mobile payments: an ibm point of view

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Mobile Payments: An IBM Point of View Dr. Mark Sherman Lars van Dam IBM WebSphere Strategy

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Mobile money presentation at the Sept 2012 SmarterCommerce Global Summit in Orlando.

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Page 1: Mobile Payments: An IBM Point of View

Mobile Payments:An IBM Point of ViewDr. Mark ShermanLars van DamIBMWebSphere Strategy

Page 2: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 2

Page 3: Mobile Payments: An IBM Point of View

Overview of retail payments: Participants

CardholderMerchant

AcquirerCard NetworkIssuer (Bank)

Page 4: Mobile Payments: An IBM Point of View

Overview of retail payments: Merchant, acquirer, networkand issuer interactions

Batches of transactions are queued by the

merchant, including a $100 transaction

by Hans

Card network distributes each transaction to the issuer, including Hans’s

$100 purchase

$100

Card network routes funds to acquirer

$100

http://www.creditcards.com/credit-card-news/how-a-credit-card-is-processed-1275.php

Issuer subtracts processing fees ($1.70) which are

exchanged with the card network and submits funds, including funds for Hans’s

transaction

$98.30

Merchant sends a batch of transactions to the acquirer to

receive payment

Acquirer subtracts discount fees ($0.50) and pays

merchant

$97.80

Acquirer submits batch of transactions to card networks

$$$$

Acquirer submits batch of transactions to card networks

$$$$

Note: Names and fees are illustrative and are not from any particular vendor or relationship

Page 5: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 5

Page 6: Mobile Payments: An IBM Point of View

Mobile money market: what is mobile money

Mobile Banking

Balance inquiryAccount applicationsAccount transactions

Bank locationsAlerts

Mobile Commerce

PromotionsBehavior trackingLoyality programs

Mobile Payments

Person to person transfersBill pay

Payment at POSIn application payments

Mobile Wallet: linking mobile device with accounts and account activity

Bank accounts

Credit cards

Loyality cards

Bank balances

Credit balances

Gift cards

Receipts

Credit limits

Phone balances

Using a mobile device as payment vehicle

Page 7: Mobile Payments: An IBM Point of View

Mobile money market: payments are accelerating in major markets

PayPal processed $4 billion worth of mobile payments in 2011*•$750 million in 2010*•$141 million in 2009*David Marcus, vice president of PayPal Mobile*

Starbucks Mobile Application with rewards and mobile payments•Started with Northern California and Seattle•Now available nationwide in the US•Mobile application is available on apple and blackberry

Juniper Research reports consumers will use mobile payments to pay for $670 billion worth of goods and services by 2015.

Google Wallet payments are now supported by Toys ‘R’ Us, Macy’s, and Bloomingdales

Page 8: Mobile Payments: An IBM Point of View

Mobile money market: emerging markets

• Application of mobile money varies greatly among geographies

• Emerging markets have a combination of circumstances that encourage adoption of mobile money

© 2012 IBM Corporation 8

Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets

– Formal banking reaches about 37 percent of the population• 1 branch and 1 ATM per 10,000 people

– Mobile phones have a penetration rate of 50 percent• 5,100 mobiles phones per 10,000 people

– Very small deposits and loans are not profitable for traditional delivery models1.7 billion people in emerging markets have a mobile phone and no access to banking services

Page 9: Mobile Payments: An IBM Point of View

• Mobile money transaction volume growing at greater than 50% CAGR thru 2015• Mobile payments are projected to be between 15% and 20% of total consumer

payment transaction volume by 2020• Mobile payments made by over 1 billion users by 2016

Mobile money market: sizing the market

© 2012 IBM Corporation 9

Global mobile transaction volume Mobile transaction volume as a % of non-cash consumer payments by

geo in 2015

Mobile money is modest now but growing rapidly

•Sources: Gartner “Forecast: Mobile Payments, Worldwide, 2008-2015”; Pub May 2011; Winning After the Storm, BCG Global Payments Report, 2010, Portio Research, Mobile Payments 2012-2016 Analysis and Forecasts for the Worldwide Market for Mobile Payment Services, 2012.

