely.

A.2.8 MALAYSIA: Market movements in direction to-wards more cooperation

InMalaysia,mobilebankingandmobilepaymentsolutionsarevery diverse in nature. Mobile operators have tested diverse NFCandremotepaymentsolutions.BankssuchasMaybankprovidetruem-bankingsolutionsthatenablecustomerstoaccesstheircurrente-bankingsystemsusingaJavaclientontheir mobile phone.

Collaboratingwithpaybox,CelcomMalaysiaiscurrentlylaunchingamobilebankingandmobilepaymentsolution.Initsfirstphase,Celcomprovidesmobileaccesstobankingsystemstoenablecustomerstochecktheirbalanceandtransactionhistory,rechargetheirprepaidairtimeandtransfermoneytoeachother.Inasecondphase,Celcomwantstoexpandthesysteminordertoincludeotherbankingpartnersandprovideextendedremittance,billpaymentandmerchantpaymentservices.

MaxisMalaysiahaslaunchedanm-moneyservicesintegratingtop-up and P2P services as well as remittances and international


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airtime transfer services. Maxis’ m-money service has been integratedtightlyintoitscoredataservicebyrollinguptheirSMSportal,campaignmanagement,subscriptionmanagementandvouchermanagementsolutionsintoonesolutionalso

provided by paybox.

A.2.9 MEXICO: Remittance potential still unexploited

InMexico,somemacroeconomiccharacteristicsdeterminetheoptions for the development of m-payment business. Mexico is consideredtobeoneofthefastestgrowingtelecommunicationmarketsglobally,andthesecondlargestmarketinLatinAmerica. Mobile penetration in the country is currently at around 60%andweexpectittogrowadditional20%inthenexttwoto three years. The conditions for m-payment seem even more favorableconsideringthebankedpopulationisjust20%.

Mexicoisthethirdbiggestcountryworldwideintermsofremittancereceivedfromemigrantsworkingabroad.RemittanceflowstoMexicoarestillgrowing,buttheWorldBankreportedarelativegrowthdecreaseonanannualbasisfrom20%to1.4%(incontrasttoAsianandEuropeancountries).Theseslow-downresultsfromacurrentlyweakeningjobmarketintheUS,especiallyduetotheslow-downintherealestateandconstructionmarket,coupledwithatightenedimmigrationpolicyaffectingMexicanemigrants.

Uptonow,internationalindustryplayershavenotmadesignifi-cantmovescomparedtootherboomingremittancemarkets,suchasthePhilippines.AlthoughMobipayInternational,beingawholly-ownedsubsidiaryoftheSpanishmultinationalbankinggroupBBVA,isoperatinginMexicosince2005,ithasnotlaun- chedanyservicespecificallycateringforthism-paymentmarketdemand.However,ifmajorconcernsabouttransactionsecurityandregulatoryquestionsrelatedtomoneylaunderingareproper-lyaddressed,weexpectBBVAtoinitiateatrialprojecttargetingthepopulationmigratedfromMexicototheUSinthenearfuture.

MasterCardhasdefinedMexicoasamarketofinterestforthedeployment of their PayPass contactless payment system. Bytheendof2006,afirstpilotprojectforanewpaymentplatform in Latin America has been launched in cooperation withBanamex,Mexico’ssecondlargestbank.Thescopeofthe

projectwasratherlimitedasitonlycovered10,000selectedcardholders in the city of Monterrey who were enabled to use contactlesstechnologyforpayingatMcDonalds’srestaurants.Nevertheless,intheend,weexpectthatthepositivefeedbackand the acceptance of end users will lead to a potential involvement of local mobile operators in trial projects with eventualcommercializationoftheNFCmobilebasedpayments

within the next two years.

A.2.10 NETHERLANDS: Market initiatives mainly led by the finance industry

AlternativepaymentchannelshavegoodpotentialfordevelopmentintheNetherlandsbecause,incomparisontoitsneighboringWesternEuropeancountries,theDutchbankingnetworkislessdevelopedwithlessdensecountrywidenetworkofinstalledATMs.However,internet-bankingseemstohavepredominantlyfilledthisgapas,in2008,theNetherlandshadthehigheste-bankingadoptionrateinEurope.Asanequallyinexpensivepaymentchannel,e-bankingputspressureonthedevelopment potential for mobile based payments. The Netherlandsalsohaveahighacceptanceofdirectdebits,forpaymentssuchastelecom,energy,rent,etc.providers.AnotherimportantaspecttobeconsideredwhenlookingattheDutchm-paymentmarketisthehighacceptanceofthee-walletonthebankcard,called‘chipknip’,whichisinstalledonthechipofthecard.Itsusehasgrownrapidlyoverthepastyears,inparticularforparkingandfoodvendingmachines.InRotterdam,forexample,theonlyacceptedpaymentformisthee-wallet.Thiscanberegardedasapotentialcompetitortom-payment.

Most initiatives for new m-payment solutions that have been launchedintheDutchmarketweredrivenbymobileoperators.However,inthebeginningof2007,RabobankstartedtoofferitscustomersapaymentsystemrelyingonmobilephonescalledRaboMobile. Partners in this endeavor were the multimedia companyTalpaandOrange.RaboMobilem-bankingsolutionenablesitsuserstomakemoneytransferorders,transferfundsbetweensavings,paymentandinvestmentaccounts,checktheirbalancesanduseadditionalservices,suchasSMSnotificationaboutbalancechangesontheaccount.

Inthesameyear,RaboMobiletookpartinanotherimportantinitiative.TheinitiativeaimedattestingNFC-basedmobile


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paymentsinretailenvironmentandincludedKPN,LogicaCMG,Schuitema(C1000),Rabobank,KPNandNXPSemiconductors.Inthescopeofthesix-monthpilotproject,100selectedcustomersofthesupermarketC1000inasmalltowninMolenaarsgraafcouldusetheirmobilephonesasaregulardebitcard.Inaddition,purepaymentcustomersweregiventheoptiontostoredigitaldiscountcouponsreceivedintheC1000store,andusethemforin-storeshoppingorforbuyingmobilecontent,suchasringtones,wallpapers.

Althoughthefeedbackcollectedduringthepilotprojecthasbeenverypositive,noplanshavebeenrevealedforacommercialrolloutonawiderscaleinthenearfuture.WethereforethinkthattheseDutchcompaniesmayratherchoosetofollowstandardizedsolutionsandsystemsthatarealreadyapprovedinEuropeandthenmightdeveloptheirownm-payment systems with limited applicability within national borders.

A.2.11 NIGERIA: An immense unbanked potential

Baseonouranalysis,NigeriarepresentsonefifthoftheAfricanm-paymentsmarketpotential.Whilethebankaccountpenetrationhasstagnatedat20%,mobilepenetrationhasalreadyreached30%,increasingatanannualrateof50%withprepaidaccountsmakingup95%ofthetotalmarket.

Amongvariousinitiativesthatweretested,MoneyBoxAfricaseemstobeapromisingservicecurrentlybeingapprovedbytheCentralBankofNigeria.WithMoneyBoxAfrica,Nigeria’sleadinginvestmentinstitutionIntegratedCapitalServicesissettingupalargemobilefinancialecosysteminalliancewithbanks,financialswitchesandmicrofinanceinstitutions.Nigeriansneedanaffordable line of services that allows them to execute financial transactions remotely and conveniently with their mobile phones. M-bankingseemstobeanattractivealternativeforallincomegroupsinNigeria.

MoneyBoxAfrica that runs on the paybox Mobiliser platform does notrequirecustomerstosignupfortheservice;theyjustbuyapaymentscratchcardonthestreet.Then,usinganyphone,theytextamessagewiththescratchcardnumberandcanstarttosavemoneyorsendmoneytoanylinked-inbankaccountortoa

phonenumberuptoalimitofUSD50.ToperformhighervaluetransactionsofuptoUSD500,endcustomerscansignupforaMoneyBoxbankaccountandreceiveaPINcodeandalocalATMcard.Bysendingtextmessages,theycanremotelysendmoneyintotheiraccounts,topuptheirphones,payutilitybillsandtithes,buyinsurances,sendmoneytofriendsandrelativesandwithdrawcashatagentlocationsorATMs.Inordertosatisfythestrictestsecurityrequirementsforhigher-volumetransactions,endcustomerscanloadanapplicationontheirphonetogetaccesstocreditsandtomakeinvestments.

A.2.12 NORWAY: Improving the Nordic m-payment channel

ThedevelopmentofmobilecommerceinNorwayhasbeenstronglyinfluencedbythetwodominantplayersintelecomandfinancialindustry,TelenorandDnBNOR.

Alreadyin2006,DnBNORcommerciallylaunchedm-bankingservices. The Group considered the mobile payment channel asimportantasinternetbanking.Theservicesofferedbytheirm-bankingsolutionencompassedamongothers:moneytransferbetweenaccounts,balanceaccountsandpaymentcheckingaswell as SMS notifications upon order execution.

In2007,TelenorstartedtocooperatewithNorway’sbankingindustry to further enhance the convenience of mobile phones as a payment channel. The partnership was closed with the NorwegianSavingsBanksAssociationandtheNorwegianFinancialServicesAssociation(FNH)whojointlydevelopedBankIDasanelectronicproofofidentitythatisnormallyusedforidentificationandsigningofagreementsovertheinternet.ThiscollaborationshouldenableTelenorsubscriberstomakeuse of the same system for identification and secure contract-signingviatheirmobilephone.

MasterCardhaspartneredbothwithTelenorandDnBNORtolaunchitsPayPasssolutionnationwidein2008.ThesolutionitselfisbasedonestablishedstandardsintheNorwegianmarket,suchasmobilephonesequippedwithNFCSIMcardsforthesecurestorageofthepaymentprogramandpersonaluserdata.ThisprojectisthefirstlaunchofaNFCtechnologyfieldtrialintheNordicregion.Inthefuture,weexpectastrong


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involvementofcreditcardcompaniesinNorwayandothercountriesintheNordicregion,giventhefactthattheinhabitantsareknownasheavycreditcardusersandNorwegianbanksaretoppositionedinEuropeintermsoftechnologicalinnovations.

LUUP,anindependentNorwegianm-paymentserviceprovider,isexpandingitsactivitiesthroughEurope,suchasintheUK,GermanyandPoland,aswellasMiddleEasternandAsiancountries,byestablishingpartnershipswithleadingfinancial institutions. The company aims to build an open and independentglobalinfrastructureenablingP2Ppayments.Italsoseems that m-payment used as a retail payment mechanism represents an opportunity for further adoption of the service platform.

