mobile payments

© 2008, Portio Research. All Rights Reserved 1

Mobile Payments

2 © 2008, Portio Research. All Rights Reserved

Mobile Payments

Portio Research Limited

Published December 2008 by Portio Research Limited © Copyright 2008.

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Mobile Payments

Contents

Mobile Payments......................................................................................................................5

Introduction .......................................................................................................................................... 5

Payments – An Overview..................................................................................................................... 5

Mobile Payments ................................................................................................................................. 5

Mobile Payments – Value chain........................................................................................................... 6

Mobile Payments – Types.................................................................................................................... 8

Mobile Payments – Implementation Models ...................................................................................... 14

Mobile Payments – Key Concerns..................................................................................................... 18

Mobile Payments – Market Scenario ................................................................................................. 19

Case Study 1: NTT DoCoMo – Mobile Wallet.................................................................................... 20

Case Study 2: Globe Telecom – GCash............................................................................................ 21

Case Study 3: Mobile Banking (M-PESA) — Vodafone and Safaricom (Kenya) ............................... 22

Conclusion ......................................................................................................................................... 23

Also available from Portio Research Limited ..................................................................................... 24


Mobile Payments

List of Figures

Figure 1: Payment methods – Generic .............................................................................................. 5

Figure 2: Typical Payment Value Chain............................................................................................. 6

Figure 3: Mobile Payment – Value chain ........................................................................................... 7

Figure 4: SMS-based Payment Model ............................................................................................... 8

Figure 5: NFC-enabled Handset........................................................................................................ 9

Figure 6: SMS/NFC/WAP-based model comparison ........................................................................10

Figure 7: Payments Based on Value ................................................................................................11

Figure 8: Examples – Remote and Proximity Payments...................................................................12

Figure 9: An example to distinguish between B2B and B2C models ................................................13

Figure 10: Mobile Payment – Operator Dominated Model..................................................................14

Figure 11: Mobile Payment – Financial Institution/Bank Dominated Model ........................................15

Figure 12: Mobile Payment – Collaboration Model .............................................................................16

List of Tables

Table 1: Payment Value chain – Description of Entities ....................................................................... 6

Table 2: Pros and Cons of SMS-based Mobile Payment System......................................................... 8

Table 3: Pros and Cons of NFC-based Mobile Payment System ......................................................... 9

Table 4: Payments based on Charging Methods .................................................................................12

Table 5: Pros and Cons of Operator Dominated Model .......................................................................15

Table 6: Pros and Cons of Financial Institution Dominated Model.......................................................16

Table 7: Pros and Cons of Collaboration Model ..................................................................................17


Mobile Payments

Mobile Payments

Introduction

As non-voice revenues of mobile operators continue to grow, mobile payment services, alongwith mobile entertainment services, are among the most exciting growth sectors.

This report aims to explore the various aspects of mobile payments, and begins by explainingthe mobile payments’ value chain and the roles played by the various stakeholders involved.This is followed by an analysis of the types and modes of mobile payments, as well as thevarious implementation models that can be adopted by operators to successfully implementmobile payments in their respective markets. Finally, this report details the key concern areasthat need to be addressed in order to spur the growth of these services.

Payments – An Overview

A payment can be defined as a monetary transfer for the purpose of obtaining goods orservices. Figure 1 provides a generic view of the existing payment methods.

Mobile Payments

When a payment is made through mobile devices, such as mobile phones, smart phones orPersonal Digital Assistants (PDAs), it falls under the category of mobile payments. Withmobile phones now being such a widespread consumer device, mobile operators worldwideare looking for ways to establish themselves in the payments segment, which has to datebeen largely dominated by financial institutions.

Figure 1: Payment methods – Generic

Source: Portio Research Ltd.

Payments

PaperCheque

Cash CreditCard

DebitCard

MobilePayment

Paper Transaction Electronic Transaction


Mobile Payments

Mobile Payments – Value chain

To understand the value chain for mobile payments, it is necessary to first understand thegeneric value chain for payments. A typical payment value chain is depicted in Figure 2.

The payment value chain, as depicted in Figure 2, involves four major entities – thefunctionality of each is briefly described in Table 1.

