riding the mobile payments tsunami

SSB-3521 Riding the Mobile Payments Tsunami

Dr. Mark ShermanIBMEnterprise Mobile Strategy

© 2013 IBM Corporation 2

• What is mobile money• Growth of mobile money• Larger payments story• Evolution of payment

processes• Operational issues for

implementing mobile money• How IBM can help• Summary

Outline

© 2013 IBM Corporation

Mobile payments interact with a wide variety of processes that are intertwined with other mobile content, increasing the payment processing opportunity, all together labeled mobile money

Related content

Gift card

Loyalty card

Coupon

Ticket

Promotion redemption

Transit

Receipt

Digital good

Microfinancing

Payment type

mCommerce

eCommerce

mPOS

Proximity POS

Stored value

Bill pay

P2P

mBanking

Telco billing

Mobile payments are the tip of the mobile money iceberg


Mobile money is exploding

Total mobile payments will be worth more than $1.3T globally by 2017, a growth over nearly 400% from 2012.

PayPal mobile payments grew nearly 10,000% from 2009 to 2012.

$M

Juniper Research, Sources: David Marcus, President of PayPal Mobile, Quarterly reports, annual reports, press releases; Juniper Research, Mobile payment -- Check It Out, Aug 2012; Consumer and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013; eMarketer Press Release, Tablets, Smartphones Drive Mobile Commerce to Record Heights. Jan 9, 2013

Banking application penetration


42%of smartphone users have used their phone to comparison shop at a retail store

Mobile money is important to consumers

75% of mobile shoppers take action after receiving a location based message

32% have used it to scan a product’s barcode to find the best price for the item

64% of consumers who use their phones to comparison shop in a retail store have changed where they purchased the product as a result of the information they found

1 in 6 people switching banks say a poor mobile banking experience prompted them to shop for a new bank.

91% of mobile users keep their device within arm’s reach 100% of the time

Source: “China Mobile 50k survey”, Morgan Stanley Research, 2011; Consumer and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013; JiWire Mobile Audience Insights Report Q42011;. Google, Mobile Banking Trends, October 2012,

Mobile money market: unbanked and underbanked


Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets; Consumer and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013;; Demirguc-kunt and Klapper, World Bank, Measuring Financial Inclusion, Apr 2012

Formal banking reaches about 37 percent of the population

1 branch and 1 ATM per 10,000 peopleMobile phones have a penetration rate of 50

percent5,100 mobiles phones per 10,000 people

1.7 billion people in emerging markets have a mobile phone and no access to banking services

Globally, more than 2.5 billion adults do not have a formal (financial) account

Very small deposits and loans are not profitable for traditional delivery models

19.4% are unbanked or underbanked

59% of the unbanked have access to a mobile phone, half of which are smartphones

90% of the underbanked have access to a mobile phone, 56% of which are smartphones

Emerging markets United States


In 2017, mobile payments will be 2.5% of the total amount of worldwide commerce that is theoretically addressable by mobile payments (up from 0.4% in 2012)

Mobile money is only part of the story

Total world wide payments

Year $ Trillions2010 3312020 782

Source: Grealish, Mohr, Rutstein, Schwarz, Storz, Urban, Winning After the Storm - Global Payments 2011, Boston Consulting Group, Feb 2011; McPherson, Hand & Stofega, IDC, Technology Selection:Worldwide Mobile Payments 2012 – 2017 Forecast

Despite enormous growth, mobile payments are a small part of the entire payments ecosystem

Support of conventional channels will dominate business for the foreseeable future

Mobile cannot be treated as separate channel. Bankers and retailers need to provide consistent experience across all customer interaction points


CardholderMerchant

AcquirerCard NetworkIssuer (Bank)

Today’s payment process


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

Today’s payment process


New mobile payment models change fees and access to information

Each participant in payment chain receives two potential values

Fee for serviceTransactional information

Information has its most competitive advantage when not shared

New models can disintermediate existing vendors

New models change where fees can be collected

New models change where information flows and can be collected

Mobile device uses information in mobile wallet to act a proxy for wallet•Communicated at POS thru NFC or QRcode on mobile device•Proxy routed thru existing network to an intermediary that produces desired payment selection•If connected, wallet may communicate with intermediary to select payment at POS•Proxy gets access to data previously reserved for acquirer


Customer Merchant Acquirer BAUMobile Wallet

Proximity payment with proxies

AcquirerMobile Wallet

Intermediary

12

Mobile payment platform independently communicates with customer and merchant•Party identification depends on wallet and POS applications•Collocation checked independently of payment process

