Mobile Payments - Merchant Advisory Group

Retail Payments Global Consulting Group L.L.C.
Mobile Payments
A Strategic Overview of Mobile Payments in the USA
Merchant Advisory Group 2013 Annual Conference
New Orleans, LA
October 7th, 2013
Mobile Payments Agenda
Payments
Framework
Mobile
Technologies
Consumer
Attitudes
Mobile at the Point of Sale
Consumer
Mobile Apps
Conclusions and Q & A
Payment Is An Exchange of Value
Value
Non
Financial
Financial
In Financial
Institutions
Deposits
Credit Lines
Credit Lines
Outside
Financial
Institutions
Reward
Miles &
Points
Cash
Other
Mobile
Minutes
For most people value is money and money is normally kept in bank accounts
The Value Layer


Financial Institutions hold the biggest portion of value in most economies
Most payments are funded by credit lines and deposits being held at financial institutions
Value Layer
Credit Lines
Deposit
Accounts
Cash
Other
The Instrument Layer


Financial Institutions provide customers with payment instruments so they can access their value
These instruments are the credentials that are exchanged to initiate a payment
Instrument Layer
Credit Cards
Debit Cards
RTN/Acct
Numbers
Checks
Value Layer
Credit Lines
Deposit
Accounts
Cash
Other
The Network Layer


In a multi‐bank environment payment instrument credentials travel across networks
and clearing systems
to accomplish the Credit Cards
transfer of value
Networks can be
physical or VI/MC/AX, etc.
electronic
Credit Lines
Instrument Layer
Debit Cards
RTN/Acct
Numbers
Checks
Network Layer
EFT Networks
ACH Networks
Check Clearing
Houses
Value Layer
Deposit
Accounts
Cash
Other
This framework has been the traditional approach to payments for over 50 years
Additional Layers In The Framework 

Emergence of a New Delivery Layer
containing Wallets,
Aggregators, Gateways, etc.
These players “wrap” themselves
around traditional
payment
instruments
Delivery Layer
E-Wallets
M-Wallets
Aggregators
Other
Instrument Layer
Credit Cards
Debit Cards
RTN/Acct
Numbers
Checks
Network Layer
VI/MC/AX, etc.
EFT Networks
ACH Networks
Check Clearing
Houses
Value Layer
Credit Lines
Deposit
Accounts
Cash
Other
Additional Boxes in The Framework



Emergence of new
ways to access value at purchase
time (e.g. OBePs)
Emergence of new
instruments to initiate payment (e.g. phone number) and networks to carry these transactions
New sources of value accessible to consumers
Delivery Layer
E-Wallets
M-Wallets
Aggregators
Other
Online Banking
Screen Scraper
Instrument Layer
Credit
Cards
Debit Cards
RTN/Acct
Numbers
Checks
User Id and
Password
Telephone
Number
Pre-paid
Vendors
Telco
Carriers
Stored
Value
Telco Credit
Lines
Network Layer
VI/MC/AX,
etc.
EFT
Networks
ACH
Networks
Check
Clearing
Houses
Value Layer
Credit Lines
Deposit
Accounts
Cash
Other
Mobile Technology Evolution

1G in 1980’s – Primarily voice
– Analog radio signals
– Launched in Japan
– Ameritech first US network
– 1G speeds vary between speeds of 2.9Kbs/s to 5.6Kb/s.

4G in 2009
– Mobile ultra‐broadband access to USB modems, tablets, smartphones, etc
– Two systems WiMax (Korea) and LTE (Scandinavia)
– 4G offer rates up to 1 Gbit/s fixed speeds and 100 – 128 Mb/s to mobile users
Countries with commercial LTE service
Countries with commercial LTE network deployment on-going or planned
Countries with LTE trial systems (pre-commitment)
Mobile Phone Penetration

By end of 2013 there will be 6.8 Billion mobile subscriptions globally*
– Global 96% penetration
– Developed world reached saturation point
– Developing world accounts for 76% of global subscriptions

2.7 Billion people (almost 40% of the
world population) are online
* International Telecommunications Union/ICT Indicators Database estimate
Mobile Broadband High Growth

More than 2 Billion subscriptions worldwide*
* International Telecommunications Union/ICT Indicators Database estimate
US Smart Phone Penetration
 Growth of US smartphones continues…
 …even across “challenged” demographic segments
– Cost conscious large
families and low income
groups
– Network subsidy helping
adoption
Smart Phones and Tablets Creating Convergence

Nearly half of digital time spent on retail properties now occurs via smartphones and tablets
Retail Category Time Spent by Platform:
Desktop, Smartphone and Tablet Source:
comScore Media Metrix Multi-Platform, U.S., March 2013
Tablet,
14%
Smart
phone,
34%

Tablet ownership growing
at an un‐precedent pace

Tablets overtaking smartphones
in m‐commerce 55% to 45%*
* Internet Retailer
Source: ComScore 2013 Mobile Future in Focus
Desktop,
52%
The Major OSs
Android
 iOS
 Windows Phone 8
 Blackberry
 Other Players

– Symbian/Nokia
– Meego/Tizen
– Bada/Samsung
Android




Developed by Google
Open source – meaning it’s able to be modified
Apps for Android are written in Java programming language
Any hardware manufacturer may utilize the FREE operating system
– Google has activated more than 500 million devices (over 1 million/day)

Google’s mobile initiative
– Acquired Motorola Mobility in August 2010
– Introduced Nexus 7, a tablet to compete with iPads

Current version – 4.1 Jelly Bean
– Announced in June 2012, and released on July 9, 2012.
– Previous Versions
•
•
•
•
4.0 ‐ Ice Cream Sandwich
3.0 ‐ Honeycomb
2.3 ‐ Gingerbread
2.2 ‐ Froyo
– What does Froyo stand for?