LUUP’s m-payment service platform can be used by customers ofanymobileoperator.Personsabovetheageof14canopenaccountsthroughSMSinitiationandcompletetheregistrationviaaweb-basedsign-upprocess.Ascustomerstypicallypayfeesunder10%comparedtothepremiumSMSoperatorfeeswhicharenormallyover25%,thebasisforhigherrevenuesandincreasedprofitmarginsisprovided.

A.2.13 PHILIPPINES: Hot market for remittance business

Inrecentyears,thePhilippineshavebeenpositionedasoneofthemostadvancedmarketsintheemergingworldconcerningmobilemoneytransfers.Sofar,twoofthecountry’slargestmobilephoneoperators,SmartCommunicationsandGlobeTelecom,havedominatedthemarket.Alongwithregulatoryflexibility this situation created optimum conditions for the developmentofm-bankingandm-payment.

SMART,thefirstnationaloperatorofferingm-bankingservicescooperatedwithBancodeOroandwasbrandedSMARTMoney.Inthescopeofthepartnership,BancodeOroprovidedthenormaltransactionalservicesbasedonafullrangeofcashanddebitcardservices.Therefore,thebusinessmodelimplementedbySMARTMoneyismorebank-thantelecom-drivenasthebankisfullyresponsibleforactivitieslikeaccountsecurity,auditandfraudmanagement.TypicalservicesofferedbySMARTmoneyarecashdepositsandwithdrawals,cashand

airtimetransfersbetweenusers,cashlesspaymentsatretailerswithaSMARTaccount,paymentswithaMasterCard,billpayments and remittance.

Since2004,thecompanyhasbeenofferinganSMS-basedremittanceserviceknownas“SMARTPadala”.ThisserviceallowsemigrantstodepositmoneyatpartneringbanksinareaswhereFilipinoimmigrantsliveandalsotospecifyadesired money recipient in the Philippines who is subscribed atSMART.Afterthemoneyhasbeentransferred,anotificationtextmessageissenttoboththesenderandtherecipientwho can then use the mobile account to specify a certain withdrawalamountandpickitupatapartneringinstitutioninthePhilippines.Thefeeschargedfortheremittancesthroughthe“SMARTPadala”areconsiderablylessexpensivethantraditionalwireservicesincludingcouriercosts.

FouryearsafterSMARTMoneywaslaunched,Globeenteredthem-commercebusinesswithitsGCASHproducts.UnlikeSMART,Globedoesnotrelyonabankaspartner,butmaintainsandoperatesanownclearinghousefacilitywhichrecordsalltransactionsandsettlesdealsbetweenretailersandGCASHcustomers.Duetothisinitialoperationalset-up,theapproachisatelecom-drivenbusiness.Inconsequenceofthisapproach,Globeisdirectlyresponsibleforfraudmanagementandthepreventionofpotentialmoneylaundering.Furthermore,GCASH’sservicereplacestheregularbankaccountwithan‘electronicwallet’featurethatallowsuserstosendandreceivecashandmakepayments,includingbillpayments,donationsandonlinepurchasesviaSMSmessaging.Duetoestablishedpartnershipswithcompaniesindevelopedcountries,FilipinoemigrantscansendmoneyviaaSMSmessagetoGlobesubscribersinthePhilippines.TherecipientcanpickupthecashfromanyGlobeTelecomretailpointbyshowinganappropriateSMSmessageonamobilephoneandapersonalID.WithinthePhilippines,theserviceisalsoapplicabletoP2Pmoneytransfer.Allcostsaretransaction-related,whilethekeyformassiveuptakeweretightlycontrolledtransactioncharges.AttheendofSeptember2007,closetohalfamillionoutofmorethan19millionGlobeTelecomsubscriberswereactiveGCASHusers.


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In2008,animportantmilestoneinthedevelopmentofthegrowinginternationalremittancemarkethasbeenreachedwiththeconclusionofapartnershipbetweenWesternUnionCo.,GlobeTelecomandSmartCommunications.Moneyremittedonanannualbasisfromdevelopedtoemergingcountriesintheperiodfrom2002to2007hasmorethandoubledreachingUSD240billionin2007,whereasthePhilippinesasthefourthlargestremittancereceiveraccountedforUSD17billion.

Uptonow,theremittancemarkethasbeengloballydominatedbyfewtraditionalplayerssuchasWesternUnion.Therecentboom of mobile remittance services caused traditional players toadapttheirexistingbusinessmodel.Apotentialmarketsharedecline needs to be prevented and a wider pool of oversea Filipinoworkersneedstobecaptured.ThepartnershipbetweenWesternUnion,GlobeTelecomandSmartCommunicationsintendstocreateasymbioticrelation.WesternUnion’sglobalreachandagents’networkispairedwithanactivesubscriberbase of both providers in order to increase the ease and flexibilityofmovingmoneybackhometofriendsandfamilyatlower costs than before.

A.2.14 PORTUGAL: Telemultibanco as one of the market pillars

WithoneofthedensestATMnetworksinEurope(1.07per1000inhabitantsvs.theEuropeanaverageof0.74),Portugalhasseenanm-paymentmarketdevelopmentthatmimicstheevolutionofitsbankingsystem.Itischaracterizedbyinter-playercooperation&standardizationandbyatrustedthird-party,SIBS,aninter-bankingsociety,whichmanagestheunderlyinginfrastructureand facilitates the settlement of transactions between players suchasbanks,merchants,consumersandoperators.

TeleMultiBanco,offeringauniversalsolutionforaccessingATMservicesincludingpaymentsviamobilephone,representsthecooperationofthethreemobileoperatorsOptimus,TMNandVodafoneaswellasPortuguesebanks,viaSIBS.TheservicecanbeaccessedbyaJavaapplicationdownload,aphonecalltoanautomatedresponsesystem,aSMSmessageortheoperators’WAPportal.Apartfromstandardpaymentsofservices(suchlikeutilities)andpurchases(online,mail-order),usershaveaccess to a variety of other ATM operations such as top-up of

pre-paidmobilephoneaccounts,checkingaccountbalancesandtransactionreportsandtransferringmoneytootheraccounts.

A.2.15 SINGAPORE: Aiming at replicating the Japa-nese success story

Intheearlystagesofthem-paymentmarketdevelopmentinSingapore,thegovernmentplayedanimportantroleincreatinga favorable environment for the m-payment ecosystem. Combinedwithahighmobilepenetrationrateandtechnology-savvycustomers,thisledtotheformationofahighlydevelopedm-paymentmarket.

Asoftheendof2007,NFCtechnologymadeitsinroadsintothem-paymentmarketinSingapore.ApartnershipbetweenStarHub,oneofthemajormobileoperators,andEZ-Link,acontactlesssmartcardservicebasedonSony’sFeliCasmartcardtechnology,wasconcludedtoexecuteasixmonthfieldtrialforNFC-basedpayments.AsEZ-LinkisawidelyacceptedpaymentinstrumentatretailersandinSingaporeanpublictransportation,2,600selectedtesterswereenabledtobuyservicesandgoodsbytappingtheirmobilephonesonNFCreadersthatwereinstalledinapproximately1,000differentlocations.Additionally,informationexchangewasprovidedbysmarttagsembeddedintointeractiveposters(e.g.busserviceinformation,informationonmoviesdisplayedincinemas,promotionsatshops).Thefeedbackreceivedafterthetrialclosureconfirmedthat70%oftheparticipantslikedtheservices.

AfterthesuccessfulEZ-Linktrials,StarHubwentonestepfurther.ThecompanyrecentlysignedamemorandumofunderstandingwithNTTDoCoMotobethefirstmobileoperatoroutsideJapantotestandpilottheOsaifu-Keitaiservice.ThewidelyacceptedJapaneseconceptofmobilewalletissupposedtobeintroducedinSingapore,encompassingavarietyofservices:e-money,identitycard,farecardforunderground,trainandbustransportation,creditcards,aswellasdiverseloyaltycards.BeingthefirstmoverofNFCtechnologyintroductiononamarketwithsuchfavorabledevelopmentconditions,suchashightechnology-savvypopulation,andaneasy-upgradeableexistinginfrastructure,givesStarHubacompetitiveedge.However,weexpectareactionofthecompetition,whichmayhinderaharmonizedapproachtowardsmass-marketadoptionofthetechnology.


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A.2.16 SLOVENIA: Still leading the m-payment market in the CEE region

Sloveniaisoneofthemostadvancedm-paymentmarketsintheCentralEurope.TheleadingSlovenianmobilenetworkoperatorMobitelalreadylauncheditsm-paymentsystem“Moneta”in1999. In order to support a massive adoption of the m-payment serviceMoneta,thecompanymadeitavailablebydefaulttoeverypostpaidMobiteluserunlessheorsherequestednottoparticipate.Inthefirstphaseofitsexistence,Monetawas a closed system just for Mobitel users. All the retailer acquisitionwasdoneexclusivelybyMoneta.In2004,followingtheregulationchange,thesystemhasbeenopenedtomultiplebanks,socustomerscoulduseadebitorcreditcardwithmultipleaccounts.Furthermore,anadditionalSlovenianmobilecarrier – Debitel accepted the Moneta payment platform.

Alongwithanadequatepromotionpolicy,thisledtoaconstantincreaseintheuserbaseandthecreationofastrongbrandappeal.Intheperiodfrom2006to2007alone,Moneta’suserbaserosefromroughly100,000to190,000serviceusers.Thegrowthoftransactionsandvaluehasbeensignificantaswell:From2004to2007,thenumberofMonetatransactionsincreasedseventimes,whiletotalvalueofthetransactionsincreased 13 times.

ThewidedispersionofPOSterminalsalloverthecountryenablestheuseofMonetaforpayingparkingfees,lotterytickets,restaurantbills,taxibills,aswellasgoodsindifferentstores.Furtheron,Monetacustomersoftenusetheserviceforonline payment. Another innovative service applicability is the mobile payment of fines at the local court.

Concerningthefurtherdevelopment,weexpecttheestablish-ment of m-payment service interoperability between Mobitel and other alternative mobile operators besides Debitel to occur sometimein2009,thoughnoprogresshasbeenachieved since 2005.

A.2.17 SOUTH AFRICA: Fruitful ground for m-banking

SouthAfricaprovidesanexcellentexampleofhowabankinginfrastructuredeficiencyinanemergingmarketcanbeovercome by an innovative mobile phone based business model.