Table 1: Payment Value chain – Description of Entities

Entity Description

Customer

Purchases goods/services from the merchant Gives validation of his/her credentials to the issuer Makes the final payment – direct cash, cheque, credit,

debit or through m-payment

Merchant

Merchant generates bill as per the goods/servicespurchased by the customer

Sends bill to the acquirer Registered with the acquirer/issuer Receives final payment – directly from customer as cash,

or else from issuer

Acquirer/Service Provider

This can be a financial institution, a card association ormobile network operator

Acts as an intermediary between the ‘Issuer’ and themerchant

Issuer

The party that authorises the payment as per thegenerated bill against select customers

Has details of user’s credentials in its database Performs authentication and authorisation of the

transaction parties – customer and merchant Can be a financial institution (bank), bank cards or third

party card issuer

Source: Portio Research Ltd

Figure 2: Typical Payment Value Chain


Customer IssuerMerchant

Solution/ServiceProvider

Acquirer

© 200

Mobile Payments

The value chain for a typical mobile payment-based system is shown in Figure 3.

Figure 3: Mobile Payment – Value chain

Customer IssuerMerchant

Solution/ServiceProvider

Acquirer

Step 1: Customer purchases goods; bill gets generated; shows handset to the installed M-payment reader or traditional POS device in order to make payment. Merchant accepts thepayment through the reader, which is connected to the acquirer.

Step 2: Acquirer has ‘merchant’s account’. It handles merchant information and transactiondetails; the network used for switching transactions is either the operator’s network or anexisting traditional payment network.

Step 3: Issuer authorises the amount and manages mobile accounts; after validating thecustomer’s credentials, the issuer approves the generated bill

Step 4: Acquirer notifies the merchant regarding the same and the merchant issuespurchased goods/services to the customer. Customer pays bills and gets his account re-charged

8, Portio Research. All Rights Reserved 7


8

Mobile Payments

Mobile Payments – Types

Mobile Payments based on Payment Mode

SMS-based Payments

Also termed as ‘Premium SMS-based Payment’, the mode of payment in this method, asthe name suggests, is a text message. In this type of payment method, the customer asksfor a payment request by means of a text message. Once the transaction is completed,the customer is charged against his/her phone bill, and the merchant is notified andallows the goods to be released.

A description of a typical SMS-based model is provided in Figure 4:

Thasnethe

PrTh

Ta

P

TN

Tp

Figure 4: SMS-based Payment Model

Customer

Solution/NetworkProvider

Merchant

Nc

Step 1: The customer purchases goods and the billgets generated

Step 2: Bill is sent to the datacentre through theInternet, mobile device or a wireline

Step 3: The datacentre contacts the person throughan automated call or SMS

Step 4: The customer sends back the approval withthe Personal Identification Number (PIN) and uniqueshort code

Step 5: The datacentre issues the bill to customer’sissuer for releasing the required funds

Step 6: The issuer credits the required amount to themerchant and debits the same amount (plus aprocessing fee) from the customer’s credit card/phonebill/pre-paid account

© 2008, Portio Research. All Rights Reserved

ere are a few vendors who actively deal in providing the Premium SMS-based model, suchUS-based mBlox and France-based Netsize. These vendors act as mobile transactiontworks that provide connectivity with operators and the facility for mobile billing. They arerefore the intermediate link between enterprises (merchants) and mobile operators.

os and Conse pros and cons of using the SMS-based payment model are discussed in Table 2:

ble 2: Pros and Cons of SMS-based Mobile Payment System

ros Cons

he security is greater than other options likeear Field Communication (NFC) payments.

Text messages can get lost if theconnection/network is poor, hence lowering thereliability of the system.

he inconvenience caused by keeping cash orlastic cards can be avoided.

The speed may not be good; delay in a merchantreceiving a receipt may lead to long waiting timesfor the customer.



Issuer

ote: There can be alterations based on the implementation model (Operator dominated, bank dominated, orollaborative or third party models)


Mobile Payments

Near Field Communication (NFC)-Based Payments

NFC-based payments involve a mobile phone with an embedded chip, which acts as themode of payment. The technology involves contactless communication between two devicesover a range of 10 cm. It enables the handset to act as a smart contact credit/debit card,which can be read by any smart card reader and NFC device.

One example of an operator dominated model for this kind of payment system is NTTDocomo’s FeliCa embedded phone, which features contactless integrated chip basedtechnology developed by Sony.

1

Pros and ConsThe pros and cons of using the NFC-based payment model are discussed in Table 3:

Table 3: Pros and Cons of NFC-based Mobile Payment System

Pros Cons

Speedy: the process is similar to swiping ofcredit and debit cards, but without any contactwith the machine.

NFC- based payment is generally considered lesssecure than the SMS-based model.

Since there is no need to type a message, thismethod is more convenient than the SMSbased payment method.


