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www.greenwich-consulting.com

Mobile: Driving IntelligentPayment into the Real World

Fred Huet (Greenwich Consulting)

Rob Bratby (Olswang LLP)


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Key ndings 4

Introduction 7

The pure payment market 8

Drivers o intelligent payment 11

Evolution o new use cases or intelligent payment 12

Race to own the customer 15

Contents


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Key ndings

In the digital world, as in the physical world, the payments industry isone o low margin individual transactions which only delivers returnsthrough scale. In order or digital payment on the go to create acompelling value proposition, mobile service providers need to nd

ways o including additional monetisable value added services overand above mere payment processing.

The increasing pervasiveness of smartphones is naturally driving digital payment into the real

world, unlocking new services, and, through a combination of smartphone functionality and cloud

data storage, allowing what we call intelligent payment.

Based on our research with leading market participants, we believe that the growth of intelligent

payment will act as a disruptive force to the payments value chain, as the combination of payment

with online access and location information will unlock new use cases and applications, such as:

Mobile banking (especially within the developing world)

Ticketing and Travel

Integration of payments within social media

Location and user-based couponing and loyalty retail offers, which will improve retailers

capabilities to assess the efciency of their loyalty schemes

Lead generation in a physical retail environment (increased footfall)

The growth of intelligent payment will also drive efciencies into the electronic payments eco-

system. The increased availability of context-specic information will reduce the risk of fraud,taking cost out of the payments model, whilst an increase in competition for transaction methods

at Point of Sale will result in a reduction in transaction fees.

Intelligent payment allows fullment tracking to be brought from the online environment into the

real world, which will be a ground-breaking change for traditional advertisers. The pay-per-click

model could migrate from online to ofine and become a pay-per-tap model offering with real-

time pricing of ads, depending on their ROI. Google of course has a lot of knowhow in this space

and we would expect it to play aggressively to seek to secure a strong market position.

The disruption of existing electronic payments models will allow the emergence of new

players who will be able to provide trafc to retailers and allow more cost effective transaction

processing. It is too early at this stage to predict who will be the winners, between mobile

operators, credit card companies, banks, online payment providers and others, but in order

to succeed in the intelligent payments eco-system, our research identied that successful

companies should:

Embrace innovation and interoperability

Understand how to maximise the benet of customer data access, whilst maintaining trust from

their customers

Have the most efcient and cost effective payment system

Failing to embrace intelligent payment is not an option. As smartphone penetration and

capabilities of cloud storage increase, intelligent payment will replace current payments as

organisations see payments as the output of a customer engagement process rather than purely

a nancial transaction.

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Introduction

To an increasing extent mobile handsets are becoming a remotecontrol or individuals lives, acting as communication devices, webinteraces, calendars, and increasingly payments. Co-authored byOlswang LLP and Greenwich Consulting, this white paper ocuseson how the growth o mobile payments will disrupt the traditionalpayments value chain as intelligent payments move into the real

world, providing retailers with greater inormation regarding theircustomer base and allowing lower cost electronic transactions.

Original research for this white paper was gathered through a number of qualitative ninety

minute interviews with senior strategy individuals at mobile network operators, online payments

providers and card schemes undertaken during 2011 to enable a cross-market view regarding

the impact mobile will have on electronic payments. We would like to thank our survey

participants for their generosity in sharing their time and insights with us. Views have been

quoted on an anonymised basis any errors or omissions are our own.

This white paper may be freely quoted from, or linked to, provided that such quote or link

provides full attribution.

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The pure payment market

The payment industry is a low margin business by reerence to thevalue fowing through the payment system. For growth in mobiledigital money services (especially or new comers like mobilenetwork operators) additional value needs to be identied to actas an incentive or investment.

The main issue challenging the model in a market like the UK is that mass-market bankingservices are provided free-of-charge to the end user. Therefore, to create revenue

(disregarding any reduction in mobile network churn), the non-banking market participants

have to either:

provide a value-added service of convenience;

have some means of direct monetisation; or

create sufcient scale to prot from a share of the liquidity held on the platform.

Whilst these form a medium to long term objective, a realistic rst step is to transfer plastic

cards onto mobile devices, and then providers can think o anything more innovative

rom a payment perspective 2. Driving what we think will be the next stage we call

intelligent payment.

I a bank cant make money

out o payments and i PayPal

does not make much money out

o payments, then we cant.1

1 A major global MNO A2 A global card scheme

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Drivers o intelligent payment

Our research identied two drivers, one push, one pull, orthe development o intelligent payment:

First, sources of additional value must be found to generate prot out of mobile

payment; however

the increasing pervasiveness of smartphones is unlocking renewed competition at the

payment level and, through a combination of smartphone functionality and cloud data

storage, is allowing the development of smart services which have the potential todeliver such additional value.