WizzitandMTNMobileMoneyoffercompetingsolutionsthatuptonowhavemanagedtosatisfytheneedsoftheunbankedpopulationinSouthAfricatoagreatextent.WizzitoperatesasaBankofAthensdivision,whileMRNMobileMoneyhasbeenlaunchedasajointventurebetweenthemobileoperatorMTNandtheStandardBankin2004.

Since both companies have been involved in the issuance of e-moneyandacceptanceofdeposits,theregulatorrequiresthemtooperatejustlikeotherlicensedbankinginstitutions.

BothWizzitandMTNMobileMoneyofferawiderangeofm-pay-mentservices:P2Paccounttransfers,air-timetopup,paymentofutilitybillsandreceivingsalariesthroughanm-bankaccount.

Asasubstituteforaregularbankinginfrastructure,Wizzithasbuiltataskforceof2,000trainedagents,so-calledWizzkids.Theyperformallbankingrelatedactivities:introducingtheofferedservices,performingKYCproceduresandissuingnewdebitcards.MTNcustomerscanopenaccountsusingOTAdownloadable software or software already embedded in their SIMcards.UnliketheWizzitservicesthatareopentomobilephoneownerswithanycarrier,MTNMobileMoneyservicesareonlyavailableforMTNsubscribers.Asaservicetoitscustomers,MTNMobileMoneyoffersagentassistanceforaccountopeningandalsoprovidestheoptionofactivatinganaccount via internet.

Wizzitserviceuserscandepositandwithdrawcashviaanetworkof3,400officesofthepartneredPostOfficeandABSABankandadditionallywithdrawcashonallavailableATMsnationwide.UsersoftheMTNMobileMoneyservicealsoreceive a MobileMoney cash card that can be used for cash withdrawalsanddepositsatStandardBankbranchesandATMs.

Uptonow,Wizzithasmanagedtoacquiremorethan200,000serviceusers,whileMTNMobileMoneyhasapproximately80,000users.Thekeychallengesforserviceadoptionarethechangeofuserbehavior,significantmarketingeffortsforservicepromotionandrelatedtrainingsandafavorableregulatoryenvironmentfortheintroductionofmorecomplexbankingservicesbynon-bankingorganizations.


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A.2.18 SOUTH KOREA: Market potential to be exploited through NFC technology adoption

BesidesJapan,SouthKoreahasbeenamongthefirstcountriesworldwidetointroducemobilepayments.However,incontrasttoJapan,themarketdevelopmenthasnotbeendrivenprimarilybyasingleplayer,butresultedfromcompetingsolutionsanddifferenthardwareofferings.Thoughin2005themainplayersSKTelecom,KTFreetelandLGTagreedtouseacommonm-paymentacceptancedeviceknownasa‘dongle’andagreedtoadoptRF(NFC)waynotIrDway.

In2006,SKTelecomhaspartneredwithNPXforalargescalesix-monthfieldtrialofNFCapplications.400selecteduserstookpart in the project and could use their phones for contactless paymentsatretailersthathavepreviouslybeenequippedwithNFCreaders,aswellasforticketpurchasingandtimetableenquiriesofthepublictransportsystem.Furthermore,usershadaccess to interactive posters that could be used to download ring-tones,wallpapersandticketinformation.ThistrialreceivedpositivefeedbackandprovidedSKTwithagoodbasisforafuturerolloutofNFCtechnology-basedm-paymentsolutions.

In2007,SKTelecombroughtitsexistingcooperationwithVisaInternationaltothenextlevel.Jointly,theyrolledoutacontactless payment application on a commercial basis by introducingauniversalSIM(USIM)cardthatispersonalizedover-the-air(OTA).Withthisservicelaunch,thepartneringcompaniesaimedatleveragingthe50,000existingcontactlessreadersatmerchantsacrossSouthKoreaandaddressingthe30,000SKTsubscribers.Soastoavoidpotentialadoptionbarriers,theVisaPayWavecontactlessapplicationwasavailablefordownloadviamobileinternet,andtheUSIMcardhasbeenmadetransferablebetweenphoneswithoutloosingitsfunctionality.Moreover,inordertoaddressuserpreferencesfordifferentmobilephones,theservicehasbeenofferedwith17differenttypesofhandsets.

In2008SKT,KTFandLGTstartedOnechipmulti-bankingserviceswith17localbankhavingjoinedsincethen.The3GhandsetswereprovidedbySamsungandLGandtheservicewasdeployedataround40,000ATM/CDs.

TheKoreanmobileoperatorsarealsotakinganactiveroleintheGSMAprojectthatisaimedatdefiningacommonapproachforusingNFCcommunicationinpaymentprocesses.KTFhasbeenthefirstcompanyamong34leadingmobileoperatorstostartaPay-Buy-Mobilepaymenttrial.ThetrialconfirmedthatKoreanusersshowgreatinterestintheofferedservices,mainlyduetoits simplicity and convenience.

Recently,SKTandKTFlaunchedanm-bankingservicecalled“T-Cash”,respectively“ShowT-money”.“T-Cash”and“ShowT-money”areUSIM-basedm-paymentplatforms,whichenable3Ghandsetstobeusedforavarietyofservices,suchaspublictransportation,taxis,museums,etc.Theserviceitselfthoughisnotnewasitisonlythemobileversionof“T-Money”,awell-knownservicewhichhasbeenaverypopularcontactlessmeansofpaymentinvariousformatssuchasstand-alonesmartcard,embeddedcreditcard,handsetaccessoriesinSouthKorea.

SKTandKTFcollaboratedwithKoreaSmartCard(KSC,T-moneyoperator)forthedeploymentofthemobileversionof“T-money”andarenowapplyingafee-sharingmodel.SKTalreadyexperiencedserviceuptakeofthenewservicewith50,000T-cash subscribers within the first 15 days of operation and is targetingat500,000subsbytheendof2009.

In contrast to previous efforts and the m-payment service (MONETA),themarketplayerscollaboratedbasedontheirexperiences. They learned that collaboration is more important than competition and that the domination of the m-payment marketisnotachievableduetothenecessityofdevelopingandeducatingcustomersdirectly.Theeco-systemofm-paymentconsistsconjointlyofacreditcardcompany,adevicemanufacture and a mobile company.

Weexpecttheplayersineco-systemstobeabletoexpandtheircustomerbasecontinuouslywiththekeysuccessfactorsbeing:

1. Toleverageexistingcustomerexperienceswith‘contactless’payment methods and to focus on their transition to mobile platformsbyemphasizingthe‘easierway’ofm-payment(SKTappeals“T-cash”iseasiertorechargewithenhancedservicescope,moreretailchains,onlinepaymentopportunities,etc.)


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2. Toavoidconflictsandcompetitionwithexistingpaymentserviceproviderslikecreditcardcompanies;insteadtofocusonutilizingotherplayersfromdifferentvaluechains.

ThiscouldbeauniqueapproachinSouthKoreawhile‘similarmeansofpayment’arealreadyverypopular.Importantly,SKTalreadyaimsatenteringtheChinesemarketinordertoreplicatethisapproachincooperationwithgovernmentormunicipalities.

A.2.19 SPAIN: Increasing interoperability speeds up the market development

TheSpanishmarketisoneoffewintheworldwherethekeyindustrystakeholders,mobileoperators,banksandregulators,joined forces to develop a service platform called Mobipay.

TheallianceforMobipayhasmanagedtoapproachacriticalmassofretailpartnersinordertomakethesolutionviable:BancoBilbaoVizcayaArgentaria(BBVA),Santander,CentralHispanoonlinemerchants(SCH),TelefónicaMóviles,VodafoneandAmena.Today,acrossthecountry,theserviceisusedby10,000taxis,40,000onlinemerchants,and2,000retailshops.Foralltransactions,theUSSDchannelwasusedaspaymentsolutionandlinkedtoexistingcreditanddebitcardsofcustomers.

Asof2007,BBVAhascooperatedwithVisa,IngenicoandNokia.200selectedtestpersonshavebeenequippedwithNokia6131NFCphonesutilizingaVisaPayWaveapplicationlinkedtoaBBVAcredit/debitcardandIngenicocontactlessreadershavebeen installed in selected bars and restaurants around Madrid. Itisexpectedthatfiveyearsafterthecommercialroll-out,theservicewillbeusedby500,000people.

AnothertrialfortheintroductionofNFCtechnologyhastakenplacein2008.AlocalpublictransportationcompanyinthetownofMalaga,EmpresaMalagueñadeTransportes(EMT)hasbeenusingmobileticketingalreadysince2005.Thisyear,thecompanylaunchedatrialwithMobipayandOrangefortheintroductionofNFCbasedticketpurchases.Thefurtherdevelopment needs to be monitored.

A.2.20 SWITZERLAND: Limited m-payment services so far

EventhoughthemobilemarketinSwitzerlandiswelldeveloped,with6.5millioncellphonesandapopulationof7.7millionSwisscitizens,therehasbeenonlyalimiteduseofm-paymentservices so far.

Ingeneral,therearethreemainm-paymentplayersactiveinSwitzerland:Epark24,XsmartandPostfinance,thedaughtercompany of Swiss Post and the only financial service provider inthisgroup.Epark24focusesonmobilepaymentsforparking(Epark24)andpurchasesatsmallfoodstores,flowerstandsand mobile payments in hotels and restaurants. The last three servicesarepromotedunderthebrandEpay24.Customerspaytheirbillsbycallinga0900-number,whichthendirectlychargestheamounttotheircellphonebill.TheserviceisalsosupportedbyPostfinance.Customerscanhenceopttosettletheirbillsthroughadirectdeductionfromtheirbankaccountviaamobileauthorizationcode.ThisservicehoweverrequirescustomerstohaveanactivePostfinancebankaccount,whichlimitsthepotentialcustomerbase.Epark24reliesonthetelecommunicationinfrastructureofthemobileoperatorSunrise,buttheservicecanalsobeusedbycustomersofanyMNOorMVNO.FromAugust2007toDecember2008,EparktogetherwithEpay24managedtoprocess150,000transactions.Thistranslatesroughlyinto290transactionsperday.

ThegoalofXsmartistodevelopandoffermobilemarketingandpaymentsolutions.Sofartheyoffermainlym-ticketingservicesbasedonSMSsuchasMobileARENA(fullservicepackageaimingatoutsourcingtheorder-,delivery-andpromotion-processtomobiletechnology),MobileSKI(activatingtheskipassviaSMS)andMobileTRAVEL(purchasingticketsforpublictransportationandparking).