NFC-based mobile payment systems represent the family of contactless mobile paymentmethods. The other members of the group are RFID (radio-frequency identification),Bluetooth and IrDA-based (infrared wireless communication) payment models; themethodology remains the same across all members but there are slight changes in theimplementation technology.

Mobile Web Payments (WAP)

This type of payment involves the customer using online pages on the handset in order topurchase goods or services, and is considered more secure than SMS based payments.

1 Source: http://www.nttdocomo.com/glossary/f/FeliCa.html

Figure 5: NFC-enabled Handset



Mobile Payments

Using the web-based payment system on handsets provides the following key advantages:1. Reliability: The transaction is reliable, which adds to customer satisfaction.2. After sales proceedings: Consumers can bookmark the pages that they wish to

access at a later stage and wish to share with friends.

The actual payment mechanisms behind the web pages may differ, as per the followingtechniques: Direct Operator Billing – This involves a direct connection between the customer and

the billing operator. Credit Card – This involves the usual web-based credit card transaction, in which users

are directed to a ‘credit card payment’ page where they are required to fill in their creditcard details. The filling of details can act as a barrier, as it causes inconvenience to theend customer

Online Billing through Third Party Players – This involves mobile payment throughcompanies such as ‘PayPal’, ‘Amazon Payments’ and ‘Google Checkout’ that offer theoption for making payments through mobile devices.

Figure 6 provides a comparison between the SMS, NFC and WAP-based payment models.

Mobile Payments based on Value

Micro-Payments

When the payment involves a transaction of a very small amount, it can be called a Micro-payment. This kind of payment system plays a vital role in situations where the transactioninvolves a very small money transfer, which is practically impossible through the usualpayment systems, or is very expensive. Micro-payments can also be payments that areeasily/affordably processed through the electronic transaction processing mechanism. Thepresent range of Micro-payments is approximated to lie between fractions of a cent to USD1.

2

Vodafone’s m-pay bill is a perfect example of micro-payments. The service was launched byVodafone UK in 2002 for the purpose of collecting micro-payments and achieved success

2 Sources: http://donationcoder.com/Articles/One/index.html;http://www.hkstp.org/HKSTPC/directory.jsp?lan=en&id=DR_0000677&typeId=DT_04&subcategoryId=DG_029

Figure 6: SMS/NFC/WAP-based model comparison


Low

Low

High

High

SMS-basedPayment

NFC-basedPayment

WAP-basedPayment

Convenience

Security


Mobile Payments

within two years. In part through this service, Vodafone was able to attract more than onemillion buyers to its online mobile portal – Vodafone Live!

3

Micro-Payments can be payments made for purchase of mobile content such as logos,ringtones, tunes, games, etc. It can be also payment for parking or payment made at avending machine

Macro-Payments

When the payment involves a transaction of a substantial amount, it can be called a macropayment. Macro-payments involve transactions higher than USD 10.

Macro-Payments are payments made for paying bills or funds transfer. Payment made at aretail shop using a mobile handset can also be classified as Macro payment

Figure 7 shows the typical value range for micro, mini and macro payments. The paymentclassifications vary with various markets and their specifications, and are subject to change.

Mobile Payments based on location

Remote Transactions

This type of transaction involves money transactions irrespective of the customer’s location.Remote payment is used for applications such as pre-paid top-up, online payment, electronicbill payment, digital cash and international fund transfer.

An example could be the transaction of goods/services between customers and the merchantdone through phone (voice call), SMS, or online payment techniques from a remote place.

Proximity/Local Transactions

These types of transactions require a mobile device to be in the local vicinity in order to makepayments. Proximity Transactions are used for applications such as making payment atunattended/traditional points of sale (POS) and payment through mobile parking. Thetechnology platform for this type of payment includes Bluetooth, RFID and NFC.

3 Source: http://www.nccmembership.co.uk/POOLED/articles/bf_webart/view.asp?Q=bf_webart_113353

Figure 7: Payments Based on Value


Micro-Payment < USD 1*

* The classifications are market specific and change as per the market specifications

Payment for purchase of mobile contentsuch as logos, ringtones, tunes, games,

etc.

