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THE MOBILE PHONE AND FINANCIAL APPLICATIONS

WORLDWIDE2009-2014

APRIL 2009

The contents of this study represent our analysis of the information generally available to the public or released by responsible individuals in the companies mentioned. It does not contain information provided in confidence by our clients. Since much of the information in the study is based on a variety of sources that we deem to be reliable, including subjective estimates and analyst opinion, The INSIGHT Research Corporation does not guarantee the accuracy of the contents and assumes no liability for inaccurate source materials. Copyright © 2009 by The INSIGHT Research Corporation. All Rights Reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, prior to written permission of the publisher.

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THE MOBILE PHONE AND FINANCIAL APPLICATIONS WORLDWIDE

2009-2014

TABLE OF CONTENTS

Chapter I EXECUTIVE SUMMARY ......................................................... 1

1.1 Core Banking Solutions and Mobile Phones .....................................................................................1 1.2 Financial Applications for Mobile Phones .........................................................................................2 1.3 Revenue Potential of Financial Applications for Mobile Phones ......................................................5 Chapter II TAXONOMY OF MOBILE FINANCIAL APPLICATIONS .......... 7

2.1 About Mobile Phone Functional Blocks ............................................................................................7 2.2 Mobile Phone Generations .................................................................................................................8 2.3 Mobile Phones and Financial Applications ........................................................................................9 2.4 Important Concepts ............................................................................................................................10

2.4.1 Basel II .....................................................................................................................................10 2.4.2 Bluetooth ..................................................................................................................................11 2.4.3 Near Field Communications ....................................................................................................12 2.4.4 Java ...........................................................................................................................................13 2.4.5 Wireless Application Protocol ..................................................................................................14 2.4.6 Application Server ....................................................................................................................14

2.5 Mobile Banking .................................................................................................................................15 2.5.1 Introduction ..............................................................................................................................15 2.5.2 Drivers ......................................................................................................................................16 2.5.3 Modus Operandi .......................................................................................................................17 2.5.4 Challenges to Mobile Banking .................................................................................................21 2.5.5 Summary ..................................................................................................................................22

2.6 Mobile Stock Trading ........................................................................................................................22 2.6.1 Introduction ..............................................................................................................................22 2.6.2 Drivers ......................................................................................................................................22 2.6.3 Modus Operandi .......................................................................................................................24

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2.6.4 Challenges ................................................................................................................................26 2.6.5 Summary ..................................................................................................................................27

2.7 Mobile Proximity ...............................................................................................................................27 2.7.1 Introduction ..............................................................................................................................27 2.7.2 Drivers ......................................................................................................................................28 2.7.3 Modus Operandi .......................................................................................................................28 2.7.4 Challenges ...............................................................................................................................29 2.7.5 Summary ..................................................................................................................................30

2.8 Mobile Retail ....................................................................................................................................30 2.8.1 Introduction .............................................................................................................................30 2.8.2 Drivers ......................................................................................................................................31 2.8.3 Modus Operandi .......................................................................................................................31 2.8.4 Challenges ................................................................................................................................33 2.8.5 Summary ..................................................................................................................................34

2.9 Mobile Credit Cards ...........................................................................................................................34 2.9.1 Introduction ..............................................................................................................................34 2.9.2 Drivers .....................................................................................................................................35 2.9.3 Modus Operandi .......................................................................................................................35 2.9.4 Challenges ................................................................................................................................37 2.9.5 Summary ..................................................................................................................................37

2.10 Mobile Barcoding ..............................................................................................................................38 2.10.1 Introduction ..............................................................................................................................38 2.10.2 Drivers ......................................................................................................................................38 2.10.3 Modus Operandi .......................................................................................................................39 2.10.4 Challenges ................................................................................................................................42 2.10.5 Summary ..................................................................................................................................42

2.11 Mobile P2P ........................................................................................................................................42 2.11.1 Introduction .............................................................................................................................42 2.11.2 Drivers ......................................................................................................................................43 2.11.3 Modus Operandi .......................................................................................................................44 2.11.4 Challenges ................................................................................................................................46 2.11.5 Summary ..................................................................................................................................46

2.12 Mobile Gaming and Gambling ..........................................................................................................46 2.12.1 Introduction ..............................................................................................................................46 2.12.2 Drivers ......................................................................................................................................47 2.12.3 Modus Operandi .......................................................................................................................48 2.12.4 Challenges ................................................................................................................................50 2.12.5 Summary ..................................................................................................................................50

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Chapter III ILLUSTRATIVE CASE STUDIES ............................................ 51

3.1 Mobile Banking: Chinese Construction Bank, Hong Kong ...............................................................51 3.1.1 Introduction ..............................................................................................................................51 3.1.2 Components of the Solution .....................................................................................................51 3.1.3 Perspective................................................................................................................................52

3.2 Mobile Stock Trading: Alawsat Mobile ............................................................................................53 3.2.1 Introduction ..............................................................................................................................53 3.2.2 Components of the Solution .....................................................................................................53 3.2.3 Perspective................................................................................................................................56

3.4 Mobile Proximity: NREGS, India ......................................................................................................57 3.4.1 Introduction ..............................................................................................................................57 3.4.2 Components of the Solution .....................................................................................................57 3.4.3 Perspective................................................................................................................................59

3.5 Mobile Retail: C1000 Supermarkets, The Netherlands .....................................................................60 3.5.2 Introduction ..............................................................................................................................60 3.5.3 Components of the Solution .....................................................................................................60 3.5.4 Perspective................................................................................................................................61

3.6 Mobile Credit Cards: Chunghwa Telecom, Taiwan ...........................................................................62 3.7 Mobile Credit Cards: NTT DoCoMo, Japan ......................................................................................63

3.7.2 Introduction .............................................................................................................................63 3.7.3 Components of the Solution .....................................................................................................63 3.7.4 Perspective................................................................................................................................66

3.8 Mobile Barcoding: Protaurius AB, Sweden .......................................................................................66 3.8.2 Introduction ..............................................................................................................................66 3.8.3 Components of the Solution .....................................................................................................67 3.8.4 Perspective................................................................................................................................68

3.9 Mobile P2P: M-Pesa, Kenya ..............................................................................................................68 3.9.2 Introduction ..............................................................................................................................68 3.9.3 Components of the Solution .....................................................................................................68 3.9.4 Perspective................................................................................................................................71

3.10 Mobile Gaming and Gambling Case Study: Victor Chandler, Gibraltar ..........................................72 3.10.2 Introduction ..............................................................................................................................72 3.10.3 Components of the Solution .....................................................................................................72 3.10.4 Perspective................................................................................................................................74

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Chapter IV

VENDOR ANALYSIS .............................................................. 75

4.1 Classification of Stakeholders ............................................................................................................75 4.1.1 Traditional Powerhouses ..........................................................................................................75

4.1.1.1 Handset OEMs and Semiconductor Specialists .................................................................75 4.1.1.2 Mobile Network Operators ................................................................................................76

4.1.2 New Entrants ............................................................................................................................78 4.1.2.1 Financial Institutions .........................................................................................................78 4.1.2.2 Application Specialists ......................................................................................................79

4.2 Stakeholder Summary ........................................................................................................................82 4.2.1 ALittleWorld (ALW) ................................................................................................................82 4.2.2 Camclic .....................................................................................................................................83 4.2.3 C-SAM .....................................................................................................................................83 4.2.4 CPNI Inc ...................................................................................................................................85 4.2.5 Financial Technologies .............................................................................................................86 4.2.6 hSenid Software International ..................................................................................................87 4.2.7 Infosys Technologies ................................................................................................................87 4.2.8 LogicaCMG ..............................................................................................................................88 4.2.9 MasterCard Worldwide ............................................................................................................89 4.2.10 Motorola ...................................................................................................................................89 4.2.11 Nokia ........................................................................................................................................90 4.2.12 NTT DoCoMo ..........................................................................................................................91 4.2.13 NXP ..........................................................................................................................................92 4.2.14 Obopay .....................................................................................................................................94 4.2.15 Oracle Financial Services Software Limited (Formerly i-flex Solutions) ................................94 4.2.16 SmartCell ..................................................................................................................................95 4.2.17 Visa Inc. ...................................................................................................................................96

Chapter V

QUANTITATIVE ANALYSIS ................................................... 98

5.1 Introduction ........................................................................................................................................98 5.2 Research Methodology ......................................................................................................................99 5.3 Resources ...........................................................................................................................................100 5.4 Overall Quantitative Analysis ............................................................................................................100

5.4.1 Regional Breakdown ................................................................................................................105 5.5 Mobile Banking .................................................................................................................................108

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5.5.1 Regional Breakdown ................................................................................................................110 5.6 Mobile Stock Trading ........................................................................................................................113

5.6.1 Regional Breakdown ................................................................................................................115 5.7 Mobile Proximity and Retail ..............................................................................................................117

5.7.1 Regional Breakdown ................................................................................................................119 5.8 Mobile Credit Cards ...........................................................................................................................122

5.8.1 Regional Breakdown ................................................................................................................124 5.9 Mobile Barcoding ..............................................................................................................................127

5.9.1 Regional Breakdown ................................................................................................................129 5.10 Mobile P2P ........................................................................................................................................132

5.10.1 Regional Breakdown ................................................................................................................134 5.11 Mobile Gaming ..................................................................................................................................137

5.11.1 Regional Breakdown ................................................................................................................139 5.12 Mobile Gambling ...............................................................................................................................142

5.12.1 Regional Breakdown ................................................................................................................144 5.13 Conclusions ........................................................................................................................................147 Appendix GLOSSARY ............................................................................ 149

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Table of Figures Chapter I

I-1 Global Total Revenue Opportunity for Mobile Financial Applications, 2009-2014 ($Millions) ......6

Chapter II

II-1 Schematic of the SMS, USSD and WAP-based Mobile Banking Solution .....................................18 II-2 The Kabu Ketai 920SH YK: The Mobile Stock Trading Friendly Phone .......................................24 II-3 Nokia Handset with iWin Stock Broking Client ..............................................................................26 II-4 Schematic of Mobile Payment Infrastructure ..................................................................................32 II-5 Front and Back Views of Mobile Phone Card Readers ...................................................................36 II-6 Working of Mobile Bar Code ..........................................................................................................40 II-7 Advantage of Two Dimensional QR-code over One Dimensional Bar Code ..................................41 II-8 Shotcode ..........................................................................................................................................41 II-9 Mobile P2P Solution Offered by Obopay ........................................................................................45 II-10 PATSend WAP-based Mobile P2P Interface ..................................................................................45 II-11 Nokia N81 Handset with Gaming Applications ..............................................................................47 II-12 Infrastructure for Mobile Gaming ....................................................................................................49

Chapter III

III-1 Screen Shots of Alawsat Mobile Stock Trading Interface ................................................................55 III-2 Felica Use Cases ...............................................................................................................................64 III-3 Connection Between Felica and I-Mode ...........................................................................................65 III-4 Roles of Client, Agent and Operator in M-Pesa ................................................................................70 III-5 VC Mobile Screen Shot ....................................................................................................................73 Chapter IV

IV-1 Schematic of the MTP Ecosystem Offered by C-SAM ....................................................................84 IV-2 The Nokia6131 NFC-Enabled Handset ............................................................................................91 IV-3 The MIFARE4 Mobile Ecosystem ...................................................................................................93

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Chapter V

V-1 Global Subscriber Base for Mobile Financial Applications, 2009-2014 (Millions) ..........................100 V-2 Global Mobile Financial Application Revenue, 2009-2014 ($Millions) ...........................................102 V-3 MNO Earnings from Data Transfer Initiated by Global Mobile Financial Applications, 2009-2014

($Millions) ........................................................................................................................................103 V-4 Global Total Revenue Opportunity for Mobile Financial Applications, 2009-2014 ($ Millions) .....104 V-5 Regional Share of Global Mobile Financial Application Subscribers, 2009-2014 (Percent) .............105 V-6 Regional Share of Global Mobile Financial Application Revenue, 2009-2014 (Percent) .................106 V-7 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Financial Applications, 2009-2014 (Percent) ....................................................................................................107 V-8 Global Mobile Banking Subscribers, 2009-2014 (Millions) ..............................................................108 V-9 Global Mobile Banking Application Revenue, 2009-2014 ($Millions) .............................................109 V-10 MNO Earnings from Data Transfer Initiated by Global Mobile Banking Applications, 2009-2014

($Millions) ........................................................................................................................................109 V-11 Regional Share of Global Mobile Banking Subscribers, 2009-2014 (Percent) ................................110 V-12 Regional Share of Global Mobile Banking Application Revenue, 2009-2014 (Percent) .................111 V-13 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Banking Applications, 2009-2014 (Percent) ....................................................................................................112 V-14 Global Mobile Stock Trading Subscribers, 2009-2014 (Millions) ...................................................113 V-15 Global Mobile Stock Trading Application Revenue, 2009-2014 ($Millions) ..................................114 V-16 MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading Applications, 2009-2014 ($Millions) .......................................................................................................................114 V-17 Regional Share of Global Mobile Stock Trading Subscribers, 2009-2014 (Percent) ......................115 V-18 Regional Share of Global Mobile Stock Trading Application Revenue, 2009-2014 (Percent) .......116 V-19 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading

Applications, 2009-2014 (Percent) ...................................................................................................117 V-20 Global Mobile Proximity and Retail Subscribers, 2009-2014 (Millions) ........................................118 V-21 Global Mobile Proximity and Retail Application Revenue, 2009-2014 ($Millions) .......................118 V-22 MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and Retail Applications, 2009-2014 ($Millions) .................................................................................................119 V-23 Regional Share of Global Mobile Proximity and Retail Subscribers, 2009-2014 (Percent) ............120 V-24 Regional Share of Global Mobile Proximity and Retail Application Revenue, 2009-2014 (Percent) .............................................................................................................................................121 V-25 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and Retail Applications, 2009-2014 (Percent) ...................................................................................122 V-26 Global Mobile Credit Card Subscribers, 2009-2014 (Millions) .......................................................123 V-27 Global Mobile Credit Card Application Revenue, 2009-2014 ($Millions) ......................................123

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V-28 MNO Earnings from Data Transfer Initiated by Global Mobile Credit Card Applications, 2009-2014 ($Millions) .......................................................................................................................124 V-29 Regional Share of Global Mobile Credit Cards Subscribers, 2009-2014 (Percent) .........................125 V-30 Regional Share of Global Mobile Credit Card Application Revenue, 2009-2014 (Percent) ...........126 V-31 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Credit Card

Applications, 2009-2014 (Percent) ...................................................................................................127 V-32 Global Mobile Barcoding Subscribers, 2009-2014 (Millions) .........................................................128 V-33 Global Mobile Barcoding Application Revenue, 2009-2014 ($Millions) ........................................128 V-34 MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding Applications, 2009-2014 ($Millions) .......................................................................................................................129 V-35 Regional Share of Global Mobile Barcoding Subscribers, 2009-2014 (Percent) .............................130 V-36 Regional Share of Global Mobile Barcoding Application Revenue, 2009-2014 (Percent) ..............131 V-37 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding

Applications, 2009-2014 (Percent) ...................................................................................................132 V-38 Global Mobile P2P Subscribers, 2009-2014 (Millions) ...................................................................133 V-39 Global Mobile P2P Application Revenue, 2009-2014 ($Millions) ..................................................133 V-40 MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 ($Millions) .......................................................................................................................134 V-41 Regional Share of Global Mobile P2P Subscribers, 2009-2014 (Percent) .......................................135 V-42 Regional Share of Global Mobile P2P Application Revenue, 2009-2014 (Percent) ........................136 V-43 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 (Percent) ....................................................................................................137 V-44 Global Mobile Gaming Subscribers, 2009-2014 (Millions).............................................................138 V-45 Global Mobile Gaming Application Revenue, 2009-2014 ($Millions) ...........................................138 V-46 MNO Earnings from Data Transfer Initiated by Global Mobile Gaming Applications, 2009-2014

($Millions) ........................................................................................................................................139 V-47 Regional Share of Global Mobile Gaming Subscribers, 2009-2014 (Percent) ................................140 V-48 Regional Share of Global Mobile Gaming Application Revenue, 2009-2014 (Percent) .................141 V-49 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Gaming Applications, 2009-2014 (Percent) ....................................................................................................142 V-50 Global Mobile Gambling Subscribers, 2008-2013 (Millions) .........................................................143 V-51 Global Mobile Gambling Application Revenue, 2009-2014 ($Millions) ........................................143 V-52 MNO Earnings from Data Transfer Initiated by Global Mobile Gambling Applications, 2009-2014 ($Millions) .......................................................................................................................144 V-53 Regional Share of Global Mobile Gambling Subscribers, 2009-2014 (Percent) .............................145 V-54 Regional Share of Global Mobile Gambling Application Revenue, 2009-2014 (Percent) ..............146 V-55 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Gambling

Applications, 2009-2014 (Percent) ...................................................................................................147

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Table of Tables Chapter II

II-1 Mobile Banking: Key Facts .............................................................................................................22 II-2 Mobile Stock Trading: Key Facts ....................................................................................................27 II-3 Mobile Proximity: Key Facts ...........................................................................................................30 II-4 Mobile Retail: Key Facts .................................................................................................................34 II-5 Mobile Credit Cards: Key Facts ......................................................................................................37 II-6 Mobile Barcoding: Key Facts ..........................................................................................................43 II-7 Mobile P2P: Key Facts ....................................................................................................................46 II-8 Mobile Gaming & Gambling: Key Facts .........................................................................................51 Chapter III

III-1 M-Pesa Agent Commission Rates ......................................................................................................71 Chapter IV

IV-1 Stakeholder Classification Summary .................................................................................................82 Chapter V

V-1 Regional Distribution of Global Mobile Financial Application Subscribers, 2009-2014 (Millions) .105 V-2 Regional Distribution of Global Mobile Financial Application Revenue, 2009-2014 ($Millions) ....106 V-3 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Financial

Applications, 2009-2014 ($Millions) ................................................................................................107 V-4 Regional Distribution of Global Mobile Banking Subscribers, 2009-2014 (Millions) ......................110 V-5 Regional Distribution of Global Mobile Banking Application Revenue, 2009-2014 ($Millions) .....111 V-6 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Banking

Applications, 2009-2014 ($Millions) ................................................................................................112 V-7 Regional Distribution of Global Mobile Stock Trading Subscribers, 2009-2014 (Millions) .............115 V-8 Regional Distribution of Global Mobile Stock Trading Application Revenue, 2009-2014 ($Millions)116 V-9 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading

Applications, 2009-2014 ($Millions) ................................................................................................117

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V-10 Regional Distribution of Global Mobile Proximity and Retail Subscribers, 2009-2014 (Millions) 119 V-11 Regional Distribution of Global Mobile Proximity and Retail Application Revenue, 2009-2014

($Millions) ........................................................................................................................................120 V-12 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and

Retail Applications, 2009-2014 ($Millions) .....................................................................................121 V-13 Regional Distribution of Global Mobile Credit Cards Subscribers, 2009-2014 (Millions) ..............124 V-14 Regional Distribution of Global Mobile Credit Card Application Revenue, 2009-2014 ($Millions) .........................................................................................................................................125 V-15 Regional Distribution of MNO Earnings from Data Transfer Initiated By Global Mobile Credit Card

Applications, 2009-2014 ($Millions) ................................................................................................126 V-16 Regional Distribution of Global Mobile Barcoding Subscribers, 2009-2014 (Millions) ..................129 V-17 Regional Distribution of Global Mobile Barcoding Application Revenue, 2009-2014 ($Millions) .130 V-18 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding

Applications, 2009-2014 ($Millions) ................................................................................................131 V-19 Regional Distribution of Global Mobile P2P Subscribers, 2009-2014 (Millions) ............................134 V-20 Regional Distribution of Global Mobile P2P Application Revenue, 2009-2014 ($Millions) ...........135 V-21 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 ($Millions) .................................................................................................136 V-22 Regional Distribution of Global Mobile Gaming Subscribers, 2009-2014 (Millions) ......................140 V-23 Regional Distribution of Global Mobile Gaming Application Revenue, 2009-2014 ($Millions) .....141 V-24 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Gaming

Applications, 2009-2014 ($Millions) ................................................................................................142 V-25 Regional Distribution of Global Mobile Gambling Subscribers, 2009-2014 (Millions) ...................145 V-26 Regional Distribution of Global Mobile Gambling Application Revenue, 2009-2014 ($Millions) ..146 V-27 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Gambling

Applications, 2009-2014 ($Millions) ................................................................................................147

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CHAPTER I EXECUTIVE SUMMARY

1.1 Core Banking Solutions and Mobile Phones Early in 2009 the World Bank predicted that the global economy would shrink this year for the first time since the Second World War as the impacts of a US housing market implosion and the ensuing credit markets turmoil pulled the global economy into recession. And though no one can predict when the present recession will end, it is a safe bet that it will, and that national and international financial systems will be all the stronger for having weathered the storm. In fact, many of the same technologies that have been deployed to fashion this single global market system are also likely to become part of the solution to a financial rebound. This study looks at technologies and markets at the intersection of mobile phones and financial systems. We examine eight applications in which mobile phones and various aspects of banking, finance, and consumer spending intersect. The creation of financial applications for mobile phones is part of the larger process of automating the financial applications themselves. The most influential automation trend in the financial sector is undoubtedly occurring in what the financial services industry and the banks call “core banking solutions”. “Core” banking is the business conducted by a banking institution with its retail and small business customers—its core customers. Core banking solutions is financial industry jargon related to platforms that leverage the Internet and other communications technologies to further the banks’ business reach. A physical manifestation of this reach is the growth in the number of bank points of presence (PoP). Core banking adds automated teller machines (ATM) and user devices such as PCs and mobile phones to the list of bank PoPs. The influence of core banking application automation extends beyond conventional banking functions and encompasses the large variety of financial services offered by the institutions including stock-broking, credit card issuance, and insurance among others. Although the finance services vertical has traditionally been an early adopter of IT solutions, core banking automation is not being rolled out uniformly around the

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world. In most countries, regulatory directives by the respective Central Banks have been the primary drivers for banks to adopt core banking automation, and though the rate of adoption thus varies by country, we can safely say that in the past five years the roll out has picked up speed across the globe—especially in emerging markets of Asia, Africa and the Americas. These core banking roll-outs have also coincided with a telecom “boom” in many of these same markets. As a result, some of the most practical and innovative adoptions of financial applications for mobile phones are popping up first in the emerging markets. Moreover, banking sector reforms in most countries have facilitated the entry of multi-national banks across economies, increasing competition all-around, making it increasingly necessary for banks to reach out to the customers on a personalized level—and nothing epitomizes that personalization like the mobile phone. 1.2 Financial Applications for Mobile Phones In this study we have examined the impact of the following eight mobile financial applications: Mobile Banking—Mobile banking is an umbrella term used to refer to banking transactions carried out using cellular wireless data networks. Marketplace acceptance is being driven by the underlying client-server model of core banking, the Web-enablement of many banking servers, and most especially the drastically reduced cost of client servicing for the banks. Mobile banking functionality is typically implemented by deploying SMS (short message service), USSD (unstructured supplementary service data) and WAP (wireless application protocol) based architectures. Mobile Stock Trading—Mobile stock trading enables traders to buy and sell financial instruments such as stock, options, futures and commodities using the trading application client residing on their mobile phones. The key to the applications success is the speedy availability of content related to details of listed companies and the ability to maintain and update personal portfolios with the handset. The ubiquity of the Java platform has played a major role in the adoption of mobile stock trading. The Java platform is simple yet flexible from the application programmer’s perspective. Many brokers have either engaged their in-house teams or consulted third-party specialists to build such applications. The architecture of mobile stock trading is a direct reflection of the fact that the