Announced latest release 4.4, KitKat
Google Play ‐ The Android App Store 


Over 1 Million applications as of Sept 2013 and over 50 Billion downloads since Android began*
Had a reputation as a “free for all” site hosting many rogue apps ‐‐ including copycat games, spam, and malware
Google enforcing
rules has significantly
reduced the
number of rogue apps
* Source: Google, October 2012
Apple’s iOS
Developed by Apple, Inc.
 NOT Open source
 Limited to one hardware manufacturer – Apple
 Apps for iOS are written in Objective C programming language
 Current version – 7.0

– Version of iOS does not equate to version of iPhone
– Current version of iPhone – 5S
The Apple App Store
One Million applications and over 50 Billion downloads*
 Tight control over what applications are loaded onto the store. Many apps are rejected

–
–
–
–
–
–
Limited audience
Repetitive apps
Unrefined/poorly created
Improper use of APIs
Poaching keywords
Little usefulness
* Source: Apple, May 2013
Windows Phone





Developed by Microsoft, Inc.
NOT Open source
Support multiple phone manufacturers although Microsoft bought Nokia devices and services businesses in Sept 2013 (€3.79 Billion)
Version of Windows 8 OS tailored to fit smaller screens
Windows Phone 8 will support native code —
– Apps programmed for Windows 8 will work on Windows Phone 8. Native code support also means it’ll be easier to port complex iOS and Android apps to Windows Phones


Windows Phone 8 under the “One Microsoft” strategy
Windows Phone 8.1 Release expected in early 2014
Windows Phone Store




Over 100k Windows Phone 8 apps available in Windows Store driving more than 200 Million monthly downloads (both Windows Phone and Windows 8)
MS exercising same controls as Apple for apps introduced to Windows Store
Developers can write apps in languages such as JavaScript, C#, Visual Basic, or C++,
Microsoft offers developers up to 80 percent rev share when reaching $25K in revenue
Blackberry OS




Developed by Research in Motion, Inc. (RIM)
Company name changed to BlackBerry
Limited to one hardware manufacturer – RIM Blackberry Handset Generally, apps are written in Java language
– Over 60K apps available, over 2 Billion downloads

Current version – 10
– Launched in January, 2013
– Supports Multi‐tasking and a message hub to
integrate e‐mail, Twitter, Linkedin, and Facebook messages

Introduced two new devices supporting OS
– Z10 a touch screen handset
– Q10 with a QWERTY keyboard
– Shipped over more than 1MM units thus far

Company in $4.7B deal with Fairfax Financial Other Mobile OS 
HP’s webOS
– Linux kernel based OD initially developed by Palm and later acquired by HP
– Launched in January 2009. Various versions of webOS have been featured on several devices, including Pre, Pixi, and Veer phones and the HP TouchPad tablet.

MeeGo
– Linux‐based fee mobile OS project hosted by the Linux Foundation
– OS aimed at netbooks, tables, smart phones, SmartTV, ConnectedTV, IPTV‐boxes and other embedded systems

Symbian
– Closed source C++ embedded OS developed initially by Nokia and currently maintained by Accenture
– Nokia announced its intention to migrate to Windows Phone OS

Bada
– Meaning "ocean" or "sea" in Korean is a mobile OS for devices such as smartphones and tablets. It is developed by Samsung Electronics
– Samsung uses its own Bada OS, in parallel with Android OS and Windows Phone. All Bada‐
powered devices are branded under the Wave name; whereas Android‐powered devices are branded under the name Galaxy
App Users Are Active Users

App downloaders with Apple iOS and Android OS smartphones have more applications on their mobile phones than those with other kinds of smartphones, with an average of 48 apps on iPhones and 35 apps on Android phones. (By comparison, app downloaders with BlackBerry smartphones only had an average of 15 apps on their phones.)

They also use their apps more often: 68% of app downloaders with iPhones and 60% of those with Android phones reported using their mobile apps multiple times a day compared to 45 % of those with BlackBerry phones.

According to a new research report from the analyst firm Berg Insight, the number of mobile application downloads worldwide doubled during 2012 and reached 60.1 billion, up from 29.5 billion in 2011. The growth will continue and annual downloads will reach 108 billion by 2017. Functional Architecture
It is not your father’s phone anymore!
Important Payment Technology Bits
SMS / Premium SMS
 Mobile Browsers
 HTML 5
 Communications

–
–
–
–
–
–
WiFi
Bluetooth and Bluetooth Low Energy (BLE)
Bar codes and RFID
Attached card readers
NFC
Other
• Modulated Audio • Biometrics
SMS/Premium SMS

Short Message Service (SMS) is a text communication service using standardized communications protocols that allow the exchange of short text messages between mobile phone devices. 
The key idea for SMS was to use a telephony‐optimized system, and to transport messages on the signaling paths needed to control the telephony traffic during time periods when no signaling traffic existed. In this way, unused resources in the system could be used to transport messages at minimal cost. However, it was necessary to limit the length of the messages to 128 bytes (later improved to 140 bytes, or 160 seven‐bit characters) so that the messages could fit into the existing signaling formats.