Payment for parking or payment made at avending machine

Macro-Payment > USD 10*

Bill payment or funds transfer

Payment made at a retail shop using amobile handset


Mobile Payments

Mobile Payments based on Charging Methods

Based on charging methods, three types of payments have been identified – post-paid, pre-paid and real-time payment – and these are discussed in Table 4:

Table 4: Payments based on Charging Methods

Charging Method Description

Post-paid

In this method, the user pays after the bill is generated. This is the most common method used for paying through m-

commerce and e-commerce This user can opt for one of the following payment methods:

o Phone bill based: Internal phone bill charged bythe operator

o Account based: payment done throughbanks/credit cards

Pre-paid

In this method, the services and goods are paid for in advance It is the most common method for evaluating a customer’s

potential. Customer’s potential is determined on the basis offrequency of recharge, amount recharged, etc. and thissometimes forms the basis for migrating the customer to the post-paid method

The user also has the flexibility to monitor usage in advance

Real-time

In this method, the user pays the amount in real time or almostreal time

Example: Electronic Wallet


Mobile Payments based on Relationship Models

Business to Consumer (B2C) Mobile Payments

The B2C mobile payment model provides an alternative to the usual cash transaction andis therefore one of the most popular models. Both the operator-centric and bank-centricmodels play an important role in the successful implementation of B2C m-payments.

Consumers pay for all types of day-to-day items, monthly bills, insurance premiums andtaxes using this kind of a payment model. The model’s success is therefore dependentupon the capability of the handset and its user interface. The supply chain generally

Figure 8: Examples – Remote and Proximity Payments


Remote Payments

Prepaid Top-Up

Electronic Bill

mCheck

Peer-to-Peer

Electronic cash/fund transfer

mPOS

Proximity Payments

mParking

ATM transaction

RFID-based payment

IrDA-based payment

NFC-based payment

Bluetooth-based payments


Mobile Payments

involves the purchase of finished products by the end consumer. Yeepay and Octopuscard are perfect examples of B2C mobile transactions.

Business to Business (B2B) Mobile Payments

This type of payment structure involves transactions between businesses or enterprisesthrough mobile phones. The supply chain generally involves the purchase of specificindustry solutions between industries. A prominent example of B2B mobile transactionswould include Safetrader.

Consumer to Consumer (C2C) Mobile Payments

This involves end-to-end transactions between two consumers through a third partybusiness platform. A typical example of this model is an online auction, in which the firstconsumer places an article for sale while the second consumer bids to purchase it. Theinvolved business platform charges a commission on every sale completed and usuallydoes not take any responsibility for the quality of the offered product. A typical example isthe mobile based transaction of virtual goods such as gaming features.

Person to Person (P2P) Mobile Payments

Person-to-person mobile payments involve private mobile transactions between twopeople either directly or through a third party. The transaction is generally SMS-basedand may involve top-up credits, m-banking and digital goods exchanged between twoindividuals.

One of the biggest examples of this kind of mobile payments system is Paypal Mobile.

Remittance Mobile Payments

Remittance mobile payments can be interpreted as a part of P2P mobile payments as italso involves the exchange of money between two people; the only difference being that,in this model, the transaction is carried out in a single direction only. Examples of theremittance model include the transfer of money by a working member to his family inanother country, or payment by a parent of their child’s cab fare.

Figure 9: An example to distinguish between B2B and B2C models



Mobile Payments

Mobile Payments – Implementation Models

The value chain for mobile payments described in Figure 3 leads to a few models based onthe nature of acquirer/service provider and issuer. All the models depicted below are basedon who the dominant player in the value chain is - the MNO or the financial institution.

To explain the various models, the third element of the value chain, ‘acquirer’, is segregatedinto two, as: solution provider (primary acquirer) and network provider (processing/secondaryacquirer).

Operator Dominated Model

The basic structure of the operator dominated model, such as NTT DoCoMo’s Felica, isshown in Figure 10 below:

Some of the advantages and disadvantages of the operator-centric model are mentioned inTable 5 below:

Figure 10: Mobile Payment – Operator Dominated Model


Issuer

SolutionProvider

Customer Merchant

Service/NetworkProvider

Network Operator

PrimaryAcquirer

Processing/SecondaryAcquirer

The largest part of the value chain, from primary acquirer to issuing of funds, is dominatedby the operator.

There is no involvement of financial institutions and banks.

This model allows operators to take advantage of their existing customer base bypositioning it as a Value Added Service to its customers.

© 2008, Port

Mobile Payments

Table 5: Pros and Cons of Operator Dominated Model

Pros Cons

Allows the operators to take advantage of theirexisting customer base by positioning mobilepayments as a Value Added Service to itscustomers.

Operators need to obtain a banking license whichmight result in delays or regulatory issues.

Since there is no hopping between acquirers,networks and issuers, the transaction fee isreduced considerably.

Operators have little/no exposure and expertise inhandling complex transactions and related risks.

The operator has the flexibility in determiningthe transaction fees.

During roaming, transaction-based issues mightarise across different operators.

