Mobile Commerce &Alternative Payments:SPECIAL EDITION

First Annapolis has been advising clients on emerging payment products and technologies since the late 1990s when prepaid, P2P, and Internet payments were in vogue. In the last three years the Mobile Commerce & Alternative Payments Practice has been focused almost exclusively on the impact of mobile across the payments landscape. The team’s client experience spans most of the major constituents in the mobile value chain including: issuers, processors, payment networks, acquirers, MNOs, TSMs, and other specialized providers of mobile technology. Our clients are primarily based in North America and Western Europe, but our research efforts extend around the globe to capture important mobile developments in Asia and emerging markets. Given the nascent stage of the development of mobile, First Annapolis’s project work is focused in areas such as... More

First Annapolis has been tracking deal activity in the mobile commerce and alternative payments spaces over the last two years. In that period of time, over 60 transactions, totaling over $25 billion in disclosed mergers, acquisitions, and investments, were completed. Specifi cally, mobile payments, banking, and commerce deals totaled... More

2011 was an exciting year in the development of mobile payments. Among others, the year will likely be remembered by events such as:

• The launch of the Google mobile wallet;• Isis’s continuing development, including forging relationships with all of the major US payment

networks;• The rapid growth of Square and support... More

Overview of Our Mobile Commerce & Alternative Payments Practice

Will 2012 Be the Breakout Year for Mobile Payments?

Mobile Fuels M&A Activity

Retailer Alternative Payments Acceptance: Online and Mobile

1 of 7 © 2012 First Annapolis Consulting, Inc.Mobile Commerce & Alternative Payments: Special Edition Navigator

Digital wallets have been around for several years in the form of online payment tools for e-commerce. Smartphones are shaking up this space, though, by driving intense competition to develop and own the next killer app: the mobile wallet.

There is a lot of debate about what the mobile wallet... More

The Mobile Wallet Landscape

First Annapolis regularly tracks the acceptance of payments products at the leading e-commerce retailers. These merchants represent a signifi cant portion of overall e-commerce and therefore provide an important perspective on the opportunity for new payment products. This year, the mobile channel and... More

A supplement to the Navigator, published by First Annapolis Consulting, Inc.

The Other Guys in Mobile POS

Much has been written about Square’s mobile POS offering and Intuit’s Go Payment offering and for good reason as these two pioneers continue to generate an impressive ramp in users and processed volume. However, the focus on these two organizations raises the question – where are other mainline acquirers on the... More

Top 100 Remote Commerce Payments Acceptance & Mobile Functionality Study

Coming in late February

Tracking alternative payments acceptance, mobile app/wallet deployment, & mobile

commerce activity at leading e-/m-commerce retailers

For more information & purchase options please contactpaul.grill@fi rstannapolis.com

services industry. Paul is a noted expert on the adoption of new technologies in payments, and has been featured in the media and events in the past year such as American Public Media’s Marketplace, the Chicago Federal Reserve’s Symposium on Immediate Funds Transfer for General Purpose Payments, the ETA’s Inaugural Mobile Payments Summit, and the American Banker. Paul manages a dedicated team of consultants and analysts that track the growth, adoption, technologies, competitors, economics, regulations, and other trends impacting mobile payments.

In addition to completing customized engagements, the Mobile Commerce & Alternative Payments team develops data-driven reports on several important mobile and emerging payments topics. Past reports have included:

1. Top 500 e-Commerce Alternative Payments Acceptance Payments Study (tracking acceptance and promotion of various emerging payment products at leading e-tailers)

2. Top 100 Mobile Banking Study (analyzing the mobile banking functionality offered by the largest US financial institutions)

3. Mobile P2P Study (reviewing the functionality, pricing, and consumer experience associated with the emerging mobile person-to-person payments products)

The team’s tentative report release schedule for 2012 is as follows:

1. Late Winter: Top 100 Remote Commerce Payments Acceptance & Mobile Functionality Study (tracking alternative payments acceptance, mobile app/wallet deployment, & mobile commerce activity at leading e-/m-commerce retailers)

2. Late Spring: Mobile P2P Study (updated from 2011)3. Late Summer: Top 100 Mobile Banking Study (updated from 2010 &

2011, and including any in-market mobile payments functionality from leading FIs)

4. Late Fall: Mobile Payments Study (review and comparison of NFC and cloud-based payments solutions in-pilot/launched by mid-2012)

Additionally, First Annapolis will create sponsored or syndicated reports on specific topics not listed above.