– Verified by comparing GPS locations of customer and merchant POS– Assumed using merchant posted QRcode as proxy for physical

presence– Merchant could generate payment specific QRcode on POS

•Requires network connectivity•Platform gets access to transaction data


Customer Merchant Acquirer BAUMobile Wallet

Collocated payment

Mobile Payment Platform


13© 2013 IBM Corporation 13

Customer or payer


Merchant or payee

Mobile Wallet

Private Account

Payer and payee assumed to have accounts with the mobile payment platform

Transaction handled thru updates in platform’s private accounts

Payment platform, not acquirers or banks, see transaction information and potentially fees

Most have fall back capability on engaging current system if both parties do not have accounts

Payment thru a mobile payment platform

BAU


Operational issues need to be consideredSecurity Scalability

Availability Connectivity

In 2012, companies reported losing an average of 0.9% of total online revenue to fraud. The mobile channel shows the highest revenue fraud loss rate at 1.4%.

While surveys confirm consumers are concerned about security in new [mobile payment] services, they continue to engage in risky online and mobile services behaviors.

Expect bout 750B global mobile money transactions in 2020 (25,000 tps)

Virtual currencies (e.g., loyalty points) will multiply the scaling requirements.

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

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.

Need to connect many enterprise systems: core banking, payments, functional silos, retail supply chain, inventory management, merchandising, marketing, promotions, advertising

Need to connect many external systems: ACH, ATM, Swift, EDI, SMS aggregators, 3rd party financial interconnection networks, conventional credit card processing networks

Source: 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; 2013 Online Fraud Report, CyberSource, 2013; Federal Reserve Bank of Atlanta, The US Regulatory Landscape for Mobile Payments, July 5, 2012


9 of the top 10 global banks power their businesses using IBM Software, running mission-critical, high-volume financial transaction applications on IBM Software for its reliability, scalability and flexibility

One of the World's leading financial services providers processes in excess of 500 million messages a day through IBM WebSphere MQ software

1997: IBM created the first global settlement system for currency exchange, averaging $4 trillion a day, with the CLS Group, an industry consortium

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

"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

How can IBM help


IBM MobileFirst portfolio

AnalyticsSecurityManagement

IBM & Partner Applications

Application Platform and Data Services

Banking Insurance Transport Telecom Government

Industry Solutions

HealthcareRetail Automotive

Application & Data Platform

Strate

gy &

Des

ign Se

rvice

sDevelopment & Integration Services

Cloud & Managed Services

Devices Network Servers


Financial Operations portfolio: Complete multichannel financial payments solution


Enriched shopping experience Product and pricing informationInventory visibility across channelsConsistent user and order information

Common Management toolMaster Catalog and Sales CatalogsCross channel marketing engineOnline and Store management

Cross channel integration platformDistributed Order Management3rd party integration web services

POSKioskWeb Mobile Contact Center

Customer Touch Points

CustomerProfile Marketing Promotions

Stores

MasterCatalog

Orders

WebSphere Commerce

Prices Search

SalesCatalogs

Channel Specific Content and Business Rules

PromotionRules

MarketingeSpots

Store & WebPricing

Store & onlineInventory

Common Components

WebSphere Commerce Cross-Channel Solution


ProcessorsIBM Global Payment Checkout

API

WalletPCI Vault

Merchant

Ledger

Adv.Routing

Basic Fraud Adv. Fraud

Cross-channelCommerce

Checkout

Data Feeds

Reconciliaion

Shadow A/R

SettlementOperations

GUI

IBM SmarterCommerce

Logistics Partner

Treasury

A/R

Merchant’s Accounting

Fulfilment

Order Management

IBM Payment Systems: Wallets and Processing


Full range of business analytics capabilities

Dashboards Scorecards Reports Queries Analysis Networkanalytics

Predictivemodeling

Planning/ budgeting

IBM Business Analytics capabilities

Retail solutions and capabilities

Deliver a smarter shopping experience

Build smarter operations Develop smarter merchandising and supply chains

Banking and financial market solutions

Create a customer focused enterprise

Optimize enterprise risk management

Increase flexibility and streamline operations


Strategic role in mobile moneyNeutral 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:MerchantsBusinessesGovernments

Fund Holders:Banks

Facilitators

P2P B2B

Services from strategy to execution

22

• Mobile payments are part of a larger opportunity of mobile money

• Mobile money is growing rapidly across the world– Part of multichannel banking and commerce for the “banked”– New channel to reach the unbanked and underbanked

• New payment processes are being deployed that exploit mobile capabilities but may disintermediate existing players

• Successful mobile money implementation need to address fraud, scale, availability and interoperability concerns

• IBM has a broad range of hardware, software and service to support mobile money initiatives


Summary


© IBM Corporation 2013. All Rights Reserved.

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