SMS text messaging is the most widely used data application in the world, with 3.6 billion active users, or 78% of all mobile phone subscribers
Premium SMS

Premium‐rated short messages provide premium rate services to subscribers of a telephone network

Deliver digital content such as news alerts, financial information, logos and ring tones

Used to make smaller payments online, for example for file sharing services or in mobile application stores

Outside the online world, one can make a donation, buy a bus ticket, beverages from ATM, pay parking ticket, order a store catalog or some goods (e.g. discount movie DVDs) and many more.
Text Messaging is Relevant

American subscribers averaged 664 messages per month during the second quarter 2012, more than consumers in any other global market

The total number of SMS sent globally tripled between 2007 and 2010, from an estimated 1.8 trillion to a staggering 6.1 trillion. In other words, close to 200,000 text messages are sent every second.

The Philippines and the United States combined accounted for 35% of all SMS sent in 2009.
Mobile Browsers

Web browser designed for use on mobile device
– Micro browser or wireless internet browser (WIB)
– Access web through cellular network or through wireless LAN (e.g. WiFi)
– Web sites designed for WIB access called wireless portals

Sample browsers and manufacturers
–
–
–
–
–
–
–
–
Android browser/Google
BlackBerry browser/RIM
Firefox for mobile/Mozilla
IE Mobile/Microsoft
Kindle Fire Silk browser/Amazon
PlayStation Portable web browser/Sony
Series 60 web browser/Nokia
Safari/Apple
HTML 5








HTML is a markup language for structuring and presenting Web content
HTML 5 is the fifth revision since HTML was introduced in 1990
A World Wide Web Consortium (W3C) Candidate Recommendation
Not software but a version of the language used to build web sites
Adds <video>, <audio>, <canvas> elements and other features intended to include multimedia and graphical content without need of plug‐
ins (e.g. Flash)
Additional features for mobile phones such as Geolocation API, offline web application, WebStorage, Metro Style apps (WP8)
Native apps (i.e. built to utilize the native OS of the handset) may offer more robust functionality, but at a longer and more expensive development process
Currently in development
– W3C targets 2014 for HTML5 Specification Recommendation
– Mozilla’s HTML5‐based Firefox OS released in July 2013
Wi‐Fi



Technology to exchange data using radio waves (wirelessly) over a computer network
Based on IEEE 802.11 standard
Positive Aspects
– Support high speed internet connections
– Well understood and commonly used
– Low cost

Drawbacks
– Requires login sequence
– Security concerns
Bluetooth





Proprietary open wireless technology standard for fixed and mobile devices to exchange data over short distances (using short‐wavelength radio transmissions in the 2400–2480 MHz band)
Standardized under IEEE 802.15
Created by Ericsson in 1994. It can connect several devices, overcoming problems of synchronization.
Intended as a replacement for RS‐232 cables
Positive Aspects
– Well understood and installed in many phones
– Low cost
– Some BT card readers are now available (e.g. Mpowa)

Drawbacks
– Requires pairing/bonding sequence
– Much longer range than needed (150 feet)
– Security concerns

Bluetooth Low Energy (BLE)
– Compatible only with Bluetooth 4.0 dual mode
– To be marketed as Bluetooth Smart Bar Codes & Scanners



Optical, machine‐readable representation of data
Convey a lot of information in a small format
Linear or one‐dimensional (1D) bar codes
– Designed and patented in the 1940’s
– Original application for tracking railroad cards
– Main current use is Universal Product Code (UPC)

Quick Response (QR) codes
– Invented in Japan by Toyota in 1994
– Two dimensional digital image can be read scanner apps
– Much more information than 1D codes
– Increased use in marketing applications
Radio Frequency Identification (RFID)





Technology that uses communication via radio waves to exchange data between a reader and an electronic tag attached to an object, for the purpose of identification and tracking.
Information is in a self‐contained chip (or tags)
Tags can be powered or activated by the reader’s electromagnetic field
Tag does not need to be within line of sight of reader
Use to track things (i.e. automobiles during production line, pharmaceutical products in warehouses, implanted in livestock, tolls on highways and bridges, etc.)
Attached Card Readers
Device attached to a smartphone or tablet turning them into a card accepting terminal
 Readers must encrypt data and be PCI compliant  Industry “launched” by Square
 Intuit, PayPal, iZettle, Pay Anywhere, Sum up, and few more, many offering readers from Roam.
 Readers evolving in Europe to support chip and PIN as well as to use remote connectivity (BT with mPowa)

Near Field Communications (NFC)
NFC is a set of standards for smart phones and similar devices to establish radio communication with each over very short ranges
 NFC is a “flavor” of RFID using the 13.56MHz band at rates of 106 k/bits to 424 k/bits per second.
 NFC can be used to communicate between two powered devices (peer‐to‐peer) and one powered device and an unpowered “tag”
 NFC is slower than Bluetooth but consumes much less power and does not require pairing

NFC in Payments

NFC has existed in the payments space for several years
–
–
–
–
–

White label payment systems (e.g. Vivotech)
Closed loop transit systems (e.g. UK’s Oyster)
Tag‐based payments (e.g. Bling Nation)
MasterCard’s paypass
Visa’s payWave
NFC began to make inroads on
mobile phones in 2007‐2008
– Attach a tag to a phone
– Acquire and insert a SIM on mobile
– Phones with built‐in NFC chip
NFC in Mobile Payments

Secure Element
– Stores information in a secure manner
– It is controlled by the telephone carrier!