Please contact paul.grill@firstannapolis.com to inquire about these reports or any of our Mobile Commerce & Alternative Payments advisory services.

By Paul Grill

First Annapolis has been advising clients on emerging payment products and technologies since the late 1990s when prepaid, P2P, and Internet payments were in vogue. In the last three years our Mobile Commerce & Alternative Payments Practice has been focused almost exclusively on the impact of mobile across the payments landscape. Our client experience spans most of the major constituents in the mobile value chain including: issuers, processors, payment networks, acquirers, MNOs, TSMs, and other specialized providers of mobile technology. Our clients are primarily based in North America and Western Europe, but our research efforts extend around the globe to capture important mobile developments in Asia and emerging markets. Given the nascent stage of the development of mobile, First Annapolis’s project work is focused in areas such as:

1. Defining the value chains for the enablement of mobile commerce and payments

2. Estimating the revenue potential/business case for mobile offerings3. Researching and evaluating the potential impacts of emerging mobile

technologies and competitors4. Prioritizing and describing likely mobile consumer/merchant use cases,

and identifying the key capabilities required to fulfill these5. Forming partnership and service provider relationships between suppliers

and buyers of mobile infrastructure services

Importantly, payments is only one component of the mobile subject matter expertise provided by First Annapolis. Since the consumer mobile experience comprises a broad set of use cases that surround payments, First Annapolis has expanded its capabilities to include many aspects of the commerce (e.g., advertising, offers, coupons, location-based services, loyalty program support) and account management (e.g., banking, bill payment, fraud warnings) services being enhanced by mobile. In particular, much of our recent project work has focused on evaluating the revenue opportunity associated with enabling commerce transactions, understanding the key capabilities and relationships required to profit from targeted mobile marketing, and conceptualizing integrated offers and payments solutions.

The Mobile Commerce & Alternative Payments practice is headed by Paul Grill, a partner with 15 years of payments industry consulting experience, and a background in authentication and encryption technology in the financial

Overview of Our Mobile Commerce & Alternative Payments Practice

2 of 7 © 2012 First Annapolis Consulting, Inc.

development of this vision, several trends are having a strong impact on how mobile is evolving.

• Commerce (marketing, advertising, coupons, offers, etc.), rather than payments, is driving mobile business cases for new entrants and established payments competitors. Many companies view commerce transactions as having several times the economic potential of payments transactions, but few organizations have in-house expertise to be successful in the segments of the commerce value chain that drive the greatest revenues (i.e., sourcing offers from merchants and leveraging unique data to target offers).

• Many banks aren’t prepared to enable mobile payments. Mobile requires new technologies, processing capabilities, and servicing approaches that differ from established practices. While providers are quickly deploying Trusted Service Manager (TSM) and other solutions to enable mobile, committing resources to implementation in the current market

By Paul Grill

2011 was an exciting year in the development of mobile payments. Among others, the year will likely be remembered by events such as:

• The launch of the Google mobile wallet;• Isis’s continuing development, including forging relationships with all of

the major US payment networks;• The rapid growth of Square and support the company has attracted from

investors such as Visa;• PayPal’s significant growth in mobile transaction volume ($4.0 billion),

acquisition of Zong, and announcement of plans to expand mobile functionality beyond payments;

Despite progress that’s been made, the industry still has a lot of work to do to realize the full vision of mobile commerce, where consumers can efficiently use their mobile devices to find what they are looking for, redeem targeted offers, and pay for their goods. While no single roadblock is holding up the

Will 2012 Be the Breakout Year for Mobile Payments?

Mobile Commerce & Alternative Payments: Special Edition Navigator

3 of 7 © 2012 First Annapolis Consulting, Inc.Mobile Commerce & Alternative Payments: Special Edition Navigator

for e-commerce, another for mobile content, and a third for brick-and-mortar will be less convenient for consumers and will prevent marketers from seeing a comprehensive picture of the consumer’s preferences and behavior. Many offerings seem to be evolving in this direction; services that are built and managed separately by sales channel will face some challenges.