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brokerage firms are its primary drivers. To put it very simply, the architecture involves WAP-enabling the brokerage firm’s internal servers and those that are client-facing with dedicated applications that can optimally utilize the resources of the mobile phone. Mobile Proximity—Mobile proximity applications blend cutting edge technology with various applications, and are proving to be a boon in the less developed countries where millions of individuals working in low paying jobs have little or no access to the banking system. In most developing countries, disbursement of funds to the rightful recipients with minimal human intervention remains a formidable challenge. Mobile phones are one of the rare devices that find their way into the most inaccessible strata of the population. Mobile phones can be interfaced to practically any financial system that supports such interfaces. As a consequence, planners in developing countries are increasingly turning to mobile phones to achieve corruption-free practices. Proximity applications work on personal area networking (PAN) standards such as Bluetooth and near field communications (NFC). Mobile Retail—With ever better network connectivity options and increasingly convenient form factors, it was just a matter of time before the mobile phone itself became a payment device. Mobile phone enabled payments allow customers to use their mobile phone as payment instruments by wirelessly connecting the mobile phones to the payment collection devices. Common scenarios of such usage include ticketing for movies and transportation as well as bill payment in shops and supermarkets. Each of these scenarios has a card reader that can capture credit information from a mobile phone. For purpose of convenience, these applications are termed retail applications. This application is not to be confused with the mobile enabling of online payment options such as PayPal. The key to the mobile phone as a payment device is the wireless connectivity it affords the retail application, which is predominantly based on WPAN protocols such as Bluetooth, NFC, and others. The value proposition of mobile phone enabled retail applications is straightforward —to relieve the mobile phone subscriber from carrying credit cards, debit cards and cash. Mobile Credit Cards—Mobile phones functioning as credit cards looks towards replacing a physical credit card with a chip in the mobile phone. This chip can be read from and written into by the credit card readers. The concept of mobile credit

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cards is not new. Companies such as Motorola have been propagating this idea for close to a decade. What stalled acceptance of the mobile credit card? There was a lack of readiness of among the stakeholders as well as the limited data capabilities of the earlier generation of mobile phones. These hindrances have been addressed satisfactorily in most countries and mobile credit cards seem much closer to taking off. Mobile Barcoding—In their conventional form, bar codes are used for identification and authentication of objects. Mobile phones take bar-codes to the next plane. Barcodes are comparable to URLs (uniform resource locators), but barcodes are inhabit the real world. Photographing a barcode is akin to saving a URL on the device. Users can click the barcode and be led to details about the offer. The applications for mobile barcoding are immense. For example, bar code readers embedded in a mobile handset would give customers the ability to access pages of product information or view the most recent product discounts or promotions just by just clicking on the photographed bar-code tag. Troubleshooting information could be downloaded to the phone the same way. Each of these applications would result in either direct revenues or gains due to cost savings, so we have categorized mobile bar coding as a financial application. Unlike mobile banking and stock trading applications, which are essentially mobile versions of their online formats, mobile barcoding is almost exclusive to the mobile domain for the simple reason that it is impossible to envisage the phenomenal spread of barcode-based promotion if the reader devices were stationary. Mobile P2P—The term “peer-to-peer” is most often used in the context of sharing files on the Internet; however, in our use of the term, mobile P2P applications are geared to enabling people of very limited means in the developing economies to participate in the organized and authorized exchange of monies. Further, the ubiquity of mobile phones ensures ready acceptance of the application even among those that have more mainstream banking relationships. Mobile P2P is a hassle free way of transferring money for personal and business purposes. The mechanism is as effective as putting the money directly in the recipient’s wallet and it can be used to transfer monies across international borders. Mobile Gaming and Gambling—Mobile gaming is a facility that enables the playing of interactive games on the mobile phone console. Mobile gambling refers to a facility that allows the user to participate in gambling applications using

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mobile phones. Both the facilities are mobile extensions of their wireline counterparts. While wireline multiplayer games have client-server architecture, which require wireline broadband connectivity, mobile phones also add something exclusive—the context of their location. Thus, there are games that can alter their characteristics based on the physical location of the gamer. The mobile phone is also an effective channel for casinos and gambling companies to expand their customer base. Customers can place bets remotely and while on the move. While mobile gambling is similar in implementation to mobile gaming in most aspect, there are notable differences. For example, all mobile gambling applications may not be interactive like gaming. Some of them may involve simple placing of bets and checking the results. Also, mobile gambling applications are almost always linked to payment settlement infrastructure. In this aspect, it is similar to the mobile stock trading application. 1.3 Revenue Potential of Financial Applications for Mobile Phones INSIGHT Research recognizes that although all the applications run on the same end-user device—the mobile phone—each application has unique sets of factors that influence its market acceptance. Hence, the market prospects for each application have been mapped and forecasted independently of each other. Our total estimate for mobile financial applications is the sum of eight mobile phone financial applications:

• Mobile banking; • Mobile stock trading; • Mobile proximity and retail; • Mobile credit cards; • Mobile barcoding; • Mobile P2P; • Mobile gaming; and • Mobile gambling.

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Figure I-1 presents our total revenue estimate for the eight applications under discussion. The total revenue opportunity includes INSIGHT’s forecast of the revenues accrued by the application developers for mobile finance as well as the revenue accrued by MNOs supplying the bandwidth as well as backend hosting to run these applications, if that is required. The application developers, as a segment, are undoubtedly the most vibrant among all the stakeholder categories—and the one that INSIGHT’s research suggests provides the clearest indication of market acceptance of mobile financial applications. Figure I-1 Global Total Revenue Opportunity for Mobile Financial Applications, 2009-2014 ($ Millions)

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Chapter II Reproduction without permission 7 of the publisher is prohibited

CHAPTER II TAXONOMY OF MOBILE FINANCIAL APPLICATIONS

This chapter discusses the key mobile financial applications:

• Mobile banking; • Mobile stock trading; • Mobile proximity; • Mobile credit cards; • Mobile payments; • Mobile barcoding; • Mobile P2P; and • Mobile gaming and gambling.

In this chapter, we examine the various methodologies for implementing these applications along with the drivers and challenges. However, before discussing the individual mobile financial applications, it is worthwhile to briefly review what a mobile phone actually does and also clarify the technologies and concepts that are important to one or many of the mobile financial applications under discussion. 2.1 About Mobile Phone Functional Blocks The mobile phone is a sophisticated radio. Initially designed and developed for voice communications, it is now used for sending and receiving data as well. The mobile phone has several major functional blocks that are related to data applications:

• Antenna – Sends and receives voice/data signal in the form of airwaves

• Radio frequency (RF) block – The RF block performs the important function of up (down) converting the frequencies from (to) the baseband to (from) the transmitted (received) frequency band. The RF block interfaces the baseband with the antenna.

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• Baseband – Performs the functions of data encoding (decoding), modulation (demodulation). Baseband is the workhorse of the mobile phone. The baseband is available commonly in the form of a digital signal processor (DSP). Most mobile phones have an application processor collocated with the DSP. It is this application processor that is the brains of the data applications running on the mobile phone. For a voice-only mobile phone, an application processor is not necessary.

2.2 Mobile Phone Generations While the above provides a very rudimentary description of mobile phone functional blocks, it does not mention the advances that the phone architecture has witnessed in each successive generation. The state-of-the-art of mobile telephony today is the third generation (3G). 3G allows co-existence of circuit switched voice and packet switched data on the same network and served by the same handset. The data component is capable of delivering downloads of up to 7.2 Mbit/s in some cases—which is a far cry from the 16 kbit/s downloads offered by 2G (second generation) telephony networks a decade earlier. The enhanced data capabilities of the current generation cellular networks have arisen as a consequence of several advances in mobile phone architecture and design:

• Multi-band, multi-frequency and multi-waveform basebands and RF front ends that are capable of supporting licensed as well unlicensed spectrum waveforms such as commercial cellular networks and unlicensed WiFi networks;

• Larger screens capable of displaying superior graphics;

• Enhanced CPUs and memory capabilities to support resource intensive multimedia applications; and

• Smart battery technology that prolongs operating time.

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2.3 Mobile Phones and Financial Applications The MNOs have a significant sunk investment in upgrading their networks from 2G to 3G—so they are fully committed to data applications. Handset OEMs, on the other hand are looking for applications that can serve as triggers for mass-marketing of high-end phones. Mobile financial applications represent a significant opportunity for both camps. The creation of financial applications for mobile phones is part of the larger picture of automation of the financial applications themselves. The last decade has witnessed a transformation in the ways in which financial transactions are conducted—and while shaky lending and risk management strategies over the past decade has led to the worst financial debacle since the Great Depression of 1929— many of those automation innovations remain sound and will continue to be exercised in the decade ahead. The most influential automation trend in the financial sector is undoubtedly that of core banking solution implementation. Governments around the world have concluded that the banking habits of its each country’s citizens plays a major role in ensuring fiscal discipline at micro as well as macro levels. Core banking solution automation is an extremely effective tool in ensuring quicker implementations and extending the reach of the banks into its target markets. A physical manifestation of reach is the growth in the number of bank points of presence (PoP). Core banking adds automated teller machines (ATM) and user devices such as PCs and mobile phones to the list of bank PoPs. The influence of core banking application automation extends beyond conventional banking functions and encompasses the large variety of financial services offered by the institutions including stock-broking, credit card issuance, and insurance among others. Although the finance vertical has traditionally been an early adopter of IT solutions, core banking automation does not exhibit a uniform global roll-out pattern. In most countries, regulatory directives by the respective Central Banks have been the primary drivers for banks to adopt core banking automation. However, we can safely say that in the past five years there has been an extensive roll out of core banking across the globe—especially in emerging markets of Asia, Africa and Americas. These core banking roll-outs have also coincided with the “telecom booms” in many of these same markets. As a result, some of the most

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practical and innovative adoptions of financial applications for the mobile phones are being seen in the emerging markets. Additionally, banking sector reforms in most countries have facilitated entries of multi-national banks across economies, increasing competition all-around, making it increasingly necessary for banks to reach out to the customers on a personalized level— and nothing epitomizes that personalization like the mobile phone. 2.4 Important Concepts This section introduces concepts that are pivotal to understanding mobile phone financial applications. While some of these relate to the technologies adopted by stakeholders, others refer to influential directives, guidelines and resolutions adopted by stakeholder groups. 2.4.1 Basel II The Basel Accords, framed by the Basel Committee for Banking Supervision, are sets of recommendations that banking regulators of member countries can use to draft laws and regulations. The committee was set up in 1974 by central banks of ten countries. Its current supervisory members include Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Switzerland, Sweden, UK, USA, Luxembourg and Spain. Basel II refers to qualitative and quantitative banking guidelines that facilitate sound financial practices to be followed by banks. These guidelines are followed by banks in more than 100 countries. Basel II, which was adopted in 2004, is a successor of Basel I. While Basel I was predominantly focused on laying down the best practices in low-risk loan disbursal, Basel II is focused more on the day-to-day operational risk reduction in banks. Basel II is important for mobile financial applications because such applications will increase the reach of banks, thereby leading to higher transaction volumes, and thus potentially greater risk. In order to comply with Basel II norms, banks have to take extra steps in order to ensure the validity and genuineness of the

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mobile financial application customers including prevention and early detection of possible fraud. Basel II plays a role in the following mobile financial applications:

• Mobile banking; • Mobile stock trading; • Mobile proximity; • Mobile credit cards; • Mobile payments; and • Mobile P2P.

2.4.2 Bluetooth Bluetooth is a wireless personal-area network (WPAN) protocol. It is capable of interconnecting diverse device types ranging from mobile phones, PCs, notebooks, other peripherals, gaming consoles, as well as other consumer electronic devices. Bluetooth compatible devices can form a piconet and include multiple proximate devices that communicate with each other. Bluetooth 2.0, released in 2004 can offer data rates up to three Mbit/s. Bluetooth products are available in three classes: Class 1 caters to a distance up to 1 meter; while class two and class three function up to 10 and 100 meters, respectively. Bluetooth has effective replaced infra-red as the prevalent WPAN standard. Mobile financial applications involve Bluetooth as part of proximity-based solutions, where a Bluetooth-compatible mobile phone can communicate with another Bluetooth compatible peripheral such as printer. Bluetooth has thus helped mobile phones to perform functions hitherto reserved for PCs and notebooks. Bluetooth plays a role in the following mobile financial applications:

• Mobile proximity; and • Mobile payments.

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2.4.3 Near Field Communications NFC is a short haul wireless technology with a range of 10 cm. The NFC standard was approved in 2003 as ISO/IEC standard. The chief driver companies of NFC are NXP, Nokia and Sony. The NFC initiative is now largely sustained by the NFC Forum which currently has close to seventy members; the key ones being MasterCard International, Matsushita Electronic Industrial Co, Ltd, (Panasonic), Microsoft, Motorola, NEC Corporation, Renesas Technology Corp., Samsung, Texas Instruments and Visa International. NFC supports data rates up to 424 Kbit/s. It uses Manchester coding for higher data rates and modified Miller coding for the lower rates. Designed specifically for interfacing smart cards with mobile phones, the NFC technology clubs the interfaces of a reader and a smart card along with P2P features in a single device. NFC is an unlicensed waveform and operates in the 13.56 MHz band with a bandwidth of 2 MHz. NFC can work in simplex as well as duplex modes. NFC is based on inductive coupling, which leads to the generation of electric current in a conductor when the conductor is passed through a magnetic field. When a NFC-enabled mobile phone gets into the proximity of a NFC-enabled terminal, data is exchanged in the form of electric current as both the devices – the terminal and the mobile phone have conductors in the form of electrical coils embedded in them. The principal application of NFC is the swiping of RFID (radio frequency identification) enabled tags. The form factor of the mobile phones enables it to swipe tags located in practically any location. Since the tags inside the mobile phone can store personal information, they can be employed as entities as diverse as car keys to travel cards. The swiping can trigger numerous actions, underlining the versatility of NFC. The information on the tag can be read by the relevant RFID-enabled reader. NFC plays a role in the following mobile financial applications:

• Mobile proximity; • Mobile credit cards; and • Mobile payments.

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2.4.4 Java Java forms the core of the majority mobile financial application clients and servers. The Java programming language was introduced in 1995 by Sun Microsystems. Java is an object-oriented language that can be used to prepare universally executable files. It is this universally executable feature of Java that has made it the programming language of choice for the mobile phone applications. Java is freely downloadable, which brings down development costs. The universal acceptability of Java is entirely on account of the Java byte code, which can be read by the virtual machine, an end-device specific code interpreter. This code interpreter can be loaded on practically any computing device as well as all the leading browsers. Historically, universally compatible Java executables ran slower than machine specific executables, but this discrepancy has been addressed to a great extent by recently introduced compilation techniques such as just-in-time compilation, dynamic recompilation and static compilation. These compilation techniques optimally convert portions of byte code into machine specific code in order to achieve maximum execution speed. Java runs across leading mobile phone OSes such as Windows Mobile, Linux, Symbian and Palm among others as well as server side platforms such as Windows, Solaris and Linux. The Java Enterprise Edition (JEE) can be used to build a veritable array of server side applications. A subset of Java, Java Micro Edition (JME), is used for developing applications that can run on browsers with small form factor devices such as mobile phones. JME runs with mobile phone application processors such as ARM9. JME source code is feely available under the GNU public license. Importantly, JME code can be test run on PCs and then ported to mobile phones, unlike other mobile application development environments. JME works with limited libraries with the minimal amount of functionality required. This set known as connected limited device configuration (CLDC) is the platform on which applications are built. Java plays an important role in all mobile financial applications discussed in this report.

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2.4.5 Wireless Application Protocol Wireless application protocol (WAP) enables Internet access on mobile phones, PDAs, smartphones and other devices with small screens. A WAP-enabled browser is tailored for small-screen viewing. Web sites that can be accessed using WAP browsers are authored in wireless markup language (WML). WAP has been around for close to a decade, but success has come as a consequence of the growth the 3G handsets. The running version of WAP is WAP 2.0. WAP has practically turned the mobile phone into a computer, and it is the ability of mobile phones to access Internet that forms the backbone of mobile financial applications. While it is possible to implement mobile financial applications with limited capabilities using SMS (short message service) and USSD (unstructured supplemented service data); it is WAP that has contributed to the overwhelming appeal of mobile financial applications. The WAP protocol stack is analogous to the OSI model. It consists of the following layers (from bottom to top):

• Physical layer consisting of wireless data networks; • Wireless datagram protocol (WDP); • Wireless transport layer security (WTLS); • Wireless transaction protocol (WTP); • Wireless session protocol (WSP); and • Wireless application environment (WAE).

WAP plays an important role in all mobile financial applications discussed in this report. 2.4.6 Application Server An application server, as the name suggests, handles the processes and logic of various applications and interfaces those applications to the larger infrastructure ecosystem. Application servers typically have dedicated hardware and software to

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run the application services, which are accessed by other infrastructural elements. Application servers run on all major platforms including Java, Microsoft and others. Using dedicated application servers for individual applications or groups of applications has lent unmatched flexibility for designers of MNO BSSes (business support systems). MNO can roll-out applications progressively by interfacing the BSS with the designated application server. Application servers localize troubleshooting: the remaining infrastructure can function normally in the event of a breakdown of an individual application. Application servers have also freed the MNOs from the onus of developing applications and allowed specialists to do the job. Individual mobile financial applications have been implemented using dedicated application servers in most cases where the MNO is the provider of the back-end infrastructural support. Application servers play an important role in all mobile financial applications discussed in this report. 2.5 Mobile Banking 2.5.1 Introduction Mobile banking is an umbrella term used to refer to banking transactions carried out using cellular wireless data networks. This should not be confused with phone-banking, wherein the customer can dial-in to the bank’s call center using a landline or mobile phone to conduct bank transactions. As an application, mobile banking service achieves the following:

• Provide additional channel for banks and MNO for strengthening customer relationship;

• Maintain the discrete nature required of banking; • Enhance ubiquity of banking services; and • Offer cost effective alternatives to traditional banking channels.

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2.5.2 Drivers Several important attributes of mobile banking are driving its marketplace acceptance:

• Core banking solutions have organized the entire banking architecture along a client-server model. Here, the server is centralized and is accessible to all stakeholders in real-time. This is a departure from the distributed architecture, wherein reconciliation of the accounts happened generally after business hours. The client server model has enabled the banks to add newer banking services access devices such as the PC and mobile phone. Naturally, core banking solutions vendors were among the first drivers of mobile banking. Mobile banking offers them with a vista of avenues for revenue generation – right from licensing of solution to hosting the solution.

• Web-enabling of banking servers was the first step towards achieving client diversity. Net-banking obviated the necessity to interact with traditional banking interfaces such as banks and call-centers. With the ever-increasing capabilities of mobile data networks and the ever enhancing computing features in the mobile phone have allowed mobile phones to access net-banking features like a typical PC.

• Mobile banking drastically reduces the cost of client servicing for banks,

as they don’t have to invest in physical infrastructure such as branches, personnel and other points of interfaces. Mobile banking provides the bank a new channel to sell its other products like personal loans, credit cards and vehicle loans among other products. This is true, especially in price-sensitive emerging markets. In such markets, the number of mobile subscribers often exceeds that of banking subscribers. Unsurprisingly, countries such as India have been receptive to mobile banking with most banks offering extensive mobile banking services.

• The liberalization of the telecom markets has spurred mobile banking in

the respective countries. This is evident in countries that have higher number of operators per region as compared to countries with a limited number of operators per region. Examples of the former are the countries in the EU while the US is a good example of the latter. On a broader note,

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when mobile banking applications made their first appearance a little more than a decade ago, it was the banking solution vendors that were aggressively marketing them. It is apparent that the added muscle of wireless operators has played a major role in popularization of mobile banking in markets with a higher degree of competitiveness for wireless operators.

• Regulatory push in markets such as India has the potential of being a

major driver. The Indian Central Bank has directed participating banks to enable secure mobile banking for even those customers that use handsets with the most basic features.

• Apart from providing added channels for banks to reach customers, mobile

banking offers wireless operators with the option to enhance its brand-value and in some cases, emerge as a bank in addition to the revenues gained through data traffic over their networks.

2.5.3 Modus Operandi Mobile banking consists of two major functions groups: account query (balance enquiry, transaction enquiry and others) and financial transactions (fund transfer, credit card payments and others). Figure II-1 shows a block diagrammatic representation of SMS, USSD and WAP based mobile banking. The host system is the core banking solution.

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Figure II-1 Schematic of the SMS, USSD and WAP-based Mobile Banking Solution

Source: Infosys The following methodologies are commonly employed for mobile banking: SMS banking: SMS banking relies on text messages in a pre-determined format used for seeking from and delivering banking information to the customer. SMS banking is the earliest methodology employed for mobile banking and is used for transactions such as balance enquiry, check book requests and utility bill payments. The core components of SMS banking are the core banking server, the mobile banking server, SMS service provider and the MNO in addition to e-mail and database servers. Push and pull message request and delivery processes are employed. The database push server is collocated with the core banking server

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while the email push and pull servers are collocated with the Internet banking servers. A push message is proactively delivered by the server to the subscriber handset while a pull message is delivered by the server in response to specific subscriber request. In case of mobile banking, push messages are used to inform the subscriber about the occurrence of account specific transaction, such as successful credits, while the subscriber can pull balance enquiry information from the banking server by sending pre-defined short codes. The mobile banking server handles the push and pull requests from the core banking server and the end-subscribers. The push requests originate either from database server or the e-mail server. The mobile banking server forwards the push request to the bulk SMS service provider over a HTTPS (hypertext transfer protocol secure) link. In a pull operation, the subscriber keys in specified key words and sends the SMS to the bank’s server. The e-mail push, database push and pull requests are handled by different servers. USSD based banking: USSD is a real time instant message delivery capability associated with GSM phones. USSD is independent of the SMS and has faster response time than SMS. Additionally, USSD codes can be used even while the subscriber is roaming as the USSD commands are routed back to the HLR of the user. USSD1 allows only one-way communication from the subscriber to the network, while USSD2 allows two-way communication and is hence used for mobile banking. The set-up for USSD based mobile banking is similar to that of SMS, where the SMSC server is replaced by the USSD gateway. Originally used for retrieving data such as pre-paid balance, USSD is now employed for mobile financial transactions such as account queries. USSD functions on the basis of pre-assigned short-codes. The important aspect of USSD is its superior support for data security. Apart from supporting encryption methodologies, USSD does not leave a trace of the sessions on the handsets or in the operator’s infrastructure. The only location where the session log exists is the bank server. On the flip side, USSD sessions are hampered by the limit on maximum number of characters (160) imposed by the handsets.

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Secondly, operators play a major role in defining the session characteristics such as time-limits per session and short code definitions. The time-limit can compromise the effectiveness of the session. WAP based banking: WAP based banking is closer in implementation to Internet banking. Here the bank’s website is developed in WML, which can be conveniently accessed by a mobile phone browser. The key entities in WAP based banking are the mobile banking server and core banking server. Both these entities are protected by a firewall, which filters the traffic approaching it from the wireless data network. The mobile banking server consists of functional components such as web server, application server and database server. The web server interfaces with the wireless data network while the application server runs the services and applications hosted on the web server. The database server is closely integrated with the core banking server database. The core banking and the mobile banking servers primarily exchange data related to authentication, authorization and security aspects. In many cases, the mobile server is hosted at a third party data center, in which case, a dedicated link between the mobile banking and core banking servers is the preferred connectivity option as compared to Internet based connectivity between these servers. Also, in this case, the onus of mobile banking server security rests squarely on the firewall present in the third party data center. The broad steps involved in a typical mobile banking transaction are authentication of the user, transaction request and transaction processing. User authentication is accomplished through a combination of PKI, name, email ID, PIN and phone number involving the user, mobile banking server and core banking server. The authentication is carried out by the mobile banking server and ratified by the core banking server. The services offered are then transferred from the core banking server to the mobile banking server. Following user authentication, individual transaction requests are handled by the mobile banking server. The mobile banking server takes the requests for transaction-specific authentication data from the subscriber. Once this is done, the role of the mobile banking server then remains that of a facilitator of transactions between the end user and the core banking server.