AsofJanuary2009,SwissFederalRailways(SBB)hasbeenofferingm-paymentsthroughtheirMobile-TicketShops.Althoughtheserviceisopenforusersofdifferentmobilenetworks,customersneedtoregisterfortheserviceinitiallyonthewebsiteanddownloadasoftwareapplication(freeofcharge).Apotentialhurdleforamassiveserviceuptakebesides


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thisrelativelycomplicatedsign-upprocedureisthehandsetsrestriction: only java capable devices are compatible.

Withregardstothebankingsector,uptonowtraditionalbankshaveshownlimitedinterestforthedevelopmentofanm-payment channel.

ThefirstcoordinatedmovesoftheSwissbankingindustryhavebeenseenattheendof2008,whenCreditSuisse,PostFinance,Swisscard,VisaEuropetogetherwithSwisscomandTelekursMultipay(companyforcashlesspaymenttransfersinSwitzerland)havelaunchedathree-monthlongpilotproject,whichintroducedNFC-basedVisapayWaveservicesinSwitzerland.Themarketscopeofthetrialwaslimitedto150selected employees of project partners who could pay for meals intheircompany’scanteenbywavingthemobilephoneinfrontofanNFCreader.Theaimofthetrialwastogetfirstmarketfeedbacksregardingthecommercialandtechnicalapplicabilityof the solution as well as its user-friendliness.

Untilnow,wehaveseenonlyalimitedm-paymentdevelopmentinSwitzerland,largelyduetoinadequateinterestofbankingindustry players. Postfinance has been the sole financial service playerthathasbeensofarpushingm-paymentservices.However,weexpectotherbanksinthenear-termfuturetostarttoparticipateinthedesignofnewmobile-basedpaymentservices,assoonastheNFCtechnologyprovidesthemarketwithstandardizedhardwareandaprovenbusinesscaseforthem-paymentvaluechainplayers.Thiswillleadtofurthermarketcompetition,serviceinnovationand,subsequently,tomoresignificantmarketuptake.Fromamobileoperatorperspective,wehavejustseenapromisingattempttopushtheintroductionofm-paymentsbytheestablishmentofaworkgroupbetweenallthreemajormobilenetworkoperatorsSwisscom,Orangeand Sunrise.

A.2.21 TAIWAN: New Asian test area for NFC applications

TaiwanisrecognizedasoneofthemostimportantglobaltestbedsfortheNFCtechnology.Duringthelasttwoyears,threeTaiwanesemobileoperators,TaiwanMobile,FarEasToneTele-communicationsandChunghwaTelecomlaunchednumerous

fieldtrialsforNFC-basedm-paymentstogetherwiththeirtechnologypartnersandmajorplayersfromthefinanceindustry.

Inthebeginningof2007,TaiwanMobilepartneredwithViVOtech,Inc.asNFCequipmentvendor,MasterCardandTaipeiFubonBanktolaunchtheNFCmobilephonepaymentpilotprogramatselectedandprestigiousretailersacrossTaipei.ParticipantsofthispilothadachancetousetheViVOwalletsoftwareapplicationontheirNFCmobilephonesforviewingandselectingpaymentcardsandforredemptionofcouponsatViVOpay-enabledPOS.

Laterin2008,TaiwanMobiledecidedtorolloutNFCpaymentservicesnationwidewithanewpartner,Gemalto.Theprimaryrationale behind this partnership was to enable simple service adoption and activation by end users. Gemalto provided Taiwan Mobilewiththeworld’sfirstcommercialNFCSIM-basedpaymentsystem.Themainadvantagewasthatusersdidnothavetoupgradetheirphones,butonlyhadtochangetheirSIMcard.GemaltoalsohadtheroleofTSMandbusinessfacilitator,as all partners in this venture were reluctant to share sensitive business information with the other parties and were afraid to letthepartnersgetintouchwiththeirowncustomerbase.

ThethirdlargestTaiwanesemobileoperatorFarEasToneTelecommunications(FET)alsopartneredwithGemaltoin2007tobringSIMcard-basedNFCservicestoTaiwan.Inaddition,FETlaunchedNFCm-paymentservicesbasedontheSingleWireProtocol(SWP)technologyafterhavingcompletedapilottogetherwithafewlocalpartners(TaishinInternationalBank,KaohsiungmetropolitanMRT(MassRapidTransit)systemoperator,7-Elevenconveniencestores,R-TMarthypermarketsandShinKongMitsukoshidepartmentstores)in2007.Thepost-pilotsurveyshowedthatoutof200participants,90%confirmedtheir satisfaction with the fast transaction process and the convenience provided by mobile credit card payment. The participantsthoughwereconcernedaboutmulti-functionality,security,handsetsandcustomerservice.

ChunghwaTelecom,Taiwan’slargesttelecommunicationscompany,haslaunchedfourNFCtrialprojectssofar.ThelasttrialwasconductedtogetherwithoneofTaiwan’slargestbanks,


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ChinatrustCommercialBank,andVisaInc.andthepayWavecontactlesstechnologywasbeingtested.Organizersofthesix-monthm-paymenttrialput500Nokia-mademobilephonesonsaletoconsumersandallowedthemtodownloadanOTAcontactlessapplicationtotheirphones,aswellastotapchip-tagsforreceivingelectroniccoupons.

Asshown,allthreenationaltelcosinTaiwanhavebeentryingto establish partnerships with financial companies to develop NFCbusinessmodelsandprojects.Ononeside,FarEastoneworkedwithinternationalmobilephonesuppliersandtelecomcompanies,whileontheotherside,ChunghwaTelecomandTaiwan Mobile partnered with Taiwanese mobile phone suppliers todevelopnewbusinessmodelsforthemarket.Therefore,weseeTaiwancurrentlyasoneoftheleadingregionalmarketsin

termsofNFCtechnologydeployment.

A.2.22 UK: Many initiatives for market testing, but development, limited by lack of coordination

Inthelastfewyears,wehavewitnessednumerousindividualinitiativesledbythefinancialindustry,mobileoperatorsandthirdpartyplayersconcerningtheintroductionofnewm-paymentservicesintheUK.

Reporo,amobileshoppingcompany,hadraisedmorethanUSD1millionfundingtodevelopitsall-in-onemobileplatformin2006.Thecompanyprovidesmobileshoppingservicesacrossmultiplenetworks,includingO2,Orange,T-Mobile,VirginandVodafone.Morethan25UKretailersaresellingproductsviaReporo,includingPCWorld,LastminuteandOddbins.

In2006,ActiveMediaTechnologyhascarriedoutthefirstlivetrialofanend-to-endmobileticketingincooperationwithLondon’snightclubMinistryofSoundandPayPal.Clubvisitorswereabletobuy,receiveandredeemanentranceticketontheirmobilephonebyutilizingtheinteractivevoiceresponsetechnology(IVR)ofPayPal’spaymentservice.

Inthebeginningof2008,OrangeUKhaslaunchedapilotproject for mobile contactless services in cooperation with the ManchesterCityFootballClub(MCFC).Inthescopeoftheproject,selectedMCFCseasonticketholdersweregivenNFC-

equippedmobilehandsetstoreplacetheirexistingcontactlesscards.Inthefirstprojectphase,thefootballfanswereallowedtousetheirmobilephonestoenterthroughtheturnstilesforhomegames.Inthesecondphase,usersweregiventhechancetopurchaseclubmerchandiseandrefreshmentsduringthegameswheretheyobtainedloyaltyschemesanddiscountswith their mobile phones.

AtosOriginstartedtoimplementitsmobileticketingsolutionacrossUK’srailnetworksincludingLondonandSouthEastern,FirstTransPennineExpressandArrivaTrainsWales.Inthebeginningof2007,thecompanyalreadyhadmorethan90%marketshare,providingthemobileticketingsolutiontoallUKtrain operators.

Laterinthesameyear,wecouldobservesometrainoperatorstakingaproactiveroleintheintroductionofanm-paymentticketingchannel.ChilternRailwayshasbecomethefirsttraincompanyintheUKthatsellsm-ticketstopassengers,cooperatingwithYourRail,CubicTransportationSystemsMobiqa,and ts.com.

Themostsignificantamongrecentm-paymenttrialsintheUKistheeight-monthpilotprojectforNFCtechnologyonmobilephonesinitiatedbyO2andsupportedbyTransportforLondon,TranSys,Barclaycard,VisaEurope,NokiaandAEG.InMay2008,500selectedtestusersfromtheO2customerbaseweregiventhe chance to use their mobile phones for payments at selected sites in London.

EachtestuserwasprovidedwithaNokia6131NFChandsetwithaninstalledO2wallet.Justlikeanormalwallet,itheldvariouseverydaycards,includingOysterforthepublictransportation across London and Barclaycard for the purchase ofgoods(maximumUSD14.6)throughcontactlesspaymentreaders at selected retailers in the London area. The testers couldalsocheckavailablefundsontheirphoneanytimeandlocate nearby retailers that accept the contactless payment. Furtheron,theywereenabledtousetheirNFChandsetonselected smart posters to prompt for more information on the product/serviceordownloadthecontent.Theinitialfeedbackgatheredduringtheprojectwasverypositive.However,the


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decision on a commercial rollout will depend on the final evaluationofthesolution’susefulness,securityandeaseofuse.

A.2.23 USA: After initial failure, m-banking is now tak-ing off fuelled by new technologies, entrepreneurial companies and the mobile-oriented habits of younger customers

WhiletheU.S.hasnotbeenaleaderinthedevelopmentofmobilefinancialservices,themobilespaceisemergingwithanemphasisonaccountmanagement,ratherthanm-payments.M-bankingisstillapushproductforU.S.banksasmanyconsumersarenotawareofthisserviceand/orareconcernedaboutprivacyandsecurityissues.Furthermore,customersarebecomingincreasinglysuspiciousofthebehaviorandactionsperformedbybanks.Nevertheless,m-bankinghasseenarapidincreasefromanegligiblenumberofusersattheendof2006to1.7millionatendof2007to3.1millionbytheendof2008(accordingtoestimates).Asofearly2009,BankofAmericahad1.9millionactiveusersofitsm-bankingservicecomparedtojustonemillionattheendofJune2008.Thisfiguremaybecomparedwithabout29millionusersofitsPC-basedonline-bankingservice.

U.S.bankshavebeenexperimentingwithm-bankingservicesforyears,assessingneedsoftheircustomers.In2002,WellsFargoscrappedaservicethatallowedcustomerstocheckbalancesandmaketransactionsfromtheirphonesduetodisinterest.BankofAmericahadasimilarexperiencebeforere-launchingitsm-bankingservicesin2007.