$B

Page 10: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 10

Page 11: Mobile Payments: An IBM Point of View

Mobile money opportunities: overview

Customer Care and Insight

Mobile money software gives a holistic, single view of the customer and glean deeper insight into customer needs, so you can innovate with less risk. Develop high quality, tailored services to restore customer confidence, increase loyalty, and drive revenue.

• Mobile Banking• Branch of the Future• Mobile Payments• Mobile Commerce• Mobile Agents/Claims

• Store of the Future• Virtual currency• Location based shopping• Personalized campaigns• Mobile cross-sell, up-sell

• Mobile Network Monetization• Mobile field-force enablement

Retail

TelecommFinancial Services

Healthcare• Mobile check-in, Mobile prescriptions• Mobile payments• Mobile Health Monitoring & Prevention • Mobile enabled Clinicians

• Virtual currency – FF Miles• Customer Loyalty programs• Ecommerce – Ticketing, Entertainment

Travel &Transportation

Page 12: Mobile Payments: An IBM Point of View

Banks - leverage the user’s financial profile data• Help banks protect and grow revenue by maintaining brand

relevance and leveraging emerging business models• Provide a safe way to transact business, secure assets, reduce

fraud, ensure compliance• Offer secure digital vault services to aggregate coupons, transport,

loyalty rewards, traditional currencies

Merchants - leverage the user’s shopping patterns• Drives a more customer centric view; control point shifts to the

end-user with the mobile device. • Shift more towards “one to one marketing” and leveraging the

value of “intelligent data from digital currency”

Telcos - Leverage subscriber base and delivery channel

• Mobile Money will allow MNO's to increase customer retention and generate new revenue through value added services

Mobile money opportunities: key players

• Create new value by aggregating data and applying insights across the enterprise,

• Provide secure, high availability, large scale transaction processing

• Leverage Smarter Commerce

New mobilemoney entrants –

transform business

Page 13: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 13

Page 14: Mobile Payments: An IBM Point of View

Application scenario: consumer on-line purchase with tablet

• In the last year, tablets’ commerce traffic increased 348%• Tablets converted visits into purchases at a rate of 3.23

percent, well ahead of smartphones at 1.39 percent. • Payment processing for tablets mirrors web on line

purchases• Special considerations beyond web experience

– Exploitation of location information– More accessible than PCs– Need tablet-aligned gestures (e.g., sweeps)– Need visually large carts

© 2012 IBM Corporation 14

Customer Merchant Acquirer Credit Card Bank

Source: Monetate, Couch Commerce: How Tablet Shoppers are Changing Online Sales, 2012

Page 15: Mobile Payments: An IBM Point of View

Application scenario: mobile banking

• Customers interact directly with bank like on the web

• Special considerations beyond web experience– Diversity of devices – beyond browsers– Smaller screen – UI redesign necessary– Location awareness – enables services

such as ATM and branch locations– Authentication streamlined for mobile

devices

© 2012 IBM Corporation 15

Customer Bank

Page 16: Mobile Payments: An IBM Point of View

Application scenario: consumer purchase at retailer – NFC (Near Field Communication)

• Mobile device uses information in mobile wallet to act as credit card– Communicated at POS thru NFC– Much hyped, little used

• Not a compelling convenience compared to a credit card

• Gartner Hypecycle: “For the past decade, NFC has been a technology looking for a solution”

– May revive for virtual currency (loyalty points)

© 2012 IBM Corporation 16

Customer Merchant Acquirer Credit Card BankMobile Wallet

Source: Gartner, Hype Cycle for Mobile Device Technologies, 2011

Page 17: Mobile Payments: An IBM Point of View

Application scenario: consumer purchase at retailer – bar code – platform control

• Merchant generates transaction information– Customer uses custom app to send to mobile

payment platform– Mobile payment platform also serves as acquirer– Purchase confirmation sent to merchant thru different

path– Mobile payment platform may require return path to

go through its system

© 2012 IBM Corporation 17

MerchantMobile

paymentplatform

Creditcard

BankCustomer

Page 18: Mobile Payments: An IBM Point of View

Application scenario: consumer purchase at retailer – bar code – merchant control