• Most initial mobile wallet offerings are being developed by payments industry outsiders. Aside from Visa’s and American Express’s proprietary wallet solutions (V.me and Serve, respectively), most other major players – including payment schemes, issuers, and acquiring processors – are largely taking a secondary role in supporting wallets from Internet brands and mobile networks. Mobile is a big opportunity that incumbents shouldn’t fight, but insiders need to evaluate which wallet offerings are better suited to deepening, rather than disintermediating existing customer relationships.

• Retailers are a critical partner, and for mobile wallets. Merchants must be willing to make changes to their POS systems and processes to enable wallets’ value-added services. At the same time, many retailers are investing in their own mobile apps that integrate shopping, offers discovery, loyalty account management, and a card vault for “on-us” payments. Co-opting the merchant community will be an important part of building tomorrow’s leading wallet scheme.

• Banks are likely to face challenges from the rise of new and innovative mobile wallets. Issuers want today’s mobile card management (and mobile banking) tools to evolve into tomorrow’s mobile wallets, but it’s hard to see how these services effectively deliver the value-added services that consumers will demand. And regardless of which solutions win, digital wallets are likely to shake up conventional wisdom about what it means to be “top of wallet” and how to get there. Banks need to seriously consider how to enhance their offerings or develop strategic partnerships with other wallets to ensure their payment products stay relevant.

Consumers will have a lot of options in mobile wallets and these options will

By Ben Brown

Digital wallets have been around for several years in the form of online payment tools for e-commerce. Smartphones are shaking up this space, though, by driving intense competition to develop and own the next killer app: the mobile wallet.

There is a lot of debate about what the mobile wallet should do and how it should work. Some think narrowly, categorizing only multi-issuer, multi-service, NFC-based solutions as true mobile wallets. Some think broadly, scoping any mobile payment service – or app with payment capability – as a mobile wallet. In our view, the answer lies between both extremes. A mobile wallet provides secure digital storage for account credentials (and other personal data) for the purpose of enabling open-loop payments from a mobile device.

Much of the discussion from pundits in 2011 looked at mobile wallets in terms of how they worked – how are funds loaded, where is data stored, how credentials are transmitted to the merchant, and so on – but overlooked the most important question: what is the value proposition of the wallet? In the chart below, we look at select offerings along two dimensions: the functions the wallet supports and the sales environments in which the wallet works. This perspective highlights a few important themes, in our view.

• Payments are a core function for mobile wallets, but value-added services create the strongest proposition for consumers and providers. Bundling payments, offers, loyalty, and more in a “one-tap” or “one-click” experience is supremely simple for consumers. Doing so may also let mobile wallet providers earn a piece of the highly lucrative revenues likely to be enabled by mobile marketing.

• Mobile wallets are likely to act as a catalyst in bringing together today’s different sales channels. These tools will let brick-and-mortar retailers add some magic to the offline shopping experience. At the same time, the technology is likely to act as a bridge for e-commerce schemes to enter the physical world. This creates serious new competitive considerations for merchants, acquirers, and issuers alike.

• Winning wallets will work for all shopping channels. Maintaining one wallet

The Mobile Wallet Landscape

environment is challenging for many banks without a clear business case. Furthermore, banks that may be concerned about potential customer data or relationship impacts need to evaluate the range of economic, data use, handset access, and other value propositions being offered by mobile payments enablers.

• Merchants haven’t yet embraced NFC. Perhaps only 5% of US terminals have been enabled for NFC. However, shipments of NFC-capable terminals are increasing, and the upcoming ISIS trials and Visa EMV requirements may spur more deployment. More important, most leading retailers are enabling other forms of mobile functionality (e.g., shopping apps, store locators, loyalty programs) that will provide a foundation for future mobile payments functionality.

Despite expectations that 2012 will deliver a wave of NFC-enabled handsets in the US market, viewing 2012 as the breakout year for mobile payments is probably wishful thinking. Rather, 2012 will be a year of learning. Among others, we expect to find out:

• If merchants are willing to embrace NFC-based mobile technology (and as a by-product whether the currently envisioned Google and Isis models will be the driving platforms for NFC development);

• Whether emerging, cloud-based solutions can provide a mobile payment experience that rivals NFC;

• If mobile can transform offers and other promotional tactics to the “surgical strike” vehicles they are envisioned to be (or whether consumers and merchants grow fatigued of “carpet bombing” approaches); and,

• If banks are willing to begin making the investments in mobile payments and commerce that are necessary to head-off the long-term disintermediation of their payments products.