Thenewm-bankingserviceallowscustomerstoregisteronlinetoactivatetheservice.Afterwards,theycanaccesstheiraccounts from their mobile phone in a similar way as from their computer.Theserviceisaccessiblebymorethan85%ofmobilephonesubscribersintheU.S.havingmobileinternetaccessviaVerizonWireless,Sprint-Nextel,AT&TorT-Mobile.Theofferincludesawiderangeofservicesincludingpaymentofbills,mortgagesandhomeequitylines,fundtransfersbetweenBankof America accounts and views of transaction details as well as theabilitytocheckbalancesforsavingsandcreditcardaccountsandreceivee-alertsastextmessages.

Inthebeginningoftheyear,BankofAmericalaunchedanupdatedsoftwareapplicationthatallowsconsumerstochecktheirbalancesandpaybillsthroughApple’siPhone.Today,about40%ofBankofAmerica’smobilecustomersaccesstheserviceviaiPhoneoriPodtouch.Fortunately,thenowwidelyavailable(EV-DORev.AandHSPA)high-speedmobilewirelessnetworkshavemadeiteasiertoviewcanceledchecksandpaybills.Inanotherexample,WellsFargo&Co.hasbeguntopromoteaservice that allows business clients to approve wire transfers throughtheircellphones.

Althoughuntilnowm-paymentshavenotbeenthemajorcontributortom-bankingintheU.S.,banksclearlyforeseetheirfutureimportance.Citibankiscurrentlytestingservicesthatusecell phones instead of credit cards and allow customers to pay throughtheirphones.Inadditiontobanksandmobileoperators,independentm-paymentserviceprovidersareplayinganimportantroleinlaunchingm-paymentservicesintheU.S.OneofthemostnotableoftheseindependentsisObopay,foundedin2005andstartingoperationsin2006Obopaycouldrapidlyestablishedaleadingpositioninthisarea.

AlthoughObopayfocusesonofferingP2P(person-to-person)services,italsoofferstypicalservicessuchasbillpaymentsand,soon,proximitypayments.Althoughanearly(2006)partnershipwiththeMVNOAmp’dMobilefailedwiththelatter’sbankruptcyinmid-2007,itscoreideaisstillverymuchalive.The service allows mobile users to send money to any mobile phonenumberandtoreceivemoneyfromanyObopayuseraswellastobuygoodsandservicesatmorethan5.5millionretaillocationsandalmost400,000ATMsacrosstheU.S.Toenhancetheservice,ObopayalsocollaboratedwithViVOtechtoallowuserstoaccesstheViVOwalletandpayforgoodsbywavingNFC-equippedmobiledevicesatthe160,000retailoutletsequippedwithaViVOtechPOSdevice.

In2007,ObopayranapilotprojectwithCitibank.Initially,participa-tingCiticustomersinBostonandChicagowereenabledtoaddmoneytotheirm-paymentaccountsviaajointwebsite,throughcreditcardorelectronicbanktransfer.Lateron,Citiannouncedthelaunchofanexpandedpilotincludinganewmobileperson-to-personmoneytransferservice,claimingitasthefirstreal-time


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P2P mobile money transfer service in the U.S. with the ability to directlylinkittoabankaccount.Theserviceallowscustomerstousetheirphone’sWebbrowser,SMStextmessaging,downloadable mobile application and to send and receive money from mobile phones of friends and family members.

TogetherwithMasterCardObopayisdevelopingacommercialproducttobelaunchedduring2009.Theservicewillprovidea front-end interface for mobile person-to-person payments handledbythecardnetwork’sMoneySendremittancesystem.Inanotherefforttobuildusage,Obopaychangeditssystemsin2008toallowitsuserstosendmoneydirectlyfromtheircheckingaccountstorecipients’bankaccounts.

Onthetopofsofarestablishedpartnerships,ObopayhasmanagedtosecuresignificantinvestmentsfromthemajorhandsetvendorNokia,targetedatproductandmarketdevelop-ment.Weseethereforeanexampleofanindependentserviceproviderthathasrecognizedtheimportanceofpartnershipswithkeyvaluechainplayersformarketexpansionandpositioning.

Citihasalsoenteredintoapartnershipthatinvolvesthetech-nologyproviderFirethorn(nowacquiredbyQualcommandoperatingasitsmobilecommercesubsidiary),namelyCitiMobileforCards.ThismobileserviceallowsCiti’screditcardcustomers to access real-time credit card account information ontheirmobilephones.Theserviceencompassesamongothers:viewingreal-timebalances,payingbills,settingupfuturepayments,transferringmoney,searchingforabranchorATM,andconnectingdirectlywithcustomerservicerepresentatives.AllCitiMobiletransactionsaresecuredby128-bitencryption,whiletheclient’sPINandaccessareonlyactiveonaregisteredphone.

Anotherlargebank,HSBC,launchedasix-monthmobilephonepaymentpilotin2007throughitscreditcardunitHSBCCreditCardServices,incooperationwithMasterCardandViVOtech.Inthescopeofthispilotproject,200HSBCemployeesinNewYork,ChicagoandotherlargeUScitiestestedtheuseofNFC-enabled mobile phones for contactless credit card purchases. By introducingcontactlessdebitcardsinlate2005andcontactlesscreditcardsin2006,HSBChadalreadymadethenewNFC

technologyavailabletoitsusers.Duetopositivefeedback,HSBCextendedthepilotbyallowingitsdebitcardstobedownloadedontoNFCmobilephones,sothatamulti-cardNFCmobilephonefieldtrialcouldberealized.

In2006/07FirethornandAT&Tconductedatrialonm-bankingand m-payments services for BancorpSouth customers. The responsesoftheparticipantsshowedthatm-bankingisthesecondmostpopularchannel,withon-linePC-basedbankingstillholdingtheleadingposition.Themajoritywouldusemobilebankingtocheckthestatusoftheirfinancialaccounts.Amongtherespondents30%saidtheywouldpayalloftheirbillsusingm-banking,whilealmost75%believedtheycouldmakemoreinformedspendingdecisions;87%oftherespondentspreferredtheirbank’sonlinewebsiteforenrolmentand83%werelikelytorecommendm-bankingtoothers.

In2007,themobileoperatorAT&TtogetherwithFirethornandanumberoffinancialinstitutionssuchasWachoviaCorporation,RegionsFinancialCorporationandSunTrustBankssignedagreementsfortheapplicationofFirethorn’sm-bankingandpaymentsplatform.Thisplatformallowsusers,amongotherservices,toviewaccountbalances,transferfunds,receiveandpaybills,anderasethecontentsoftheirmobiledeviceifitisstolenorlost.Inlate2008,theFirethornplatformwasextendedto the Apple iPhone.

Itcanbeobservedthatsimilarpartnershipsarebeingimplemen-tedwithotherplayers.In2008,VerizonWirelessandFirethornannouncedthatcustomersofmajorfinancialinstitutions,includingWachovia,SunTrust,FirstBank,andBancorpSouth,willgetaccesstotheiraccountsviatheirmobilephones.

WeconsiderthatthesepartnershipsontheU.S.marketarebuildingasolidfoundationforlong-termgrowthintheadoptionofm-bankingandm-paymentservices.Theirstrengthslieintheirnationwidecoveragethatprovidesconvenientaccessforconsumersonan“anywhere,anytime”basis,andthesignificantbudgetsthatcanbeappliedformarketingandeducationalcampaignsaswellastheavailabilityoftheservicesonpopular,standardizedplatforms.However,ithastobeconsideredthatthevarietyofsolutionsbroughttomarketfromvariousprogram


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issuerscreatescomplexityandtheriskofconfusionamongconsumers,whichhasbeenandremainsasignificantinhibitortotherateofgrowthofmobile-enabledfinancialservices.

Nonetheless,almostalllargeU.S.banksofferm-bankingservices,andevensmallbanksarestartingtoofferm-banking.Bytheendof2008about245banksofferedm-bankingstillrepresentingonly2%oftotalallU.S.banks(intermsofnumberofbanks,notsize).Inmostcases,banksareofferingm-bankingfree-of-charge,astheybelievecustomers-particularlyyoungerones-arelikelytoconsiderm-bankingasastandard

requirement.

A.2.24 OTHER COUNTRIES

The AustralianincumbentTelstrahascollaboratedwithNationalAustraliaBankandVisaInternationaltolaunchafieldtrialform-paymentsbasedontheNFCtechnologyin2008.TheNFCtrialhasbeentakingplaceinMelbournewitharound250Visa,TelstraandNABcustomers.ThetestpersonshavebeengivenasmartphonewithNFCcapabilityinordertobeabletomakesmallpurchasesatabout30designatedretailoutletswithinstalledNFCreaders.Dependingonthefeedback,thecommercialdeploymentmightbepossibleinthenextcoupleofyears.

Croatia wasoneofthefirstEuropeancountriesintroducingm-parkingasearlyas2001.Theservicehasachievedtremendoussuccess,andnowadaysitisappliedinmorethan50citiesthroughoutthecountry,beingtheleaderevenincomparisontotraditionalpaymentchannels(70%marketsharein2007).However,CroatianMNOslatelyadoptedonlym-ticketingasanotherm-paymentopportunity.TheservicewasdevelopedbytheInfoartGroup(co-developerofthesuccessfulm-parkingsolutionbesidesVipnet)andintroducedinCroatiancapital’spublictransportationin2007.ApartfromthatVipnetandT-MobileofferfewotherSMS-basedservices(e.g.P2Pmoneytransferservices,utilitybillspayment).AslongasP2Pservicesarelimitedtoonlyonesinglemobileoperator(i.e.Vipnet)andtoonlyonefinancialinstitution(i.e.Raiffeisen),weconsideruptakepotential to be limited.

Thereisalonghistoryofm-paymentsinCzech Republic with votingviapremiumsmsandm-ticketingfortransportation

servicesbeingthemostsuccessfulm-paymentapplications.Itseemsthatthesetwoservicesfulfillthekeysuccessfactorsofm-paymentuptake–unmetconvenience–withm-ticketingbased on a SMS model with all subscribers from all three mobile operatorsT-Mobile,TelefonicaO2andVodafonebeingabletousetheservice.Howeverwehavenotseensignificantprogressofm-paymentmarketslately,thoughm-parkingserviceshasbeenintroducedtothecitizensofPrague.Itseemsthatoperatorsarenotabletoagreeonaviablebusinessmodelthatsuitsallstakeholders:operators,banks,retailersandcustomers.Inparticularm-bankinguptakecanberegardedaslikelyduetothefactthatoperatorscurrentlychargeapproximatelya10%servicechargeforanytransaction(comparedto3-4%chargedbyCzechbanksandpaymentproviders).Inordertoboostm-paymentuptakeacoupleofkeyissuesneedtoberesolved:transactionchargesneedtobelowered,theeaseofuseneedstobeenhanced,theoperatorsandbanksneedtoclarifyandagreeonabusinessmodelandregulationsneedtobesimplified.