Different implementations
– Embedded in mobile phone
– SIM based
– Removable SE (SD Card)

Visa/MC approach
– Store the card number in the Secure
Element portion of the NFC Chip

Many standard setting bodies
– ISO/IEC (18092), ECMA (340), NFC Forum, GSMA, EMVCO
Payment Credentials in NFC Phone
Acquirer
Issuer
5 5 8 8 3 2 0 1 2 3 4 5 6 7 8 9
NFC leverages the existing
infrastructure but does not
create anything more than
a new way to enter traditional payment instrument data into the networks
Payment Credentials in NFC Phone

Pros
– Leverages existing infrastructure
– Consistent with other card based payment
– Secure element protects card number 
Cons
– Required investment to obtain NFC readers
– Another “silo” – Requires smart phones with NFC chips
– Limited to “enabled” funding sources
– Expensive – issuer must pay a
“rent” fee ($3‐$5) to carrier per
card number stored
NFC is the approach preferred by established players
Payment Credentials In The Cloud
Consumers’
Banks
Merchants’
Banks
Clearing Card Independent
Schemes
House Schemes
Consumer Payment
Server
Consumer
Payment Information
A
F
8
8
Merchant
Server
C
M
0
1
9
H
W G
Communications
Exchange
7
3
A
G
8
9
Merchant
Payment Information
Payment Credentials In The Cloud

Pros
– Some implementations can be done with feature phones and other non—smart phone devices
– May not need expensive investment at POS to support payments
– Can be used outside the POS (e.g. QR codes in a poster)
– Can be done as “push” or “pull” payments
– Can access more than one funding source
– Is not exclusive of NFC

Cons
– Still requires POS investment
– Schemes must provide equal or better security than NFC
– Change in consumer behavior
– Banks must be active participants
Many new creative ideas and players outside of NFC
Mobile Payments Agenda
Payments
Framework
Mobile
Technologies
Consumer
Attitudes
Mobile at the Point of Sale
Consumer
Mobile Apps
Conclusions and Q & A
Mobile Payment Projections

E‐Marketer (July 2013)
–

Javelin (April 2013)
–

m‐payments will total US $171.5 billion in 2012 (up 61.9 percent from $105.9 billion in 2011).
In 2016 there will be 448 million m‐payment users, in a market worth $617 billion. Asia/Pacific will have the most m‐payment users, but Africa will account for the highest revenues.
Yankee Group (June 2011)
–
–

Forrester forecasts that US mobile payments will reach $90B in 2017, a 48% compound annual growth rate (CAGR) from the $12.8B spent in 2012.
Gartner (May 2012)
–
–
–

Mobile adoption and industry push for mobile payments will cause the amount of mobile payments at the point of sale will increase from $398 million last year to $5.4 billion in 2018.
Forrester (January 2013)
–

US Mobile payments to top $1B in 2013; estimates to grow to $58Billion in 2017
Global mobile transactions predicted to be US$241 billion in 2011 growing to >$1 Trillion by 2015
EMEA is the mobile money hot spot accounting for 41% of mobile transactions value in 2011, compared to 35% in North America, 22% in Asia‐Pacific and just 1% in Latin America.
Juniper Research (July 2011)
–
–
Total value of mobile payments for digital and physical goods, money transfers and NFC transactions will reach $670bn by 2015, up from $240bn this year..
1.8 billion consumers globally will buy digital goods via their mobile in 2011, this will rise to 2.5 billion in 2015 account for nearly 40% of the market US Consumers Attitudes 
Are US consumers demanding mobile payments?
US Consumer Attitudes
Gartner Survey
Would receive promotional
messages on mobile
31%
Likely to use a mobile phone to
check store location
42%
Likely to use a mobile phone to
buy in‐store
16%
Liklely to use a mobile phone to
buy online
17%
0% 20% 40% 60% 80%100%

1
51% of consumers were aware of mobile payments, 23% said they were interested in the technology, but only 1% said they were using it 1
Source: Mercator Advisory Group (February 2012)
US Consumer Attitudes

1
Consult Hyperion, September 2013*
– 64% said they would NEVER use a mobile wallet
– Males, 25‐34 years are most likely to try
(50% said not interested)
– Females, 45‐54 years least interested
segment (78% said not interested
– Banks and Google the
most trusted issuers of mobile payment wallets
Source: Consult Hyperion Survey of 1,015 consumers during September of 2013
M‐Commerce Has A Way To Go

Computer remains payment king
– Across all commerce segments phone or tablets account for less than 10% of total volume

Consumers need incentives to use mobile payments*
– 41% highly aware of mobiles as payment instrument, yet only 16% use them this way
– 37% find cash more convenient
– Half of non‐users worry about security and one third worry about privacy
– 60% of mobile payments users would probably do so more often if they received instant coupons – Additionally, over half would pay by phone more frequently if they could use their phones to track receipts, manage their personal finances and show proof of a driver’s license or valid insurance.
Source: Adyen
* Source: Accenture Survey of 4,000 smartphone users in US and Canada, 2013
But Then…,There Is Starbucks