These learnings, while they may be slow and sporadic to realize, will provide valuable insights into how mobile will eventually transform the payments landscape. Despite that some (maybe many) approaches to mobile commerce not will flourish, it is not too soon for banks, merchants, acquirers, and other established payments players to take action to develop their own mobile knowledge base and capabilities. The mobile payments growth “hockey stick” is inevitable; at this point, it’s just a question of when and with what technologies.

For more information, please contact Paul Grill, Partner specializing in the Mobile Commerce & Alternative Payments Practice Area, paul.grill@firstannapolis.com

4 of 7 © 2012 First Annapolis Consulting, Inc.

be offered by innovative companies. Mobile commerce is likely to be a highly competitive space and notable initiatives have emerged around the world.

• In the United States, Google Wallet earned the distinction in 2011 of being the first mainstream NFC offering to launch. Google Wallet bundles support for payments, offers discovery and redemption, and merchant loyalty accounts in one NFC-enabled package. As Google integrates its various payment services, consumers will be able to use their Wallet account for one-click online payments (via Checkout), mobile content (via Android Market), digital subscriptions (via OnePass), in-app billing, and more. It’s clear that Google is leading the market in delivering an integrated, multi-channel experience. It’s not clear, however, how Google can overcome the distribution challenge posed by mobile networks’ control of the secure element (a necessary component to make mobile wallets work at the POS via NFC).

• Isis, the mobile commerce joint venture between AT&T Mobility, T-Mobile USA, and Verizon Wireless, announced its intention to launch its first two markets, Austin, Texas and Salt Lake City, Utah in the summer of 2012. Like Google Wallet, the Isis offering will integrate payments, merchant loyalty, and offer discovery and redemption. Isis also announced support from six leading global handset OEMs including HTC, LG, Motorola, RIM, Samsung, and Sony Ericsson, indicating the potential for wide scale distribution of NFC devices compatible with the Isis system. Isis has also formed relationships with the major payment networks and will

presumably announce issuers and merchants leading up to the launch.

• PayPal, for years the largest e-wallet for online payments, reported over $4 billion in mobile payments volume in 2011. It expects this figure to grow to $7 billion in 2012 (but it’s likely to be even higher, considering PayPal revised its 2011 estimate upwards two or three times last year). In the last year or two, PayPal and its parent eBay have invested aggressively in mobile commerce assets. We count more than a half-dozen relevant transactions from RedLaser (barcode scanning) to Zong (mobile billing) to WHERE (local search) and more. PayPal has laid out an innovative vision of how payments can happen at the future POS – with PayPal payments enabled by plastic cards, NFC, and mobile phone numbers – and a significant number of the top-200 U.S. retailers have signed up to bring that vision to life in 2012. PayPal is just now launching early trials of its technology but we expect they will be a deep well of innovation in the future.

• In Europe, the Euro 5 – the five largest mobile telecom conglomerates – are aggressively driving forward a number of mobile payment schemes. They are taking NFC national in France after the successful Cityzi trial in Nice. In Germany, plans are in place to extend the mpass system to the physical point of sale. And operators in the United Kingdom are planning to launch an Isis-style coalition once they receive approval from competition regulators. Taken in combination with another half-dozen initiatives across Europe, it is clear that European consumers will

The Mobile Wallet Landscape in 2012: Based on Organizational Capabilities of Selected Providers

Notes: Provider logos reflect current or announced capabilities and are not indicative of the adoption, penetration, or usage of the wallet among merchants or consumers. Wallet placement considers services offered by the the wallet provider, but not necessarily directly within the wallet.Source: Provider websites and press releases, TechCrunch, NFC Times, CNN Money, VentureBeat, GigaOM, and others.