Initial investment is high. This investment mightinclude the following: Installation of new POS readers Supporting software/applications Network allocation Banking license Banking resources/experts and infrastructure


Financial Institution Dominated Model

The financial institution/bank dominated model is as shown in Figure 11:

Figure 11: Mobile Payment – Financial Institution/Bank Dominated Model

Issuer

SolutionProvider

PrimaryAcquirer

Customer Merchant


Financial Institution/Bank/Card Operator

Processing/SecondaryAcquirer

Thby

Thact

Th

e largest part of the value chain, from primary acquirer to issuing of funds, is dominatedthe card operator/financial service providers.

ere is preliminary operator involvement only till the initiation of request (over-the airivation, provision of mobile banking services, etc.)

io Research. All Rights Reserved 15


e payment system works on existing networks like those used by credit/debit cards

16

Mobile Payments

Some of the positives and negatives of the financial-centric model, as implemented by Visa orMasterCard, are listed in Table 6.

Table 6: Pros and Cons of Financial Institution Dominated Model

Pros Cons

Traditional payment techniques (existingmethods used by credit/debit cards) areleveraged; therefore there is no setup costinvolved.

There is hardly any involvement of the mobileoperator; their distance may lead to poor service.

Financial institutions have expertise inmanaging payments and related risks.

Customers share a historical relationship withbanks and thus consider services to be morereliable.


Collaboration Model

The Collaboration Model - a mix of the operator and financial institution dominated model - isexplained in Figure 12:

Some of th

Figure 12: Mobile Payment – Collaboration Model

Issuer

SolutionProvider

Customer Merchant


PrimaryAcquirer

Processing/Secondary Acquirer

Financial Institution/Bank/Card Operator

Network Operator

Themo

Fin

The

mobile operator is the primary acquirer; hence the POS machines are rolled out by thebile operators to the merchants.

ancial institutions/banks are issuers and sanction the final payments.

model works on the existing networks used by card associations.

© 2008, Portio Research. All Rights Reserved

e pros and cons of the collaboration model are examined in Table 7 below:



Mobile Payments

Table 7: Pros and Cons of Collaboration Model

Pros Cons

Account-and risk management is handled bythe financial institutions –experts for the job.

There is a lot of hopping involved between operatorand bank’s network; transaction charge thusincreases, cost is borne by the customer.

Primary acquiring done by the operator –experts for the job. This also helps theoperator in leveraging its existing customerbase.

Operator does not need to acquire a bankinglicense.


SK Telecom’s Moneta mobile payment service is based on a collaboration model. While theprimary acquisition is done by the South Korean operator itself, the processing of payments isdone through the existing networks from either Visa or MasterCard, and issuance is done bythe partnering banks.

4

4 Source: http://www.mobileeurope.co.uk/features/113334/M_BANKING_&_M_PAYMENTS_-_From_M-payments_to_M-banking.html


Mobile Payments

Mobile Payments – Key Concerns

Supply Side Concerns

Absence of Worldwide Standards

There are no universal standards in place for mobile payments. Different operators andbanks have different standards, which may result in limited deployment of m-paymentsolutions.

Lack of Interoperability

Different operators use different technologies (CDMA, GSM, etc.). This difference intechnologies, combined with a lack of interoperability between different standards, alsohinders growth.

Inadequate Support Service

Pre-sales/post-sales payment related support is also an area of key concern. Call centresupport needs to be outstanding in order to attract new users and retain the existingones.

Collaboration Issues

Choosing a ‘right’ partner is a concern for both the banks and the operators. Operatorsand banks look for the geographical presence and reliability of the other entity beforegetting into an agreement. This results in delays in service implementation.

Small Operators’ Concerns – Inadequate Capital to support M-payment

Small operators cannot leverage the custom-built solutions from a vendor due to the lackof capabilities and capital.

Demand Side Concerns

Reluctance in Adoption of Technology by Users

Owing to supply side constraint of no universal standards of mobile payments to date,users are reluctant to switch from existing card-based payments (credit/debit cards) tomobile-based payments

Cautious Mindset of the Consumer

Security is the major concern in a user’s mind while making a financial transaction. Theperception by users that m-payments are a less secure transaction method may hinder itsgrowth.

Regulatory Concerns

Lack of Government Authorization

Mobile payments’ methods do not enjoy the legal status of other payment methods, suchas cash and cheque. It is not sanctioned, accepted and assured by the Government.

Mobile Payment Abuse5

While there are around 1 billion bank accounts and approximately 3 billion handsetsworldwide, at the same time there is a growing trend towards online payment or paperlessbanking. This might increase the possibility of system abuse by money launderers whocan bypass regulatory requirements to exchange “dirty” money for terrorist and relatedactivities.