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Unified solution: New age solutions for mobile banking aim at integrating all mobile banking modes into a single architecture. For example, Opus Software, partnering with Hewlett Packard, has developed the electronic financial transaction switch (EFTS). The EFTS is employed to interface the core banking server with the composite mobile banking server. The EFTS allows banks and wireless operators to simultaneously operate disparate channels of service delivery such as ATMs, POSes (points of sale), Internet banking, phone banking and mobile banking among others. The EFTS consists of an authorization and routing engine in addition to interfaces with the various channels. The channel activity can be monitored using the monitoring software utility present in the EFTS. The crux of the integration lies in integrating the disparate gateways: SMSC, USSD gateway, WAP gateway; and the development environments such as J2ME. 2.5.4 Challenges to Mobile Banking

• Lack of standardization in banking platforms, data transfer protocols, and the disparity of mobile phone clients has hampered the growth of mobile banking.

• The same concern about physical and data security of the mobile phone is applicable to mobile banking as an application. Mobile phones are vulnerable to theft. And while GSM and CDMA interfaces have extremely robust security, SMS and USSD messages are transferred without any encryption, making them marginally vulnerable. The WAP data, on the other hand is always encrypted lending an almost foolproof security to it.

• An almost complete lack of incentives for MNOs to participate actively in

mobile banking solution may well prove to be the biggest impediment in the long run. As of now, the entire marketing of mobile banking services is managed by banks who have a limited say in determining the end-user experience. The MNO, with control over the network is in a much better position to ensure customer satisfaction. Evolving a model wherein there is more at stake for the MNO beyond data charges is the need to popularize mobile banking.

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2.5.5 Summary Table II-1 Mobile Banking: Key Facts

Participants MNO, Banks, Bulk SMS providers, core banking solution providers Major driver participants Core banking solution providers, banks Role of MNOs Generic. Limited to providing data network connectivity to the

customers. Revenue sources for participants MNOs – Data revenues, Bulk SMS providers – SMS revenues, Core

banking solution providers – royalty, licensing and implementation revenues

Other benefits for the participants Banks – Additional channel to reach customers Client side key technologies Java, SMS Server side key technologies Java, SMS 2.6 Mobile Stock Trading 2.6.1 Introduction Mobile stock trading enables traders to buy and sell financial instruments such as stock, options, futures and commodities using the trading application client residing on their mobile phones. These application clients are tied to brokers who trade in behalf of the mobile phone subscribers. The brokers may allow the instruments to be traded on multiple exchanges. 2.6.2 Drivers Mobile stock trading has caught on in the last half a decade as a consequence of better network performance, improved displays and computing capabilities of the new generation of mobile smartphones. The key to the applications success is the speedy availability of content related to details of listed companies and the updated business portfolio and the ability to maintain and update personal portfolios with the handset.

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The key drivers for this segment are the brokerage houses. It is not difficult to imagine the incentives for the brokerage houses:

• Stock trading is time-sensitive business. The attribute of active customers is what sets mobile stock trading apart from mobile banking applications. The efficacy of a stock trade depends on the ability of the trader to effectively utilize the available information at the earliest instant in a limited time window. Mobile stock trading increases the number of active customers in the exchange operating hours. It brings into its fold, all users that cannot sit in front of their terminals and engage in trading. Mobile phones provide the traders customers with an omnipresent channel to exercise their trading choices. The business model of brokers depends on the -volume and value of their trading-customer transactions. Mobile stock trading has the potential to increase the number of participants by several orders of magnitude as compared traditional landline-based trading.

• Trading instruments have far outgrown the conventional stocks. The recent meltdown notwithstanding, diverse instruments such as derivatives, futures, options and commodities are here to stay. All these instruments can be traded in a manner similar to stocks. Most of these instruments are based on complex trading principles and are more lucrative for the end-traders than regular stocks in terms of margins and brokerages. These instruments also generate more traffic as their transaction sizes are larger than regular stocks. However, implementing these instruments is expensive for the exchanges and brokers. Mobile stock trading can provide the required number of subscribers to the brokers and help them justify their investments in building the infrastructure to trade in these instruments.

• One of the post 911 fallouts on exchanges is to develop effective disaster

recovery mechanisms. Brokers have to follow and maintain robust connectivity to the primary and backup sites of these exchanges. The additional investment in connectivity can be recovered faster with increased customer numbers.

• The ubiquity of the Java platform has played a major role in the adoption of

mobile stock trading. The Java platform is simple yet flexible from the application programmer’s perspective. Many brokers have either engaged

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their in-house teams or consulted third-party specialists to build such applications.

The level of MNO active participation in mobile stock trading is lukewarm with the possible exception of Japanese MNOs. The Kabu Ketai 920SH YK mobile phone, as shown in Figure II-2 offered by Softbank Mobile (manufactured by Sharp) in Japan is a case in point. The increasing acceptance of mobile stock trading has led to the advent of mobile phones specifically designed to enhance the stock trading experience. Figure II-2 The Kabu Ketai 920SH YK: The Mobile Stock Trading Friendly Phone

Source: www.gizmag.com This phone is designed to optimize the experience for online trading and portfolio management. The distinctive feature of this phone is the swivel 3.2 inch VGA LCD widescreen. The phone runs on WCDMA and features a single-keystroke enabled stock trading application launch. This application runs the stock trading site E-Trade Securities. 2.6.3 Modus Operandi The architecture of mobile stock trading is a direct reflection of the fact that the brokerage firms are its primary drivers. To put it very simply, the architecture involves WAP-enabling the brokerage firm’s internal servers and those that are

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client-facing with dedicated applications that can optimally utilize the resources of the mobile phone. The stockbroker’s setup includes provision for receiving feeds about stock or commodity information from the exchanges. This information has to be disseminated across the customers for various end-applications in various formats. The feed reception is handled by a functional block commonly known as ticker plant. The ticket plant consists of feed handlers to receive feeds from different sources such as exchanges and aggregators. They reformat the feed so that it can be read by the downstream parties such as trader-customers, pricing applications as well as algorithmic applications for trading. The reformatting is the most challenging part of the architecture as the feeds have to be obtained at high data rates in a real time manner. Moreover, there is no uniformity in feed-formats originating from the different exchanges, necessitating infrastructure to normalize the feed. The most commonly used feed formats are the ones supplied by Reuters and Bloomberg. The normalization is handled by the ticker plant. Moreover, the trading formats are non-uniform. The most commonly used trading protocol is the Financial Information eXchange (FIX). The ticker plant is usually structured in redundant clusters, in order to ensure high availability. The ticker plant interfaces with the various end-applications through a sophisticated message bus. The message bus pulls the aggregated data from the ticker plant, and then the data, operating system and applications associated with it are organized in a virtualized format. The virtualized format centralizes the intelligence of the setup at the server level, leaving the client devices: PCs, blades and mobile phones with minimal functions to manage. This aspect of infrastructure virtualization is very important in the context of mobile phones as end-devices. Mobile phones have limited computing resources and relieving them of the data processing functions increases the probability of their efficient and effective participation in stock trading applications. The message bus primarily handles the management of trading orders from the end users. These orders are sent to the respective exchanges for execution. The broker has to offer as accurate price information to the trading customer as possible. To ensure this happens, the latency between the trader and the broker should be minimal. The increase in wireless data rates on account of HSDPA (high speed

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download packet access) has gone a long way in correcting the relative disadvantage faced by mobile phones compared to its wireline counterparts. Figure II-3 shows the iWin stock broking client developed by Financial Technologies. It is important for the mobile phone stock trading application client to be compatible with as many phones as possible. This compatibility can be achieved by developing the application in a widely accepted language such as Java. Java runs on a vast majority of phones. Figure II-3 Nokia Handset with iWin Stock Broking Client

Source: Financial Technologies 2.6.4 Challenges The entire aspect of security as it relates to financial transactions, especially stock broking using mobile phones, has to be handled astutely. As has been mentioned in this report, the form factor of the mobile phone is its greatest vulnerability. In this context, E-Trade, a major on-line brokerage house in the US, offers an interesting solution. In June 2008, E-Trade launched its mobile stock-trading facility, known as E-Trade Mobile Pro. Available only for Blackberry handsets, the application offers regular stock-broking features such as option trading, stock trading, portfolio watch and news. The application is password protected. The user

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has to re-enter the password if the application is inactive for five minutes. E-Trade has put in place, a fraud guarantee mechanism that covers the losses of its customers in case of misuse of the application due to handset theft/misplacement. 2.6.5 Summary Table II-2 Mobile Stock Trading: Key Facts

Participants Stock brokers, application developers, exchanges, MNOs, handset OEMs Major Driver Participants Stock brokers, application developers Level of MNO Participation Minimal – limited to providing wireless data connectivity Revenue Sources for Participants Exchanges – Rentals from the brokers based on the transactions, Stock

brokers – brokerage and transaction fees, MNOs – data charges

Other Benefits for Participants Brokers – greater subscriber reach resulting in higher transaction volumers, Exchanges – greater transaction volume

Client Side Key Technologies Java Server Side Key Technologies Java, WML, Middleware

2.7 Mobile Proximity 2.7.1 Introduction Mobile proximity applications blend cutting edge technology with various applications for the greater common social good in a profitable manner. In most developing countries, disbursement of funds to the rightful recipients with minimal human intervention remains a formidable challenge. The need to minimize human intervention arises on account of the possibility of pilferage that may result of money changing large number of hands. Pilferage has the maximum impact on the most vulnerable sections of the society. Mobile phones are one of the rare devices that find their way into the most inaccessible strata of the population. Mobile phones can be interfaced to practically any financial system that supports such interfaces. As a consequence, planners in developing countries are increasingly turning to mobile phones to achieve corruption-free practices. Proximity applications work on personal area networking (PAN) standards such as Bluetooth and NFC.

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RF-based transaction systems demonstrate that the mobile phone – wireless PAN combination is as potent as the erstwhile PC-LAN combination in terms of computing power and more effective by several degrees than the latter. A quick glance at the memory and computing capacities of the modern smart phone suggests that they are comparable, if not better than the PCs that were available several years ago—and wireless connectivity options available to mobile phones weigh favorably against a hard-wired LAN setup. 2.7.2 Drivers The drivers for mobile proximity applications are diverse and vary from application to application. The consistent thread in all such applications, however, is to employ the mobile phone in order to simplifying what would otherwise be extremely complicated transactions. The salient feature of all these applications is that they are exclusive to mobile phones and not mobile phone derivatives of existing online applications such as banking, stock trading and others. For example, consider the mobile phone as a payment validation device. Here the phone performs various functions such as subscriber authentication, transaction co-ordination with the central database, acknowledgement generation and record storage functions. While it can be argued that a PC can perform the same functions, it is almost impractical to use a PC on a mass scale in far-flung areas with limited connectivity options. Additionally, mobile phones have the form-factor advantage. They can be used conveniently near POSes. No other device is that versatile. Different stakeholders are driven by different briefs. Governments want to distribute payments for daily wage earners with minimal investment in infrastructure while banks would like to net more customers. Mobile proximity applications, being project specific have project specific drivers. 2.7.3 Modus Operandi The core component of mobile proximity application system is a WPAN standard supporting mobile phone. The mobile phone interacts with other WPAN-

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supported devices to manage a wide variety of functions, based upon the intended usage. Authenticated exchange of funds is one of the key functions managed by the RF based systems. The settings for this exchange can vary from scenarios ranging from a credit card transaction to disbursement of payments. NFC and Bluetooth are the key enabling technologies along with WWAN standards. NFC has the following advantages vis-à-vis Bluetooth.

• NFC allows the target receiving device to source power from the transmitting source device in a passive communication mode, making it an ideal option for smart card communication, as smart cards do not have battery sources. This advantage opens up potentially limitless number of NFC-enabled applications.

• The duplex communications capability of NFC, which facilitates two-way communication between devices, makes it easier to create device authentication protocols

• The set up time for NFC is in the order of a tenth of a second.

• In the context of mobile payments, the NFC standard is being employed by

more than 30 GSM operators. These operators aim to create a standardized approach to connecting mobile devices with contactless systems.

2.7.4 Challenges A major drawback of NFC is its poor security. It relies mostly on the proximity of communicating devices, and has little in the way of built-in robust security. Security has to be provided by the devices themselves in the form of encryption mechanisms. However, it should be remembered that the existing use-cases of NFC are limited to proximity based transactions that are practically impossible to snoop into on account of the short distance between communicating devices and the very limited transaction time.

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2.7.5 Summary Table II-3 Mobile Proximity: Key Facts

Participants Developers, MNOs, Government Bodies, Banks, Finance Companies Major Driver Participants Project specific Level of MNO Participation Project specific Revenue Sources for Participants Project specific Other Benefits for Participants Project specific Client Side Key Technologies Bluetooth, NFC Server Side Key Technologies Java

2.8 Mobile Retail 2.8.1 Introduction With all the discussion about personal/local/wide area network connectivity options and increasingly convenient form factors, it was just a matter of time before the mobile phone itself was visualized as a payment device. Mobile phone enabled payments allow customers to use their mobile phone as payment instruments by wirelessly connecting the mobile phones to the payment collection devices. Common scenarios of such usage include ticketing for movies and transportation as well as bill payment in shops and supermarkets. Each of these scenarios has a card reader that can capture credit information from a mobile phone. For purpose of convenience, these applications are termed retail applications. This application is not to be confused with the mobile enabling of online payment options such as PayPal. The key factor about mobile phone as a payment device is the wireless connectivity it affords the retail application, which is predominantly based on WPAN protocols such as Bluetooth, NFC and others.

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2.8.2 Drivers The value proposition of mobile phone enabled retail applications is straightforward – to relieve the mobile phone subscriber from carrying credit card, debit card and cash. All these functions can be carried out by swiping the mobile phone against a card reader. The potential of mobile retail applications to engage a diverse set of stakeholders is considerable. Mobile retail can involve entities such as banks, supermarkets, credit card companies transport companies and retail application developers in addition to wireless operators. There is an added dimension for credit card companies — they can look towards expanding the scope of credit cards to cover services that were hitherto dominated by cash payments. Moreover, an increasing number of these stakeholders is coming on-board. Retail applications present a promising opportunity for the mobile equipment manufacturing ecosystem to work on NFC-enabled mobile phones. Retailers are particularly enthused by mobile retail application. Mobile phones equipped with NFC support contact free exchange of information. This phone works as a debit card without the need to input a PIN for every transaction. Billing is as simple as checking out counter swipe the phone and completing the payment resulting in a significantly less waiting time at the counter as well as reduction in cash handling, and importantly a record of the sale is maintained both for the supermarket and the shopper. 2.8.3 Modus Operandi The key a successful mobile retail application lies in loading credit on the mobile phones. Figure II-4 shows the schematic of mobile retail infrastructure.

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Figure II-4 Schematic of Mobile Payment Infrastructure

The credit could be linked to the customer’s credit or debit card, bank account, or the customer can top up the credit by remitting cash to the provider. Whenever the customer makes a payment using the mobile phone, the corresponding credit/debit/bank account gets charged through a payment alert send via cellular wireless network and the amount gets credited to the merchant account through a secure payment gateway. The merchant account then sends a payment confirmation to the reader terminal – this connectivity can also be wireless. Credit card companies have a natural advantage here as they already have in place a setup that monitors the credit and debit transactions of customers on a mass scale on a real-time basis. On the technology front, mobile retail applications rely on NFC to enable communications between the phone and the reader.

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2.8.4 Challenges The Holy Grail of mobile retail applications is standardization. The lack of standardization impedes mobile retail’s widespread acceptance and customers are restricted from using their credit in multiple places. One of the principal impediments to widespread acceptance is the way in which credit information is stored. Mobile phones have multiple storage options such as SIM cards, internal memory and external memory. GSMA (Global System for Mobile Association) is working on a standardization initiative for mobile phone payments. One of its key recommendations is the use of SIM cards for credit card information. It is beyond argument that GSMA has a vested interest in suggesting such an arrangement as it is the consortium of GSM operators. What is also beyond argument is that GSMA is that GSMA is in a unique position to influence its members, which account for more than three-fifths of the total mobile phone subscribers globally into accepting its recommendations. In a parallel initiative, there is a major drive under way to create standardization across POSes and swiping devices. This drive is spearheaded by EMVCo, operated by MasterCard, Visa and JCB International. EMVCo manages the specifications governing interoperability and acceptance of payment system integrated circuit cards. Additionally, EMVCo manages the testing and approval processes that ensure interoperability among diverse payment systems. Thus, there is a real possibility of a breakthrough in terms of standardization with heavyweight associations such as GSMA and EMVCo throwing their weight behind it.

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2.8.5 Summary Table II-4 Mobile Retail: Key Facts

Participants Retailers, Financial institutions (banks, credit card companies), Mobile Phone OEMs, MNOs, POS vendors

Major Driver Participants Retailers, Financial institutions (banks, credit card companies), Mobile Phone OEMs

Level of MNO Participation Minimal – limited to providing wireless data connectivity Revenue Sources for Participants MNOs- data charges, Financial institutions – service charges,

Retailer – service charges Other Benefits for Participants Retailers – Customer convenience, Financial institutions –

Additional offering, Mobile phone Client Side Key Technologies NFC, Bluetooth Server Side Key Technologies Oracle (or any other database)

2.9 Mobile Credit Cards 2.9.1 Introduction Mobile phones functioning as credit cards looks towards replacing a physical credit card with a chip in the mobile phone. This chip can be read from and written into by the credit card readers. The concept of mobile credit cards is not new. Companies such as Motorola have been propagating this idea for close to a decade. What stalled acceptance of the mobile credit card? There was a lack of readiness of among the stakeholders as well as the limited data capabilities of the earlier generation of mobile phones. These hindrances have been addressed satisfactorily in most countries and mobile credit cards seem much closer to taking off.

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2.9.2 Drivers Mobile phone enabled credit card saves the user the hassle of carrying a credit card. Its functionality is similar to retail applications using mobile phones. But there are important differences in the two scenarios:

• Credit card enablement of mobile phones allows the mobile phone to be used as a credit card across all the readers where the conventional credit card is accepted. This is unlike mobile retail applications where the usage of mobile phones is restricted to the specific retail chain.

• The MNOs play a much more active role in implementing mobile credit cards unlike mobile retail applications. Any large-scale acceptance of mobile phone credit cards requires influencing the OEMs and POSes, the two principal participants. While credit card companies can wield their influence on merchants operating the POSes through their well-established business models, it is only the MNOs that can bring the OEMs on board. In most markets, MNOs subsidize handset costs and therefore they can influence handset vendors to embed the necessary technology in the mobile phones for their subscribers. Any initiative involving credit cards will succeed only if the volume of participating users is high. MNOs alone have the muscle to ensure such high levels of participation.

2.9.3 Modus Operandi NFC is the bulwark of mobile credit cards; it is the handset-embedded NFC chip which stores subscriber credit card information. This data can be read by the credit card readers at merchant’s terminal. Other components of the solution include:

• Handset application software, mostly written in Java, contacts the back-end servers using the wireless data network of the operator.

• Interactive voice response (IVR) for navigating the customer through the

financial transaction

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• Database of subscriber accounts, maintained by the MNO with links to he credit card company’s database.

The mobile phone also needs to incorporate the credit card strip conforming to ISO/IEC 14443, the specification for proximity contact-less identification cards. (These specifications govern the following aspects:

• Physical size and characteristics of the card; • RF power and signal interface; • Initialization and anti-collision protocols; and • High level data transmission protocols.

A less frequently used approach is to embed the credit card reader into the mobile phone, as shown in Figure II-5. This type of functionality is useful for mobile professional and others that need to accept payments at different locations. For example, taxi drivers might find this function very useful. Figure II-5 Front and Back Views of Mobile Phone Card Readers

Source: www.gadget-reviews.com The mobile phone has keypads on both sides: corresponding to the phone and card reader functions respectively. The architecture of the mobile phone is similar to the mobile phone with credit card embedded.

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2.9.4 Challenges Mobile credit cards face a formidable set of business challenges. If the MNOs get behind the effort to develop this market, their acceptance would add muscle to the efforts of credit card companies in getting more customers onboard. At the same time, the MNOs represent a threat to the credit card companies. It is important to remember that there is already a formidable amount of overlap between functionality of credit card companies and MNOs in the areas of customer verification, billing and credit limit risk assignment. This is quite evident in the Japanese market where NTT DoCoMo is the principal driver for mobile credit cards. NTT DoCoMo performs the function of identifying and partnering with merchants —a function that has hitherto been the exclusive domain of the credit cards companies. 2.9.5 Summary Table II-5 Mobile Credit Cards: Key Facts

Participants Retailers, Financial institutions (banks, credit card companies), Mobile Phone OEMs

Major Driver Participants Credit card companies, Application developers, MNOs, Mobile phone OEMs Role of MNOs MNOs are involved in activities across the board —they influence OEMs to

embed the functionality in the handsets, interface with credit card companies, partner with merchants to accept mobile credit cards and they play a major role in branding, billing and collections as well

Revenue Sources for Participants Credit card companies – service charges, MNOs – percentage of service charges

Other benefits for Participants Credit card companies get a ready customer base of the MNOs where their customer verification effort is minimal. MNOs get a foothold in the credit card business and an additional revenue stream in the form of share in service charges

Client Side Key Technologies NFC, Java Server Side Key Technologies Java

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2.10 Mobile Barcoding 2.10.1 Introduction In their conventional form, bar codes are used for identification and authentication of objects. Mobile phones have transported the usage of bar-codes to the next plane by metamorphosing them into marketing and troubleshooting tools. Barcodes are equivalent of URLs in the real world. Photographing a barcode is akin to saving a URL on the device. User can click the barcode and be led to details about the offer. The applications for mobile barcoding are immense. For example, bar code readers embedded in a mobile handset would give customers the ability to access pages of product information or view the most recent product discounts or promotions just be just clicking on the photographed bar-code tag. Troubleshooting information could be downloaded to the phone the same way. Each of these applications would result in either direct revenues or gains due to cost savings, so we have categorized mobile bar coding as a financial application. Unlike mobile banking and stock trading applications, which are essentially mobile versions of their online formats, mobile barcoding is almost exclusive to the mobile domain for the simple reason that it is impossible to envisage the phenomenal spread of barcode based promotion if the reader devices were stationary. Mobile phones are ubiquitous and can reach the barcodes wherever they are present – billboards, transport stations, magazines or even toys. Although a PC based implementation is possible, and available, it is the mobile phone that has added the winning edge to this application. 2.10.2 Drivers Bar codes provide a foolproof authentic identification for the products they are printed on. Mobile phones provide the reach and ubiquity that the product vendors are looking for. Together, mobile phone bar code readers provide a cost effective means of disseminating accurate product/service data to the vast audience of mobile phone users. The strongest drivers for mobile bar-codes are undoubtedly the merchants who are trying to sell the bar-coded products. Mobile bar coding not only provides them

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with greater reach and the same time as it cuts down on their marketing costs and efforts. The reach of the product is enhanced in a completely unconventional fashion. Traditional advertizing and promotion involves the vendor reaching out ‘to’ the customer. Thus the vendor has to take the effort and make investments in order to ensure that the offering is closer to the user eyeballs. Vendors invest in promotion through audio-video, print and Internet media. In the first two cases – time and space are at a premium and the message has to be delivered in a concise, yet effective manner. Mobile barcoding, combined with Internet access, frees the vendors from this burden. The vendors can now offer the prospective buyer as detailed a description of their offering as needed by just integrating a barcode in their promotional offerings. The barcode acts as a gateway to the details. From user’s point of view, the bar code reader enabled mobile phone is an extremely convenient way for the customer to access the information, especially when one considers that the common alternative is trying to remember and then typing a long URL string. Mobile bar codes are also handy as troubleshooting resources. Users can discover the steps to a trouble-shooting procedure by simply clicking on a bar code tag. In this example, the mobile bar codes add value to the vendors’ after sales support without having to invest in help-desk staff to address troubleshooting queries. Unlike NFC enabled handset that can be used only with specific merchants or products, a bar code reader handset can be used wherever the barcoding format is employed; thereby enhancing its appeal. For the mobile phone OEMs, the bar-code reader is an added feature that has the potential to bring in additional revenues. 2.10.3 Modus Operandi The user photographs the bar code tag of the product/service of interest with the camera phone. When the user clicks on the photographed bar code tag, the tag links the user to the data resource available at the underlying URL (uniform resource locator) through connectivity over the wireless operator’s network to the index/management server and content server. Steps involved in mobile bar coding are shown in Figure II-6.

