mobile payment solution for sk bup ters

Mobile Your Life ：A Mobile Payment Solution For SK

By Wang Chen, School of Economics and Management

Ma Linian, School of Economics and Management Li Gang, School of Economics and Management

--22- -

Outline

New competition situation of China Telecom Industry

1.11.1

The change of telecom operators’ income structure

1.21.2

The trend of the service evolution

1.31.3

Mobile payment is a smart choice for China Unicom

1.41.4

SK has mature operation experience

in Mobile Payment

1.51.5

Transportation and micro-payment is

Feasible and Potential for China Unicom

2.12.1

Description of Transportation card

service

2.22.2

Description of Micro-payment service

2.32.3

Criteria of choosing a long-term profitable

strategy

3.13.1

Market plan of the strategy

3.23.2

Strategy for Phase 1, 2,3 in details

3.33.3

Establish commercial alliance

to provide total mobile financial

service for subscriber

Establish commercial alliance

to provide total mobile financial

service for subscriber

Goal

Why is Mobile payment? Why is Mobile payment? What is Mobile payment? What is Mobile payment? How to Mobile payment? How to Mobile payment?

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1.1 New competition situation of China Telecom Industry

Before the reform After the reform 3G Brand & Network license

TD-SCDMA

WCDMA

CDMA2000

Brand&

Tech

Brand&

Tech

Market Share

of income

Market Share

of income

Market Share

of mobile subscri

bers

Market Share

of mobile subscri

bers

Source ： Information and Technology Industry Department of PR. China

After the reform of telecom industry, China Mobile still seize the dominant position, although TD-SCDMA has some disadvantage comparing with WCDMA and CDMA2000.

launching 3G service, all the operators release their 3G brands and try to create their advantage in the 3G service. Specially for China Unicom, it launch its 3G brand as “WO” as last one.

13.84% 11.68%

24.83%

49.64%

中国联通中国网通中国电信中国移动

20.67%29.05%

50.27%

中国联通中国电信中国移动

29.70%

70.30%

中国联通中国网通中国电信中国移动

22.00%7.70%

70.30%

中国联通中国电信中国移动

Fixed operator

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1.2 The change of telecom operators’ income structure

Source ： Annual report of CMCC, Vodafone, Verizon, Ericsson business consulting technology.cgap.org

With 3G coming, Data service and Value-Add service seize more and more important place in operators’ service structure and contribute more and more in the income structure;

With the price of voice service falling, the operators will more and more depend on VAS to keep income increasing.

24.51%39.00%

50.58%59.78% 66.63%

2007 2008 2009 2010 2011

Global VAS Per forcast

16.70% 17.00%18.50%

2005 2006 2007

VAS Per of vodafone

21% 24% 26% 28%

2005 2006 2007 2008

VAS Per of CMCC

11.80%16.90%

21.70%

2006 2007 2008

VAS Per of Verizon

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1.3 The trend of the service evolution

• Basic mobile communication demands for all users

• Diversified and personalized communication demands

– voice->IVR->KARAOK

– Comprehensive communication demands,

– communication->terminal->individual communication solution

• Extension of life demands

– Demands are integrated horizontally, for instance, communication->entertainment->commerce

– Relevant extension, for instance, individual->family->friends

Customer’s diversified demands

• Voice services

• Short Messaging Service

• Standard services

• Value-added services

• Personalized services to segmented market+ standardized services

• Personalized comprehensive services

• Personalized services + relevant value-added services

Individual users have gradually showed their interests in comprehensive services.

The trend of differentiation demands on mobile communications is growing more and more intenseBasic

servicesValue-added

servicesComprehensive and converged services

Cu

sto

mer V

alu

e

Exte

nsio

n

China Mobile operators are evolving to offering comprehensive services

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1.4 Mobile payment is coming! Cooperating with SK is a smart choice for China Unicom

According to AC. Nielsen’s recent report, over 80% consumers in China wish the transportation IC card, credit card and other payment tools integrated in the mobile phone.

China Mobile has started the trial mobile payment service in Hunan province

Mar 2009,CMCC launched its ”Mobile transportation IC card” as a trial in Hunan province. The IC card is integrated in the mobile phone and could withdraw from subscriber’s mobile phone account and bank account;

CM announced, during the 2010 world expo, CM will supply mobile payment service and consumers could pay the ticket over the phone.