A Customer Hit?
–
–
–
–

First mobile app in September 2009
Over 10 Million “active” users 4.5 Million mobile payments/week
Account for over 10% of US “tender” at Starbucks
It is not all about payments
–
–
–
–
–
–
Loyalty point tracker
Store locations and hours of operation
Product and nutritional information
Drink builder
Gift cards marketplace “Value added” iTunes songs & apps
Puzzle Components

Merchant Acceptance
– Use mobile phones as a POS
– Leverage mobile and tablet technologies to revolutionize Point of Sale experience
– Use mobile to gather consumer data

Consumer Wallets
–
–
–
–
NFC or cloud based
Generic or merchant specific
Single or multiple purpose Added‐value features
Impact On Payments Acceptance

Mobile devices need to “talk” to other devices to initiate transaction
– A POS terminal
– Another mobile device

Multiple technologies
–
–
–
–
–
–
–
–
–

NFC
Bluetooth LE
Bar codes and QR Codes
Wi‐Fi
Bump
RFID
Infrared
Sound
Biometric
POS environment will undergo massive changes
– From specialized to commodity devices
– From specialized functions to all‐in‐one
Square

Founded by Jack Dorsey of Twitter Fame with notable investor roster
– Visa, Kleiner Perkins Caufield and Byers, Sir Richard Branson (Virgin), Starbucks

Fee structure
– 2.75% per swipe, $0 per month
– $275 per month, 0% per swipe

Primary focus on very small merchants
– Recent partnership with Intuit
– Supporting online (CNP) purchases through
“market embedding”

Growth by pursuing larger merchants – Introduction of Square Stand and “Business in a Box”
• $299 (iPad not included)
• Works with iPad 2 and 3 • Connects to cash drawer and receipt printer
• Sold at Apple stores PayPal Here

Extending online presence to physical space
– Leveraging existing relationship with thousands of merchants

Fee structure
– 2.70% + 30¢ per swipe, $0 per month
– Waving fees for selected merchants until end of 2013

Evolving its presence across many channels
–
–
–
–

Partnership with Discover
Partnership with Mercury Payments, Gravity Payments, others
Partnership with Alliance Data and Moneygram
Recently announced acquisition of Braintree
Expanding functionality beyond
payments
– Partnerships with Leaf, Leapset, NCR Silver, ShopKeep POS and Vend
– Partnership with Shopventory
– Offering Small Business Loans (small, by invitation, programs)
Intuit GoPayment

Launched in 2009 and currently supports
– iPhones, iPad, Android devicers
– Visa, MasterCard, American Express, Discover cards
– One of several payment acceptance channels
• Mobile, Online, Web Store, QuickBooks

Pricing
– 2.75% + 0¢ swiped fee, $0/Month
– 1.75% + 0¢ swiped fee, $12.95/month
– Free card reader and app

Developments
–
–
–
–
–
Integration with Quickbooks POS
Allowing card scanning using tablets
Attempt to deploy internationally
Recent re‐organization
Partnership with Square
GrouponPaymentsTM

Launched in 2012
– Leveraging 2012 Breadcrumb acquisition
– Accepts Visa, MasterCard, Amex, and Discover cards
– Free card reader and app, swipe transactions at 1.80% + 15¢, Amex pricing varies by business
– Limited time offer of $5,000 in free transactions

Extended beyond mobiles supporting phones, tablets, computers, card terminal – One of several payment acceptance channels
• PRO – Complete restaurant POS
• POS – Simple iPad Point of Sale
• Payments – true mobile payments
– Integrates rewards, coupons, analytics and other merchant tools into offering

Developments
–
–
–
–
Acquisitions of Side Tour, Blink,
Integration with VeriFone’s Vx POS devices
Announcement to build a warehouse network
Announcement of Groupon Partner Network
Other Entrants 
LevelUp
– Combines marketing campaigns with payment processing
– Both a wallet and a POS solution accepting Visa, MasterCard, Amex, and Discover cards
– Merchant fee for payment processing is 2% flat fee or 0% but get 25% of value of every campaign redeemed (hardware is additional cost)
– White label offering

Leaf

NCR Silver

VeriFone Sail

Large Acquirers – BofA, – Chase, – First Data
Non US Based Entrants

iZettle
– Swedish based company positioned as “Europe’s rival to Square”
– Present in SE, NO, DK, FI,UK, DE, ES, MX, BR
– Accepts Visa, MasterCard, Maestro, Vpay, Visa Electron, Amex, & JCB
– Supports iOS and Android with Chip and signature and Chip and PIN readers
– Pricing changes by country, UK oricing ranges from 2.75% to 1.50% (no flat fees) depending on sales volume (automatically adjusted)
•
•
Chip and signature reader is €25 in EU Chip and PIN is £82 in UK €99 in EU
– Relationship with Banco Santander helping in Spain and Latin America

SumUp
–
–
–
–
–
–
Uk based company present in AT,BE,DE,ES,FR, EI, IT, NL, PT, UK
Supporting iOS and Android devices with Chip and PIN reader
Just reduced fee to 1.95% per transaction ‐ card reader is offered free
AmEx and Groupon invest in SumUp
Recent partnership with BBVA in preparation for entry in Latin America
Partnership with Revel Systems, a maker of iPad POS software, More Non‐US Based Entrants