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Figure II-6 Working of Mobile Bar Code

Source: www.colorcode.com User can take further action such as gathering product information, buying the product/service or following the troubleshooting steps. Mobile bar coding formats have evolved well beyond the universal product code (UPC) bar code that appears on most goods in supermarkets and retail stores. Among the more popular codes are:

• Semacode: Developed in 2003 by the Ontario based company of the same name, Semacode is based on the ISO/IEC 16022 standard Data Matrix symbols. These symbols encode the URLs and other data in text format. Semacode is two dimensional, unlike conventional bar codes, which are predominantly, single dimensional.

• QR-code: QR (quick response)-code is a two-dimensional was developed

by Denso Wave of Japan in 1994, and example of which is shown in Figure II-7. Their initial applications were mostly in the manufacturing domain. Of late, QR-codes have emerged as effective marketing tools. QR-code is based on ISO/IEC 18004 standard. QR-code can save up to 4,296 alphanumeric characters.

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Figure II-7 Advantage of Two Dimensional QR-code over One Dimensional Bar Code

Source: www.denso-wave.com

• ColorZip: Developed at the Yonsei University in Korea, ColorZip is different from QR-code in its usage of colors as opposed to usage of only black and white symbols in QR-code. Tags can be as small as 1cm x 1cm.

• Shotcode: Shotcodes are two-dimensional. They were developed by High Energy Magic in 1999. The difference between other two-dimensional mobile codes and shotcodes is that shotcodes follow the polar method of mapping while others follow the Cartesian method. Shotcodes are therefore circular with a minimum diameter of 3.5 cm. Shotcodes support multicolor options. An example is shown in Figure II-8.

Figure II-8 Shotcode

Source: www.xbox.com

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• 3-D bar codes such as Moseycode are under development, especially spurred by Google’s Android open platform. These codes can store pictures, locations and videos.

2.10.4 Challenges Lack of standardization is the bane of mobile bar-code applications. Different vendors adopt different bar coding formats. Each format requires a dedicated reader on the mobile phone. There are hundreds of such barcoding formats available. There are operational hassles such as lack of clear photographs to use the barcode tags. 2.10.5 Summary Table II-6 Mobile Barcoding: Key Facts

Participants Merchants, bar code format developers, MNOs Major Driver Participants Merchants, bar code format developers Level of MNO Participation Minimal – limited to providing wireless data connectivity Revenue Sources for Participants Merchants – cost effective mechanism for marketing and troubleshooting

of their offerings Other Benefits for Participants Brokers - brokerage/transaction; Operators - data transfer charges

Client Side Key Technologies Java, Bar coding methodology Server Side Key Technologies Java

2.11 Mobile P2P 2.11.1 Introduction The term “peer-to-peer” is most often used in the context of sharing files on the Internet, and it acquired something of a negative connotation after the Napster copyright infringement imbroglio. Mobile P2P application discussed in this

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section is driven by an almost altruistic aim of enabling people in the developing economies of very limited means to participate in the organized and authorized exchange of monies. Further, the ubiquity of mobile phones ensures ready acceptance of the application even among those that have more mainstream banking relationships. 2.11.2 Drivers

• The penetration achieved by mobile phones among population strata having no access to formal banking channels forms the major driver for mobile P2P. The mobile phone subscriber base worldwide is now in excess of three 3 billion users, it thus far outstrips the number of bank-account holders.

• Apart from the appeal to those with no formal banking relationship, mobile P2P is an effective payment mechanism for regular mobile phone users to transfer funds. Mobile P2P is a hassle free way of transferring money for personal and business purposes. The mechanism is as effective as putting the money directly in the recipient’s wallet.

• P2P does not require additional hardware such as NFC chips.

• The mechanism can be used to transfer monies across international borders.

2.11.3 Modus Operandi The system can be driven by the MNO, bank or a P2P service provider. The customer (sender) needs to carry a one-time process of downloading the P2P application on the mobile phone followed by linking the bank/credit card account with the application. The receiver need not have the application downloaded on the phone. However, the receiver needs to provide the bank account information to the P2P service provider to facilitate the remittance of funds to the account. The setup consists of the P2P platform including application server and database server, which is closely integrated with the bank for payment settlement.

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Additional components include security monitor, fraud detection and business analytics. Figure II-9 shows P2P application offered by Obopay. The P2P service provider can accept inputs via SMS or the WAP application on the mobile phone. The application can also be integrated with wireline web application and telephone-based IVR applications. Figure II-9 Mobile P2P Solution Offered by Obopay

Source: Obopay The subscriber user can employ SMS or WAP application on the mobile phone to initiate the transfer of funds. The sender needs to know only the mobile phone number of the recipient to send the funds. Figure II-10 shows the PATSend mobile P2P interface developed by CPNI. The receiver gets an alert in the form of an SMS or P2P application specific appearance.

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Figure II-10 PATSend WAP-based Mobile P2P Interface

Source: CPNI 2.11.4 Challenges The success of mobile P2P depends on the number of banks willing to participate. Active interest of MNOs and banks is also essential to ensure wider acceptance. For this to happen, expectations about their respective positions in the value chain and the payouts should be clearly set in order to avoid conflict of interest. 2.11.5 Summary Table II-7 Mobile P2P: Key Facts

Participants P2P service provider, MNO, Banks Major Driver Participants P2P service provider, MNO, Banks Level of MNO Participation Mixed – Mobile P2P can work without a driver MNO. However, MNO

can add immense value by taking the lead in partnering with bank, SMSC aggregators and offering attractive data transfer rates to users

Revenue Sources for Participants P2P service provider – Transaction fees, Banks – Transaction fees, MNOs – Data transfer charges

Other benefits for Participants Excellent vehicle for banks to roll-out their services to customers that are hard-to-reach using traditional channels. Promising avenue for MNOs to build brands across borders

Client Side Key Technologies Java, SMS Server Side Key Technologies WAP

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2.12 Mobile Gaming and Gambling 2.12.1 Introduction Mobile gaming is the facility to play interactive games on the mobile phone console. Mobile gambling refers to the facility to participate in gambling applications using mobile phones. Both the facilities are mobile extensions of their wireline counterparts. Mobile gaming can be standalone or multiplayer. Multiplayer games would involve mobile phones interacting with each other using WPAN protocols such as IR, Bluetooth or WWAN protocols such GPRS, HSPA and EV-DO. Mobile gambling is essentially multiplayer due to the inherent nature of the gambling business. 2.12.2 Drivers While wireline multiplayer games have client-server architecture, which require wireline broadband connectivity, mobile multiplayer games can be played in a P2P mode using Bluetooth and IR, thereby enhancing their potential channels to reach a larger market. Mobile phones also add something exclusive – the context of their location. Thus, there are games that can alter their characteristics based on the physical location of the gamer. Gaming involves a number of stakeholders – gaming application developers, content providers, mobile phone OEMs and mobile phone operators. OEMs such as Nokia have introduced handsets such as N85 and N81, shown in Figure II-11, specifically targeted at gaming applications.

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Figure II-11 Nokia N81 Handset with Gaming Applications

Source: www.devicearena.com Nokia has also developed the N-gage gaming platform for its high end handsets. Mobile network operators find gaming attractive as it presents them with a number of revenue opportunities including data transfer during multi-player gaming as well as gaming application downloads. Nokia and other OEMs are also acquiring specialized mobile gaming developers to include widen their gaming portfolios. For gaming enthusiasts, mobile gaming is much more cost-effective when compared to PC-based gaming, which requires buying dedicated gaming consoles. The cinema industry finds mobile gaming an effective tool to propagate and retain the recall of their movies and other content. The mobile phone is also an effective channel for casinos and gambling companies to expand their customer base. Customers can place bets remotely and on the move. 2.12.3 Modus Operandi Mobile gaming has come a long way from the iconic ‘snake’ and its variants. There are multiple ways of loading games on the mobile phone such as over the air (OTA) using wireless operator’s network, via mobile phone Internet, from the

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PC and pre-loaded by the mobile phone OEM. The OTA loading requires extensive participation from the operator’s side. Mobile games are developed like any other application running on mobile phone OSes such as Symbian, Linux, Palm, BREW, Windows Mobile and others. In case of multiplayer games, role-playing games (RPG) are turning out to be the most popular ones. In these games, participants are assigned roles mostly based on popular fiction or facts. A schematic for mobile gaming infrastructure is shown in Figure II-12. Figure II-12 Infrastructure for Mobile Gaming

Multi-player games using WWAN connectivity usually involve participants taking turns to interact, thereby avoiding concurrent operations and exposure to the unreliable throughput of the WWAN standards.

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These games usually involve a gaming service platform hosted by the MNO. This platform is connected to the various application servers that run single or multiple games and to the gaming user database. The user database contains gamers’ user-specific information such as scores, teams and download history. The entire setup is closely integrated with the operator BSS. Mobile gambling is similar in implementation to mobile gaming in most aspects. However they differ on the following:

• Mobile gambling is integrated with a wider setup that involves wireline users;

• All mobile gambling applications may not be interactive like gaming. Some of them may involve simple placing of bets and checking the results;

• Mobile gambling applications are almost always linked to payment settlement infrastructure. In this aspect, it is similar to the mobile stock trading application; and

• MNOs have minimal involvement in the implementation. Specialized areas where maximum development efforts are on include the following:

• Built-in motion sensors for a more lifelike experience; and • 3-D images.

2.12.4 Challenges The major technology challenge for mobile gaming is the form-factor of the mobile phone that lays down strict limitations on the gaming developer. Additionally, computing resources are scarce and therefore mobile games are not able to match the stylishness and graphics of their wireline counterparts. Also, the unpredictable nature of wireless network throughput severely restricts the interactivity levels of mobile gaming and gambling applications. There are no foolproof means of ensuring that children are not exposed to mobile gambling unlike wireline or conventional gambling. This risk raises a crucial question mark over the ethicality of mobile gambling

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2.12.5 Summary Table II-8 Mobile Gaming & Gambling: Key Facts

Participants Gambling service provider, Gaming application developer, MNO Major Driver Participants Gambling service provider, Gaming application developer Level of MNO Participation Minimal Revenue Sources for Participants Gambling service provider – betting fees, Gaming application developer

– customer royalty, MNO – data transfer charges

Other Benefits for Participants Gaming application developers get a vast market of mobile phone users for its applications. Gambling service providers get larger number of customers for their bets

Client Side Key Technologies Java, Handset OS Server Side Key Technologies Java, Handset application development platform

Source: Insight Research

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Chapter III Reproduction without permission 51 of the publisher is prohibited

CHAPTER III ILLUSTRATIVE CASE STUDIES

This section presents indicative examples of implementations of mobile phone financial applications in the form of case studies. A majority of the case studies have been analyzed with respect to their implementation components and their relevance to the respective markets. 3.1 Mobile Banking: Chinese Construction Bank, Hong Kong 3.1.1 Introduction Chinese Construction Bank (Asia) Ltd (CCB), formerly Bank of America (Asia) Ltd is a pioneer in WAP-based mobile banking services in Hong Kong. The service under discussion was rolled out in 2001. The bank has 20 branches in Hong Kong. The mobile banking services offered by CCB support the following features:

• Account balance; • Credit card balance; • Portfolio status enquiry; • Transaction results / updates; • Currency rates; • Fund transfers; • Buying and selling currencies; and • Bill payments.

3.1.2 Components of the Solution Financial services platform (FSP), a product of the Toronto-based 724 Solutions Inc, forms the backbone of the CCB mobile financial services infrastructure. Edgematrix Pte Ltd, Singapore has supplied the Xgate WAP gateway and WAPman mobile micro

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browser. Although FSP has a dedicated mobile banking module, CCB chose to select the Edgematrix solution for the task. Xgate is compatible with all major CBSes. Xgate is a multi-channel delivery server targeted specifically at the MNO environment. It also helped that 724 Solutions had prior experience of interfacing the FSP with Xgate. The system is designed on the SUN Solaris platform. The FSP and Xgate had to be made to interface with the bank’s legacy system. The network security is managed by the firewall supplied by checkpoint. Mobile banking services are offered in SMS-based as well as WAP-based modes. The WAPman mobile micro- browser is offered free of cost via download from the Bank’s website. 3.1.3 Perspective CCB was one of the first banks in the world to offer WAP based mobile banking services. It ranks amongst the highest-rated banks in Hong Kong. The mobile phone market in Hong Kong is saturated with close to 100 percent penetration. As is to be expected in mature markets, the customers gravitate towards differentiators and end-to-end solutions, as opposed to standalone or one-off solutions. CCB traditionally caters to the customer base in the mid to upper segments, medium and small businesses. CCB wrested the first mover advantage in this market. CCB claims that being first to the offer mobile banking solutions has resulted in the increase in the customer base. The importance attached by CCB to a quick roll-out is evident by the project’s timeline. It took CCB six months to design the customer interface and integrate this design with the legacy system of the bank. This was followed by obtaining of the statutory approvals, in this case the Hong Kong Monetary Authority, as well as addressing security issues. CCB was followed by the Bank of China Hong Kong and DBS Bank, who launched mobile banking services. CCB presents an interesting example of how of the factors that shaped the introduction of WAP-based banking in 2G networks. While it is an accepted fact that the success of 3G hinges purely on data applications, it is equally true that most of the

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services facilitated by 3G have their origins in the pioneering efforts of the 2G era. In that era, mature mobile markets like the ones in Hong Kong provided the banks with a required level of confidence to introduce mobile banking. It is important to remember that CCB (earlier called Bank of America Asia) was the most profitable subsidiary of Bank of America, which provided the leeway to venture into unchartered territory. This effort had its share of skeptics. The strongest skeptics of CCB’s initiatives were its competitors, who clearly underestimated CCB’s determination towards a quick roll-out and the subsequent customer response. Consequently, they too had to follow suit. This case is also interesting from a technology perspective wherein a new-age mobile banking server has had to be interfaced with the bank’s legacy mainframe. Obviously, such an interface would not have been possible in the timeframe had it not been for the close co-operation between three vendors – 724, EdgeMatrix and Sun. 3.2 Mobile Stock Trading: Alawsat Mobile 3.2.1 Introduction Alawsat Mobile is a mobile stock trading service offered by the Kuwait and Middle East Financial Investment Company (KMEFIC). The mobile stock trading application was rolled out in 2002. Established in 1984, KMEFIC is a licensed brokerage firm for several Middle Eastern capital markets such as the Kuwait Stock Exchange, Dubai Financial Market (DFM), Abu Dhabi Securities Market (ADSM) and Saudi Financial Market (TADAWUL). KMEFIC pioneered electronic trading in Kuwait by launching Alawsat.com. 3.2.2 Components of the Solution Alawsat Mobile was built upon the existing comprehensive trading product suite the customer can access at Alawsat.com. This operator-independent service works

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with any Java enabled phone. The choice of Java is significant, as almost 90 percent of the mobile phones in the Kuwaiti market support it. Other pre-requisites for the customer are a valid account and subscription to the service. The mobile application is designed for both J2ME (Java 2 Micro Edition) and SMS enabled mobile phones. The mobile application features a scrolling ticker to display real time stock quotes. The application is available in English and Arabic languages. The client can be downloaded and installed over the air. Alawsat mobile offers the following facilities to the customers:

• Buying and selling of shares; • Listed company database; • Individual status reports of the orders placed; • Contacts, tasks and calendar; • Password protected security; and • Help function.

Real time stock trading information such as analysis on company stocks, market depths and market statistics is delivered to the mobile user via SMS upon request. Additionally the application can send SMS messages to users notifying significant changes in the stock market. Figure III-1 shows some screenshots of the Alawsat mobile stock trading application.

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Figure III-1 Screen Shots of Alawsat Mobile Stock Trading Interface

Source: KMEFIC The solution was provided by the Sri Lanka/Malaysia/India based hSenid Mobile Solutions. The entire mobile banking infrastructure was implemented on an open source platform to keep the total cost of ownership and the implementation costs low. The hSenid’s mStocktrading solution was interfaced to the already existing on-line trading product, and the mobile interfaces were made similar to the older package in order to keep the familiarity of the interface intact for the clients. The mStocktrading solution contains the following components:

• Red Hat Linux advanced server operating system installed on HP Proliant servers in cluster setup; and

• MySQL database and Tomcat application servers deployed for each of the cluster nodes.

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Alawsat mobile has addressed the issue of information misuse. If the phone is stolen there are provisions for the automatic removal of trace logs and transaction information from the mobile phone. 3.2.3 Perspective KMEFIC has more than 20,000 online customers, making it the largest online stock broking service provider in Kuwait. KMEFIC wanted to take this advantage to a new level by creating a mobile stock trading service on a pioneering scale. Unsurprisingly, this service was first targeted at its online customer base. The existing customers were offered the option of continuing with their existing Internet stock trading ID, password and Trading PIN to access the mobile service as well. There were no additional costs for the clients to sign up for the new service. Additionally, mobile stock trading gave KMEFIC an opportunity to grow its customer base in tandem with the growth in mobile phones. There had been a sizeable number of customers that regularly called the company’s office to conduct trades; using mobile stock trading, KMEFIC was able to reduce their operating costs because fewer people were required to process these transactions even with the number of transactions increased. KMEFIC became the first stock brokering house to provide a comprehensive suite of on line and mobile phone stock trading services in the region, resulting in a loss of trades to the competitor brokers. Kuwait is a mature market for mobile telephony. It has the required presence of the key drivers for mobile stock trading—adequate availability of handsets with top-of-the-line graphics, widespread prevalence of online stock-broking clients and a vibrant capital market ecosystem. KMEFIC has tapped these drivers skillfully in rolling out Alawsat Mobile. On a broader note, mobile stock trading is unlikely to edge out its online wireline counterpart, as long as the bandwidth availability for wireless and wireline media is so disparate. For delay sensitive applications such as stock trading, a higher bandwidth invariably translates into a better performance. However, the appeal of mobile stock trading is in bringing the desired number of traders to the table by leveraging the reach of the mobile phone to the hilt; something that is clearly demonstrated by Alawsat Mobile.

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Alawsat Mobile is network agnostic, which is usually the case with mobile stock trading applications. There are, however, examples of active MNO involvement in mobile stock trading. Schwab Canada, another pioneer among those promoting stock trading on mobile phones, works in a revenue sharing arrangement with network operators such as Sprint-Nextel, and AT&T Wireless Services in countries such as Canada, US, and Hong Kong. 3.4 Mobile Proximity: NREGS, India 3.4.1 Introduction An interesting example of mobile financial applications is the use of mobile proximity for payment disbursal, a program launched in 2007. The Indian national rural employment guarantee scheme (NREGS) is targeted at the people often at the lowermost rung of the social ladder. The activities carried out under the NREGS for which the payments are made are typically labor-intensive and are managed by the government. The Indian government has a reputation of being conservative when it comes to employing technology for their operations—so in such a context, the usage of RF based payment systems using mobile phone as a tool is all the more significant. The program underwent successful pilot implementations in some very remote inaccessible terrains of the county such as Mizoram, Meghalaya, and Pithoragarh in Uttarakhand and remote villages in Andhra Pradesh in late 2007 and is currently under an expanded roll-out. 3.4.2 Components of the Solution The system works in the following manner. The payment is handled by public sector banks (PSB), which are managed by the Government of India as well as by private banks. PSBs play another major role here, and that is of financial inclusion. Financial inclusion, as the name suggests, refers to the process of bringing on board those sections of the society that have been traditionally deprived of banking services. Around 40 percent of the Indian population does not have access to the financial service and are largely unbanked, meaning they do not have access to the

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banks. The central bank of India, known as the Reserve Bank of India (RBI) has allowed PSBs to be more flexible in the use of technology to achieve the targeted financial inclusion numbers. PSBs do not have the muscle to reach the targeted markets, which exit at the village level. They therefore, appoint business correspondents (BC), who can help the banks extend their reach beyond their limited reach. The BCs, in turn, get the required field force in the form of customer service points (CSP), or local volunteers. The beneficiary (worker) registered under the NREGS is issued a Smart Card for the storage of personal details. The CSPs, the local volunteers, manage interaction with the end user. The authentication of the end-users is handled using a biometric finger-print reader. The interaction is managed by a NFC-enabled mobile phone carried by the CSP. The mobile phone contains a camera of a sufficient resolution to photograph the documents, NFC support to interact wirelessly with the smart card and Bluetooth support to interact with the biometric card. The handset, a Nokia 6131, runs over a NFC powered chip developed by NXP. NXP, the co-creator of NFC standard, offers designs for NFC transceivers, controllers and secure modules. NFC has several advantages; most notably communication between NFC enabled devices in proximity can be initiated automatically without any setup or pre-configuration, a real benefit in rural village environment. Thought the reach of NFC is measured in centimeters, it can also guarantee a reasonable level of security of the transferred data. The mobile phone records the transaction (disbursal of wages, pensions, grants) and passes it over GSM/GPRS/EDGE connectivity to the payment gateway. (India is yet to roll-out 3G telephony). The payment gateway, named ZERO, interfaces with the core banking solutions of the participating banks. ZERO is a new multi bank payment network. HTTP is the transport protocol. The transmitted data is encrypted using 3DES and PKI is used for authentication. The printer terminal, located in the village, is WiMAX (wireless interoperability for microwave access) enabled. WiMAX is used to transmit the acknowledgement receipt data from the central server to the printer in the village, which then prints the acknowledgement. The entire transaction takes three minutes, on an average.