• Merchant generates transaction information– Customer uses custom app to send to mobile

payment platform– Mobile payment platform provides wallet information

to merchant– Merchant processes transaction as if credit card

presented

© 2012 IBM Corporation 18

MerchantMobile

paymentplatform

Merchant Conventionalprocessing

Customer

Page 19: Mobile Payments: An IBM Point of View

Application scenario: consumer purchase soft goods

• Soft goods include tickets, phone cards, music

• Mobile device uses information in mobile wallet to act as credit card number– Communicated thru web interface– Optional documentation back thru mobile wallet

© 2012 IBM Corporation 19

Customer Merchant Acquirer Credit Card BankMobile Wallet

Inventory

Page 20: Mobile Payments: An IBM Point of View

Application scenario: consumer to consumer payments – telco mediated

• Common scenario in emerging economies for P2P payments

• Agents conduct the cash-in and cash-out functions, enabling customers to convert cash into electronic money and back again at convenient locations

• Telcos arrange funds transfers among their accounts

© 2012 IBM Corporation 20

Payer PayerTelco

PayeeTelco

Payee

Agent

PayeePayerAgent

Page 21: Mobile Payments: An IBM Point of View

Application scenario: consumer to consumer payments – mobile platform mediated

• Emerging scenario in both established and emerging markets– Requires established accounts

with either bank or mobile money platform vendor

© 2012 IBM Corporation 21

Payer PayerBank

PayeeMobileMoney

Platform

PayeeBank

Source: Venture Beat

Page 22: Mobile Payments: An IBM Point of View

Application scenario: transformative scenarios• Mobile devices have unique properties beyond credit

cards, cash, banks and PCs– Omnipresent: people always carry their phone with them– Personal: mobile identifies the specific person– Context: mobile has location, acceleration, orientation

information– Multiple inputs: gestures, audio, video

• Everyday micropayments– Parking (knows your car), vending

• Location and destination based pricing– Bus, subway and train fares

• Delivery of gift cards over the phone• Integration of loyality, context and location for

promotion• Streamline general admission event ticketing• Credit extension based on mobile activity• Competitive interception based on mobile application

activity• Multichannel offerings

– Prepare then retrieve ATM withdrawal– Preorder fast food

• Reminders to replace consumables• Personal credit card acceptance

Square

ShopSavvy

Page 23: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 23

Page 24: Mobile Payments: An IBM Point of View

Card Holder

Credit/Debit Card Payment

Mobile Payment

Merchant Acquirer Credit Card Company

Issuer

Telco

Payment Provider

Payers Payees Facilitators Fund Holders

Major M

arket

Emerging M

arket

Market Dynamics• Shift from cash and checks to cards and electronic payments• Mobile and social commerce are creating a discontinuity in the market.• Agents in Emerging Markets play an important role in distribution and liquidity

Impacts: new paths for payment processing introduced

Acquirers and credit card companies can

be utilized by or disintermediated by telcos and payment providers in mobile

transactions

Agent

Page 25: Mobile Payments: An IBM Point of View

Impacts: consumer and retail experiences are transforming

Swipe

NFC

OTA

In-Person Transactions

Online Transactions

Context-Aware Marketing

RetailersConsumers

Interactive

Non-interactive

Non-location-aware

Location-aware

P2P B2B

Optical Scan

Page 26: Mobile Payments: An IBM Point of View

Acquirers

Impacts: retailers, banks and facilitators look to expand their roles

BanksRetailers

Payment Providers

Credit Card Companies

Telcos

Both Acquirers and credit card companies can be utilized in or disintermediated from electronic payments

In major markets banks act as the fund holders

Telcos and payment providers can either access payers’ funds directly through banks or indirectly through acquirers and credit card networks

Page 27: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 27

Page 28: Mobile Payments: An IBM Point of View

– Some signs to track• Know-Your-Customer: black lists• Account activity: mobile banking supports easy account creation and dormant accounts

could be used for laundering• Behavior profiles of customers: amount, timing, velocity, source and destination

location of transactions• Behavior profiles of agents: in addition to customer checks, looking for splitting

payments to increase fees

• Mobile devices offer additional capabilities to manage security• Faster data on location for potential intercept• Potential use of biometrics (e.g. face image) to reduce false positives• Remote management