China Telecom developed micro-payment service for its 3G mobile phone

Dec 2008, China Telecom cooperated with a IC card company in Nanjing, to develop the micro-payment service for surfing , which is China Telecom’s 3G brand;

In 2008, China Telecom (fujian division) cooperated with banks launched transfer payment and pubic fee through fixed network.

Apr 2009, China Mobile announced it would cooperate with shanghai public transportation card company and fudan micro-electric to research NFC chip integrated with transportation card on mobile phone, and consumer could buy the mobile phone integrated the chip or paste the chip on the shell

SKT has comparative long time experience on running the mobile payment service, and a comprehensive service solution;

For China Unicom, 1.Last one to join in the mobile payment competition. 2.developing a new service will take quite a long time All above facts will make CU in a very bad position,

so cooperating with SK is a smart choice.

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1.5 SK’s comprehensive mobile payment solution and mature operation experience in Mobile Payment

Source ： technology. cgap. org, www. catr. cn

2001.09,Moneta Card launchedMoneta cards were launched as a chip-embedded credit card and were initially co-branded by Visa and issued by five major domestic credit card companies and banks.

2001,A mobile cash product LaunchedNEMO (Network + Money), a mobile cash (m-cash) product which was launched alongside nine major Korean banks and was subsequently rebranded Moneta Cash

2002.11, Moneta Cash launchedMoneta was launched as a mobile wallet application that allowed customers to make proximity (in-store) payments through several mechanisms

2003.08,Moneta expanded to online payment SKT has expanded its Moneta payments services from the merchant proximity payment service (Moneta Card) to online payment services

2003.12, Moneta had a wide access baseSKT placed 400,000 merchants to be able to accept Moneta payments, which represents about 75% of all payment points in South Korea

2007.02, Moneta has a wide customer baseMoneta had 1.5 million registered users in Korea, and 80% of new 3G capable phones had the credit card functionality enabled

2001 2002 2003 2007

2003.03Transportation Pass Launch

2005. 01Membership Shopping Mall Launch

2005

9 : SKT’s Moneta has over 9 years operation experience in mobile payment field 15 : Moneta signed with 15 banks in Korea to provider a total financial service 300,000 :it will increase 300 thousand handset available for Mobile payment per month in Korea

For SKT, it has comprehensive mobile payment solution and mature operation experience. SK could make use of its advantage as complete as possible, through cooperating with China Unicom.

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Outline


1.11.1

The change of telecom operators’ income

structure

1.21.2


1.31.3

Mobile payment is a smart choice for China

Unicom

1.41.4

SK has mature operation experience in

Mobile Payment

1.51.5



2.12.1


service

2.22.2


2.32.3

Criteria of choosing a long-term profitable

strategy

3.13.1


3.23.2


3.33.3


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2.1 Transportation and micro-payment is Feasible and Potential for China Unicom

Source ： chip.moneta.co.kr

The MONETA card is a service that enables you to conveniently and safely pay for items and services by means of a chip attached to your cell phone that contains all the functions of credit, transportation, membership and cash cards.

Stability

Convenient

Unity

Transportationcard

Micro-payment

Feasible and Potential Application for CU

1. High Consumption FrequencyConsumers involve the service repeatedly in daily life

2. Large Number of Access pointsThere are already large scale of access points spreading in the main cities

3. Easy to accept consumers has the severy deal is on a small amount of money

Criteria for CU to choose application at the beginning Criteria for CU to choose application at the beginning

Convenient

Do away with complicated payment processes by just touching the back of your mobile phone to a dongle in the same way you use a transportation card.

Stability

Unlike regular plastic cards, IC chips cannot be counterfeited, altered or copied.

Unity

One single chip handles all the functions of a credit card, e-cash, transportation card and membership card.