Mobile Commerce & Alternative Payments: Special Edition Navigator

mobile payments startups, and are driven by factors such as:

1. Companies’ desire to build competency in mobile by acquiring the right talent, technology, and experience;

2. The vertical and horizontal integration of mobile capabilities to gain control over the broad mobile value chain or offer a broader product suite; and,

3. Established players investing in potential leading technologies, value propositions, and new segments of growth within payments and commerce.

By Dara Khan and Mike Hutton

First Annapolis has been tracking deal activity in the mobile commerce and alternative payments spaces over the last two years. In that period of time, over 60 transactions, totaling over $25 billion in disclosed mergers, acquisitions, and investments, were completed. Specifically, mobile payments, banking, and commerce deals totaled over $1.5 billion, not including Google’s $12.5 billion acquisition of Motorola Mobility. These deals span virtually every payments category, from market-leading e/m-commerce platforms to small

Mobile Fuels M&A Activity

5 of 7 © 2012 First Annapolis Consulting, Inc.

Note: Dates on horizontal axis not to scale.Source: Company reports, and First Annapolis research and analysis.

Figure 1: Example Mobile Commerce Mergers, Acquisitions, and Strategic Investments

soon be rich in mobile commerce options. European initiatives have an opportunity to grab market share today if they move quickly; if they wait too long, they’ll face intense competition from American exports such as Google Wallet, which may land in the UK as soon as this year.

• In Japan, NTT DoCoMo released its Osaifu-Keitai offering in 2004. NTT, by far the largest mobile network in Japan with 50% market share, developed its own mobile wallet – an approach that might not gain critical mass in less concentrated markets. NTT has since invested billions of dollars in mobile commerce through merchant incentives and equity stakes in the bank, transaction processor, and technology assets necessary to make it all work. As a result, there are about 70 million compatible phones, and about half as many active users of the service, in Japan today. But Japanese telcos, which leveraged NTT’s wallet, expected adoption to come much sooner and the market still faces challenges in driving adoption and usage. We view NTT’s experience as a cautionary tale for

the go-it-alone player or anyone who views the mobile wallet as a short-term investment.

Companies across industries see lucrative opportunities in the mobile wallet. Mobile networks see it as a way to build deep relevance with consumers. Search firms see mobile as the linchpin in bringing together search, social, and local. Payment schemes from Visa to PayPal see it as a way to build new, high-margin marketing businesses. But the opportunities don’t end at owning the wallet. Players across the marketing, loyalty, and payments businesses can and should proactively engage with these initiatives to discover new revenue streams and ways to differentiate themselves in a crowded market.

For more information, please contact Ben Brown, Associate specializing in Mobile Payments and Merchant Acquiring, ben.brown@firstannapolis.com

Mobile Commerce & Alternative Payments: Special Edition Navigator

6 of 7 © 2012 First Annapolis Consulting, Inc.

Online Acceptance

1. Seven out of ten leading retailers accept at least one alternative payment (including PayPal, BillMeLater, Google Checkout, eBillme, Amazon Payments, and e-Check/ACH products). The dominant products are PayPal and Bill Me Later (both owned by eBay). Only two leading retailers, Walmart and Sears, offer more than one of these methods, which is relatively unchanged from 2009 and may indicate limited desire or capacity among retailers to have a broad alternative payments strategy.

2. Of the nine retailers that utilize plastic gift cards, only two also offer eGift cards, a newer, virtual-only, product.

3. All retailers also offer consumers the ability to store payment credentials for purchasing. This functionality, while not groundbreaking, is an

By Jeff Crawford

First Annapolis regularly tracks the acceptance of payments products at the leading e-commerce retailers. These merchants represent a significant portion of overall e-commerce and therefore provide an important perspective on the opportunity for new payment products. This year, the mobile channel and mobile commerce will be added the Top 100 Remote Commerce Payments Acceptance & Mobile Functionality Study due out in late Winter.