Operations: security and fraud detection• Mobility adds additional vectors to

conventional fraud– Technical

• RFID jamming• “Nishing”• Data validation: ensure all formats adhered to• Malware

© 2012 IBM Corporation 28

Source: McAfee Threats Report: First Quarter 2012

Page 29: Mobile Payments: An IBM Point of View

Operations: Support of parallel channels

• Expectation of consistency across multiple channels– Pay bills anywhere

• Expectation of cross channel interaction– Finish ATM, food order or

application transaction– Video interaction with call center

from tablet and ATM• Need one view of the customer

maintained across all systems supporting channels– Including in-flight interactions

Page 30: Mobile Payments: An IBM Point of View

Operations: scaling to meet transaction volume

• About 750B global mobile money transactions expected in 2020– About 25,000 transactions a second

• Likely to grow rapidly for use in micropayments

• Currency equivalents, like loyalty points, drive the number higher

© 2012 IBM Corporation 30

Source: BCG Global Payments, 2011

Page 31: Mobile Payments: An IBM Point of View

Operations: ensuring availability

31 © 2012 IBM Corporation

Qualities of service can be insufficient in emerging markets

Sources: http://www.informationweek.com/hardware/data-centers/data-center-outages-generate-big-losses/229500121; World Bank, Underpowered:The State of the Power Sector in Sub-Saharan Africa, 2009;

Total data center outages occurred once a year on average. An average data center outage for an e-commerce company costs more than $1 million. Poneman Institute, 2011

Sub-Saharan Africa’s manufacturing enterprises experience power outages on an average of 56 days per year. World Bank, 2009

India loses power to 600M people for up to two days. NYT and CNN, 7/31/2012

Page 32: Mobile Payments: An IBM Point of View

Operations: integration driven by partnerships

• Many interconnected players– Merchants, banks, telcos, mobile

payment platforms, acquirers, credit card companies

• Many interconnection systems– ACH, ATM, Swift, EDI, SMS

aggregators, 3rd party financial interconnection networks

• Competing wallets– Connecting with large number of

mobile wallets will be challenging

© 2012 IBM Corporation 32

Page 33: Mobile Payments: An IBM Point of View

© 2012 IBM Corporation

1962: IBM created the Sabre airline reservation system for American Airlines—a precursor of everything from the ATM to e-commerce

Operations: How can IBM help

"Visa relies on System z for global transactions processing--and confirmed the ability to handle the 2010 Christmas peak of almost 11,000 transactions a second.".

For 100 years, IBM has advanced payment systems across the world

•WebSphere MQ worldwide supported over $1 quadrillion of transactions

•CICS software is accessed by virtually every ATM around the world

Page 34: Mobile Payments: An IBM Point of View

Operations: IBM can help bring assets to provide business value

Strategic role in mobile money Neutral provider of capabilities from IBM and

partners, including business consulting, technology consulting and software

IBM middleware can provide the enterprise backbone for mobile money enabling transactional insight and connectivity, and the ability to connect mobile devices to payment interactions

IBM is a thought leader in the space, contributing to standards and driving innovative customer transformation

IBM’s Global Business Services provides reference architectures for the mobile money ecosystem

Payers:ConsumersBusinesses

Payees:MerchantsBusinesses

Governments

Fund Holders:Banks

Facilitators

P2P B2B

Page 35: Mobile Payments: An IBM Point of View

Operations: from theory to practice

Customer Merchant Acquirer Credit Card BankMobile Wallet

Transaction/payment processing• Messaging and Integration - WebSphere MQ & ESB• Transaction processing (CICS & WAS)• Financial Transaction Manager• Banking industry process and data models• WebSphere Decision Management• Smarter Commerce: WebSphere Commerce• Analytics: Cognos• Financial Fraud Detection: SPSS, i2

Consumer payment platform• Mobile application platform (Worklight)

• Integrated buying experience (WebSphere Commerce)

• Banking Transformation Toolkit (BTT)

Merchant Consumer Interaction• Marketing management (Unica) • Analytics and marketing optimization