Denmarkhasalonghistoryofm-payments,similartootherNordiccountries.Alreadyin2001,OrangeDenmark(nowownedbyTelia)partneredwiththeDanishinter-bankgroupPBS to provide mobile based micropayments. In that early periodofm-paymentmarketdevelopmentanotherinitiativeamongDanishMNOshasbeenlaunched:Sonofon(ownedbyNorway’sTelenor)haspartneredwiththecarrierTDCaswellaswiththetechnologyprovidersSiemensandDanNettotesttheapplicabilityofm-parkingservicesandin-storem-paymentswithinthesupermarketschainofthegroupDreislerStorkob.However,incontrasttoinitialactivitiespushedbyMNOsoverthelastperiod,wehaveseenindependentserviceprovidersandmerchantsleadingthedevelopmentoftheDanishm-paymentmarket.EasyParkasoneofthemajorparkingmanagementcompaniesinNordicshasbeguntocooperatewithDanishcitiestoofferm-parkingservices.Inthebeginningof2009,anagreementbetweentheDanishIT-companyUnwireandDanishpublictransportationcompaniesDSB,MoviaandMetroselskabetleadtothepossibilityforpassengersinthemetropolitanareasinDenmarktopurchasetheirmetro-,bus-andtrainticketsbysendinganSMS.Besidesapplicationsinthetransportationindustry,in2008therewerenewm-paymentserviceslaunchedbyaCellpointMobile(anindependent


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providerofmobilesolutionsintheareaofm-payments).CellpointMobilepartneredwithDenmark’sfirstandlargestonlinebookstoreSaxotooffercustomerstheoptiontobuybooksthroughamobileshopbasedonCellpointMobile’smPointtechnologyandDIBS’InternetPaymentsystem.TheRoyal Danish Theatre has also decided to offer their customers theoptiontopurchaseticketsviathemPointtechnologyofCellpointMobile.WeexpectthatMNOsinDenmarkwilltakeamore active role in the rollout of m-payment applications and the m-paymentmarketdevelopmentmarketingthefuture.

Estonia isconsideredtobeoneoftheleadingEuropeanmarketsintermsofusageofinnovativemobiletechnologies.M-parkingserviceswerealreadylaunchedinEstoniain2000andadoptedbyallthreemobileoperators:EMT,ElisaandTele2.Currently,thesecondmostfrequentlyusedapplicationism-ticketinginpublictransportationofthecapitalTallinnandthecity of Tartu. The acceptance of m-payment is supported by the government.Forexample,thecountry’sparliamentapprovedalawmakingEstoniathefirstcountrytoallowvotingbymobilephone in the next parliamentary elections in 2011.

In Finland,m-paymentserviceshavealonghistory.Alreadysince1997somemobile-basedbankingservices,suchascredittransfersandbalanceinquiries,havebeenavailable.In1997,theFinishMNOSoneralaunchedthefirstm-paymentapplicationsforbuyingsoftdrinksfromvendingmachinesatHelsinki-Vantaaairportandasof2000applicationalsoincludedpaymentofparkingfees,restaurantbillsandmovietickets.In2002,Soneralaunchedanoperator-independentm-paymentservicewithLuottokunta,theFinnishinterbankgroup,named‘Shopper’whichenabledsubscriberstopaybymobilephoneatarangeofshops,includingPizzaHutandTiimarigeneralstores.WithregardstotheNFCtechnology,FinlandhasbeenoneofEuropean countries where municipal authorities have been very activeinsupportingthetechnologydevelopment.Alreadybytheendof2006authoritiesoftheTamperecityhavestronglycontributedtothelaunchoftheNFCtrialprograminthecity’spublictransportation.TheprojectparticipantsonthetechnologysidewereTeliaSonera,TietoEnator(ITservicecompany)andNokia.BesidesTampere,thecityofOuluhasbeenimportanttestedfortheNFCtechnology.In2007,thecity’sofficialshave

developedastrategicplanthatsupportsdevelopmentofITpotentialwithinlocalcommunity.OuluhasjoinedaSmartTouchprojectthathasbroughtmorethan20Europeanpartners(amongwhichwereNokia,Gemalto,TeliaSonera,Nordeaetc.)andwhichaimedtotestNFCtechnologyinnumberofcommunityservicesinperiod2006-2008.Overthisperiod,communityofthecityofOuluhastested10trialsofdifferentNFCserviceapplications.Theseapplicationsrangedfromonesthatwehaveoftenseeninothercountrieslike:purchasingofbustickets,m-parking,orrestaurantservice,tomoreinnovativeoneslike:NFCbasedbloodglucosemanagementorNFCapplication in the school environment.

In Kenya,VodafonedevelopedthemobilepaymentsolutionM-PESA which is operated by the local mobile operator Safaricom.Onlyoneyearafteritslaunchin2007,M-PESAhad2millioncustomersor50%ofthebankedKenyanpopulationduetotheservice’sconvenience,simplicity,securityandlowcosts.UnlikeWizzitandMTNMobileMoneyinSouthAfrica,M-PESAdoesnotoffertypicalm-bankingservicesbutfocusesmoreonsimple(micro)moneytransfers.ThehugesuccessofthisbusinessmodelisbeingreplicatedinotherdevelopingcountriesinwhichVodafoneoperates.However,thesuccessofM-PESahasalsospurredcompetitionfromregionalmarketcontenders.Zain,oneoftheleadingMNOsintheMiddleEastandAfricanregion,haspartneredwithleadinginternationalandregionalbanks(e.g.Citigroup,StandardChartered)tolaunchin2009itsZapmobilemoneyserviceinAfricancountrieswherethecompanyalreadyoperates.ZapwillbeinitiallyavailableinKenyaandTanzaniapriortolaunchinUganda.BesidestheserviceportfolioverysimilartoonethatM-PESAisoffering,Zapwillenable over 100 million potential service users to send cross-borderairtimetroughtheZain’sOneNetworkserviceacrossKenya,TanzaniaandUganda.

The mobile commerce industry in India isinthegrowingphaseasmanyentrantsaretryingtopositionthemselvesastheleadingserviceprovider.WeseethatmainmobileoperatorslikeAirtelandReliancearealreadyofferingawiderangeofm-commerceservices,rangingfromthefrequentlyusedbillpaymenttothemoreexpensiveairlineticketing.FinancialinstitutionslikeICICBankoffertypicalm-bankingservicesin

cooperation jointly with Reliance. Independent service providers suchasPayMate,OnMobile,mChekandObopayofferadiverserangeofm-paymentservicesoftenopentosubscribersofallmobilenetworks.SinceIndiaisoneofthecountriesleadingremittanceinflows,cross-borderremittanceswillbeafutureareaofm-paymentbusinessgrowth.

Poland is an example of a European country where an independentserviceproviderhasdriventhem-paymentmarket.MPay,asanindependentplayer,hasintroduceddiverseservicesrangingfromm-parkingtorecentlylaunched“PayWithYourMobile”servicewhichwasbornasaresultofapartnershipbetweenCitiBank’sPolishsubsidiary,CitiHandlowy,WarsawTransportAuthority,ZarzadTransportuMiejskiegoandaMNO,Polkomtel.Initiallythem-paymentplatformwasonlyplannedtobeusedformunicipaltransport,butmPayhasevenhighergoalsthansolelytheextensionofitsserviceapplication,itaimsatcreatingacommonstandardform-paymentinPoland.

In Sweden SMSloansarecurrentlyexperiencinganenormousuptake.SpecializedSMSloanplayersareemergingatahighspeed and up-to-date there already more than 30 players on the market.BysendingaSMSincludingthepersonalidentificationnumber,aspecifiedamountiscreditedtotherequestor’sbankaccount.CreditamountsareusuallybetweenEUR100-300withinterestratesbeingveryhigh(so-called‘charges’).Furtherm-paymentserviceslikem-parkingorm-ticketingforpublictransportationarealsobecomingmoreandmorepopularinSweden.Inaddition,DialogueCommunicationsrecently(December2008)launcheditsmobilebillingservicesinSweden,which allows customers to buy products and services over themobileinternet.TheWAPbillingsolutioniscurrentlyonlyavailableforone-offpurchasesandallowscustomers(vendors)todesigntheirownmobileInternetsites,whichareabletochargetheircustomersdirectlytotheirmobilephonebill.

Turkcell,theleadingmobileoperatorin Turkey,GarantiBank,oneofthethreelargestfinancialinstitutionsinthecountry,andE-Kart,atechnologypartner,havejoinedforcesform-paymenttrialusingNFCtechnologyattheendof2007.ThetrialwasbeenlaunchedasapartoftheGSMA“PayBuyMobile”initiative.WeconsiderTurkeytohaveahighpotentialformobilebasedNFC

technologyadoptionasGarantiBankimplementedMasterCard’sPayPasscontactlesspaymentsystemin2006andalreadyaround3,000retailersacrossthecountryusethecontactlessreaders.

In the Ukraine,UkrgasbankJSBdevelopedthefirstm-paymentsolutionin2007.TheSMSbasedpaymentserviceallowssubscribers of the mobile operator Golden Telecom to pay for servicesinrestaurants,hotelsoratretailersthataresubscribersof the service.


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B.1 Interviews

In2008and2009,wehaveconductedmorethan70interviewswithindustryexpertsfromdiverseindustries,suchasmobileoperators,banks,creditcardcompanies,paymentserviceprovidersandsuppliers,in35countries.(Exhibit 17)

B.2 Secondary research

Aspartofoursecondaryresearch,weconsultedmorethan90documents.