By way of example, in the developing world where the banking infrastructures are

limited to urban areas and for the higher valued customer segments, mobile payment

and banking services are already being accessed by a large unbanked population using

their mobile phones.

By contrast, in the developed world, where access to bank accounts and ATMs is

ubiquitous, the main needs for mobile money is extending payment with specic

demands for improved on-the-go access, increase security for payments and targeted

customer benets.

Emerging technology trends include NFC as well as a range of remote solutions such

as QR Codes and value-added services integrated on the smart-phone. Moreover, NFC

enabled contactless transaction can utilise location based information that cross check

purchase location and registered addresses stored inside the card. NFC technologies are

currently being implemented around Europe and the US. These products aim to reduce

users time spent on queues and access to internet banking, improve security from

magnetic strip based credit withholding cards and increase users mobility.

When it comes to payment, its not

because we want to make money out

o payment its because somehow we

eel theres some value thats created

or consumers and we need the

integration o payment with loyalty

and with customer care.3

3 A major global MNO B

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We believe that consumers will get and

understand how to use apps or payment

in the real world and we have got certain

hypotheses about how this will happen

but it could take dierent orms: mobile

optimised sites or apps, NFC or simply

scanning a bar code on the phone, wif

or NFC or Mobile network.4

Evolution o new use casesor intelligent payment

On the basis o our research, in our view intelligent paymentwill drive new use cases and applications, some o them alreadywell-known and other newer applications:

Mobile banking: the core mobile nancial services in the developing world are peer-to-peer

transfer with cash-in and cash-out at point of sales using basic mobile phones. Prominent

examples include Vodafones M-Pesa in Kenya and Xooms Globe G-Cash in the

Philippines. These services are often extended onto trialling or collaborations with nancial

services products such as co-branded credit cards and crossed platform products such as

airtime top-up.

Ticketing and Travel: According to a major global MNO, Oyster cards will disappear:

There is no extra utility thats created by having a separate card [or transport]. What

we have ound out, what we do believe is that you need an anchor application or NFC

or it to succeed, and we think it is ticketing, its mass transit ticketing 5

Integration of payments within social media: Social shopping is increasing today, and

mobile payment could benet from it as well: The loyalty application will take a look at

your purchase history, but take a look also at the purchase history o your riends and

your social network beore it pushes a coupon 6

Location and user based couponing and loyalty retail offers, which will improve retailers

capabilities to assess the efciency of their loyalty schemes.

Lead generation in a physical retail environment, such as the location-based Voucher

Cloud solution:You dont have to check-in to look at it, and it will tell me all the

nearest restaurants near me. Because theres a Zizzi restaurant over the road there,I can get 25% o my ood at that Zizzi 7.

In our view, intelligent payment facilitates a shift away from couponing to a pay-per-visit

model, and the jump of the internet advertisement paradigm from the online to the real world.

The referencing and pay-per-click model that made Google so powerful online applies to

physical stores as well, because intelligent payment makes it possible to track viewers of

real-world ads, check whether they contribute to the footfall increase or not, and pay the

campaign depending on its ROI.

4 A major Internet Player5 Global MNO B6 Global MNO A7 Global MNO A

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Race to own the customer

In our research, we spoke to market participants with dierentperspectives and backgrounds. Whether they were rom thetraditional payment world, the internet payment system or themobile eco-system, all the players saw customer ownership as theirgoal. Unortunately it seems unlikely and improbable that all thoseaiming to orm strong customer relationships will be able to achieve

their goal, and indeed that was recognised by our interviewees,although each saw that as being a problem or others.

However, total control of the customer is incompatible with a fully interoperable service,

required to deliver a smooth customer experience. To develop an attractive consumer

proposition a consumer will not want to be constrained by having to have an account with

a specic bank or MNO, or a card issued by a particular card scheme. As such, intelligent

payment could be develop as a device and channel agnostic strategy9. Whilst African

mobile money sucesses demonstrate there is opportunity for initial growth within sole-operator

models, interoperability between m-wallets is required to enhance the proposition and provide

a pervasive adoption of intelligent payment.

Our nal conclusion is that intelligent payment adoption and consumer loyalty requires trust

and security. We know that the rst big raud on mobile money is going to be all over the

press and we know the damage that can do in the words of one interviewee. All our survey

participants agreed that putting in place adequate security measures would be critical to

building consumer trust in mobile money, a necessary pre-condition for mass adoption.

Everyone wants to ownthe end customer8

8 Internet payment provider9 Internet payment provider10 Global card scheme company

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