Currently, law enforcement and Intelligence agencies may not have adequate expertiseover the technology. Arguably, most of the security features implemented by m-paymentnetworks hinder the ability of law enforcement and Intelligence agencies to detect suspecttransactions.

5 Source: http://www.state.gov/p/inl/rls/nrcrpt/2008/vol2/html/101346.htm


Mobile Payments

Mobile Payments – Market Scenario6

Since the beginning of this decade, there have been a number of mobile payment initiativesworldwide. Many of them, such as DualSlot and Simpay, did not succeed because theylacked a clear business model. Moreover, the infrastructure cost was very high and did notjustify the revenues the services generated. However, over the past few years, the markethas witnessed various positive changes that have made the mobile payments applicationmore attractive and more realistic.

Contactless technology is being increasingly used by the financial world and its application inmobile payments is going to be a natural progression. Mobile networks and handsettechnology have also improved, setting the stage for better and more successful mobilepayment services in most regions worldwide.

In Europe, the Single Euro Payment Area (SEPA) was created in 2000 and restrictions onpayment operators are gradually being eased. These factors are expected to improve thechances of success for mobile payments across Europe. Operators in the European regionrealise the need for speeding up deployment and this has led to an increased focus on mobilepayment services from operators as well as other stakeholders.

The uptake of mobile payment services will be less aggressive in the North American regionthan in European markets. In North America, the market for the service is expected to growslowly. Mobile payment services are still at an embryonic stage and have started picking uponly recently in the US; payment through the Internet is still the preferred payment channel inthe US.

Development of a mobile payments ecosystem is a challenging task in the US, consideringthe large number of stakeholders involved; however, many pilot projects are being run tointroduce the service commercially in this market. The increasing interest shown by Canadianmobile subscribers is expected to boost the mobile payments market in Canada, where manypilots are being run to commercially launch mobile payment services.

Japan and South Korea have been world leaders in the development and adoption of mobilepayment services. Mobile payments have fared very well in both countries and the trend isexpected to continue in the years to come. The markets of China, India, the Philippines andIndonesia are demonstrating decent growth in mobile payments uptake, while the markets ofHong Kong, Singapore and Taiwan have shown little comparable adoption of mobilepayments with use restricted to specific areas only. Overall, most countries in the Asia Pacificregion are watching the progress of mobile payments in Japan and South Korea with interestand these services are likely to show growth in the Asia Pacific region.

The developing countries of Africa are expected to be the biggest beneficiaries of mobilepayment services, as a large proportion of the African population does not have access totraditional banking services; Africa also has a fast growing mobile market. The region hasalready witnessed some of the earliest and most successful mobile banking deployments andmobile payment services have transformed the lives of many Africans. Due to the strongvalue proposition it brings to the masses, the success of mobile payments is expected tocontinue in the future in Africa.

The Middle East is also witnessing growth in mobile payment services. In Latin America, therobust smartcards market, coupled with an emerging mobile market, is expected to foster thegrowth of mobile payment services.

6 This passage is quoted from our report ‘Mobile Data Services Markets 2008’

http://www.portioresearch.com/MDSM08.html


Mobile Payments

Case Study 1: NTT DoCoMo – Mobile Wallet

NTT DoCoMo operates the world’s leading mobile Internet portal service, i-Mode, which has48 million subscribers (as of 1 December 2008).

7The company launched its ‘Osaifu-Keitai’

service in July 2004, which refers to mobile handsets with wallet functions.

Service Description

Under the mobile wallet concept, mobile handsets can be used instead of coins and papercurrency, credit cards, tickets and more. In order to be compatible with this service, certain2G and 3G handsets are fitted with a contactless communications IC, which enables the useof this service when a user holds the mobile handset over i-mode Felica reader at a store or aticket gate. The mobile wallet services provided to NTT DoCoMo’s customers include thefollowing: Cashless Payments: Purchases can be made at a wide range of stores and vending

machines. Online Shopping: Payments can be made to online services via mobile handsets. Transportation: Mobile wallet handsets can be used for booking flights and also enable

customers to automatically check in at airports. Train tickets and other services can alsobe billed through the mobile wallet.

Tickets: Tickets which are reserved online can be printed out by waving the mobilehandset in front of a machine at the venue.

Finance: Cash withdrawals and credit card payments can be completed with ‘Osaifu-Keitai’ handsets.

Keys and IDs: Systems can be deployed at residences and offices which enable mobilewallet handsets to act as door keys.