GSMA,November2007,Pay-Buy-Mobile, Business Opportunity Analysis, Public White Paper

ConsultHyperion,summer2007,CHYPpings

ConsultHyperion,autumn2007,CHYPpings

SergevanDam,M-Com,March2007,Mobile Banking and Switching, White Paper

Vivotech,April2006,RF Based Contactless Payment

Vodafone,July2007,The Transformational Potential of M-Transactions

USDepartmentofState,BureauofInternationalNarcoticsandLawEnforcementAffairs,March2008,Mobile Payments--A Growing Threat,http://www.state.gov/p/inl/rls/nrcrpt/2008/vol2/html/101346.htm

infoDeV,January2006,Micro Payment Systems and Their Application to Mobile Networks

DAI,January2007,Migrant Remittances, Vol. 4

PhilipMartin,UCDavis,July2008,MigrationNew-sGlobal:Remittances,Labor,Refugees,Aid,http://migration.ucdavis.edu/mn/comments.php?id=3408_0_5_0http://migration.ucdavis.edu/mn/more.php?id=3408_0_5_0

GISMA,2007,MMT process and user journey

Nokia,January2008,Expanding Horizons

MarianneCrowe,FederalReserveBankofBoston,April2008,Emerging Payments – The Changing Landscape

DavidPorteous,BankableFrontierAssociates,2006,The Enabling Environment for Mobile Banking in Africa

Appendix B: Contributors and references

Exhibit 17: More than 70 interviewed industry experts, representing 35 countries on 6 continents contributed to the fourth Arthur D. Little’s edition of the M-payment report series



Interviews with industry executives from 35 countries

Australia

Pakistan

India

Singapore

UnitedKingdom

Spain

Germany

Portugal

Switzerland

Austria

France

Belgium

Sweden

Canada

USA

Uruguay

Colombia

Taiwan

Japan

Malaysia

Netherlands

South Africa

Kenya

Italy

Ireland

Macedonia

Bosnia & Herzegovina

UkraineMoldavia

Slovakia

LithuaniaCzech Republic

Croatia South Korea


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WorldBank,July2008,Migration and Development Brief 5

TimothyR.Lyman,MarkPickens,DavidPorteous,CGAPWorldBank,January2008,“Regulating Transformational Branchless Banking: Mobile Phones and Other Technology to Increase Access to Finance.” Focus Note 43

GautamIvatury,IgnacioMas,CGAPWorldBank,April2008,“The Early Experience with Branchless Banking.” Focus Note 46

VisaEurope,2008,Visa payWave

StrategiesTelecoms&Multimedia,May2008,Orange: “Orange Money, a practical and innovative m-payment solution”, http://www.strategiestm.com/Orange-Orange-Money-a-practical.html

PRWebPressReleaseNewsWire,May2008,MoneyBoxAfrica Partners with Paybox for Largest Mobile Financial Ecosystem Across Africa,http://www.prweb.com/releases/2008/05/prweb922014.htm

ITU,2007,Telecommunication/ICT Markets and Trends in Africa

Fundamo,January2006,Celpay Zambia upgrades technology to directly answer African population requirements,http://www.fundamo.com/article14.aspx

Safaricom,2008,How to Register for M-Pesa,http://www.safaricom.co.ke/index.php?id=746

BBCNews,April2007,Money transfer service wows Kenya,http://news.bbc.co.uk/1/hi/world/africa/6510165.stm

MaverickMagazine,November2005, Talking ‘bout a Revolution

PaulBuddeCommunicationPtyLtd,September2007,2007 Asia - Telecoms, Mobile and Broadband in Malaysia and Philippines

NFCNews,June2008,StarHub to pilot mobile wallet based on Japan’s Osaifu-Keitai service,http://www.nfcnews.com/2008/06/18/starhub-to-pilot-mobile-wallet-based-on-japans-osaifu-keitai-service

Nokia,2007,Nokia and Contactless Mobile Payments in China,http://wiki.forum.nokia.com/images/d/d4/Nokia_China_NFC_Casestudy.pdf

NTTDoCoMo,April2008,Principal Actions Planned for FY2008,http://www.nttdocomo.co.jp/english/corporate/ir/binary/pdf/library/presentation/080425/all_e.pdf

DigitalworldTokyo,April2008,RFID in Japan: Japan’s Experience With RFID Phones and Contactless Cash,http://www.digitalworldtokyo.com/index.php/digital_tokyo/articles/rfid_japans_experience_with_rfid_phones_and_e_cash/

CorporateCommunicationsDepartmentofMaxisCommunica-tionsBerhad,May2007, The World’s First International Mobile to Mobile Remittance Service by Maxis and Globe http://www.utiba.com/news/PR_Maxis_IMR_vfinal_final_remittance_launch.pdf

ZDNetAsia,February2008,Western Union signs Philippine mobile payment deal,http://www.zdnetasia.com/news/communications/0,39044192,62037688,00.htm

PaymentNews,May2008, paybox, Globe Telecom Mobile Money Transfer in the Philippines,http://www.paymentsnews.com/2008/05/paybox-globe-te.html

MasterCardWorldwide,June2008,MasterCard Partners with Obopay to Offer Industry-leading Person-to-Person Mobile Payment Service,http://www.mastercard.com/us/company/en/newsroom/pr_Final_MasterCard_Obopay_Press_Release_6_18_08.html

AmericanBankeronline,August2007,Obopay Hits a Target It Didn’t Sight: The Unbanked,https://www.obopay.com/corporate/PDFs/American%20Banker%208.20.07.pdf.

Unstrung,September2007,Austrians Dig Mobile Payments,http://www.unstrung.com/document.asp?doc_id=133086&print=true

Orange,November2007,Major players on the market – banks and operators – launch a joint experiment,http://www.orange.com/en_EN/press/backgrounders/att00001369/dp071109en.pdf


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FranceTelecom,November2007,SNCF and Orange test contactless services on mobile to make daily travel easier for passengers,http://www.francetelecom.com/en_EN/press/press_releases/cp071105en.html

CardTechnology,2006,Vodafone To Launch NFC Pilots In Germany,http://www.cardtechnology.com/article.html?id=200604270IDBLZUM

PCWelt,January2007,Deutschland ist Entwicklungsland beim mobilen Bezahlen,http://www.pcwelt.de/it-profi/businessticker/587093/deutschland_beim_bezahlen_mit_handy_noch_entwicklungsland/Dr.MarcusGemeinder,June2008,DBMobilityLogistics,Touch&Travel – NFC based automatic fare collection using a passive infrastructure,www.nfc-forum.org/resources/presentations/Marcus_Gemeinder_Die_Bahn.pdf

T-Systems,June2008,RMV, T-Systems, Nokia, and Venyon set mobile ticketing to a new level of convenience,http://www.t-systems.de/tsi/en/398476/Home/PressAnalysts/PressCent

T-Systems,July2007,RMV ticket just three clicks away by mobile phone,http://www.t-systems.com/tsi/en/227132/Home/Press-Analysts/Press/PressArchive/DetailPagePressRelease/2007-07-18-PM-RVM2go;jsessionid=E5F4D9FD573167BEB4C344E17DA4F321

Epaynews.com,June2008,Italian Postal Bank Launches Cellphone Payment,http://www.epaynews.com/index.cgi?keywords=&optional=&subject=&location=&re

Computing.co.uk,October2007,Supermarket pilot lets customers pay at checkout via a mobile phone,http://www.computing.co.uk/computing/news/2200899/supermarket-pil

ChrisjandeWeerd,RaboMobielB.V.,June2008,Rabo Mobiel Introduction, Mobile Financial Services and NFC Innovation,http://www.slideshare.net/Frankwatching/rabo-mobiel-introduction-mobile-financial-services-and-nfc-innovation/

EurActiv,April2008,Payment Services Directive: The end of the cash era?http://www.euractiv.com/en/financial-services/payment-services-directive-cash-era/article-171979

MarkoJagodic,Mobitel,2007,Reality check: Moneta, live operator-bank partnership experience

Computing.co.uk,April2007,Man City scores with mobile ticketing system,http://www.computing.co.uk/computing/news/2187194/man-city-score

MobileMarketingMagazine,November2007,O2 Launches Major London NFC Trial,http://www.mobilemarketingmagazine.co.uk/2007/11/o2-launches-maj.html

PayboxsolutionsAG,June2007, Industry profile, paybox Roadmap

BethJenkins,IFCandtheHarvardKennedySchool,2008,Developing Mobile Money Ecosystems

GartnerDataquest,March2008,Dataquest Insight: The Truth Behind the Hype of Near Field Communication

DavidChen,MasterCardWorldwide,December2007,More Secure and Interactive Payment with Smart card and NFC

MobilePayment,Q42006,Banking the unbanked

MobilePayments,Q12008,O2 trials m-wallet London leads charge in NFC race

MobilePayment,Q42007,0-25 million in two years Contactless – the most aggressive payments technology

ArthurD.LittleM-PaymentReport2004:Making M-Payments a Reality

Arthur D. Little M-Payment Report 2005: M-Payments making Inroads

ArthurD.LittleM-PaymentReport2006:M-Payments making Inroads


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Appendix C: Definitions and acronyms

Term Defintion

ARPU AverageRevenuePerUser

ATM Automated Teller Machine

Bluetooth Chiptechnologyenablingseamlessvoiceanddataconnectionsbetweenawiderangeofdevicesthroughshort-rangedigitaltwo-wayradio.Itspecifieshowmobilephones,computersandPDAsinterconnectwitheachother,withcomputers,andwithofficeorhomephones

Cardcloning Unauthorizedduplicationofcreditcards

Churn Foranygivenperiodoftime,thenumberofcustomerswhodiscontinuetheiruseofaservicedividedbytheaveragenumberoftotalcustomers.

CP ContentProvider

CRM CustomerRelationshipManagement

Customer Userwhoordersthecontent,serviceorphysicalgoodusingamobiledevice

CustomerRetention Theprocessofbuildingarelationshipwithcustomersbylearningasmuchaspossiblethroughsurveys,demographicsandpsychographics.

Digitalsignature Anelectronicsignaturethatcanbeusedtoauthenticatetheidentityofthesenderofamessageorthesignerofadocument,andpossiblytoensurethattheoriginalcontentofthemessageordocumentthathasbeensentisunchanged.Digitalsignaturesareeasilytransportable,cannotbeimitatedbysomeoneelse,andcanbeautomaticallytime-stamped.Thesignedmessageprovidesprovethatitarrived,meaningthatthesendercannoteasilyrepudiateitlater.

Datamining Sortingthroughdatatoidentifypatternsandestablishrelationships

Dual SIM phone MobilephonecapableofusingtwodifferentSIMcardssimultaneously.

eCash DevelopedbyDigiCashandtheMarkTwainBank,eCashistheabilitytouserealmoneyinanelectronicpurchasingsystemovertheInternet.AcustomersendsachecktoMarkTwainBank,whichinturnsendsthecustomersoftwarethatgivesaccesstotheecashMint.ThecustomercanthenusethefundswhenpurchasinggoodsandservicesontheInternet.Cancelledin2001.

