FSTC’s2008 Annual Conference

On the Innovative Edge:Successful Strategies for

Financial Services

Industry Navigators

The Financial Services Technology

Consortium

Empowering the Industry Through Innovative Ideas

FSTC’s2008 Annual Conference

On the Innovative Edge:Successful Strategies for

Financial Services

Industry Navigators

Mobility in Payments: Getting to a Secure,

Resilient, and Customer Friendly Solution

FSTC Mobile Technology Project

Janey Place, CEO DigitalThinking

June 18, 2008

Mobile Financial Services: Predictions

Great Statistics Global subscribers – ½ world population Mobile service revenue greater than fixed domestic and

international line revenue Mobile commerce revenue soars; predictions top $50 billion

Celent February 2006 2006 will be the year FIs and carriers “work together to create a

much larger market opportunity Mobile adoption Technology standards Industry dynamics Business interests

What Happened? Or Didn’t Happen?

What Hasn't Happened

Celent expected potential of vast opportunity – a much bigger pie – to drive stake holders to cooperate on a bank/carrier model for mobile payments

But… instead, mobile banking has dominated initial implementation.

NFC is stalled – why?

Proximity Payments (POS) is where the money is – will this model change or will the card model be grafted on to the mobile channel?

The Problem

Conflicting Expectations FI’s want a mobile Internet – “dumb pipes” Carriers want new revenue from content Both want control of their customers

Many Global Models Carrier-led are most common: Philippines, Kenya Hybrid – carriers partner with FI - DoCoMo Bank-led is rare

Can’t We Just Get Along?

Mobile Realities

Wireless Carriers Own The Networks Not the Internet or old telephone network No regulatory presumption of “universal access” or “public good” Carriers’ huge investments make them determined not to be “dumb

pipes” for content providers to earn revenues and customer loyalty Digital content purchases– 25-50% revenue share to carrier Mobile applications can be carrier controlled Interoperability isn’t a given among carriers

Globally, Wireless Carriers are in Driver’s Seat US: Brand in the consumers hand is the carrier brand User choice is driven by carrier selection or handset Banks are frequently in the background in global payments

More Mobile Realties

US: Carriers Subsidize Handsets/Control User Choice

This may change or erode, but it is the situation today New spectrum – some open requirements Verizon has announced it will be open – what does that mean?

Mobile Platform Contentions Who controls secure elements, user credentials? Most agree that FIs and other application providers will pay carriers

“rents” to reside on mobile platform Mobile payments will not take off until a revenue sharing, “rental” and/or

licensing business model is worked out

Carriers are in Charge Payments are content to mobile carriers This is different from current models of accessing value, whether stored

in DDA accounts or prepaid cards or in credit vehicles The differences are presenting FIs with challenges

Lessons from the Past

Remember the Internet Regulation helped bring order Walled Garden versus Open Access ISP “owned” customer for a while

Technology a major driver to today’s open Internet Browser is inherently open WWW is inherently open Look at the trouble “closed” countries have controlling

access

Land line evolution Technology innovation Regulation

Mobile Models: Celent Report 2006Bank Centric Bank Carrier JV Carrier Centric

Bank owns the user accounts.

Mobile payment system

resides within a Bank’s

firewall. To facilitate SMS

payment, bank will strike

relationship with one or more

carriers to provide SMS

access.

Bank owns the user accounts

(credit card or stored value) and

infrastructure resides within a

Bank’s firewall. The carrier is

utilized purely as a connectivity

vehicle. The Carrier provides

connectivity and customer base.

Carrier becomes licensed

financial services provider;

banks used for settlement

(under normal settlement

agreement that Banks

provide).

Useability issues

associated with multiple

carriers if carriers cannot

provide a single message

access number

A split of transaction

economics between carriers

and banks is difficult to work

through. Carriers and Bank

must form close partnership

that has not traditionally

taken place.

Carrier must be willing to

commit to regulatory

oversight as a full or partial

financial services provider.

Carriers purely connectivity

and messaging providers;

banks take on onus of

digital and terrestrial mobile

commerce system.

Carriers make money off of

data charges and there is a

transaction fee split with a

bank. Banks make money

off transactions and have

ability to market to telco

consumer base.

Carrier derives revenue from

becoming a data/transport

provider and receiving a

transaction fee. Banks are

incented to participate to

receive float, settlement

fees and chance to lure the

unbanked.

Technology’s Role

Technology is an enabler – what will it enable? Open mobile web, bypassing carrier control? Great security and fraud prevention, requiring carrier involvement? Great User Interface, requiring carrier involvement?

A clear description is needed To identify where value is To identify which entity can best provide each value To ensure rapid user adoption

Can we have a Mobile Infrastructure that is Cost effective Capable of leveraging existing platforms Flexible enough to build compelling user-friendly applications Secure

Project Goals: Describe and Document

The current US wireless networks transmission technologies and interoperability (or lack thereof)

Handset capabilities in current and near-term future models

Modes of accessing content using mobile phones

Barriers to open access

Methods through which to provide mobile content

Open access standards and principles

The Mobile Channel

The mobile channel can be a powerful enabler of services to customers and driver of revenue if it is

Very secure – let’s build this in up front this time, rather than dealing with deficiencies years later as we’re doing with the Internet. Consumers, businesses and application providers must trust this channel. This will require close collaboration among carriers, banks and handset manufacturers.

User friendly and easy to use: Nothing accelerates adoption like a great User Interface. This will also require close collaboration among the various players.

Integrated with FI infrastructure: Customers expect integration across channels; robust security demands it.

FSTC’s2008 Annual Conference

On the Innovative Edge:Successful Strategies for

Financial Services

Industry Navigators

Mobility in Payments: Getting to a Secure,

Resilient, and Customer Friendly Solution

FSTC’s2008 Annual Conference

On the Innovative Edge:Successful Strategies for

Financial Services

Industry Navigators

Luncheon Program:Emerging Strategic

Business Competencies – Sustainability &

Security