Mpowa
–
–
–
–
–
–

Payleven
–
–
–
–
–
–

UK based company, claiming presence in over 40 countries in Europe and LatAm
and just opened an office in US
Accept Visa, MasterCard, V Pay, and Maestro
Support iOS, Android, BlackBerry, Windows Phone
Fee is 2.95% per transaction or allows merchants to continue using own merchant account at 0.25% ‐ Bluetooth Chip and PIN readers is £49.99
Allowing consumers to purchase by just pointing mobile camera to desired item
Whitelabel deal with Telecom Purtugal
UK based company present in UK, BR, BE. DE, IT, NL, AT, PL
Accept Visa, MasterCard, V Pay, and Maestro
Support iOS and Android devices and offers product catalog, sales analytics, etc.
Fee is 2.75% per transaction ‐ Chip and PIN reader is £89 in UK and €49 in EU
Partnert with MICROS for Chip & PIN‐Supported hospitality POS System
Just announced deal with Italy’s Posta Italiana and Banco Posta Jusp
–
–
–
Italian based company just closing a $6Million financing round
Support iOS and Android connecting to device’s audio jack
Fee is 2.50% per transaction – Chip and PIN reader is €39
More Intelligence at POS
Introduction of tablets at POS have given merchants more computing power to do much more than just accept payments
 With tablets integrated at POS, merchants can

– Better track inventory
– Enhance their merchandising
– Accept coupons & vouchers

But it also has introduced challenges
– Acceptance of multiple tenders in a single integrated checkout experience
The Impact of Mobile POS



Consumers’ online “fickleness” migrating to physical stores
Long lines and long wait times is second reason shoppers cited for avoiding shopping at certain brick‐and‐mortar retailers*
Nordstrom is leveraging mobile technology to enhance customer experience
–
–

Employees will be equipped with handheld mobile devices. Customers in dressing rooms would be able to text or call employees to get a different sized clothing item. Merchants would be able to know when customers arrive and point to special offers or highlighted products and they will also know when customers left and send thank‐ you notes for visiting or purchasing products.
* Source: MarketTools
Checkout Will Evolve Dramatically
Tesco/Homeplus “Shopping Wall” in South Korea
Mobile Payments Agenda
Payments
Framework
Mobile
Technologies
Consumer
Attitudes
Mobile at the Point of Sale
Consumer
Mobile Apps
Conclusions and Q & A
Mobile Payments?

There are NO MOBILE PAYMENTS, just MOBILE WALLETS
– Most mobile solutions wrap themselves around a traditional payment instruments (e.g. bank cards)
– Exceptions are direct carrier billing solutions or solutions where the value is exchanged directly by the phone (e.g. mobile minutes)

Taxonomy of mobile payments solutions is based on
– Scope (e.g. open vs. closed loop; generic
vs. industry‐specific)
– Technological implementation (e.g. NFC vs. non‐NFC)
– Funding sources (e.g. cards, carrier billing, anything else)
– Processing (e.g. own acquirer, through mobile app provider)
Mobile Applications Taxonomy
•Captive
•Independent
•Mag stripe
•Mobile number
•Bar Code
•NFC/FFC
•Biometric
•Generic
•Industry Specific
Processing
Scope
Technology
Funding
•Cards
•Bank account
•Phone bill
• Captive
• Independent
Google Wallet 1.0

Background
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
– Released in late 2011
– Required many things to line up
• A Citibank issued MasterCard credit card • A specific phone model (Nexus S 4G) connected to the Sprint Network
• A merchant equipped with NFC terminal

How it works
– Card number stored in Secure Element in phone
– Consumers shop at any MasterCard accepting merchant equipped with a NFC capable POS terminal where they tap the phone
– Transaction travels through regular credit card networks and it is authorized in an identical manner to credit cards – Merchants gets paid by its regular acquirer along with other MasterCard transactions (no special interchange for these transactions has been identified)

Results
– Could not get other banks to load their cards to Wallet
– Limited consumer acceptance
– Some security flaws identified
• Cards
• Bank account
• Phone bill
• Captive
• Independent
Google Wallet 2.0

Background
–
–
–
–
–

• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
Released in Summer 2012 to address weaknesses of 1.0
Allows consumers to load any credit card they wish as funding source
Remain dependent on Sprint (only Virgin Mobile added) but more phones supported
“Pre‐loaded” with a pre‐paid MasterCard from The Bancorp Bank as the tender mechanism
Incorporates Google Offers
How it works
– Consumer’s card numbers stored in the Cloud but pre‐paid card stored in Secure Element
– Consumers shop at any MasterCard accepting merchant equipped with a NFC capable POS terminal where they tap the phone
– Transaction using pre‐paid card travels through regular credit card networks, eventually
requesting an authorization from Google
– Google retrieves the consumers’ funding instrument and initiates an authorization of that credit card – Upon approval, it authorizes the purchase at merchant
– Merchants gets paid by its regular acquirer along with other MasterCard transactions (no special interchange for these transactions has been identified)
• Captive
• Independent
Google Wallet 2.5?