E-Money Directive TheEUE-MoneyDirectiveimposesrequirementsinrespecttoelectronicmoney(e.g.thattheelectronicmoneymustberedeemableforcashatanequalvalue)andobligeselectronicmoneyissuerstoimplementsafeguardsagainstmoneylaundering.Itdefineselectronicmoneyasmonetaryvaluestoredonachipcardoronacomputer’smemory,whichisacceptedasameansofpaymentbyundertakingsotherthantheissuer.

E-Wallet Providesaportablesecuredatabaseforpersonaldata.Thedataiskeptsecureprovidingpasswordprotectionusingindustrystandardencryptionalgorithms.

GPRS GeneralPacketRadioService

HCI HostControlInterfacepositionedbetweenthesmartcardplatformandmobiledevices’applicationprocessors

HTTP HyperTextTransferProtocol

i-mode Proprietarypacket-basedinformationserviceformobilephones.i-modedeliversinformation(suchasmobilebanking,andtraintimetable)tomobilephonesandenablesexchangeofemailfromhandsetsonthePDC-Pnetwork.Launchedin1999byNTTDoCoMo,i-modeisverypopularinJapan(especiallyforemailandtransferoficons),butisnotcurrentlybeingusedelsewhere,PDC,WAP.


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IR Infrared

IrDA Infrared Data Association

IVR InteractiveVoiceResponse

J2Me Java2MicroEdition

KYC KnowYourCustomernormsrefertoapolicyframeworkappliedbybanksandotherfinancialinstitutions,whichaimsatknowingnewcustomersbeforeopeninganyaccountinordertopreventidentitytheft,identityfraud,moneylaundering,terroristfinancing,etc.KYCnormsimplyverifyingcustomers’identityandaddressbyaskingthemtosubmitdocumentsthatareacceptedasrelevantproof.Theycanbeappliedoccasionally,althoughacustomerhasalreadyopenedapersonalaccount.

Merchant Providerofthecontent,serviceorproduct

Micro browser ModifiedWebbrowserthatallowsuserstogetinternetdataonahandheldwirelessdevice.

Micro payment An online payment transaction with a minimal value. Micro payments are typically too small in value to beprocessedonacreditcardsotheyfunctionasdigitalcash.

Mobilenetworkoperator(MNO)

Providestheinfrastructurefororderingandpayment,fordigitalgoodsalsoresponsiblefordelivery,includingthemeteringofdownloadvolume,elapsedtimefordatasessionsandthelike.

MMS MultimediaMessagingService

NFC NearFieldCommunicationisawirelesscommunicationtechnologycharacteristicforitsshort-rangeaccessibility.ItprovidesdataexchangebetweenNFCenableddevicesatabout10centimetersdistance.

OTA OverTheAirisamethodofprovisioninghandsetswiththenecessarysettingswithwhichtoaccessserviceslikeMMSorWAP.

B2P Business To Person

P2P Phone To Phone

Payment confirmation The customer confirms the payment outlay on the mobile phone.

Payment service provider(PSP)

A company that provides settlement of the payment from the user to the merchant

PIN PersonalIdentificationNumber

Point of sales Theactualentrypointofthesalesorderintothesystem;inreallife,thecashierinashop.Form-paymentsalsoataxiride,avideoorgameserver,etc.

POS PointOfSale

Proximity Payment Alsoreferredascontactlesspayment,itcoversnon-cashpaymenttransactionswithoutanyphysicalconnectionbetweentheconsumerpaymentdeviceandthephysicalPOSterminal.Thustheresultingfinancialtransactionwillbetransferredtotheissuingbankusingstandardpaymentnetworkinfrastructure.

Pricingmethod Inreallifepricepergood.Fordigitalcontentarangeofoptions:pricepervolume/time,perevent,recurringperperiod,etc.

PSD PaymentServicesDirective(PSD)aimstocreateaEuropeanmarketforpaymentswhileimprovingnationalbusinessesatthesametime,offeringconsumerswiderrangeoflessexpensiveservices.

RFID RadioFrequencyIdentificationDevice


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Remote Payment Purchasemadeoverthenetwork

Reverse Billed Premium SMS

Reverse-billedpremiumrateSMSdelivercontenttomobiletelephonehandsetsforacharge.Consumerstypicallysubscribetoaserviceandarethenchargedapremiumforthemessagesthatthey receive.

SEPA SingleEuroPaymentsAreaisaninitiativebytheEuropeanbankingsectorwhichaimstoestablishthesameproceduresandobligationsacrosstheEUcountriesforcredittransfers,directdebitsandpayment cards.

ServerWallet An encrypted database of a customer’s data stored on a server.

SIM Secure Identity Module

SMS ShortMessagingService

SoHo SmallOffice,HomeOffice

SP Service Provider

SWP SingleWireProtocolisaspecificationforasingle-wireconnectionbetweentheSIMcardandanNFCchip in a mobile phone.

TSM TrustedServiceManager

User identification and authentication

Userisidentified,e.g.usingtheMSISDNofhismobilephone.Forauthentication,thePSPverifiesthatthephonewiththegivenMSISDNisinvolvedinthetransactionassumingthattheaccountownerisinpossessionofthephonewhentheconfirmationtakesplace.RequestingthecustomertoenteraPINcanenhancetheauthentication.TheoptiontouseaPINdependsonthedesiredtradeofflevelbetweencustomerpurchaseconvenienceandthelimitsneededtolessenfraudrisk.

WLAN WirelessLocalAreaNetwork


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About the authors and Arthur D. Little

Arthur D. Little’s Telecommunication, Information, Media & Electronics (TIME) Practiceisaglobalnetworkofworldclassprofessionals.Togetherweofferanunparalleledcombinationofindustryexperience,understandingoftheunderlyingtechnologiesshapingtheglobaldigitalindustriesandmasteryofthebusinessprocesseswithintheseindustries.WeguideourTIMEclientstowardsadeeperunderstandingofthestrategic,operationalandculturaldeterminantsoftechnology,innovationandfinancialmanagement,aswellastransferringtheskillstomanagethesedeterminantsfortheoptimalbenefitofalltheirstakeholders.

Arthur D. Little istheworld’sfirstmanagementconsultingfirm,foundedin1886inCambridge,Massachusetts,USA.Weareleading-edgeinnovators,combiningindustryknowledge,functionalexperienceandtechnologyskillstohelpourclientsgrowandcreateextraordinaryvalue.Wehavespent120yearsrenewingandreinventingourselvescontinuously–wecometoourclientswithafundoffreshknowledgeandexperienceinleadingindustriesaroundtheglobe.ArthurD.Littlepeoplebringcuriosity,creativity,integrityandanalyticalrigortoeveryjob,whichmeansfastanddramaticperformanceimprovements.TogetherwithourpartnersAltranTechnologiesandCambridgeConsultantsLtdwehave17,000professionalsatyourdisposalinmorethan40officesworldwide.

Karim TagaisaManagingDirectorintheViennaofficeofArthurD.Little.Hismainfocusareasareinternationalbusinessandmarketingstrategies,customermanagement,broadbandwireless access as well as wireless application solutions for mobile operators.

Gregory Oswald is a Business AnalystintheZurichofficeofArthurD.Little.Hefocusesonvaluestrategiesfortelecommunicationcompanies and is a member of the Telecommunication,Information,Media&Electronics(TIME)Practiceof Arthur D. Little.

Contacts

TheauthorswouldespeciallyliketothankPedjaPopicforhisgreateffortheputintothereport.Henotonlyhelpedconscientiouslyingather-ingtherequiredmarketinformationbutalsoassistedcontinuouslyinwritingthereport.Heputmanyadditionalhoursintothisreportandtheauthorshighlyappreciatehiscontribution.

Additionally,theauthorswishtoacknowledgethecriticalcontributionstothisreportmadeby:NicolaiSchaettgen(Austria),JeffChang(China),StipeMaric(Croatia),MarcelHominda(CzechRepublic),ErwanFleuriot,SteeveLouzoun,JulienFaucon,MorsiBerguiga(France),ChristianNiegel,BenjaminSarges,KlausvondenHoff(Germany),AndreaFaggiano,GigliolaFalvo(Italy),YoshikazuMatsuoka,ShinichiAkayama(Japan),JungsooWoo,KwangsukKim(SouthKorea),MayurKapur(Malaysia),SanderJanssen(Netherlands),JacoboGarcia,AlejandroPerez(Spain), ErikAlmqvist,HampusDahlstedt(Sweden),OliverLux(Switzerland),MatthewJackson(UnitedKingdom),DagEtienneEhrstrom(UnitedArab Emirates),MartynRoetter(USA)andmorethan70expertsaroundtheworld.

If you would like more information or to arrange an informal discussion on the issues raised here and how they affect your business, please contact:

Austria [email protected]

Italy [email protected]

Belgium [email protected]

Japan [email protected]

Spain [email protected]

China [email protected]

Korea [email protected]

Nordic Countries Martin [email protected]

Czech Republic Dean Brabec [email protected]

Middle East [email protected]

Switzerland [email protected]

France Didier Levy [email protected]

The Netherlands [email protected]

UK Richard Swinford [email protected]

Germany [email protected]

India Srini [email protected]

USA [email protected]

Malaysia & Singapore [email protected]

www.adl.com/mpayment

Arthur D. Little

ArthurD.Little,foundedin1886,isagloballeaderinmanagementconsultancy,linkingstrategy,innovationandtechnologywithdeepindustryknowledge.Weofferourclientssustainable solutions to their most complex business problems. ArthurD.Littlehasacollaborativeclientengagementstyle,exceptionalpeopleandafirm-widecommitmenttoquality andintegrity.Thefirmhasover30officesworldwide.WithitspartnerAltranTechnologies,ArthurD.Littlehasaccesstoanetworkofover17,000professionals.ArthurD.LittleisproudtoservemanyoftheFortune100companiesglobally,inadditiontomanyotherleadingfirmsandpublicsectororganisations.Forfurther information please visit www.adl.com

OurTechnologyandInnovationManagementpractice supports companies across the world to create value from theirinnovationactivities.Ourworkisrootedintheorigins of the firm. As early as 1911 we helped General Motors toorganizeitsfirstR&Dlab.Sincethenwehavehelpednumerous companies to achieve more effective innovation andwehavepublishedanumberofbooksandarticlesoninnovationmanagement,includingThirdGenerationR&D andProductJuggernauts.

Copyright©ArthurD.Little2009.Allrightsreserved.

This report is printed on process chlorine free paper madefrom100%recycledpostconsumerwaste.

M-payments are surging ahead

There are distinct growth opportunities to exploit in developed and emerging markets. In some markets, customers can already pay the restaurant bill via their mobile phone.

global m-payment report update – 2009 · entrepreneurial companies and the mobile-oriented ... to...

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