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3.4.3 Perspective There are tremendous social implications, as yet unexplored, related to this use of mobility, however, from a technology perspective the greatest impact is the mobile phone is able to function almost like a branch of the bank. The mobile phone stores the identity details of the customer such as name, address, photograph, fingerprint templates, and relevant data of the savings accounts or loan accounts of the issuing bank. The payment gateway is not just able to support the recording of fund disbursal; it can also record transactions such as cash deposits, fund transfers and balance enquiries using the same methodology. An idea of the effectiveness of this service can be gauged from the fact that in the state of Andhra Pradesh, the registration for this service has crossed 250,000 and the state government’s plan is to enroll three million people by the end of 2008. ALW works with the banks on a revenue sharing basis. The agents take deposits and dispense cash for a commission. Enthused by the success of this project, ALW is planning to extend it to countries in the Latin American, African and Asian regions. The success of this project has triggered a slew of similar projects. Notable ones involve the following stakeholders:

• SKS Microfinance, Bank of India, BSNL and ALW • CARE, WorldVison, World Bank and Ekgaon Technologies

The NREGS application is an example that effectively shatters the myth that financial applications involving mobile phones are restricted to the tech-savvy market segment. The NREGS payment disbursal system works in the remotest locations of India where access to traditional banking facilities is unavailable. Furthermore, the data transfer occurs over 2G connectivity, thereby proving that financial applications involving mobile phones do not require the cutting edge in data connectivity. This example also highlights the enormous potential of the mobile phone as a social enabler. The NREGS disbursal project has mobilized stakeholders such as the government, PSBs, private banks, payment gateways, operators, handset manufacturers and semiconductor. Together, they have created an ecosystem that

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is extremely scalable in the current format and easily replicable for similar activities. And, the mobile phone is at the center of it all. In the context of this project, mobile phone offers the following advantages:

• Convenient form factor aiding portability for the CSPs; • Multi-functionality such as camera, data transfer and voice functions.

Consequently, transaction costs have reduced up to 90 percent in some cases;

• Omnipresent network coverage; and • Battery backup that enables operations in areas with irregular electricity

supply.

3.5 Mobile Retail: C1000 Supermarkets, The Netherlands 3.5.2 Introduction

The C1000 supermarkets, based in the Netherlands are owned by Schuitema N.V. Schuitema deals in groceries supplies and services to supermarket chains in the Netherlands along with personnel training, shop automation and shop design. Apart from C1000, its customers include Konmar and Kopak.

C1000 carried out a pilot of debit card-based mobile phone enabled shopping at its store in Molernaarsgraaf during October 2007 through April 2008 for about 100 customers.

3.5.3 Components of the Solution The project was designed and implemented by LogicaCMG, a Netherland-based specialist in IT and business services. LogicaCMG was the overall initiator of the project and played a key role in getting all the stakeholders together. The system is integrated with the supermarkets supply chain, inventory and other software systems. LogicaCMG synthesized the applications for the mobile phones and the readers. The transactions were logged at the back office, which was located in LogicaCMG’s premises during the pilot. In the live scenario, the back-offices will

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be located at individual stores. The back office is built around an Oracle database server. The customer debit card accounts were managed by Rabobank. The Rabobank Group, founded on co-operative principles, is a complete financial services provider. It includes 174 independent local Dutch Rabobanks, a central organization (Rabobank Nederland) and a large number of specialized international offices and subsidiaries. LogicaCMG integrated the whole system with that of Rabobank. The account data was fed into the phones manually for the pilot purposes. NXP provided the NFC infrastructure, including mobile phones required for the setup. Nederland, the RFID specialist provided consultation on RFID deployment.

The networking infrastructure for the project was built by KPN International, a Netherlands-based carrier and provider of IP (Internet protocol) and data services to corporate customers, Internet service providers and others. KPN owns and manages an international fiber-optic network spanning 22 European countries in addition to worldwide connections. 3.5.4 Perspective The C1000 supermarket claims to be the first payment systems linked to debit card accounts. Apart from speeding up the payment at the cash register, bottle deposit refunds, coupons and other credits can be stored on the phone and adjusted when the final payment is to be made. C1000 also does away with swiping and pin entry steps associated with traditional debit card payments.

The stakeholders in this pilot have looked at it as an innovation exercise. It is important to remember that mobile payment initiatives in Europe have failed to take off for a variety of reasons; the key one being the complete lack of user friendliness. Prior instances of the lack of user friendliness had to do with the inadequacies of the technologies involved. NFC is very important in this context as it provides a clear, practical and commercially viable option to simulate RFID functions in mobile phones. Through the pilot, the stakeholders were able to test the level of maturity and reliability of NFC technology in addition to their level of teamwork. Feedback from the customers was positive and C1000 is looking for a

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bigger pilot followed by a complete roll-out, subject to a satisfactory availability of NFC enabled handsets.

On a macro level, mobile phones are a ubiquitous part of the European lifestyle, with close to 100 percent mobile tele-density in many countries, including the Netherlands. Such a market is ripe for the stakeholders to explore newer ways of involving the mobile phone more closely with the life of their customers. Mobile payments using NFC have been gaining receptivity in these markets simply because the users are more open to accepting newer avenues of engaging the mobile phone. This is one of the key reasons for why C1000 is postponing complete deployment; they are waiting until the required number of NFC-enabled mobile phones are in use in the Netherlands.

Mature markets place enormous demands on the product/solution offers. In the context of mobile retail applications, customers in the European regions are on the look out for a complete end-to-end solution using their mobile phones. This was singularly lacking in the prior retail applications. C1000 has ensured that the customer does not require any device other than the mobile phone and any action other than flashing the phone in front of the reader to complete the payment. This degree of convenience is what the customer demands and is receptive to accepting the product if offered. 3.6 Mobile Credit Cards: Chunghwa Telecom, Taiwan Chunghwa Telecom, a Taiwanese operator, uses NFC-enabled mobile phones to pay transport tickets for metro, bus and parking. The mobile phones host the fare collection application, known as EasyCard is stored in their flash memory. The handsets are sourced from BenQ and the chipset is provided by NXP. This is the first instance of NFC application stored on a flash card. The flash card is embedded in the NXP chip. The implication of storing the NFC application in the flash card is that it opens up the flash card for allied application client hosting.

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3.7 Mobile Credit Cards: NTT DoCoMo, Japan 3.7.2 Introduction NTT DoCoMo’s DCMX mobile credit card service is the finest example of mobile phone enabled credit cards. Established in 1992, NTT DoCoMo is Japan's premier mobile communications. It is known for its innovation in the mobile communications industry, and the company has been the face of Japan’s mobile telecommunications revolution. It is credited for the introduction of almost legendary applications such as i-mode and Osaifu Keitai to mobile users. The mobile credit card application offered by NTT-DoCoMo is called DCMX, which was rolled out in December, 2005. Customers can use their mobile phones with pins doing away with the hassle of signing credit slips. The DCMX rides atop the hugely popular Osaifu Keitai mobile payment application platform offered by NTT DoCoMo. 3.7.3 Components of the Solution NTT DoCoMo partnered with the Sumitomo Mitsui Financial Group for DCMX. The limits and the loyalty programs are similar to any credit card issue system criteria. Customers can check their balances any time. There is no annual fee for DCMX, thus being competitive with the conventional credit cards. Credit card payments have to be made along with payment of the mobile phone bill. Packet communication charges are not applicable for the use of the credit card functions. DCMX is available in the DCMX-mini version which has a lower credit limit. DCMX-mini has a quicker sign-up procedure. Customers can sign-up online using their mobile phone application (iMode) that involves just three steps. For regular DCMX customers, NTT DoCoMo offers the option to choose VISA or Master card brand of credit card system which come with overseas travel insurance. In this sense the phone-cum-credit card is international, but only those resident in Japan are able to subscribe to this service.

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DCMX is a part of Osaifu-Keitai service suite offered by NTT DoCoMo. Osaifu-Keitai is the rage in the Japanese market, with subscriber numbers growing to an astonishing 28 million in less than four years of its launch in July 2004. There are more than 600,000 merchant establishments that accept Osaifu-Keitai enabled mobile phones. Felica, a contactless card IC technology, forms the brains of Osaifu-Keitai, the underlying multi-purpose card service on which the DCMX is built. Its use cases are shown in Figure III-2. Figure III-2 Felica Use Cases

Source: NTT DoCoMo FeliCa IC technology was developed by Sony. It operates in the 13.56 MHz band. Some of the features of Felica include the following:

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• Forge-proof • High speed secure (Manchester code based data encryption) data transfer

(up to 212 Kbit/s) • Unlimited reuse • Support multiple use-case scenarios concurrently

FeliCa is tightly integrated with i-mode, the mobile information portal-cum-storefront application provided by NTT DoCoMo, as shown in the Figure III-3. Figure III-3 Connection Between Felica and I-Mode

Source: NTT DoCoMo Making the mobile phone an extension of the user’s credit cards makes it a more valuable device. NTT DoCoMo has adopted extra measures to ensure the security of the subscriber data contained in the phone. These measures include the following:

• IC card lock by • Locking the phone by calling a number from the DCMX phone • Remote locking through a pre registered phone other than the DCMX

phone • Fingerprint authentication • Face authentication

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3.7.4 Perspective Not only has NTT-DoCoMo been innovative, but most importantly they have added a new stream revenue. The DoCoMo customer base is very gadget savvy, so to stay in the forefront the company has to be continually innovative. DCMX is a wonderful example of the enormous amount of thought and planning that NTT DoCoMo has invested in ensuring the success of this scheme. The service was in trials for over a year before introduction. NTT DoCoMo has control over every stage of the credit card transaction including sale of card readers, development of contactless technology (a predecessor of NFC), choosing credit card company partners and of course, the mobile phones. As a result, NTT DoCoMo has emerged as the real 800 pound gorilla in the Japanese credit card business. The credit card provider for DCMX is Sumitomo Mitsui Card Company, a relatively new provider. Sumitomo is giving the pioneering Japanese credit card companies such as JCB and UFJ NICOS, a run for their money. NTT DoCoMo has gone to the extent of manufacturing the ID card readers for the co-branded card sold by it along with Sumitomo Mitsui. Consequently the credit card pioneer majors have sided with NTT DoCoMo’s competitors such as KDDI and SoftBank Mobile to establish the association for the promotion of bill payment using mobile phones. This initiative aims at developing terminals that can read the credit card enabled mobile phones offered by NTT DoCoMo’s competitors. 3.8 Mobile Barcoding: Protaurius AB, Sweden 3.8.2 Introduction Protaurius AB is a Swedish company that manufactures and sells modular panels that can be dynamically assembled and disassembled. Applications of these panels include setting up camp structures and other buildings for the military and other security agencies. These panels can handle hits from small arms, armour piercing ammunition and are fire resistant. Each panel is custom-made for customers who are spread out globally. This attribute poses the following challenges for Protaurius.

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• Difficulty in deploying technicians to help set up the facility; • Difficulty in maintaining product manuals and drawings - Once sold and

built, the dismantling and erection at a different site may not be done by the same people who set it up in the first instance; and

• Panels are bundled together in order to facilitate proper logistics and efficient loading; sometimes leading to a mix-up between components of each set. So when the panels reach the new site for erection, customers need to be provided help and support.

Protaurius AB, wanted to establish a channel for communication and to provide round the clock assistance to the customers. It identified mobile phone bar-coding as the solution to its requirement for troubleshooting panel related queries. The system was rolled out in 2008. 3.8.3 Components of the Solution Camclic AB, a Swedish company, provided the platform for Protaurius’ solution. The system works in the following manner:

• Protaurius uses single dimensional barcode tag for identification on each panel, providing a unique identity to the panel that is understood by all parties in the supply chain and its end-users. All stakeholders in the supply chain are provided with the software developed by Camclic, which can be downloaded from Protaurius’ website. The software works with any Java enabled phone. The main function of this software is to hyperlink the barcode to related resources. The customer/stakeholder has to pay for the airtime and WAP usage charges.

• Customer/stakeholder needing information clicks the barcode on the product with a camera phone. The click scans the details of the barcode and automatically launches a WAP portal which provides access to all information regarding the article carrying the barcode. Customers can also enter the barcode manually and get the required information. Protaurius has made the instruction manual and videos explaining the usage of the panels available at the portal, thus eliminating the need for a separate printed instruction booklet. Protaurius is using the channel to keep the customers informed of product updates.

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3.8.4 Perspective Mobile bar coding made good business sense to Protaurius. The systems saves the costs associated with interactive voice response system (IVRS), having a team of technicians to support customers, publishing dedicated product documentation, and the need to deploy a technician for every installation or replacement. In a niche business like Protaurius’, human expertise is at a premium. It would have been unwise to engage skilled technicians for problems that could be addressed satisfactorily by the customer, if access to required troubleshooting resources could be made available. As is often the case, the customer becomes more knowledgeable than the vendor personnel over a period of time. In this context, Protaurius’ decision to replace humans with barcodes is in synch with the reality of its business. Mobile phones turn out to be the ideal agents for effective implementation of the solution. 3.9 Mobile P2P: M-Pesa, Kenya 3.9.2 Introduction M-PESA, meaning M for mobile and Pesa for money in Swahili- the language of Kenya, claims to be one of the world’s first mobile P2P money transfer services. This service, offered by Safaricom, enables people who do not have access to conventional banks to transfer money to anyone with a mobile phone. The service was rolled out in 2007. Safaricom is a leading MNO in Kenya and provides the usual gamut of bearer telephony services such as GPRS, 3G, EDGE, data and fax. Originally a Government-held monopoly, Safaricom is now a Vodafone affiliate. 3.9.3 Components of the Solution M-Pesa was developed by UK-based companies Vodafone and Sagentia. The application underwent extensive trials on the Safaricom network before full deployment.

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The M-Pesa client application resides on the customer’s SIM card and not the phone. An advanced SIM-card type, known as SIMEX, is provided to the customer for this purpose. SIMEX cards do not have the associated phone number embedded in them. The advantage of such an arrangement is that in case of a SIM card loss, the customer can be provided with a new SIMEX card while retaining the telephone number. The client interface enables the customer to enter details of the transaction and to authorize transactions using a PIN as and when needed. Safaricom pre-sets the range of services and the language subscribed by the customer. The solution also includes a centrally managed platform which facilitates:

• Transfer of funds to the beneficiary accounts; • Applies of appropriate charges; and • Communication of results to all the parties involved.

The M-Pesa client application encrypts every transaction request before sending it for authorization on the centrally managed platform. The agent is a compulsory and an important part of the system. The agent is an individual or business location that accepts the SIM card from the end customer and assists in the transaction. The role of the agent is explained in greater detail in Figure III-4.

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Figure III-4 Roles of Client, Agent and Operator in M-Pesa

Source: Safaricom There are no subscription charges for M-Pesa, however, there is a charge per transaction, which is basically a commission for the agent involved. These commissions are fixed on the size of the transaction. Table III-1 shows the commission rates in Kenyan Shillings.

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Table III-1 M-Pesa Agent Commission Rates

Transaction Range Commission for Agents –Withdrawal Commission for Agents - Deposits

100-2500 $15 $10

2501-5000 $25 $10

5001-10000 $35 $15

10001-20000 $60 $20

20001-35000 $75 $40 Source: Safaricom The charges for buying airtime or other mobile services follow the typical billing systems of a MNO and are not considered a part of the M-Pesa transaction. 3.9.4 Perspective Safaricom conducted a trial over the course of one year before launching the service commercially. The most critical challenge of the project, according to Safaricom, was training the agents—who were the key for ensuring a successful implementation. Among other things, the agents had to be trained to educate the users. Safaricom was greatly helped by the Department for International Development (DIFD), UK. DIFD is a UK Government arm that manages Brittan’s aid to poor countries. DIFD has funded the development cost and the trial period overheads. M-Pesa has managed to acquire 1.7 million customers in a span of one year. Enthused by the success of M-Pesa, Safaricom is looking to extend its reach towards bill payments and capabilities such as e-ticket reservations, hotel reservations, tour reservations and others in order to propagate cashless transaction culture. In another significant initiative, Safaricom also plans to enable international remittances by allowing Kenyans in UK to send money to M-Pesa subscribers in Kenya.

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M-Pesa is an excellent example of a successful marriage between societal objectives and plain business acumen. Safaricom generates revenue/transaction, while the agents, who are essentially micro-entrepreneurs, also get a share of this revenue. Safaricom is freed from the hassle of monitoring the accuracy of transactions. In the future, when the user base gets more comfortable with M-Pesa, the agents can graduate to handling a larger proportion of managerial activities. Agents can also act as effective advertising, sales and marketing channels for Safricom’s future offerings. M-Pesa has struck a chord among the unbanked masses that are nevertheless resourceful enough to own a mobile phone. Moreover, the nature of the application is likely to ensure sustained customer loyalty. While the developed economies will always come up with compelling mobile applications, it is the heavily remittance-dependent economies such as Kenya that provide a glimpse of future usage of mobile P2P in particular and mobile financial applications in general. M-Pesa is triggering a mini social revolution. 3.10 Mobile Gaming and Gambling Case Study: Victor

Chandler, Gibraltar 3.10.2 Introduction Victor Chandler is the flamboyant bookmaker whose company deals with betting platforms like online casino and poker sites available in various international languages and customers in over 160 countries. Some of the main gambling opportunities available on Victor Chandler include football, golf, horse racing, greyhound racing, cricket, snooker, NFL, NHL, NBA, baseball, tennis, Gaelic games, darts, motor racing, boxing and rugby. The mobile version of Victor Chandler’s offerings is known as VC Mobile. It was launched in 2004. 3.10.3 Components of the Solution Customers of VC Mobile need to have WAP-enabled mobile phones. The customers also have to log on to the Victor Chandler’s website and register and

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designate payment options such as Western Union, Neteller, Regional Bank Transfer (RBT), International Bank Transfer (IBT) and Pay888 among others. The account is activated upon authentication. The activation is followed by the customer identifying the mobile set and downloading the Java application from the web site to get the handset ready for gambling. The site then asks for the customer’s user name and PIN. Following authentication, the customer then browses through the betting menu, selects the desired option, previews, confirms and finally makes the payment from the account. The customer can also check balances as well as a transaction history. VC mobile’s offerings also include games like roulette, blackjack, virtual greyhound, and others. The users are given the option to “Play for real” or “Play for fun”. The latter does not involve payout, the former does. A 64-bit private key encryption algorithm encrypts all data sent between VC Mobile and the user's mobile phone. Every set of application data sent is encrypted using a unique 'private' key that functions to encrypt or decrypt all sensitive data sent between the users phone and the VC mobile. Figure III-5 VC Mobile Screen Shot

Source: Victor Chandler

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Importantly, VC Mobile includes all its content from the main site, although it is tweaked for mobile phone usage. The content is optimized for the small-screened mobile phone. The Java format was chosen because of its WAP compatibility. VC mobile is an operator independent solution. VC does not charge for joining fees or membership fees. The customer has to pay for airtime charges and WAP access charges that the operator imposes on which the mobile is registered. 3.10.4 Perspective Victor Chandler is planning to offer the services via the MNO route. The mobile phone operator will offer VC Mobile as a value added service. The betting costs will be a part of the periodic subscriber billing. The MNO will get a commission on the collection. Mobile gambling does not require active participation from the mobile phone operator. In this context Victor Chandler’s plan to involve MNOs in its scheme of things reflects Victor Chandler’s keenness on two fronts: target specific geographical regions and achieve confirmed leadership in these regions. Victor Chandler has identified Asia as its key market due to its promising demographics. On the whole, Asia has a higher proportion of young people as compared to other provinces. VC Mobile is eyeing the first mover advantage in this region.

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Chapter IV Reproduction without permission 75 of the publisher is prohibited

CHAPTER IV VENDOR ANALYSIS

This chapter evaluates the activities of selected vendors and stakeholders actively engaged in developing financial applications using mobile phones. 4.1 Classification of Stakeholders Mobile phone financial applications bring an entire array of non-traditional players to the telecom table, apart from regular powerhouses such as the handset OEMs, semiconductor specialists and the operators. What is significant is that it is these non-traditional players have exhibited real drive and commitment to rolling out mobile phone financial applications. 4.1.1 Traditional Powerhouses Traditional powerhouses include the handset OEMs and network operator categories of stakeholders. 4.1.1.1 Handset OEMs and Semiconductor Specialists Handset OEMs and their semiconductor suppliers are driven by largely similar interests when it comes to mobile phone financial applications. Mobile phone financial applications require OEMs to embed the necessary supporting technologies in their products, and much of that support is predicated upon the work of the semiconductor suppliers. While such technologies as NFC, J2ME, barcode readers, Bluetooth, and infra-red support are not challenging engineering requirements, they do add to the cost of the handset and place constraints on the targeting a wider audience. To their credit, handset OEMs have always lent enthusiastic support to most initiatives aimed at popularizing mobile financial applications. These include,

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among others, project pilots in areas of mobile stock trading, mobile proximity, mobile retail, and mobile gaming and gambling. Motorola is a frontline mobile phone vendor. Its influence over the market is largely defined by its long track record of continual seminal innovation. Motorola partners with specialists working on mobile phone financial applications and has acquired stakes in a few companies in this domain, which is somewhat at variance with the other OEMs. Motorola’s endorsement of mobile phone financial applications portends eventual acceptance of a galaxy of mobile phone financial applications. Nokia recognized the potential of the handset as a gaming device more than half-a-decade ago. Although its initiative failed then, Nokia persisted with the idea. Learning from its failures, it has infused several key value additions that enhance user comfort in navigating and downloading the games. Nokia has also been a key driver for NFC. NXP is an influential driver of NFC technology. Based on its experience with MIFARE, NXP rightly envisaged that the technology had a promising potential in the mobile phone domain. It has clearly gone beyond its role of a semiconductor specialist by interfacing between stakeholders such as MIFARE application service providers and MNOs. NXP has realized that intense handholding of the stakeholders plays a major role in acceptance of NFC, which has had to face stiff competition from alternative technologies. The handholding is also likely to yield rich dividends for the NXP once the technology matures. 4.1.1.2 Mobile Network Operators MNOs have a lot to gain from mobile phone financial applications:

• Increased customer stickiness; • Increased average revenue per user; and • Points to differentiation from the competition.

However, MNOs’ participation in mobile phone financial applications is not commensurate with the influence wielded by them. MNOs are placed in a unique

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position to mass market these applications, something that all other stakeholders lack. MNOs can push mobile phone financial applications in numerous ways:

• Offering differential rate plans to make the service attractive to users; • Influencing handset OEMs to keep the costs of mobile phones down; and • Encouraging multiple financial institutions to participate in the initiatives.

Barring exceptions, MNOs have largely failed to display such enthusiasm and initiative. The following could be the likely reasons for their lack of participation:

• Unwillingness to commit the already-strained resources to untested and unproven applications; and

• Realization that while MNOs can play an encouraging role at the outset of application deployments; such deployments can succeed even without MNOs active participation.

As a result of the above apprehensions, MNOs have concentrated on other data services, but have largely ignored the potential of financial applications. NTT DoCoMo is a notable exception. NTT DoCoMo’s latest endeavors are all aimed at humanizing the phone – to focus more on the utility of the phone rather than brag about the technology running it. While NTT DoCoMo is formidable, it should be understood that its position as an operator is somewhat unique. It has an unquestionable leadership position in the world’s most technologically advanced market with an average 50 percent of the market share. NTT DoCoMo has been facing intense competition from its two key rivals—SoftBank Mobile and KDDI. NTT DoCoMo has to keep itself substantially ahead in the race to hold on to this share. This objective can be achieved effectively only by successfully employing sticky applications. Osaifu-Keitai is probably the most comprehensive customer-loyalty enhancing application. It reaches out to the customer in multiple avenues, making it extremely difficult for the customer to dissociate from NTT DoCoMo. Importantly, innovation is in the DNA of NTT DoCoMo. It has a history and tradition of engaging in diverse R&D activities on a global scale.

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4.1.2 New Entrants New entrants include the financial institutions and application specialist categories of stakeholders. 4.1.2.1 Financial Institutions Financial institutions include the following entities among others:

• Banks; • Financial market participants such as exchanges and brokerage houses; and • Credit card companies.