In the meantime, First Annapolis completed a first look at the online acceptance of payment products and the use of mobile payments at ten leading retailers including Amazon, Staples, Apple, Office Depot, Walmart, Sears, Office Max, Best Buy, Costco and Macy’s. Highlights from this first look include:

Retailer Alternative Payments Acceptance: Online and Mobile

Several of these transactions were focused on acquiring talent, technology, or other assets, and often involve mobile startups with fewer than 20 employees. For instance, Boku, a provider of carrier billing solutions and startup itself, purchased Paymo and MobilCash, two smaller rivals that had success forming partnerships with carriers in several countries in which Boku wished to expand. Google has purchased several small companies that specialize in offers, loyalty, and mobile acquiring, including Daily Deal, Punch’d, and Corduro, respectively. All three companies were mainly comprised of founders that launched unique mobile commerce offerings. Google also acquired Zetawire, a small technology company that holds patents for identity management and mobile payments processing. PayPal bought a small provider of alternative POS enablement technology, FigCard, as part of its strategy to enable its 100 million accountholders to pay at the face-to-face point of sale. PayPal (via eBay) also acquired Milo, a local inventory search service, for $75 million and RedLaser, a barcode-based price comparison tool. These companies were acquired before they made a significant impact in the market and they will likely help PayPal with its overall strategy to expand beyond SMEs and e-commerce.

Many mobile payments acquisitions have enabled the buyer to integrate for better market positioning. These transactions often involve one of two rationales: vertical integration to control more aspects of the mobile value chain, or horizontal integration to offer multiple m-commerce products. In either case, the payments players making these acquisitions seek to move mobile commerce adoption forward by creating a broader product set and having more influence over its delivery to the market. The potential logic behind these transactions is summarized below:

1. Google and Motorola Mobility: provides Google some control over the hardware components that are key to mobile payments, including NFC and the secure element necessary to store credentials, as well as a robust patent portfolio.

2. Fiserv and M-Com: enables cross-sell mobile banking services to banks that utilize Fiserv for processing and servicing functions.

3. PayPal and WHERE: integrates offers with PayPal’s initiatives at the POS, providing a mobile commerce strategy within the wallet.

Some deals can be characterized by a buyer’s or investor’s desire to align with leaders in mobile commerce technologies, value propositions, or those with access to new or high-growth segments of the market within payments. Groupon has realized the importance of recommendations in purchase decisions and has acquired two local location-based suggestion services for restaurants and activities in cities: Mob.ly and Whrrl. The daily deal site

also purchased Zappedy, which helps businesses track the activity of their customers. Along the same vein, AT&T subsidiary YP.com acquired Livedeal, an offers platform, to compliment its merchant search and suggestion capabilities. Amazon recently invested $175 million in LivingSocial, Groupon’s largest daily deals competitor. Verizon recently invested in Geodelic, a location-based targeting platform. Perhaps most interesting in this series of investments are those being made in virtual goods, which are summarized below:

1. Visa and PlaySpan: micropayments platform that helps publishers monetize games by offering a range of payment methods, including carrier billing, a mobile wallet, or a proprietary PlaySpan prepaid card.

2. Google and Jambool (SocialGold): enables game publishers to create and manage their own virtual currencies; Jambool’s tech also underpins Google’s new in-app billing API.

3. American Express and Sometrics: enables game publishers to access a proprietary virtual currency that can be used in multiple games for digital goods purchases; may be integrated with Serve, which has a carrier billing and remote payments component.

There are various reasons for the increase in deal activity, but one thing is clear: mobile acquisitions are likely to continue through 2012. We expect both established and new constituents to make acquisitions and investments, particularly payment networks and processors that are seeking to expand their portfolio of mobile capabilities. Other potential buyers in 2012 may include wireless carriers, social networks, and handset and terminal manufacturers who all seek to further establish themselves in the mobile payments value chain. This year was characterized by deals in the remote mobile commerce space, as well as mobile banking and offers or deal platforms. Next year, NFC technology players may become targets for acquisition, as national mobile payments initiatives at the point of sale ramp up. Offers platforms, as well as mobile data targeting and analytics services, will garner more interest as leading players recognize that an important portion of the overall mobile payments value proposition is the integration of m-commerce services. Of course, the ongoing challenge with making investments in a fast moving environment like mobile will be picking the targets that can both take advantage of near-term mobile use cases and provide platform flexibility to address the inevitable shifts in mobile opportunities.

For more information, please contact Dara Khan, Associate specializing in tthe Mobile Commerce & Alternative Payments Practice Area, dara.khan@firstannapolis.com, or Mike Hutton, Analyst, mike.hutton@firstannapolis.com

Mobile Commerce & Alternative Payments: Special Edition Navigator

7 of 7 © 2012 First Annapolis Consulting, Inc.