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2.2 With public transportation investment increasing, transportation Card is booming in the main cities of China

•Beijing

Regions Start Time Application Scope

2000.10.23 •Bus, metro, rent, park tickets, car parks, public telephones, supermarkets

•Shanghai 1999.05.25 •Bus, road charging, parking, gas stations, public utilities pay

•Guangzhou 2001.12.01 •Bus, ferry, metro, telecommunications, small business payment

136 cities nationwide have set up the transportation IC card system, issuing more than 100 million cards. Non-uniform standards lead to difficulties in interoperability.

Situation in China

The transportation cards’ number will continue increasing fast in the future, and will enter non-transportation scope, such as utilities and micro payment, etc.

25

11

20

Unit: Million

Accumulated number of card in Beijing

transportationtransportation Micro-payment

8.0

17.0

25.0

Unit: Million

2006 2007 2008

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2.3 Rapid growth of retail sales and chain stores make a wonderful preparation for mobile micro-payment service.

Rapid growth in Retail Sales

–Total retail sales of consumer goods was 10,848.8 billion Yuan, up 21.6 percent on 2007

–The growth rate was more faster than GDP growth rate.

Chain Sales of More Rapid

Growth

–2007 "China Chain hundred" sales exceeded one trillion Yuan to 1002.2 billion Yuan, an increase of 21%, higher than the total retail sales of consumer goods increase by 16.8%.

–Total stores number of 105,191, an increase of 58%, excluding extraordinary development of individual enterprises factors, the adjusted 17 percent increase in stores number.

Rapid growth of total retail sales especially the rapid development of Top 100 chain sales have made a wonderful preparation for the promotion of mobile micro-payment service.

transportation Micro-paymentMicro-payment

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2.4 Convenience store is the best choice for micro-payment as target group to cooperate with at the beginning

2211 Potential Divers for Market Adoption

Department Stores

Exclusive Retailers

Super Markets

Convenience Stores C1 C2

C3 C4

Total 3.26 4.66 3.02 4.0

Consumption Frequency 40% 4 5 3 4

Branch Number 30% 4 5 3 3

Consumer Number 30% 3 4 4 5

Business willingness 40% 2 4 2 4

Consumer attitude 60% 3 5 3 4

Key Factors for Evaluation Weight C1 C2 C3 C4

Capability 60% 3.7 4.7 3.3 4.0

Acceptability 40% 2.6 4.6 2.6 4.0

5

4.5

4

3.5

3

2.5

2.5 3 3.5 4 4.5 5

Cap

ab

ilit

y

Acceptability

C1

C2

C3

C4

High Consumption Frequency– Improving settlement efficiency

Large Number of Branch– Highlight the convenience of mobile

payment Numerous Consumers

– Conducive to large-scale promotion

The Analysis Matrix Of Options

33 Convenience Store is the Best ChoiceConvenience Store is the Best Choice


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2.5 Cooperating with 7 companies covers 3 main economics developed areas in China

Company NameCompany Name SummarySummaryScaleScale

5000Under the Division of China Petroleum & Chemical Corporation , who have long-term relationship with SK

More than 2000

Belong to Don guan Sugar & Liquor Group Holding

More than 1200

Subsidiary of Agribusiness Super mart Group Co,. Ltd

590 Shanghai, Beijing and Guangdong stores managed by the three companies

More than 300

Co-management by Rosen Co., Ltd. from Japan and Hualian (Group) Co.,Ltd

More than 200

Belong to Hong Kong's best holding

313 Run by Wu-Mart Group


The companies below are selected as target group to cooperate

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Outline


1.11.1

The change of telecom operators’ income

structure

1.21.2


1.31.3

Mobile payment is a smart choice for China

Unicom

1.41.4

SK has mature operation experience in

Mobile Payment

1.51.5



2.12.1


service

2.22.2


2.32.3

Criteria of choosing a long-term profitable feedback strategy

3.13.1


3.23.2


3.33.3


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3.1 Cooperating with China Unicom ensure a long-term profitable feedback from mobile payment

Profitability Short term: Investment

recovery, Mid-term: Sustainable

and stable cash flow Long term: Maintain

business innovation

Global Strategy MVNO: Ensure MVNO

success in china Service carrier:

Transformation from telecom carrier to data value-add carrier globally.

Market Potential First-mover advantage

establish leader role. Test data service in China

and prepare patting more application in china

Brand Position SK as a

comprehensive operator , mobile payment total solution provider and expert in china.