(Coremetrics, Cognos, SPSS, Tealeaf)• Event-driven interactions (Ilog and

WebSphere Business Events)• Smarter Commerce

Merchant Point of Sale• Point of sale devices, software, integration and

management (IBM Retail Store Solutions/Toshiba)• IBM Payment Systems – Services -- addresses

merchant/acquirers/credit card processors

Page 36: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Defining mobile money• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 36

Page 37: Mobile Payments: An IBM Point of View

ING Direct France

• Leading iPhone banking app in France with a unique user experience

• Flexibility: Valued HTML5, but preferred starting native• Mobile adaptation of data integration and authentication layers

Page 38: Mobile Payments: An IBM Point of View

38

Lotte Credit CardAugmenting offerings with IBM Worklight

WSP14583-USEN-00

Solution components:

IBM Worklight Finance All Solutions (FAS)

The need: Korean companies are facing a demand for mobile apps from over 7 million smartphone users, up from only 800,000 in 2009, forcing them to vigorously explore options for value-added services.

The solution: To capitalize quickly on this rapidly growing trend, Lotte Credit Card turned to IBM Worklight to develop an advanced application with a rich and engaging user experience using over 100 screens, location-based features and scannable mobile coupons. The application incorporates augmented reality components—a first in the region—helping users find the retail locations of its reward partners on the go.

The benefit: Reduced time to market and associated costs

Deployment of one of the region’s most advanced financial mobile applications

Enabling better customer and employee user experience across more devices

“We chose IBM Worklight because it was the best technology for Lotte to consolidate application development, enhancement and maintenance, while ensuring cost savings and timely delivery to our customers.”

—Kim, Young Sam, IT Planning Team Leader, Lotte Credit Card

Page 39: Mobile Payments: An IBM Point of View

© 2003 – 2012 Monitise Group Limited. All Rights Reserved. Confidential.

Architecture for monitise IBM solution39

Worklight Studio

Worklight Server

deploy to app store

provision app

B2B/ B2C

download

AndroidMATM-265-100

JSON/HTTPS

?

IBM MQ

security/activation

IBMCICS

DB2

JRULES

push

SMS

email

MESSAGING SERVER

COGNOSDATA WAREHOUSE

monitise

IBM

IBM CICS Adaptor

monitiseENTERPRISE PLATFORM

(WAS)WebSphere Application Server

DataPow

er

Page 40: Mobile Payments: An IBM Point of View

Visa’s real-time messaging technology (RTM) creates a seamless experience for merchants who want to increase engagement with their consumers through

Visa provides real-time technology to achieve breakthrough marketing effectiveness for merchants.

Personalized offers

Business problem Merchants operate in a highly competitive environment where the keys to success are bringing customers in the door and then keeping them loyal to the merchant’s brand.

Solution: Visa’s real-time messaging technology (RTM) allows merchants to provide more relevant offers to enrolled consumers by combining historical purchasing behavior with real-time purchase location information. Offers are delivered to enrolled consumers through their mobile devices and personalized to them.

Visa created a new revenue stream by maximizing the value of

Real-time purchase location information

Page 41: Mobile Payments: An IBM Point of View

Outline

• Overview of retail payments• Defining mobile money• Mobile money market• Mobile money opportunities• Scenarios of mobile money

applications• Impacts to existing payment

systems• Operational issues for

implementing mobile money• Case studies• Summary

© 2012 IBM Corporation 41

Page 42: Mobile Payments: An IBM Point of View

Summary

• Mobile money encompasses existing and new forms of payment processing

• Today’s opportunity is modest, but growth in selected applications is expected to be explosive

• Many scenarios for mobile money alter existing payment processes while others create new patterns and opportunities for commerce

• Deploying mobile money solutions requires a mix of business and technical depth

© 2012 IBM Corporation 42

Page 43: Mobile Payments: An IBM Point of View

© IBM Corporation 2012. All Rights Reserved.

IBM, the IBM logo, ibm.com are trademarks or registered trademarks of

International Business Machines Corp., registered in many jurisdictions worldwide.

Other logos, product and service names might be trademarks of IBM or other

companies. A current list of IBM trademarks is available on the Web at “Copyright

and trademark information” at www.ibm.com/legal/copytrade.shtml.

Copyright and Trademarks