It is hardly surprising that financial institutions are extremely enthusiastic about the reach and penetration of mobile phones. Chapter III amply demonstrates the dichotomy where masses that do not have access to banking services nevertheless are mobile phone enabled. Consequently, financial institutions have demonstrated unstinted support to mobile phone financial application roll-outs. MasterCard has a clear-cut product line for mobile phone financial applications such as P2P, credit cards and payments. It is pointing to the way to the rest of the industry by integrating NFC with mobile phones. MasterCard also runs a money transfer service for its European customers. Visa has a critical stake in mobile phone credit cards. The revenue model of Visa is primarily based on transaction fees. The higher the volume and value, the higher are the revenues for Visa. It is therefore easy to surmise that Visa would actively back mobile phone credit cards. Visa has launched forays into multiple aspects of mobile phone credit card business, the most significant being an interface between NFC application developers and banks. Visa has also latched on to the Android bandwagon by developing ground-up applications for that OS (operating system). Visa has consciously adopted the horses-for-courses strategy by resorting to country specific alliances.

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4.1.2.2 Application Specialists These companies are the actual developers of the mobile phone financial applications. They are dependent on handset OEMs and semiconductor specialists for compatible handset development, MNOs for providing bandwidth as well as backend hosting to run these applications if that is required, as well as the underlying financial infrastructure that provide access to the customer data to run the mobile application. This segment is undoubtedly the most vibrant among all the stakeholder categories. From a pure technical perspective, it is easy to slot ALittleWorld (ALW) along with the scores of companies engaged in financial applications development. What distinguishes ALW is its focus and approach. ALW has consciously focused on the developing countries. Such an engagement is fraught with several risks:

• The customer decision making process is slow, due to lack of referral cases. The solution provider then has to take the initiative to push things along by engaging with each stakeholder individually; and

• The government is an important participant in such projects.

Such an approach is not without its advantages:

• The level of competition is relatively less; and • One successful referral from a government body ensures that the other

government bodies engage the same vendor for the same activity. The above realities are amply reflected in the ALW example. ALW has painstakingly tied up all the loose ends and readied several successful projects. Camclic reflects the overriding requirement of the mobile barcoding industry; the application developer has to show maximum initiative. Camclic has adopted the time tested strategy and joined a consortium with a large number of potential customers. Camclick now needs to make its application more versatile in order to read all the more barcoding formats. CPNI has clubbed mobile payment, P2P and mobile banking in a single solution. While the use of technology solution is elegant, the challenge ultimately lies in getting as many merchants as possible to participate in the initiative. In order to

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acquire the additional muscle, CPNI has aligned with IBM, and made IBM the primary seller of CPNI’s solutions. C-SAM has devised a platform that can function as a common repository of information related to various services subscribed by the user on the user handset. CEO Sam Pitroda is credited with ushering the telecom revolution in India two decades ago. Financial Technologies is an excellent example of a company intently focused on using the most effective means available for expanding the customer base for its core expertise of financial market solutions. Its solution portfolio covers all the major stakeholders involved in the trading chain – the exchanges, brokerage houses and the investors. Financial Technologies allows customers to create multiple profiles on the same handset based on the exchanges that they subscribe to. hSenid is credited with developing the first mobile stock broking application in the West Asian region wherein it was able offer information in Arabic. hSenid’s success in being able to establish itself in the mobile stock trading domain underlines the potential of these applications in opening the mobile application sector wide open for companies that may not have been telecom powerhouses. i-flex has some of the biggest banks as its customers. Mobile banking offers it an additional channel to engage the customers. FLEXCUBE highlights its security features. These features will stand the company in good stead for acquiring mobile banking customers. The acquisition of i-flex by Oracle will enhance the reach of FLEXCUBE. Additionally, as FLEXCUBE already employs Oracle Middleware, integrating it with Oracle’s product line will be relatively seamless. Infosys presents an interesting example of a company that has graduated from providing bare bones software services to developing and selling integrated software products. Infosys has put in place a SaaS (software as a service) version of its banking application. This development is likely to spur even smaller banks to go online and mobile, thereby swelling the number of mobile banking users. LogicaCMG is traditionally strong in the European market. In the case of its implementation of mobile payment solution for C1000 supermarket, LogicaCMG has gone out of its regular sphere of activities and has practically shepherded the

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entire project. LogicaCMG’s enthusiasm is not surprising. The mobile retail application scenario is very fragmented and there is very little standardization. In such times, first mover advantage is crucial, and LogicaCMG is making a conscious effort to gain that first mover momentum. By doing so, the company leverages its success to target the plethora of retail chains that would be interested in implementing mobile retail solutions. The appeal of the Obopay’s solution lies in its simplicity. It can be implemented with minimal involvement of other stakeholders—which gives Obopay the leverage to tailor their solution solely based on their priorities. Obopay had to navigate through the procedures required to obtain the 40+ licenses which would enable the company to function as a money transfer agent, but the organization is clearly looking at the larger picture and is trying to replicate the success of Western Union and Paypal in the mobile phone domain. Obopay has maintained minimal fund transfer charges are minimal, encouraging customers to use it for transmitting even smaller amounts, which is often the case related to money transfer among family members. The mobile phone massively multiplayer online gaming (MMOG) market has failed to pickup for a variety of reasons such as high network latency and form-factor limitations. SmartCell has decided to confront the challenge of popularizing MMOG applications for mobile phones. It has adopted a dual strategy: to develop a highly interactive user experience with top-of-the-line graphics suitable for the mobile phone form factor, and to offer it for free. The second part is obviously a bait to hook users and familiarize them with the gaming features so that they opt for a paid version when one becomes available. Table IV-1 summarizes the classification of these companies along with mentioning the financial applications in which they are active participants.

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Table IV-1 Stakeholder Classification Summary

Company Name Category Banking

Stock Trading Proximity Retail

Credit Card Barcoding P2P Gaming

ALW AS Camclic AS CPNI AS

C-SAM AS FT AS hSenid AS i-flex AS Infosys AS LogicaCMG AS MasterCard FI Motorola HOEM Nokia HOEM NTT DoCoMo MNO

NXP SS Obopay AS SmartCell AS Visa FI

Note: AS = Application Specialist, FI = Financial Institution, HOEM = Handset OEM, SS = Semiconductor Specialist 4.2 Stakeholder Summary 4.2.1 ALittleWorld (ALW) www.alittleworld.com HQ: Mumbai, India ALW is the developer of the ZERO domestic payment platform. It is based on NFC and uses biometric authentication for user identification. The mobile phone self-service payment client of ZERO is known as mZERO. The most compelling use of the ZERO application has been in the disbursal of payments and salaries to persons without bank accounts. ALW has implemented this project in partnership with several leading public sector banks and Government bodies in India.

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ALW is privately held by Legatum Ventures and ENAM. 4.2.2 Camclic www.camclic.com HQ: Goteborg, Sweden Camclic provides a Java-based barcode reader application for mobile phones. Its maximum resolution is 0.25 mm and its primary function is to stuff the barcode image with hyperlink data. Camclic allows their customers to create codes for individual hyperlinks. It supports codes such as EAN13, Code128 and QR Code. Its customers include Protaurius and Pfizer among others. Camclic is a member of the GS1 Mobile Commerce Group, which is engaged in the definition and implementation of supply chains and demand chains. The membership of GS1 provides Camclic with an access to the 1.3 million potential customers for its products. 4.2.3 C-SAM www.c-sam.com HQ: Oakbrook Terrace, IL C-SAM is a specialist in enabling payment transactions using PCs and mobile phones. Its solution portfolio includes a complete ecosystem of solutions targeted at telcos, banks, merchants and utility providers. Figure IV-1 shows the schematic of the ecosystem offered by C-SAM.

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Figure IV-1 Schematic of the MTP Ecosystem Offered by C-SAM

Source: C-SAM At the heart of its offerings lies the Mobile Transaction Platform (MTP). The platform consists of the following components:

• OneWallet: Software application for PDAs, mobile phones and PCs, OneWallet offers secure storage and transmission capabilities for subscriber information related to various financial services availed such as brokerage account, credit cards, bank account, passport and others. It uses PKI for storage and encryption. It supports Bluetooth and IR-based proximity protocols.

• MerchantWallet: Enables mobile phones to function as card readers and POS terminals. It supports Bluetooth and IR-based proximity protocols. The IR is converted to RF using IR/RF converter.

• Wallet service center (WSC): The hub of MTP transactions, the WSC is the

server side function that handles user initialization, user registration, information storage, information navigation and value added services.

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• POS adapter: The POS adapter converts Infrared/radio frequency (Ir/RF) to magnetic stripe/smart chip waves. It is placed in the card reader slots of POS terminals. It interfaces with the OneWallet client to send and receive information related to credit cards, coupons, advertisements and authentication.

C-SAM’s clients include Jet Airways, Vodafone, ICICI Bank, MTNL and UAExchange among others. 4.2.4 CPNI Inc www.cpni-inc.com HQ: Toronto, Canada CPNI specializes in distributed payment systems. It is the supplier of the phone authorized transfer (PAT), a mobile banking-cum-mobile P2P solution. The solution contains three components:

• PATsend: For fund transfer across bank accounts on a domestic as well as international scale using the customer’s mobile phone as the identity

• PATbuy: For making purchases from participating merchants • PATbank: Mobile banking solution

PAT allows banks to offer the solution under their own brand. The mobile phone client is based in Java. Other supported interfaces will include USSD, WAP and SMS. CPNI has partnered with IBM and Logica as implementation partners. The company is privately held.

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4.2.5 Financial Technologies www.ftindia.com HQ: Mumbai, India Financial Technologies is a leading developer of solutions for financial markets such as those dealing in equities, commodities, debt and currencies. It provides front office and back office solutions for the exchanges as well as brokerages. Its products include the following:

• DOME – Distributed order management engine • FX DIRECT: Multi-currency exchange platform • CnS: Trading and settlement platform • FT PRIME: Risk management solution • ODIN: A versatile platform that includes solutions for brokerage front-

offices, inter-exchange communications, real time streaming solution • MATCH: Back office clearance system • Protector: Online risk management for brokerages

iWin is the name of the mobile stock trading application offered by Financial Technologies. It includes multi-currency and multi-exchange trading facilities, as well as features such as limit, market or stop-loss order. It allows creation of multiple profiles based on the product portfolios from multiple stock exchanges apart from providing stock alerts. Financial Technologies recorded revenue of $270 million for the year 2007-08.

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4.2.6 hSenid Software International www.hsenid.com HQ: Colombo, Sri Lanka hSenid develops applications in the HR and mobile applications domains. Its mobile application solutions include reporting platforms for operators, recharging options, gateways for short message service center (SMSC) and USSD messaging as well as mobile ticketing and recharging applications. hSenid offers solutions in the mobile entertainment as well as corporate solution spaces. hSenid’s mobile stock broking platform is known as mStockTrading. It is based on J2ME and supports SMS as well. It has multi-language capabilities and provides comprehensive set of stock broking functions. hSenid is privately held. 4.2.7 Infosys Technologies www.infosys.com HQ: Bangalore, India Infosys is one of the front-running software service providers from India. It has expertise in multiple domains ranging from finance, telecommunications, manufacturing and others. It is the pioneer of the famed global delivery model (GDM), which has largely defined the way in which multinational teams work across global locations to deliver software solutions and services. However, Infosys has not restricted itself to software services. It has built its practices in software product development as well as consultancy services. Finacle is the core banking solution offered by In Infosys. It can be used to implement a wide array of services and applications such as core banking, wealth management, Islamic banking as well as mobile banking. The mobile banking solution is called MConnect. The mobile banking solution has the following features:

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• Browser and SMS compatibility • Payments and transfers • Account management • m-Commerce applications

Starting July 2008, Infosys launched Finacle’s SaaS edition. Its current version is 10. Infosys counts Israel Discount Bank (Israel) and ABN Amro (China) as customers for Finacle. 4.2.8 LogicaCMG www.logica.com HQ: London, UK LogicaCMG (Logica) is a leading IT services company that specializes in providing solutions for a wide array of verticals such as automotive, manufacturing, pharmaceuticals, travel, defense, media, finance and telecom among others. Logica’s activities span the entire gamut of software and consulting services. Its services include outsourcing, consulting and solution delivery. Specific functions include applications management, testing, and infrastructure management among others. Logica has expertise in ECM, BI and platforms of vendors such as Microsoft, SAP and Oracle. LogicaCMG includes mobile payment solutions under it’s the finance vertical. Logica is traditionally strong in the European market and in the case of the mobile payment solution for C1000 supermarket, LogicaCMG has gone out of its regular sphere of activities. The company hopes to leverage the success of its C1000 project into a much wider practice, and become the “go to” firm for retail chains interested in implementing mobile retail solutions. Logica recorded revenues of ₤1.77 billion for the year ending June 30, 2008.

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4.2.9 MasterCard Worldwide www.mastercard.com HQ: Purchase, NY MasterCard was created by a group of US-based banks, most notably the United California Bank, in order to counter BankAmericard (the predecessor of Visa). MasterCard offers an array of debit, credit and advance payment products. Of specific interest is PayPass, the contactless payment technology. MasterCard is working vigorously towards a global adoption of PayPass by mobile phone subscribers. MasterCard Nearby is a credit-card facilitated point of interest (POI) such as ATMs and merchants identification application for mobile phones. MasterCard Europe employs mobile phones for inter-card fund transfer. Additionally MasterCard is engaged in the following mobile phone related initiatives:

• MasterCard, in partnership with Nokia, launched RFID based mobile phone in the US market as early as 2003.

• In 2008, MasterCard partnered with Obopay to offer P2P mobile phone payment transfer infrastructure. The full service launch is slated for 2009.

• MasterCard has launched the mobile credit card venture in the Japanese market in partnership with Samsung, Sony and Softbank mobile.

• In 2008, MasterCard and Telecom Italia joined hands to offer NFC based mobile retail and payment services

MasterCard went IPO in 2006, before which it was owned by the participating banks. 4.2.10 Motorola www.motorola.com HQ: Schaumberg, IL Motorola is a originator of modern day commercial mobile phones. It continues to be a flag bearer for the development of innovative mobile phone features.

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Motorola has developed M-Wallet, a solution that enabled NFC based secure and high-speed transactions of GSM and CDMA handsets. The solution supports:

• Mobile banking; • Mobile payments; • Mobile P2P; and • Mobile debit cards.

Motorola also holds a stake in the mobile banking and software services specialist company –mFoundry Inc. It has also invested in vivoTech, a company with activities similar to mFoundry. Apart from this, Motorola has partnered with C-SAM for rolling out mobile stocktrading. 4.2.11 Nokia www.nokia.com Helsinki, Finland Nokia is the world’s largest mobile phone OEM. It also supplies navigational devices (NVTEQ) and cellular network equipment (Nokia Siemens Networks). Nokia sold more than 470 million mobile phones in 2008 Nokia offers the N-Gage gaming platform for mobile phones. N-Gage is shaped by Nokia’s vision of offering the consumer a device that can function as a gaming console as well as a mobile phone. N-Gage had an unsuccessful start in 2003 due to the lack user friendly features. Nokia reintroduced N-gage in several high end smartphones since 2007 as a pre-release version. It works with the N81, N79, N81 8GB, N82, N85, N95, N95 8GB, N96 and 5320 ExpressMusic models. The full-blown N-Gage website from where the users could download games was made available in April 2008. Nokia offers NFC enabled handsets such as 5140, 6131, 6212 and 3320 among others. Figure IV-3 shows the Nokia 6131 handset with NFC functionalities.

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Figure IV-2 The Nokia6131 NFC-Enabled Handset

Source: McCann Nokia claims that the 6131 is the world’s only truly integrated NFC handset. Nokia offers Java based NFC SDK for this handset. Features of this SDK include tag technologies, peer-to-peer connections, branding configuration, Java API, example MIDlets and documentation. Nokia has been among the primary drivers of NFC and actively participates in projects related to mobile phone payments and other NFC related applications. 4.2.12 NTT DoCoMo www.nttdocomo.com HQ: Tokyo, Japan NTT DoCoMo is considered the face of the Japanese mobile telecommunications industry and is credited with being the driving force behind the introduction of revolutionary concepts related to the usage of mobile phones.

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NTT DoCoMo was spun off from NTT-Japan’s premier telecom operator in 1991. NTT DoCoMo provides 2G and 3G services. Its services include the following:

• i-mode: Mobile storefront – the services also include e-mail access, new ans weather information, games download and others.

• Osaifu Keitai: Mobile wallet. NTT DoCoMo epitomizes the spirit of the region it originates in – technical savviness. The Japanese market is the most demanding in respect to phone features and services. NTT DoCoMo has played a key role in defining the expectations of such a market. Its competitors have mostly had to follow its footsteps. NTT DoCoMo is one of the few mobile operators that invest heavily in R&D. While NTT DoCoMo’s innovative zeal is uncommon, it is not incomprehensible. There are several compelling factors that have kept NTT DoCoMo at the forefront of innovation. The mass market in Japan is technologically savvy. Offering unconventional yet cutting edge solutions is the best way—and maybe the only way—of staying at the forefront in such a market. NTT DoCoMo has firmly placed itself in several tiers of the mobile phone supply chain. Its hold over handset OEMs is unparalleled. Moving downstream, NTT DoCoMo is threatening even the financial service providers with its muscle. Such a formidable position helps it keep costs down. Consequently, NTT DoCoMo’s services are among the most cost effective in the world. 4.2.13 NXP www.nxp.com HQ: Eindhoven, The Netherlands NXP is a semiconductor specialist company founded in 2006 by Philips. Its semiconductor activities span home, automotive and identification sectors, as well as telecommunications. NXP also has a software division.

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NXP is the pioneering driver of NFC technology – the backbone of proximity based applications using the mobile phone. NXP offers the following NFC based products:

• Transceiver: PN511, PN512 • Controller: PN531, PN532, PN533, PN534 • Secure Module: PN65K, PN65L

NXP also manages the MIFARE technology that is installed in smart cards, proximity cards and reader modules. It offers MIFARE4mobile MF4M, a service that facilitates the adoption of NFC in mobile phones. NXP acts as a service manager and handles the installation of MIFARE-based NFC applications on mobile phones. MF4M is available in classic, secure and premium versions. NFC envisages itself as a gateway between application providers and MNOs. Figure IV-4 shows the MIFARE4 mobile ecosystem. Figure IV-3 The MIFARE4 Mobile Ecosystem

Source: NXP Accordingly, NXP will play a constructive role in M4FM system management that interfaces the MNO and the MFARE service provider and client service management. NXP operates through 26 development centers in 12 countries.

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4.2.14 Obopay www.obopay.com Redwood City, CA Obopay is one of the few companies to have developed a complete mobile phone based P2P payment ecosystem. Obopay’s payment solution allows money to be exchanged across an entire spectrum of mobile phone users. Obopay cites that the origin of its business model lies in the inspiration derived by Carol Realini, its CEO, witnessing a large number people in Africa having no access to traditional ways of payment, though many had access to mobile phones. The result of the inspiration is a payment system that could be used by anyone having a mobile phone. Apart from its presence in the US market, Obopay is rolling out in emerging economies. It has partnered with Grameen Solutions, a pioneer in microfinance, to launch mobile banking initiatives in India and Bangladesh, especially targeted at the lower strata of the society. Obopay is privately held. Its investors include AllianceBernstein, Essar Telecom USA Limited, ONSET Ventures, Qualcomm, Redpoint Ventures, Richmond Management and Wolfensohn & Company. 4.2.15 Oracle Financial Services Software Limited (Formerly

i-flex Solutions) www.iflexsolutions.com HQ: Mumbai, India i-flex is the supplier of FLEXCUBE, a very important core banking solution. i-flex was a spin-off of Citibank. Oracle has acquired an 80 percent stake in it. FLEXCUBE supports retail, corporate as well as investment banking functionalities. FLEXCUBE includes mobile banking delivery channel. FLEXUBE has an open architecture and is based on service oriented architecture (SOA) and Oracle Fusion middleware. FLEXCUBE is compliant with the existing risk management norms such as Basel II, Sarbanes Oxley, Patriot Act and others.

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i-flex also provides a repository global banking best practices through the i-flex process repository for banks (iPRB), which works in tandem with FLEXCUBE. With mobile banking becoming increasingly commonplace, and compulsory, the responsibility of core banking solution providers such as i-flex increases manifold. Typically, it partners with a mobile client developer of its banking customer’s choice to deliver the mobile banking solution. The partners manage the communication between the bank’s mobile banking server and the client application. i-flex counts West Coast Bank among its declared mobile banking customers. 4.2.16 SmartCell www.smartcell.com HQ: Irvine, CA SmartCell is a supplier of mobile gaming solutions in addition to mobile platform technologies and mobile applications. Its flagship gaming application is called Shadow of Legend (SOL), which SmartCell claims to be the world’s most high performance massively multiplayer online role playing game (MMORPG). The MMORPG can be played by participants using their PDAs, Smartphones and PCs. Users can play this game without the requirement to have a serial code or make any payment. The game offers 16 roles simultaneously. SmartCell released the 2.5D version of this game in August 2008. Features of SOL include seamless advance of player character and flexible career path management. The 2.5D version promises enhanced graphics and better adaptation to smaller form factor. SmartCell offers a referral program to enhance the user base of this game. SOL is based on SmartCell’s proprietary high-performance, cross-platform mobile (HCM) technology. HCM is built using the C programming language. It integrates itself with the host machine at the byte-code level unlike most applications that use virtual machines. This tighter integration translates into superior performance.

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Other mobile gaming options from SmartCell include AquaForce, the underwater adventure based game for Windows Mobile handsets. This game is available for $19.95. SmartCell also offers mobile phone applications for weight loss management, data storage and predictive text input tools. SmartCell has a R&D center in Shanghai, China. 4.2.17 Visa Inc. www.visa.com San Francisco, CA Visa is one of the world’s largest credit card issuing companies. It also manages the world’s largest retail payment network. Visa has five-decade history. It was known as BankAmericard before it was renamed Visa. Visa is accepted in more than 29 million merchant establishments and 1.2 million ATMs worldwide. It boasts of a financial institution (banks) customer base in excess of 16,000 and card base of 1.6 billion. Visa claims that the number of annual transactions involving Visa products is more than 52 billion and value of these transactions exceeds $4 trillion. Visa Europe is an exclusive licensee of Visa Inc. and operates as a separate entity. Visa Inc. has five regional divisions – USA, Asia-Pacific, Middle East and Africa, Central and Eastern Europe as well as Latin America and Caribbean. Visa offers credit, debit and prepaid card based financial services to its clients. Visa has identified mobile phone based payments as a key opportunity for enhancing its reach and increasing its transaction volumes. It has undertaken multiple initiatives in that direction:

• In as early as 2001, Visa tightened its authentication specifications to include mobile phone based payments and e-commerce transactions.

• In 2007, Visa launched a platform to interface between banks and NFC technology specialists to facilitate contactless payment using the mobile phone.

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• In partnership with Standard Chartered Bank, Visa launched IR based mobile phone credit cards for the Indian market in the year 2005.

• Visa has partnered with Nokia to offer NFC based mobile phone credit card services infrastructure (handset and payment gateways) to interested financial institutions. Nokia’s contribution to this initiative is the NFC based 6212 handset.

• Visa is partnering with Google to offer a range of mobile phone based

applications. These include payment options as well as location based services alerting the customer about offers based on customer preferences identified from prior purchased

Visa recorded revenues of $3.7 billion for the year ending September 30, 2007. VisaNet is Visa’s payment processing infrastructure. It operates out of four processing centers located in three continents.

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Chapter V Reproduction without permission 98 of the publisher is prohibited

CHAPTER V QUANTITATIVE ANALYSIS

5.1 Introduction This chapter forecasts the market size for major mobile financial applications according to three principal metrics:

• The number of subscribers, • The dollar value of the individual mobile phone financial applications; and • The MNO earnings from the data transfer initiated by these applications.