Membership Card: Mobile wallet handsets can serve as programme ID cards as well aspurchase point cards.

Subscriber Base

As of May 2006, more than 13 million of NTT Docomo’s users were using this mobile walletservice in Japan

8, a clear indicator of the success of the service. The figure reached over 20

million subscribers by March 20079

and 28.5 million subscribers by March 2008. The growinguptake of the service is complemented by the growth in the number of shops providing thefacility – approximately 608,000 by March 2008

10.

Factors that Influenced the Success of Mobile Wallet Service

Partnerships with Handset Vendors: The company had formed alliances with handsetvendors to provide advanced handsets for mobile wallet services to its customers. Thecompany also ensured that they had enough handsets available at the time of the launchof the mobile wallet services. Remember the saying, “You never get a second chance tomake a good first impression”.

Mobile Market in Japan: Japan has the most advanced mobile market in the world.Internet access via PCs has been surpassed by Internet access via mobile handsets. Ahigh penetration of mobile data services amongst the Japanese population has been oneof the major reasons for the success of new innovative services, such as mobile walletservices, in the country. The Japanese population is extremely tech-savvy and early-adopter culture is strong, helping to keep the nation at the cutting edge of such innovationin technology.

7 Source: http://www.nttdocomo.com/pr/2008/001423.html8 Source: http://www.paymentsnews.com/2006/09/the_mobile_phon.html9 Source: http://www.nttdocomo.com/binary/about/mobility_doc_12.pdf10 Source: http://www.ctst.com/CTST08/pdf/NomuraHaruhiko.pdf


Mobile Payments

Case Study 2: Globe Telecom – GCash

The Philippines’ mobile market is characterised by its consolidation in the last two to threeyears, leading to the emergence of two key operators. While the mobile market in thePhilippines has five major operators, namely Smart, Globe, Sun Cellular (Digitel Mobile),Extelcom and Next Mobile; Smart and Globe are the leading MNOs in the country, with themajority of the total mobile market share between them.

Service Description

GCash is an m-commerce service which allows Globe’s Handyphone and Touch Mobilesubscribers to make electronic transactions, enabling them to send and receive cash, andmake payments via SMS. GCash was launched by Globe Telecom in October 2004. GlobeHandyphone and Touch Mobile subscribers have to register for GCash via SMS to make useof the service. Once registered, users can then load their GCash wallets by visiting authorisedGCash outlets and submitting cash and identification forms (to prevent money laundering).The service has the following features for its registered customers:

11

Domestic and international transactions (remittances) Payment of utility bills, online bills, insurance premiums, loan interests, etc. Sales commissions and payroll disbursements Payment of school tuition fees Purchasing airline tickets Cash deposits and withdrawals P2P credit transfers Donation to charitable organisations and institutions Micro-finance through co-operation with rural banks and business registration Prepaid account recharge

GCash is also providing a facility for wholesale payment in addition to the transactions statedabove.

Subscriber Base

GCash totalled more than 1.2 million users by December 2005.12

However, the registeredGCash customer base stood at 469,349 as of end-June 2006. This reduction in the number ofGCash registered customers is due to a change in the way the company counts the numberof subscribers using GCash, starting May 2006. Until May 2006, a registered GCash user wasconsidered as a GCash user until such a time as he or she voluntarily suspends or stops hisor her GCash service. After May 2006, registered GCash customers were reported on thebasis of cumulative registrations, reduced by the number of voluntary suspensions net ofreactivations during each month.

13By the end of year 2007, GCash registered users reached

1.2 million.14

The GCash registered user base touched 1.9 million by September 2008.15

G-Xchange, a wholly-owned Globe Telecom subsidiary, manages the m-commerce initiatives ofGlobe Telecom, including the GCash service.

Factors that Influenced the Success of GCash Service

The key success factors of Globe Telecom’s GCash service include the high volume, low-price model and the presence of strong distribution networks by establishing partnerships withvarious industries present in and outside the Philippines.

11 Source: http://www1.globe.com.ph/about.aspx?artid=11 (SEC Reports Q3, 2008)12 Source: http://www1.globe.com.ph/uploads/GlobeTelecom2005AnnualReport.pdf13 Source: http://www1.globe.com.ph/uploads/GT17Q2Q2006.pdf14 Source: http://www1.globe.com.ph/img/documents/Globe_Annual_Report_2007.pdf15 Source: http://www1.globe.com.ph/about.aspx?artid=11 (SEC Reports Q3, 2008)


Mobile Payments

Case Study 3: Mobile Banking (M-PESA) — Vodafone andSafaricom (Kenya)

Vodafone launched an SMS-based mobile money transfer service called M-PESA in Kenya inMarch 2007. Here, the market opportunity was significant: Kenyans send more than 5 milliontext messages a day

16and, at the time of launch, the country had only 400 bank branches

and 600 cash dispensing machines. Poor banking infrastructure excluded more than 80percent of the population from adequately participating in formal banking channels

17and

about 38 percent of the Kenyan population—mostly from rural areas—was entirelyunbanked.