Recent Developments
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
– Major reorganization, May 2013
– Google Checkout shutting down and functions to be assumed by Google Wallet
– Google Wallet definition expanded to computer, not just mobile

Announcements
– Store payment credentials in Chrome and automatically fill in all necessary fields at checkout
– Google Wallet API for mobile checkout independent of browser or m‐OS
– Instant Buy Android API (2‐click checkout)
– Google Wallet on e‐mail allowing P2P payments

Recent Developments – Released NFC‐free version for most Android and iPhones
– Focus on P2P payments
– Closers integration with merchants’ coupons and offers • Captive
• Independent
PayPal Mobile 
Background
–
–

Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
Introduced in 2010, including a “bump” capability to transfer funds (“bump” removed in 2012)
Used to send money as well as checkout at PayPal merchants
How it works
–
–
–
–
–
–
–
–

• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Consumers load payment credentials (e.g. credit cards, debit cards, bank account information) to PayPal
Payments credentials stored in the Cloud
Merchant must have a relationship with PayPal
Consumers shop at PayPal Merchants either by sending a text message or a web‐like interface who redirect shoppers to PayPal for authentication and authorization
Latest revision more focused on in‐store purchasing automatically applying coupons and discounts
Leveraging BLE for customer check‐in and pre‐ordering
PayPal approves transaction based on card authorization response and its own risk models
PayPal collects from consumer’s card or bank account and pays merchant (usually via ACH)
Economics
–
–
PayPal gets paid 2.90% + 35¢ per transaction (larger merchants pay a lot less through negotiated fees) PayPal’s “Cost of Payments” is a little over 1% based on shoppers use of bank (i.e. ACH debit) or balances
• Captive
• Independent
PayPal In Stores

Consumers register PayPal account to pay at stores
–
–
–

Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
Consumers select a PIN for their mobile phones
Consumers select their funding methods and their priority
Consumers get a card in the mail (a Discover card)
Consumer shop at stores
–
–
–
–

• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Merchants must have a relationship with PayPal
Enters mobile phone number on POS device (or swipe card through a Discover issued card)
Enters PIN
Transaction is approved by PayPal based on funding instrument and PayPal’s risk models
Economics
–
–
–
Because of its lower funding costs it is possible for PayPal to offer lower payment processing costs than credit cards
Merchants also have the potential for getting
more marketing data
PayPal Offers Merchants Free Processing to Push Mobile Point of Sale
7
6
• Captive
• Independent
Isis – A Mobile Carrier JV

Background
–
–

Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
Isis is a joint venture of AT&T Mobility, T‐Mobile USA, and Verizon Wireless
Allows consumers to pay for goods and services using one’s mobile phone and NFC
Consumers load payment credentials to Isis
•
•
–
–
–
–
–
Support American Express, Capital One, Barclays, and JP Morgan Chase Bank CREDIT cards only
HTC, LG, Motorola Mobility, RIM, Samsung Mobile and Sony Ericsson to introduce NFC‐enabled mobile devices implementing Isis’ NFC standards
Payment credentials stored in the phone’s SE
Merchant must have a relationship with Isis but also has a relationship with its acquirer
Wallet supports offers, deals , loyalty cards and promotions
Consumers shop by tapping phone at any Isis enabled accepting merchant equipped with a NFC POS
Merchants gets paid by its regular acquirer along with other Visa and MasterCard transactions (no special interchange for these transactions has been identified)
Business Model
–

Processing
How It Works
–

• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Isis gets paid an undisclosed share of the interchange income by issuer
Recent Developments
–
–
–
Pilots in Austin, TX and Salt Lake City, UT concluded and planning for a national rollout
Capital One and Barclays bail out
Developing an iPhone version
Apple – Passbook 
Background
– Industry pundits projecting Apple’s entry into payments space (it hasn’t so far)
– Many were betting that iPhone 5 would have a NFC chip (it didn’t)
– Some claim that Passbook is the first step towards the entry into payments (it may or not)

Analysis
– Apple is primarily a hardware company and likes high margin products whereas payments is a service business with very thin margins.
– Apple is a pretty focused company, doing a few things well. – Apple needs more than millions of consumers that have payment instruments with iTunes. They need merchants and building this base is expensive and time consuming – Building a payment service requires know‐how
– Apple iTunes stores only bank cards (not ACH) placing them at a disadvantage against PayPal who has lower funding costs

What are they doing?
– Licensing their checkout software to other merchants
– Positioning iPads as the POS device of choice
– Positioning passbook as a wallet but with no money movement capabilities
• Captive
• Independent
Square Wallet

Background
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
– Renamed Card Case app to “Pay with Square” to “Square Wallet”

How It Works
– Consumers download the Square Wallet app and load payment credentials (e.g. credit cards or debit cards) and a photo – works with IOS and Android phones and most networks
– Payments credentials are stored in the Cloud
– Consumer select the Square enabled merchant they want to shop at , and “start a tab”
– At checkout, consumers give their name to the Square merchant, effectively using their name and photo as the payment credentials
– Square approves transaction based on card authorization response
– Square collects from consumer’s card and pays merchant (via ACH) 
Economics
– Merchants pay 2.75% per swipe, no additional fees, next day deposit
– Unknown COP but expected CNP average of 2.10% ± a few bps

Recent Developments
– Visa makes undisclosed investment in Square (2011)
– Starbucks invested $25 Million in, and switched its payments processing to Square (2012)
– US Bank encouraging customers to link their US Bank cards to Square
• Captive
• Independent
Tabbedout – Mobile Tabs