Both the metrics are broken down according to the following geographic segmentations:

• North America (NA) • Europe, Middle East, Africa (EMEA) • Asia and Pacific (APAC) • Central + Latin America (CALA)

In respect to our forecasts, a few assumptions must be clarified at the outset:

• Mobile proximity and mobile retail are reported together as a single unit for the following reasons: 1. In both cases, the mobile phone embeds a card reader strip; 2. Both applications involve use of NFC technology; 3. In both cases, client applications are restricted to facilitating the

exchange of subscriber authentication data between the card reader and the handset;

4. Both cases do not have equivalent conventional applications; and 5. Both have similar revenue models.

And while mobile gaming and mobile gambling appear very similar, they are presented separately because they have dissimilar revenue models. In the case of mobile gaming, the application developer gets paid directly by the

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subscriber; in the case of mobile gambling, the gambling service provider pays the application developer.

Chapter V covers the following mobile phone financial applications:

Mobile banking; Mobile stock trading; Mobile proximity and retail; Mobile credit card applications; Mobile barcoding; Mobile P2P; Mobile gaming; and Mobile gambling.

5.2 Research Methodology INSIGHT Research recognizes that although all the applications run on the same end-user device—the mobile phone—each application has unique sets of factors that influence its market acceptance. Hence, the market prospects for each application have been mapped independently of each other. Some of the driver parameters used for forecasting our market estimates include:

• Mobile phone users • Smartphone users • Bank users • Credit card users • Retail investors • NFC mobile phone shipments • Bluetooth mobile phone shipments

These driver parameters, in addition to existing shipment and value metrics for current and past years are combined to obtain a correlation between the drivers and the metrics. This correlation is then used to forecast the values from 2009 through 2014. It is important to mention that the calculation takes into account the current global slowdown.

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5.3 Resources The following primary and secondary resources were consulted for constructing the market model:

• Interviews of stakeholder company experts; • Annual reports of relevant companies; and • Published industry data on shipments and value sizes of driver parameters

and metrics.

5.4 Overall Quantitative Analysis Figure V-1 shows the subscriber volume forecast for major mobile financial applications. Figure V-1 Global Subscriber Base for Mobile Financial Applications, 2009-2014 (Millions)

950.61,234.7

1,523.7

1,923.0

2,592.8

3,744.5

0

500

1,000

1,500

2,000

2,500

3,000

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4,000

2009 2010 2011 2012 2013 2014

Millio

ns

INSIGHT’s analysis suggests that the cumulative number of users subscribing independently to major financial services will more than triple during period 2009-

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2014. It is important to remember that Figure V-1 presents a cumulative number, derived by adding the number of subscribers that have signed up for each individual service. Furthermore, it is likely that a portion of these subscribers will avail themselves of multiple services. In such a case, the absolute number of subscribers is likely to be somewhat smaller than the cumulative number. INSIGHT Research pegs the number of absolute subscribers to range from 60 percent to 65 percent of the cumulative subscriber base. Our estimate of a 30 percent growth is derived from the historical take rates associated the application prior to its being mobile-enabled. Estimates cover two broad categories of applications:

• Mobile enabling of conventional applications such as banking, stock trading et al.

• Applications exclusive to mobile phones such as barcoding et al.

In both cases, we have sufficient historical antecedents to suggest the ready reception of a mobile phone-enabled version of the application and thus healthy subscriber growth. INSIGHT Research forecasts that the revenues accrued by the application developers for mobile finance will also more than double during 2009-2014, as we note in Figure V-2. Our forecasts estimate revenue accruing to the companies that are the actual developers of the mobile phone financial applications. These companies are dependent on handset original equipment manufacturers (OEMs) and semiconductor specialists for compatible handset development, the MNOs for providing bandwidth as well as backend hosting to run these applications if that is required, as well as the underlying financial infrastructure applications that provide access to the customer data to run the mobile application. The application developers as a segment is undoubtedly the most vibrant among all the stakeholder categories—and the one that INSIGHT’s research suggests provides the clearest indication of market acceptance of mobile financial applications. While the growth rates may sound impressive, the fact is that most of the applications under consideration will grow much faster than the average rate, it will be the twin applications set of mobile gaming and mobile gambling that pulls down the overall sector growth to a moderate CAGR to about 19 percent.

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The difference in the growth rates of mobile gaming and mobile gambling on one side versus all other applications on another side is consequence of the inherent difference in gaming/gambling when compared to the other applications. For example, mobile gaming (and to some extent gambling) have a comparatively uncomplicated business model with far fewer stakeholders involved when compared with other applications. Secondly, the transition from the PC to mobile versions of mobile gaming and mobile gambling requires very minimal alterations in their infrastructural set-up and business models, which is not the case with other applications. However, this simplicity of operations does not translate into higher growth because the gap between the demand and supply and the potential to tap new market segments are much greater in the other mobile applications we are discussing, whereas mobile gaming and gambling end up attracting practically the same customer base that exists for their PC versions. Application developers, in most cases, operate on a license fee + royalty model. The license fee is usually charged depending on the number of subscribers while the royalty is charged depending on the number of transactions. Another factor moderating the rate of application revenue growth will be the increasing competitiveness within the sectors coupled with large scale acceptance, which will bring down earnings per subscriber acquisition and earnings/transaction for these application developers. Figure V-2 Global Mobile Financial Application Revenue, 2009-2014 ($Millions)

$9,591.8$11,605.8

$13,486.9$15,908.3

$19,485.7

$25,360.2

$0

$5,000

$10,000

$15,000

$20,000

$25,000

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2009 2010 2011 2012 2013 2014

$Milli

ons

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Figure V-3 provides a reason for the apparent lack of enthusiasm on the part of MNOs in taking ownership of mobile financial applications. While the earnings are substantial in the absolute sense, they represent only a small contribution to overall MNO revenues. The primary reason for the small revenue contribution is that mobile financial transactions are not data intensive. It should be noted, however, that these forecasts are strictly based on the current level of MNO participation—and it is absolutely certain that enhanced MNO participation will translate into higher subscriber numbers and higher transactions-per-subscriber which will lead to greater MNO earnings. It is also important to mention that the MNO earnings would have been even more impressive in terms of growth rate, but for the negative impact generated by mobile gambling—its largest shareholder. It is also significant that mobile gambling is a single download driven application, as opposed to other applications that are transaction driven. Figure V-3 MNO Earnings from Data Transfer Initiated by Global Mobile Financial Applications, 2009-2014 ($Millions)

$3,838.0 $4,050.6 $4,160.1 $4,475.2$5,254.3

$6,722.1

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2009 2010 2011 2012 2013 2014

$Milli

ons

Figure V-4 presents our total revenue estimate for the eight applications under discussion. The total revenue opportunity includes INSIGHT’s forecast of the revenues accrued by the application developers for mobile finance as well as the revenue accrued by MNOs supplying the bandwidth as well as backend hosting to

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run these applications if that is required. The application developers as a segment is undoubtedly the most vibrant among all the stakeholder categories—and the one that INSIGHT’s research suggests provides the clearest indication of market acceptance of mobile financial applications. Figure V-4 Global Total Revenue Opportunity for Mobile Financial Applications, 2009-2014 ($ Millions)

$13,429.9$15,656.4

$17,647.0$20,383.5

$24,740.0

$32,082.3

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2009 2010 2011 2012 2013 2014

$Milli

ons

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5.4.1 Regional Breakdown Table V-1 and Figure V-5 provide the regional breakdown of the subscribers. INSIGHT Research forecasts that while the APAC region will post the largest gains in terms of subscriber growth, the North American and CALA regions will also show strong growth. On a broader level, all regions will show more than 200 percent increase in the number of absolute subscribers over our forecast period. APAC region posts the biggest gains because a large section of APAC economies continue to show positive growth in spite of the global downturn. Table V-1 Regional Distribution of Global Mobile Financial Application Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 137.6 179.6 222.2 280.7 377.2 557.8 32.3% EMEA 385.1 492.5 596.9 738.6 988.5 1,410.6 29.6% APAC 366.0 483.1 606.4 779.6 1,060.1 1,532.6 33.2% CALA 61.9 79.5 98.1 124.1 167.0 243.5 31.5% Total 950.6 1,234.7 1,523.7 1,923.0 2,592.8 3,744.5 31.5%

Figure V-5 Regional Share of Global Mobile Financial Application Subscribers, 2009-2014 (Percent)

14% 15% 15% 15% 15% 15%

41% 40% 39% 38% 38% 38%

39% 39% 40% 41% 41% 41%

7% 6% 6% 6% 6% 7%

2009 2010 2011 2012 2013 2014North America Europe, Middle East, Africa Asia and Pacific Central + Latin America

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Table V-2 and Figure V-6 provide the regional breakdown of the application revenues. These revenues are based on the presence of buyers, which include MNOs and financial service providers. INSIGHT Research forecasts an aggressive push on the part of these stakeholders in the APAC region, resulting in a 56 percent increase in market share for the APAC region in the year 2014 as compared to the year 2009. Table V-2 Regional Distribution of Global Mobile Financial Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $1,815.5 $2,106.8 $2,306.7 $2,576.2 $2,976.1 $3,687.5 15.2% EMEA $5,026.0 $5,815.3 $6,453.7 $7,243.2 $8,484.3 $10,596.1 16.1% APAC $2,366.5 $3,192.6 $4,115.2 $5,335.7 $7,070.6 $9,842.0 33.0% CALA $383.9 $491.1 $611.3 $753.1 $954.8 $1,234.5 26.3% Total $9,591.8 $11,605.8 $13,486.9 $15,908.3 $19,485.7 $25,360.2 21.5% Figure V-6 Regional Share of Global Mobile Financial Application Revenue, 2009-2014 (Percent)

19% 18% 17% 16% 15% 15%

52% 50% 48% 46% 44% 42%

25% 28% 31% 34% 36% 39%

4% 4% 5% 5% 5% 5%


Table V-3 and Figure V-7 present the regional distribution of MNO earnings. Contrary to the overall trends, it is the EMEA and NA markets that show the

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highest growth. The growth trends forecasted in these two regions further emphasizes our earlier assertion about the criticality of MNO participation. It is noteworthy that in the NA and EMEA markets, MNOs are more given to subsidizing subscriber handsets. In effect the greater the influence of the MNOs over subscriber experience, the greater the impact of the MNO on the subscriber’s acceptance of mobile financial services. Table V-3 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Financial Applications, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $230.2 $261.2 $291.0 $347.7 $451.2 $649.5 23.1% EMEA $1,566.7 $1,675.1 $1,764.8 $1,971.7 $2,458.8 $3,319.4 16.2% APAC $1,918.7 $1,986.6 $1,974.3 $2,022.1 $2,197.4 $2,579.9 6.1% CALA $122.5 $127.7 $129.9 $133.7 $146.9 $173.2 7.2% Total $3,838.0 $4,050.6 $4,160.1 $4,475.2 $5,254.3 $6,722.1 11.9%

Figure V-7 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Financial Applications, 2009-2014 (Percent)

2% 2% 2% 2% 2% 3%

16% 14% 13% 12% 13% 13%

20%17%

15% 13% 11% 10%

1%

1%1%

1% 1% 1%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America

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5.5 Mobile Banking INSIGHT Research forecasts more than a five-fold increase in mobile banking subscribers, as we note in Figure V-8. This growth is fueled in equal measure by the developed and the developing economies. While banks in the developed world would like to economize on their transaction costs using mobile banking, those in the developing world will look at mobile banking as a vehicle to widen their user base. Figure V-8 Global Mobile Banking Subscribers, 2009-2014 (Millions)

146.5220.7

306.2

407.5

552.2

746.8

0

100

200

300

400

500

600

700

800

2009 2010 2011 2012 2013 2014

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Mobile banking application developers earn their revenue predominantly from the banks, and in some cases the MNOs. Contrary to the trend for total financial application revenue and subscriber growth, application revenues for mobile banking will grow faster than the subscriber growth as a result of the extraordinary increase in the number of transactions per subscriber. This increase will offset the decline in average revenue per subscriber. We note these trends in Figure V-9.

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Figure V-9 Global Mobile Banking Application Revenue, 2009-2014 ($Millions)

$151.8$250.6

$391.7$600.1

$974.0

$1,598.9

$0 $200 $400 $600 $800

$1,000 $1,200 $1,400 $1,600 $1,800

2009 2010 2011 2012 2013 2014

$Milli

ons

Figure V-10 shows that the MNO earnings from mobile banking transactions will grow more than seven times faster than the overall MNO earnings growth. INSIGHT Research attributes this growth to the impressive increase in average mobile banking transaction size, fueled especially by smartphone users. Figure V-10 MNO Earnings from Data Transfer Initiated by Global Mobile Banking Applications, 2009-2014 ($Millions)

$34.1 $70.7$136.5

$252.2

$485.7

$920.0

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900

$1,000

2009 2010 2011 2012 2013 2014

$Milli

ons

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5.5.1 Regional Breakdown Table V-4 and Figure V-11 provide the regional breakdown of the subscribers for the mobile banking applications. INSIGHT Research forecasts that the EMEA region will grow slightly faster than the APAC region and gain the top spot. The chief engine for the growth of subscribers in the EMEA region is the African continent, which has been witnessing a spurt in low-cost mobile banking implementations. Additionally, banks in the European region have aggressively rolling out mobile banking to retain the increasingly mobile customers. Table V-4 Regional Distribution of Global Mobile Banking Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 21.3 31.0 42.2 55.4 75.4 103.9 37.3% EMEA 53.6 82.9 118.3 160.1 225.0 312.3 42.3% APAC 60.4 91.1 125.0 166.3 219.7 291.2 37.0% CALA 11.3 15.8 20.6 25.7 32.1 39.4 28.4% Total 146.5 220.7 306.2 407.5 552.2 746.8 38.5% Figure V-11 Regional Share of Global Mobile Banking Subscribers, 2009-2014 (Percent)

15% 14% 14% 14% 14% 14%

37% 38% 39% 39% 41% 42%

41% 41% 41% 41% 40% 39%

8% 7% 7% 6% 6% 5%


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Table V-5 and Figure V-12 provide the regional breakdown of the application revenue associated with mobile banking applications. INSIGHT’s research suggests that the EMEA and APAC region will account for more than three fourths of the revenues. However, the APAC region will start losing share 2013 onward to the EMEA region. EMEA region’s gains will be primarily because the banks in the European region will be going into a mobile banking overdrive. Table V-5 Regional Distribution of Global Mobile Banking Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $32.0 $49.5 $73.6 $107.0 $167.4 $269.3 53.1% EMEA $64.4 $108.3 $171.9 $263.7 $441.0 $739.3 62.9% APAC $47.5 $80.3 $127.4 $201.1 $321.3 $519.7 61.4% CALA $7.9 $12.5 $18.8 $28.4 $44.3 $70.6 55.1% Total $151.8 $250.6 $391.7 $600.1 $974.0 $1,598.9 60.2% Figure V-12 Regional Share of Global Mobile Banking Application Revenue, 2009-2014 (Percent)

21% 20% 19% 18% 17% 17%

42% 43% 44% 44% 45% 46%

31% 32% 33% 34% 33% 33%

5% 5% 5% 5% 5% 4%

2009 2010 2011 2012 2013 2014


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Table V-6 and Figure V-13 note that while all regions will exhibit comparable CAGRs, the APAC and EMEA regions will continue their dominance, accounting for about 89 percent of the overall market. What works in the favor of these regions is the presence of substantially higher number of banks as compared to other regions, leading to increased customer acceptance. Table V-6 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Banking Applications, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $3.4 $6.7 $12.3 $21.9 $41.8 $80.8 88.1% EMEA $19.0 $38.8 $73.6 $133.1 $261.8 $506.3 92.8% APAC $11.2 $24.3 $48.5 $93.0 $173.7 $316.8 95.1% CALA $0.4 $1.0 $2.1 $4.2 $8.3 $16.0 105.2% Total $34.1 $70.7 $136.5 $252.2 $485.7 $920.0 93.3%

Figure V-13 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Banking Applications, 2009-2014 (Percent)

10% 9% 9% 9% 9% 9%

56% 55% 54% 53% 54% 55%

33% 34% 36% 37% 36% 34%

1% 1% 2% 2% 2% 2%

2009 2010 2011 2012 2013 2014


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5.6 Mobile Stock Trading INSIGHT Research forecasts that the global community of subscribers for mobile stock trading will grow at a compounded rate of more than 47 percent during 2009-2014 timeframe, as we note in Figure V-14. This growth will be fueled mainly by a healthy increase in the number of retail investors worldwide. Additionally, the advent of smartphones with their enhanced display and memory features will further stimulate demand by enabling a plethora of applications only possible with the advent 3G telephony. INSIGHT Research forecasts that a majority of the growth in mobile stock trading will be driven by developed economies. Figure V-14 Global Mobile Stock Trading Subscribers, 2009-2014 (Millions)

65.8117.2

177.8

253.6

350.8

457.3

0 50

100 150 200 250 300 350 400 450 500

2009 2010 2011 2012 2013 2014

Millio

ns

Mobile stock trading application developers will earn their revenue from their stockbroker clients. We note the global stock trading revenue trends in Figure V-15. The high growth rate of application revenues is a result of application developers actively pushing their mobile stock broking feature to their clients – the investors. The promotional hard sell will result in a high level of adoption leading to a high number of transactions using mobile stock trading.

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Figure V-15 Global Mobile Stock Trading Application Revenue, 2009-2014 ($Millions)

$53.5$107.9

$187.7

$306.9

$494.4

$745.8

$0 $100 $200 $300 $400 $500 $600 $700 $800

2009 2010 2011 2012 2013 2014

$Milli

ons

Mobile stock trading is also one of the faster growing applications in the context of MNO data transfer revenues, as shown in Figure V-16. The reason for this robust revenue growth is similar to that of mobile banking, except that the continuing increase in the size of the transactions will not be as strong as in the case of mobile banking. Figure V-16 MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading Applications, 2009-2014 ($Millions)

$78.9$181.5

$351.6

$619.0

$1,053.5

$1,605.2

$0 $200 $400 $600 $800

$1,000 $1,200 $1,400 $1,600 $1,800

2009 2010 2011 2012 2013 2014

$Milli

ons

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5.6.1 Regional Breakdown Table V-7 and Figure V-17 provide the regional breakdown of mobile stock trading subscribers. The high growth rates in the APAC and CALA regions will be on account of the general investor confidence in companies driving their booming economies. Table V-7 Regional Distribution of Global Mobile Stock Trading Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 24.8 40.2 58.8 80.6 105.5 136.1 40.6% EMEA 30.9 56.5 82.9 114.5 156.7 199.2 45.1% APAC 8.5 17.4 30.7 49.9 75.5 103.3 64.6% CALA 1.5 3.1 5.4 8.6 13.0 18.6 65.6% Total 65.8 117.2 177.8 253.6 350.8 457.3 47.4% Figure V-17 Regional Share of Global Mobile Stock Trading Subscribers, 2009-2014 (Percent)

38% 34% 33% 32% 30% 30%

47% 48% 47% 45% 45% 44%

13% 15% 17% 20% 22% 23%

2% 3% 3% 3% 4% 4%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America Table V-8 and Figure V-18 provide the regional breakdown of mobile stock trading application revenues. In this particular application, Insight’s research

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suggests that application revenue will follow the same trend as that of subscriber growth Table V-8 Regional Distribution of Global Mobile Stock Trading Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $20.7 $39.2 $65.9 $103.7 $157.6 $240.3 63.2% EMEA $25.4 $53.2 $92.2 $148.7 $241.6 $359.4 69.9% APAC $6.4 $13.3 $25.6 $47.3 $82.4 $124.3 81.0% CALA $1.0 $2.1 $4.0 $7.3 $12.9 $21.8 85.8% Total $53.5 $107.9 $187.7 $306.9 $494.4 $745.8 69.4% Figure V-18 Regional Share of Global Mobile Stock Trading Application Revenue, 2009-2014 (Percent)

39% 36% 35% 34% 32% 32%

47% 49% 49% 48% 49% 48%

12% 12% 14% 15% 17% 17%

2% 2% 2% 2% 3% 3%


Table V-9 and Figure V-19 re-emphasize the similarity between market dynamics of mobile banking and mobile stock trading by breaking down MNO earnings market by regions. INSIGHT forecasts that the EMEA and APAC regions will continue to account for more than four-fifths of the overall market size.

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Table V-9 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading Applications, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $12.9 $29.8 $58.5 $104.3 $175.5 $291.3 86.4% EMEA $49.6 $118.9 $229.8 $397.8 $678.1 $1,028.6 83.4% APAC $15.6 $31.3 $60.3 $110.9 $188.7 $266.1 76.3% CALA $0.7 $1.5 $3.0 $5.9 $11.1 $19.3 95.9% Total $78.9 $181.5 $351.6 $619.0 $1,053.5 $1,605.2 82.7%

Figure V-19 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Stock Trading Applications, 2009-2014 (Percent)

16% 16% 17% 17% 17% 18%

63% 65% 65% 64% 64% 64%

20% 17% 17% 18% 18% 17%

1% 1% 1% 1% 1% 1%


5.7 Mobile Proximity and Retail INSIGHT is forecasting that the number of subscribers worldwide using mobile proximity and retail services will almost double each year during 2009-2014, as we note in Figure V-20. The reason for this spectacular growth is the vast diversity of businesses in which this functionality can be employed and more importantly, how underutilized they are in their current format.

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Figure V-20 Global Mobile Proximity and Retail Subscribers, 2009-2014 (Millions)

9.6 17.4 34.580.3

168.2

284.4

0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014

Millio

ns

The rate of growth of the application revenues and the subscriber growth track each other closely as we note in comparing Figure V-21 with the prior figure. This is indicative of a market truly at the beginning of an acceptance curve, one in which customer acquisition is the primary activity. INSIGHT Research expects this market to only reach maturity some time beyond our forecast period, most likely by 2015. Figure V-21 Global Mobile Proximity and Retail Application Revenue, 2009-2014 ($Millions)

$12.7 $23.1 $46.3$109.6

$237.2

$413.3

$0 $50

$100 $150 $200 $250 $300 $350 $400 $450

2009 2010 2011 2012 2013 2014

$Milli

ons

Figure V-22 shows the impact of proximity and retail applications on MNO earnings. INSIGHT is projecting that this market will grow at a breakneck 105 percent on a year-on-year basis. The challenge for MNOs, in spite of such very

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robust growth rates, is to alter the profile of transactions that involve their networks. Currently the use of the network is restricted to the exchange of authentication information; the MNO will want to define applications that handle bulkier payloads in the transaction domain. Figure V-22 MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and Retail Applications, 2009-2014 ($Millions)

$4.3 $8.0 $16.5$40.0

$89.0

$158.0

$0 $20 $40 $60 $80

$100 $120 $140 $160 $180

2009 2010 2011 2012 2013 2014

$Milli

ons

5.7.1 Regional Breakdown Table V-10 and Figure V-23 provide the regional breakdowns of the subscriber growth. INSIGHT’s analysis suggests that EMEA and NA markets will have the greatest number of subscribers able to exploit the potential of mobile proximity and retail applications. Table V-10 Regional Distribution of Global Mobile Proximity and Retail Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 1.1 2.0 4.1 9.9 21.5 37.7 104.4% EMEA 3.2 5.9 11.9 28.3 64.0 111.3 103.4% APAC 4.1 7.3 14.0 31.5 63.7 104.0 90.5% CALA 1.2 2.3 4.5 10.6 18.9 31.3 90.9% Total 9.6 17.4 34.5 80.3 168.2 284.4 96.8%

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Figure V-23 Regional Share of Global Mobile Proximity and Retail Subscribers, 2009-2014 (Percent)

11% 11% 12% 12% 13% 13%

33% 34% 35% 35% 38% 39%

43% 42% 41% 39% 38% 37%

13% 13% 13% 13% 11% 11%


Table V-11 and Figure V-24 provide a regional breakdown of the application revenues. We have identified retail sales and ticketing as the two major areas in which the application will be widely used. The greater the diversity of locations in which mobile proximity and retail applications are deployed, the more the opportunity for the application developer to maximize their revenue. The EMEA region, with its large base of countries, is abuzz with mobile retail initiatives, which explains its position as the fastest growing market for these applications. Table V-11 Regional Distribution of Global Mobile Proximity and Retail Application Revenue, 2009-2014 ($Millions)


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Figure V-24 Regional Share of Global Mobile Proximity and Retail Application Revenue, 2009-2014 (Percent)

16% 16% 16% 16% 16% 16%

43% 44% 44% 45% 47% 48%

30% 30% 29% 28% 28% 27%

10% 10% 11% 11% 9% 9%


Table V-12 and Figure V-25 underline the dominance of the EMEA region and highlight the benefits of building an ecosystem of key stakeholders such as application developers, handset OEMs and influential operators in the same region as is observed in the case of EMEA. Table V-12 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and Retail Applications, 2009-2014 ($Millions)


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Figure V-25 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Proximity and Retail Applications, 2009-2014 (Percent)

4% 5% 5% 6% 6% 7%

40% 42% 44% 46% 50% 52%

50% 47% 44% 41% 38% 35%

6% 6% 6% 7% 5% 5%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America 5.8 Mobile Credit Cards INSIGHT Research is forecasting the subscriber base for mobile credit cards will grow more than 55 times during the period 2009-2014, as we note in Figure V-26. It is important to remember that we are considering only those applications that embed the card strip. Naturally, the two major drivers that influence this market will be the health of the overall credit card industry and the availability of NFC handsets. In that context, it is worthwhile mentioning that mobile credit cards will grow more than five times faster in percentage terms than its conventional counterpart.