18In March 2007, after a highly encouraging pilot, Vodafone launched M-PESA, a

simple SMS-based money transfer service, in Kenya in collaboration with the country’s largestmobile operator, and Vodafone partner, Safaricom. M-PESA addressed a significant gap inthe market and opened up banking channels for Kenya’s significantly large ‘unbanked’population.

Service Description

M-PESA is essentially a mobile money transfer service that does not require a new handsetor SIM card. Using M-PESA, subscribers can change real money into virtual money (e-money) and transfer this virtual money to other subscribers—recipients of M-PESA transferscan then withdraw the money in its physical form. The conversion of real money to virtualmoney at the sender’s end and the subsequent re-conversion at the recipient’s end takesplace with the help of authorised M-PESA agents. Other than transferring money, M-PESAcan also be used to maintain virtual accounts of up to USD 669.5 (50,000 Kenyan Shillings

19)

and to buy pre-paid airtime.

Subscriber Base

The service met with phenomenal success and, within a year of operation (as on 10 February,2008), gathered 1.6 million subscribers.

20After a year of operations, by the end of March

2008, M-PESA had 2 million subscribers—some 20 percent of Safaricom’s subscriber base.With 2 million subscribers, M-PESA dwarfed the largest bank in Kenya, Equity Bank, whichhad just over 1 million account holders.

21The M-PESA subscriber base has reached more

than 3.6 million by July 2008.22

Factors that Influenced the Success of M-PESA Service

M-PESA’s success can be attributed to several factors; first and foremost, it is based on themost widely used data service in Kenya—SMS. Secondly, M-PESA is offered to Kenyanmobile subscribers for a negligible fee. While keeping the charges low, Vodafone andSafaricom worked out an innovative business model for creating revenue streams from M-PESA. Therefore, M-PESA is a brilliant example of how operators in fast-growing, but lowARPU markets can capitalise on popular data services, think beyond the normal mode ofdelivering data services, and break technical and regulatory bottlenecks to finally create aninnovative business opportunity.

16 Source: http://www.mefeedia.com/tags/ndege/17 Source: http://www.reuters.com/article/pressRelease/idUS44198+11-Feb-2008+RNS2008021118 Source: http://innovationcafe.blogspot.com/2007/06/safaricom-m-pesa-in-kenya-sms-text-news.html19 NOTE: Conversion rate used :1 KES = USD 0.01339 for November 200820 Source: http://www.vodafone.com/mobile_world/announcements/m-pesa_reaches_1_6.html21 Source: http://allafrica.com/stories/200804072077.html;http://www.eastandard.net/InsidePage.php?id=1143992228&cid=45722 Source: http://wirelessfederation.com/news/category/m-pesa/


Mobile Payments

Conclusion

Mobile Payments represent an opportunity for operators that they can ill afford to ignore.However, when assessing whether to enter this segment, MNOs need to very carefullyconsider which mode of payment they would like to implement, be it NFC/RFID based, SMS-based or WAP-based. At the same time they need to look at the markets for the variousrelationship models and then decide whether they would like to enter the B2B, B2C, C2C orP2P segment.

While reviewing the kinds of payment to target – micro or macro - operators need to keep inmind that while customers might be willing to embrace micro mobile payments much fasterthan they would in the case of macro payments, it might result in a “low value-large volume”scenario. Such a situation might place a strain on network resources but not bring in theanticipated revenues. However, in the case of macro payments, while the potential revenuemight be high, users might not be as willing to switch to mobile payments, hence resulting inslow uptake of the technology.

In addition to the above, while deciding on whether to implement remote or in-store mobilepayment methods, the investment involved needs to be kept weighed against the potentialgains that a particular implementation method can bring in.

Also, while deciding on the implementation models, operators need to keep in mind therelative position of the telecom operators and financial institutions in the particular marketbefore opting for a particular implementation model.

Finally, to ensure that mobile payments live up to expectations worldwide, operators need tomake mobile payments widely accepted by merchants so as to speed up user uptake of theseservices.


Mobile Payments

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