Background
–

How it works
–
–
–
–
–
–

Company founded in 2009 as a payments solution for bars and restaurants
Consumers download the Tabbedout app and load payment credentials (e.g. credit cards or debit cards) – works with IOS and Android phones Payments credentials are stored in the phone (but not using NFC / SE); only last 4 digits are displayed, consumer use passwords to access app Merchant must be a Tabbedout merchant (bar or restaurant)
When consumer “starts a tab” s/he receives a five digit code which must be presented to server Consumer name and payment card information is sent to merchant’s POS
(not using NFC) Consumers can pay the tab by selecting payments card, calculating and adding tip and pressing “pay tab”
Economics
–
–
–
–
Merchant processes the transaction via its own card processor
Merchant pays a licensing fee to Tabbedout
Tabbedout offering SDK for merchants and third party providers (e.g. T.G.I. Friday’s)
Google Wallet available on Tabbedout
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
• Captive
• Independent
Boku – Pay Through Carrier

Background
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
– Founded in 2009 to use mobile phone number as a safe payment method
– Acquired Paymo and Mobilcash also in 2009
– Currently serving 66 countries, 240 carriers globally 
How it works
–
–
–
–
–
–

There is no registration process; payment credential is the mobile phone number
Merchant must be a Boku merchant
Consumers enters phone number when checking out
Consumers receive a prompt through SMS asking to confirm purchase with a “Y”
Purchase is charged to phone bill (either pre‐ or post‐paid)
Carrier pays Boku and Boku pays merchant
Economics
– Merchant fee can be >10% limiting acceptance to digital goods only
– Recent deals with PlayJam and Sony PlayStation
• Cards
• Bank account
• Phone bill
• Captive
• Independent
Starbucks – “Gold Standard”?

Background
• Mag stripe
• Mobile
number
• Bar Code
• NFC/FFC
• Biometric
• Generic
• Industry
Specific
Processing
Scope
Technolog
y
Funding
• Cards
• Bank account
• Phone bill
– Launched first mobile app in September 2009

How it works
– Consumers download the Starbucks app and load payment credentials (e.g. credit cards or debit cards) – works with iOS and Android phones – Payment credentials in in the Cloud
– Merchants are only Starbucks stores (closed loop)
– Consumer must preload funds into their Starbuck wallet (normally $20 or $25)
– Consumer presents bar code representing Starbucks Stored Value card number to scanner
– Value is automatically debited from stored value

Economics ‐ A Financial Success
– Over $1B loaded to card balances in Q1 2013
• (mobile is 25% of card volume)
– Average load/purchase $25/$5
– Card fee savings per load $1
– Card program contribution of $170MM/Qtr.
Other Retailer Wallets
The “Layering” of Mobile Payments
App1
App2
App 3
App1
App2
App 3
Function1
Function1
Function1
Function1
Function1
Function1
Function2
Function2
Function2
Function2
Function2
Function2
Function3
Function3
Function3
Function3
Function3
Function3
Payments
Payments
Payments
Payments
Payments
Payments
Payments
Other Wallets Worth Mentioning


Wallets offered by Card Schemes
–
V.me by Visa, MasterCard’s PayPass Wallet Services are primarily online wallets accepting only cards (a.k.a. PayPal minus the ACH). Mobile services “coming soon”
–
Amex’s Serve is a pre‐paid card where mobile can be used to send or receive money but not to conduct any purchases
Traditional Online Wallets
–


Amazon’s Flexible Payments, ClickandBuy, Skrill Moneybookers all are traditional online wallets with possibility of entering mobile payments
Industry Specific Wallets
–
Parking and Tolls (ParkNow!, ParkMobile, PayByPhone)
–
Vending (Apriva)
–
Food / QSR (OLO/GoMobo, GrubHub, Menuism, GoPago, Jamba Juice)
–
Closed Loop (Chipotle, Burger King, T.G.I. Friday’s)
–
Gift cards and promotions (Mocapay, Modo)
Other carrier billing wallets
–
PayByPhone, Zong, BilltoMobile
Merchant Commerce Exchange (MCX)

What is MCX?
– A joint venture created by a group of the nation's leading merchants with a singular purpose: to offer consumers a customer‐focused, versatile and seamlessly integrated m‐commerce platform.
– Membership operates over 75,000 stores processing over $1 Trillion in annual payments

What is the product?
– The initial MCX Wallet will be barcode and cloud‐based
– Emphasis on keeping and mining transaction data

Recent Developments – MCX selected FIS to handle m‐commerce payments network
– MCX hired Dekkers Davidson to be its CEO. Davidson was most recently a managing director at Barclaycard US.
At the End of the Day…
About RPGC Group LLC
Retail Payments Global Consulting Group L.L.C. (RPGC) is a highly specialized consulting firm advising clients in the areas of consumer payments, primarily those performed in a non‐face‐to‐face (Customer Not Present) environment, such as those made on the Internet or via mobile phones. RPGC's subject matter expertise in payments lays at the intersection of the Retail, Financial, and Payment Technology Providers industries.
Retailers
Financial
Industry
Technology
Providers
RPGC Group Areas of Expertise

Payments Strategic Thinking
– Situation Assessment Workshops
– Strategic Planning Facilitation

Payment Processing Optimization
– Financial Optimization
– Best Practices Audit
– RFP/RFI Management

Product Management & Marketing
– Product “Tune Up”
– Product Management & Marketing

Global Payments Education
–
–
–
–
Payments 101 – Payment Basics
Payments 201 – Payment Economics
Payments 301 – Global Payments
Customized classes
Payments Strategic Thinking
Payment Processing Optimization
RPGC
Payment Product Management & Marketing
Global Payments Education
Contact Information
15805 212th Ave NE
Woodinville, WA 98077, U.S.A.
Phone: +1‐425‐788‐0500
Web: www.rpgc.com