Goals

Strategy 2: Equipment SupplierStrategy 2: Equipment Supplier

Supplier: Integration Solution, terminal. Maintenance: System and terminal update.

Strategy 1: Cooperate with China Unicom Strategy 1: Cooperate with China Unicom

Become one participator and operator in order to ensure the position in china.

Focus on development and introduce more and profitable value-add service.

3.Goals Analysis

Details 1 2 3 4 5

Score

Profitability

Short term

Mid-term

Long term

GlobalStrategy

MVNO

Transformation

FMAMarket

Prepare

Brand

Criteria

1.Goals

2.Strategy option

Conclusion:Statery1 : Cooperate with China Unicom is one absolute advantage option, which will ensure SK a long-term profitable feedback and SK should take it.

Influence on customer

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3.2 Through 30 months market plan, establish a commercial alliance to provider total mobile financial service

Phase 1Phase 1 Phase 2 Phase 3Phase 3

We introduce a 30-month market plan to implement Strategy 1; The market plan consists of 3 phases and includes hard system and soft system.

Hard system

Soft system

Phase Description

Phase target

Start 6th month 18th month 30th month

As the first phase of whole market plan, main task in this phase is to establish a good consumer base.

Layout the terminal and mobile phone design

Produce customized terminal and mobile phone

Establish the MIS for payment

Establish the long-term cooperation relationship with China Unicom

Sign the transportation card company in Beijing for trial

Launch promotion campaign

Cooperate with China Unicom and launch a trial operation in Beijing with transportation card

During this phase, Moneta should spread its brand influence and extend from transportation area to Micro-payment area Release more new mobile phones

Develop the terminal for Chain store

Improve the MIS compatibility

Sign the convenience store as the micro-payment service partner in Beijing and Shanghai

Establish brand influence in the trial city ,Beijing and Shang

Establish Micro-payment service network covering the trial city, Beijing and Shanghai, and achieve the consumer’s trust

At the base of consumers’ trust, Moneta could try to provider comprehensive personal mobile financial service for consumers Combine the MIS with

commercial banks for trial

Build credit evaluation system for financial service

Negotiation with commercial banks and sign with profitable one

Extend from the trial city to the economics developed area of China

Establish the commercial alliance with the SME and commercial banks

Establish commercial alliance to provide total mobile financial service for subscriber

Cooperate with transportation card company

Cooperate with commercial banks

Cooperate with convenience stores

Hard system: the hardware for mobile payment Soft system: the relationship to support mobile payment

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3.3 Proposed strategy of Phase 1: cooperate with transportation card company

22 Strategy partner: Beijing Public Transport, Ltd.(BPT)

General Description

As of the end of 2006, BPT has a fleet of 25,409 operating vehicles of various kinds, plying 800 bus routes with an annual mileage and passenger trips topping 1.57 billion km and 389 billion respectively.

About transportation card

From 2007, started to operate transportation card

Accumulated 2 million cards sold

89 recharge stations for card around Beijing

11 At very best, SK should establish a the long-term cooperation relationship with China Unicom.We suggest SK establish an joint venture company with CU to operate mobile payment business.

Cooperate with BPTCooperate with BPT

SWOT analysis for cooperating with BPT

Strength & Weakness Directly gain BPT’s huge consumer base and terminal

Technical comparatively simple to develop

As enlarge investment in public transportation, BPT has a further developing ability

Since BPT is a state-owned company, policy risk is relative high

Since BPT is monopolized in Beijing, it has very strong negotiation ability

33

Opportunity & Threat

Through establishing good relationship with BPT, SK could extend to Beijing Subway, even the whole transportation network covering Beijing.

CMCC and China Telecom also want to access the transportation card market, and they already move ahead in the field of mobile payment.

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3.4 Proposed strategy of Phase 2: cooperate with convenience store

11 Selected convenience store:

Wu Mart Convenience Store

Advantage Since it is built with the sino-pec gas station, Yijie convenie

nce stores have a wide covering scope; SK already has long-term relationship with sino-pec, which

is parent company of Yijie.disadvantage Since built with gas station, the location of Yijie is not conc

entrated in resident area or CBD; The consumer of Yijie is too focused on the drivers, but less

divers than regular convenience store.