By Marc Abbey

Much has been written about Square’s mobile POS offering and Intuit’s Go Payment offering, and for good reason as these two pioneers continue to generate an impressive ramp in users and processed volume. However, the focus on these two organizations raises the question – where are other mainline acquirers on the mobile POS offering? In our most recent acquirer research, 69% of acquirers across the full range of non-banks and banks report offering a mobile POS solution. It is not a scarce product. These same acquirers, though, estimate a penetration rate of less than 5% of their merchant bases, a figure that contrasts with the hundreds of thousands of merchants that Intuit and Square cite when talking about their mobile POS user bases.

Thus far, Square and Intuit have provided free applications and a free card reader, but the acquirers in our research describe sign up fees that average nearly $60 and card reader pricing that ranges between $30 and $300.

Acquirers also utilized transaction fees averaging $0.20 - $0.22 and monthly

The Other Guys in Mobile POS

fees that range from $5 to $20, pricing that, though there are parallels at Intuit and Square, is generally higher than at the two market leaders.

Intuit and Square appear to be positioning with simpler and more transparent pricing than other acquirers frequently use, but they also appear to be price competing in contrast to most other acquirers. Intuit and Square also tend to be innovating in terms of sales, boarding, risk and other business processes, perhaps giving Intuit and Square a cost structure targeted to the mobile POS niche, whereas there is much less evidence such innovation is occurring yet at other acquirers. There are many open economic questions regarding the mobile POS in its various use-cases, but the proliferation in the offering and the differences in approach between acquirers is already noteworthy.

For more information, please contact Marc Abbey, Partner specializing in Merchant Acquiring, marc.abbey@firstannapolis.com

important component of migrating to the mobile channel and other device interfaces (see Figure 1).

4. Eight out of 10 retailers advertise either their co-brand or private label credit card on their home pages, and a similar number of the retailers studied attempt to steer consumers towards these products by making specific offers related to their co-brand or private label credit cards.

Mobile Acceptance

1. All 10 retailers offer a mobile solution through an application, a tablet solution, and a mobile web offering indicating a high level of interest in mobile. Only Costco does not have the complete set of channels, offering only mobile web.

2. Similarly all 10 of the retailers enable shopping and purchasing via mobile. The consumer experience and look and feel of the process varies widely. Some mobile web sites are streamlined versions of the online site, while other apps offer more advanced commerce and account management capability.

3. All of the retailers enable mobile purchasing through credit cards, while only one of the ten offers an alternative payment option (Sears with PayPal). Nine of the ten also enable stored credentials, reflecting the importance of reducing steps and minimizing keystrokes in the mobile channel and key strokes on mobile phones and tablets. Also, the storage of payment credentials that are accessible via a mobile app represents a form of a mobile mobile wallet. These cloud-based, retailer-driven wallets that are integrated with the mobile shopping flow will be credible alternatives to the multi-account wallets that are currently grabbing the industry spotlight.

4. Promotion of specific payments products is more limited than in the on-line channel, with only one retailer, Sears, making payment specific promotions via mobile. This is likely due to the newness of the channel and also the limited space on the mobile device to make such offers.

This first look indicates that most top retailers are fully bought into the mobile channel, but that the payments functionality is still evolving. Moves by Walmart,

in particular, with the creation of the @WalmartLabs group, the acquisition of mobile development companies, and the roll out two new mobile apps in 2011 confirms the importance of mobile. However, the unique features of mobile including a smaller device, the potential for 1:1 marketing with location-based services, and possible integration with the point of sale presents retailers with an interesting set of challenges and opportunities. The upcoming full Top 100 Remote Commerce Payments Acceptance & Mobile Functionality Study will expand deeper into the retailer group and explore these issues more in-depth.

For more information, please contact Jeff Crawford, Senior Consultant specializing in the Mobile Commerce & Alternative Payments Practice Area, jeff.crawford@firstannapolis.com

Source: Retailer websites, and First Annapolis Consulting research and analysis.

Figure 1: Top Retailer Payment Practices: Online vs. Mobile (2011)

Mobile Commerce & Alternative Payments: Special Edition Navigator