Advantage

Wu mart is focused in Beijing retailing market, and has

great brand influence in Beijing;

Since Wu mart not only has convenience store, but

also has super market, this help SK extend to bigger

retailers easily.

disadvantage

Since there is no dominant retailer in Beijing, so Wu

Mart as a competitor only could cover most area of

Beijing.Proposed strategy of Phase 222

Location: from Beijing spread to the North China and from shanghai to South China;

Promotion: implement cross subsidizing policy The Yijie could make it gas card users move to Moneta subscribers Wu Mart could promotion with coupons

Yijie Convenience Store

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3.5 Criteria and Factors impact on option analysisIn

tern

al cap

ab

ilit

yExte

rnal

Ten

den

cy

Criteria Description Comments

PolicyPolicy

Informa-tionization

Informa-tionization

ServiceCapability

ServiceCapability

CustomerScale

CustomerScale

Interest onMobile

Payment

Interest onMobile

Payment

Mobile PaymentStatus

Mobile PaymentStatus

Government policy on mobile payment Government policy on share bank stock

Digital bring more convenient and customer perception.

Data communicate with partners.

Whether launch Mobile payment Mobile payment biz category Mobile operation status

Due to its security and impact on currency. Comes from many departments. Depends on bank’s type.

Short term biz development-trend Mobile operation strategy: cooperation or self

development

Biz-Branches, ATM, cover area Operational capacity

Total customer size Customer concentration in big cities.

Digital solution capability ensure business implementation and drive application innovation .

Service window conducive to business achievement and innovative.

Efficient operation capacity upgrade consume desire.

Display potential scale and decide the original city reference customer concentration.

Consider cooperation willing and possibility.

Check mobile payment will, possibility and mode to decide the partner.

--2020- -

3.5 In phase 3, China Merchants Bank is the very best partner to choose

China Merchants Bank is the very best partner for this business.

EXTERNAL INTERNAL TENDENCYEXTERNAL INTERNAL TENDENCYAlternative

PolicyInforma-

tionizationService

CapabilityCustomer

ScaleInterest On

Mobile PaymentMobile Payment

Status

SummaryStated-owned banks hard to cooperate due to government strict policy.Citi Bank and SK set up Mobile Money Ventures Co. in US, and it’s a candidate in future.

Beijing Bank

matching

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3.6 Establish commercial alliance to provide total mobile financial service for subscriber

IT industry

Financial industry

Retail industry

•Mobile phone banks

•Mobile phone securities

•Mobile phone payment

•……

•Mobile order•Mobile phone

Payment•……

•Mobile phone TV

•Mobile phone broadcast

•……

Media industry

Entertainment industry

Mobile Carrier

•KAKAOK•Ring and

image download

•……

•Group customers

•solutions•……

Security: Transaction security and keep customer information security order to prevent fraud and information leakage.

Convenience: Provide customers easy and comfortable life environment.

Integration: Businesses, functions even price integration in one solution.

Economy: To create an Scale effect through the price advantage.

Security: Transaction security and keep customer information security order to prevent fraud and information leakage.

Convenience: Provide customers easy and comfortable life environment.

Integration: Businesses, functions even price integration in one solution.

Economy: To create an Scale effect through the price advantage.

Teamwork: Business Ecosystem need all the related members involving and close co-operation.

Terminal: Perfect support businesses, and promote new application innovation.

Focus on customer: To increase the customer value as the business core and Purpose.

Teamwork: Business Ecosystem need all the related members involving and close co-operation.

Terminal: Perfect support businesses, and promote new application innovation.

Focus on customer: To increase the customer value as the business core and Purpose.

Financial Business character Financial Business character Financial Business Key-pointFinancial Business Key-point

To foster a carrier

dominated and

cooperated with banks

mobile communication

eco-system together

with non-

communication

industries to occupy

customer value at

maximum.

Thank You!

Contact: [email protected]@[email protected]

mobile payment solution for sk bup ters

Technology

mobile payment solution

mobile communications

operators service structure

total mobile financial

data service

services individual

market standardized

china unicom1