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Figure V-26 Global Mobile Credit Card Subscribers, 2009-2014 (Millions)

6.6 8.2 14.0 32.9

102.0

368.3

0 50

100 150 200 250 300 350 400

2009 2010 2011 2012 2013 2014

Millio

ns

Our analysis suggests that the market for mobile credit card applications will grow slightly slower than the subscriber growth, as we note in Figure V-27. The closeness is again a reflection of the lack of refinement in the market. Thus far, there have been very few successfully demonstrated implementations of mobile credit card. Participation of the MNO is the key to the success of these initiatives, and we believe that the MNOs will gradually warm up to the concept of mobile credit card. Figure V-27 Global Mobile Credit Card Application Revenue, 2009-2014 ($Millions)

$4.5 $5.4 $9.3 $22.4

$69.8

$248.3

$0

$50

$100

$150

$200

$250

$300

2009 2010 2011 2012 2013 2014

$Milli

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INSIGHT is forecasting that the MNOs’ data transfer related revenues will follow the same trend as application developers’ revenue and will only really take off in the year 2014, as shown in Figure V-28. Figure V-28 MNO Earnings from Data Transfer Initiated by Global Mobile Credit Card Applications, 2009-2014 ($Millions)

$1.0 $1.3 $2.2 $5.2

$16.8

$63.1

$0

$10

$20

$30

$40

$50

$60

$70

2009 2010 2011 2012 2013 2014

$Milli

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5.8.1 Regional Breakdown Table V-13 and Figure V-29 provide the regional breakdown of mobile credit cards subscribers. The dichotomy between the APAC and the other regions is a consequence of the presence of NTT DoCoMo, which has a fairly mature implementation of mobile credit card in form of DCMX. No other MNO has had equivalent success so far. INSIGHT’s research suggests that this is slated to change over our forecast period. Table V-13 Regional Distribution of Global Mobile Credit Cards Subscribers, 2009-2014 (Millions)


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Figure V-29 Regional Share of Global Mobile Credit Cards Subscribers, 2009-2014 (Percent)

3% 5% 11%18% 23% 24%

4% 6%

13%

24%32% 36%

92% 88%72%

52%37% 31%

1% 1% 3%6% 8% 9%

2009 2010 2011 2012 2013 2014


Table V-14 and Figure V-30 provide the regional breakdown of mobile credit card application revenue. INSIGHT Research forecasts that the EMEA region will be the market to watch for mobile credit cards. EMEA fares favorably both in terms of the credit card subscriber base as well as NFC handset availability, and most of the major stakeholders hail from this region. Table V-14 Regional Distribution of Global Mobile Credit Card Application Revenue, 2009-2014 ($Millions)


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Figure V-30 Regional Share of Global Mobile Credit Card Application Revenue, 2009-2014 (Percent)

4% 6% 13% 21% 24% 24%6% 8%18%

30%39% 43%

89% 85%66%

45% 31% 26%

1% 1% 2% 4% 6% 7%


Table V-15 and Figure V-31 show the dominance of the EMEA region, which will grow a t an astounding overall rate of more than 300 times over a period of five years. Here again, the EMEA and the NA regions will have the highest CAGRs and they will dislodge the APAC region from its numero uno position. Table V-15 Regional Distribution of MNO Earnings from Data Transfer Initiated By Global Mobile Credit Card Applications, 2009-2014 ($Millions)


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Figure V-31 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Credit Card Applications, 2009-2014 (Percent)

6% 11% 15% 16%6% 8%19%

34%45% 51%

92% 89%73%

52%36% 29%

0% 1% 2% 3% 4% 4%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America 5.9 Mobile Barcoding Mobile barcoding on cell phones is expected to among the slower markets in terms of subscriber growth, as we note in Figure V-32. The reason for this slow rate of subscriber growth when compared to many of our other mobile financial applications is the fairly widespread availability of barcode reader enabled mobile phones globally today.

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Figure V-32 Global Mobile Barcoding Subscribers, 2009-2014 (Millions)

269.5348.0 390.8

445.0545.1

729.1

0 100 200 300 400 500 600 700 800

2009 2010 2011 2012 2013 2014

Millio

ns

The higher application revenue growth rate, when compared to subscriber growth rate, suggests that the stakeholders will look at more effective ways to monetize the barcoding features of mobile phones. We note this trend in Figure V-33. Figure V-33 Global Mobile Barcoding Application Revenue, 2009-2014 ($Millions)

$909.9$1,212.9

$1,411.8$1,674.7

$2,146.2

$3,017.9

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2009 2010 2011 2012 2013 2014

$Milli

ons

INSIGHT’s research suggests that mobile barcoding is the dark horse as far as earnings potential for MNOs through data transfer is concerned. Figure V-34 shows the forecast at current MNO participation levels. While the MNOs do not have a direct role to play in the size or the nature of content offered by the

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Reports


barcoding merchandiser, they can influence user experience in accessing the content and compel them to browse more for allied information in the same session. Figure V-34 MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding Applications, 2009-2014 ($Millions)

$626.6$792.8

$871.7$971.2

$1,162.7

$1,518.4

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2009 2010 2011 2012 2013 2014

$Milli

ons

5.9.1 Regional Breakdown Table V-16 and Figure V-35 provide the regional breakdown of mobile barcoding subscribers. INSIGHT is forecasting that the APAC region will dislodge the EMEA as the region with the most subscribers by 2010. Table V-16 Regional Distribution of Global Mobile Barcoding Subscribers, 2009-2014 (Millions)


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Figure V-35 Regional Share of Global Mobile Barcoding Subscribers, 2009-2014 (Percent)

13% 13% 13% 12% 12% 11%

41% 40% 38% 37% 36% 34%

39% 40% 42% 44% 46% 48%

7% 7% 7% 7% 7% 7%


Table V-17 and Figure V-36 provide the regional breakdown of mobile barcoding application revenue. It is set to follow the same pattern as that of subscriber growth for many of the same reasons. Table V-17 Regional Distribution of Global Mobile Barcoding Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $171.0 $215.9 $235.8 $262.0 $310.9 $402.8 18.7% EMEA $485.5 $633.2 $718.4 $826.0 $1,019.6 $1,373.3 23.1% APAC $211.3 $304.2 $383.9 $495.1 $692.7 $1,067.0 38.2% CALA $42.1 $59.5 $73.7 $91.5 $123.0 $174.8 32.9% Total $909.9 $1,212.9 $1,411.8 $1,674.7 $2,146.2 $3,017.9 27.1%

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Figure V-36 Regional Share of Global Mobile Barcoding Application Revenue, 2009-2014 (Percent)

19% 18% 17% 16% 14% 13%

53% 52% 51% 49% 48% 46%

23% 25% 27% 30% 32% 35%

5% 5% 5% 5% 6% 6%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America In synch with the overall trend, the EMEA and APAC regions will contribute to the bulk of MNO earnings attributed to mobile barcoding applications— though the NA region that will grow the fastest. The reason for the higher growth in NA can be attributed to the increased availability of barcode reader enabled mobile phones in that region. Table V-18 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding Applications, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $29.9 $40.3 $46.9 $55.4 $69.7 $95.4 26.1% EMEA $307.6 $394.0 $437.6 $491.2 $590.4 $772.7 20.2% APAC $270.0 $334.1 $360.1 $394.4 $466.4 $604.5 17.5% CALA $19.1 $24.4 $27.2 $30.2 $36.3 $45.8 19.2% Total $626.6 $792.8 $871.7 $971.2 $1,162.7 $1,518.4 19.4%

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Figure V-37 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Barcoding Applications, 2009-2014 (Percent)

5% 5% 5% 6% 6% 6%

49% 50% 50% 51% 51% 51%

43% 42% 41% 41% 40% 40%

3% 3% 3% 3% 3% 3%

2009 2010 2011 2012 2013 2014


5.10 Mobile P2P Mobile P2P payment is arguably the most discussed of the mobile financial applications under examination. It has the potential to bring the world’s poor in the world’s financial systems. As we note in Figure V-38, mobile financial peer-to-peer subscribers are expected to grow more than seven times between 2009-2014. This service will require the full co-operation on the part of MNOs.

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Figure V-38 Global Mobile P2P Subscribers, 2009-2014 (Millions)

35.5 43.061.0

93.4

161.5

273.0

0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014

Millio

ns

The lower than average growth rate of P2P applications revenue is a consequence of the typical customer profile, which is heavily dependent on remittances. We note the mobile P2P application revenue trend in Figure V-39. Given the extreme cost consciousness of the worldwide user base, vendors will be vying with each other by drastic reduction in their charges, which has a corresponding downward pressure on revenue. Figure V-39 Global Mobile P2P Application Revenue, 2009-2014 ($Millions)

$366.1 $424.5$576.2

$837.6

$1,365.4

$2,150.1

$0

$500

$1,000

$1,500

$2,000

$2,500

2009 2010 2011 2012 2013 2014

$Milli

ons

MNO earnings from mobile P2P applications rank among the smallest among all the mobile financial applications examined in this study, as we note in Figure V-40. The reason for this is the negligible data transfer/session. It is important to

The Insight

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remember that once the P2P client is installed, the data transfer/session is limited to inter-changing text-based information and alerts. Figure V-40 MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 ($Millions)

$6.9 $7.6$9.7

$13.3

$20.4

$30.3

$0

$5

$10

$15

$20

$25

$30

$35

2009 2010 2011 2012 2013 2014

$Milli

ons

5.10.1 Regional Breakdown Table V-19 and Figure V-41 provide the regional breakdown of the subscribers. Unsurprisingly, the APAC region will emerge as the region with the greatest subscriber growth, as it is the recipient of highest remittance. Table V-19 Regional Distribution of Global Mobile P2P Subscribers, 2009-2014 (Millions)


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Figure V-41 Regional Share of Global Mobile P2P Subscribers, 2009-2014 (Percent)

13% 13% 12% 11% 10% 9%

40% 39% 37% 35% 32% 30%

40% 42% 44% 46% 50% 54%

7% 7% 8% 8% 8% 7%


Table V-20 and Figure V-42 provide the regional breakdown of the mobile P2P application revenues. INSIGHT Research forecasts similar pattern as that of subscriber growth. Table V-20 Regional Distribution of Global Mobile P2P Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $94.5 $104.8 $136.7 $191.1 $298.8 $450.8 36.7% EMEA $208.0 $240.9 $325.7 $470.9 $762.3 $1,190.3 41.8% APAC $54.1 $66.8 $96.5 $149.2 $258.7 $433.9 51.7% CALA $9.5 $12.0 $17.3 $26.5 $45.7 $75.1 51.1% Total $366.1 $424.5 $576.2 $837.6 $1,365.4 $2,150.1 42.5%

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Figure V-42 Regional Share of Global Mobile P2P Application Revenue, 2009-2014 (Percent)

26% 25% 24% 23% 22% 21%

57% 57% 57% 56% 56% 55%

15% 16% 17% 18% 19% 20%

3% 3% 3% 3% 3% 3%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America INSIGHT Research is forecasting that the NA and EMEA regions will grow faster than the APAC regions in terms of MNO revenues from mobile P2P applications, as we note in Table V-21 and Figure V-43. This forecast takes into account the changing profile of the user—from remittance driven usage to a more casual and informal money transfer. The latter is more likely to prevalent in developed markets. Table V-21 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 ($Millions)


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Figure V-43 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile P2P Applications, 2009-2014 (Percent)

8% 8% 9% 9% 10% 11%

60% 62% 63% 64% 65% 66%

30% 28% 27% 25% 23% 22%

2% 2% 2% 2% 2% 2%


5.11 Mobile Gaming INSIGHT’s research suggests that since mobile gaming is the longest established application, it will show the slowest growth in acquiring new subscribers, as we note in Figure V-44.

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Figure V-44 Global Mobile Gaming Subscribers, 2009-2014 (Millions)

292.9337.2

370.6406.3

447.6

515.7

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014

Millio

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Mobile gaming has a different revenue model than the other segments under consideration given the fact that the application developer derives a major portion of its revenues directly from end-user. The developer tries to recover maximum earnings through one-time charges; there are practically no transaction-based charges. This modus operandi, coupled with the fairly mature status of this market, means that the mobile gaming segment is expected to have the highest application revenue, as we note in Figure V-45. Figure V-45 Global Mobile Gaming Application Revenue, 2009-2014 ($Millions)

$7,848.1$9,321.6

$10,580.8$12,040.6

$13,818.9

$16,696.4

$0 $2,000 $4,000 $6,000 $8,000

$10,000 $12,000 $14,000 $16,000 $18,000

2009 2010 2011 2012 2013 2014

$Milli

ons

The Insight

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Figure V-46 presents the negative impact that mobile gaming applications will have on the overall MNO earnings picture. Apart from being the only application that will witness a decline in revenues, mobile gaming is also the application that is the largest contributor to MNO revenues, thereby compounding its impact on the growth rates. It is important to remember that the data transfer for mobile gaming is not transaction dependent, but dependent on the size of the gaming application download—a one-time activity. MNOs, therefore, can exert little influence on subscriber habits unless the game in question happens to be a multi-party game played on a wireless network—which presently are numerically insignificant. Figure V-46 MNO Earnings from Data Transfer Initiated by Global Mobile Gaming Applications, 2009-2014 ($Millions)

$3,004.6 $2,891.2$2,652.1

$2,423.4$2,221.3 $2,128.1

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2009 2010 2011 2012 2013 2014

$Milli

ons

5.11.1 Regional Breakdown Table V-22 and Figure V-47 provide the regional breakdown of global mobile gaming subscribers. Historically speaking, mobile gaming has been popular in the NA and EMEA regions. INSIGHT Research forecasts that the APAC region will be the next primary market for these applications during 2009-2014 timeframe, with developing countries in the region embracing gaming culture.

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Table V-22 Regional Distribution of Global Mobile Gaming Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 35.7 39.8 41.1 42.7 43.9 47.4 5.8% EMEA 113.9 124.7 130.1 134.9 140.1 152.6 6.0% APAC 119.2 145.3 169.0 195.8 227.9 276.9 18.4% CALA 24.0 27.3 30.4 32.9 35.8 38.7 10.0% Total 292.9 337.2 370.6 406.3 447.6 515.7 12.0% Figure V-47 Regional Share of Global Mobile Gaming Subscribers, 2009-2014 (Percent)

12% 12% 11% 11% 10% 9%

39% 37% 35% 33% 31% 30%

41% 43% 46% 48% 51% 54%

8% 8% 8% 8% 8% 8%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America Table V-23 and Figure V-48 provide the regional breakdown of mobile gaming application revenue. INSIGHT Research is forecasting that the emergence of the APAC region as the fastest growing subscriber region will also catapult it into first place in respect to revenue growth. It can also be inferred that the EMEA subscribers will continue spending more per application when compared to their APAC counterparts.

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Table V-23 Regional Distribution of Global Mobile Gaming Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $1,457.7 $1,655.6 $1,746.2 $1,847.2 $1,937.4 $2,137.0 8.0% EMEA $4,106.8 $4,632.0 $4,975.1 $5,314.0 $5,685.0 $6,378.8 9.2% APAC $1,966.7 $2,637.4 $3,374.0 $4,301.1 $5,504.4 $7,358.4 30.2% CALA $317.0 $396.5 $485.4 $578.2 $692.1 $822.2 21.0% Total $7,848.1 $9,321.6 $10,580.8 $12,040.6 $13,818.9 $16,696.4 16.3% Figure V-48 Regional Share of Global Mobile Gaming Application Revenue, 2009-2014 (Percent)

19% 18% 17% 15% 14% 13%

52% 50% 47% 44% 41% 38%

25% 28% 32% 36% 40% 44%

4% 4% 5% 5% 5% 5%

2009 2010 2011 2012 2013 2014


Table V-24 and Figure V-49 highlight a subtle recovery and stabilization of the mobile gaming MNO revenues beginning in the year 2014. The extent of market erosion is a direct derivative of the severity of the current global recession. INSIGHT is forecasting that the decline will be arrested first in the APAC region.

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Reports


Table V-24 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Gaming Applications, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $178.6 $177.5 $163.8 $151.7 $139.2 $134.3 -5.5% EMEA $1,131.9 $1,051.0 $929.4 $817.3 $719.9 $665.0 -10.1% APAC $1,592.8 $1,563.2 $1,463.5 $1,365.3 $1,278.7 $1,250.9 -4.7% CALA $101.3 $99.4 $95.4 $89.1 $83.6 $77.9 -5.1% Total $3,004.6 $2,891.2 $2,652.1 $2,423.4 $2,221.3 $2,128.1 -6.7%

Figure V-49 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Gaming Applications, 2009-2014 (Percent)

6% 6% 6% 6% 6% 6%

38% 36% 35% 34% 32% 31%

53% 54% 55% 56% 58% 59%

3% 3% 4% 4% 4% 4%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America 5.12 Mobile Gambling Like mobile gaming, INSIGHT Research is forecasting that mobile gambling, as another of older mobile financial applications, will be a slow growing application, as we note in Figure V-50.

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Figure V-50 Global Mobile Gambling Subscribers, 2008-2013 (Millions)

124.3 142.9168.7

204.1

265.3

370.1

0

50

100

150

200

250

300

350

400

2009 2010 2011 2012 2013 2014

Millio

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More importantly, INSIGHT Research forecasts that the revenue from the sale of mobile gambling application will be the slowest among all applications under consideration, as we note in Figure V-51. This revenue should not be confused with earnings/losses made by subscriber using mobile gambling. This revenue is accrued by gambling application developers from the gambling service provider. INSIGHT Research forecasts a lull in the application development space. Figure V-51 Global Mobile Gambling Application Revenue, 2009-2014 ($Millions)

$245.3 $260.0 $283.2$316.4

$379.9

$489.6

$0

$100

$200

$300

$400

$500

$600

2009 2010 2011 2012 2013 2014

$Milli

ons

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Unlike its gaming counterpart, MNO revenues due to mobile gambling will continue to grow at a positive rate, albeit lower than most other applications. This critical fact highlights the difference between the dynamics of mobile gaming and mobile gambling with respect to MNOs. As shown in Figure V-52, INSIGHT Research forecasts a CAGR close to 30 percent. Figure V-52 MNO Earnings from Data Transfer Initiated by Global Mobile Gambling Applications, 2009-2014 ($Millions)

$81.7$97.5

$119.7$151.0

$204.9

$298.9

$0

$50

$100

$150

$200

$250

$300

$350

2009 2010 2011 2012 2013 2014

$Milli

ons

5.12.1 Regional Breakdown Table V-25 and Figure V-53 provide the regional breakdown of mobile gambling subscribers. The CALA region is the fastest growing region in terms of mobile gambling subscriber acquisition. It should be noted that the future of mobile gambling will depend on the legislations adopted by governments worldwide, which can either retard or hasten growth. Favorable legislation is likely to make substantial difference in the NA and EMEA regions.

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Table V-25 Regional Distribution of Global Mobile Gambling Subscribers, 2009-2014 (Millions)

2009 2010 2011 2012 2013 2014 CAGR NA 13.8 15.5 18.2 21.9 28.3 39.1 23.2% EMEA 58.9 67.5 79.2 95.4 123.5 171.4 23.8% APAC 48.4 56.0 66.4 80.8 105.6 148.0 25.0% CALA 3.2 4.0 4.8 6.0 8.0 11.5 29.6% Total 124.3 142.9 168.7 204.1 265.3 370.1 24.4% Figure V-53 Regional Share of Global Mobile Gambling Subscribers, 2009-2014 (Percent)

11% 11% 11% 11% 11% 11%

47% 47% 47% 47% 47% 46%

39% 39% 39% 40% 40% 40%

3% 3% 3% 3% 3% 3%


Table V-26 and Figure V-54 provide the regional breakdown of mobile gambling application revenues. Insight Research forecasts a relatively higher level of interest among APAC and CALA gambling service providers as their spend-per-customer-acquisition rate is more favorable than other regions.

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Table V-26 Regional Distribution of Global Mobile Gambling Application Revenue, 2009-2014 ($Millions)

2009 2010 2011 2012 2013 2014 CAGR NA $37.3 $37.8 $39.8 $43.1 $50.1 $62.4 10.9% EMEA $130.1 $137.0 $148.1 $164.1 $195.3 $249.4 13.9% APAC $72.8 $79.1 $88.3 $100.9 $124.0 $163.4 17.5% CALA $5.1 $6.1 $7.0 $8.3 $10.6 $14.4 23.1% Total $245.3 $260.0 $283.2 $316.4 $379.9 $489.6 14.8% Figure V-54 Regional Share of Global Mobile Gambling Application Revenue, 2009-2014 (Percent)

15% 15% 14% 14% 13% 13%

53% 53% 52% 52% 51% 51%

30% 30% 31% 32% 33% 33%

2% 2% 2% 3% 3% 3%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America Table V-27 and Figure V-55 highlight the impact of favorable legislation on the MNO revenues accrued out of mobile gambling initiated data transfer. INSIGHT is forecasting favorable legislations in NA and EMEA regions, leading to a higher than average CAGR.

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Table V-27 Regional Distribution of MNO Earnings from Data Transfer Initiated by Global Mobile Gambling Applications, 2009-2014 ($Millions)


Figure V-55 Regional Share of MNO Earnings from Data Transfer Initiated by Global Mobile Gambling Applications, 2009-2014 (Percent)

6% 6% 6% 7% 7% 8%

64% 66% 67% 69% 70% 71%

29% 27% 26% 24% 22% 21%

1% 1% 1% 1% 1% 1%

2009 2010 2011 2012 2013 2014

North America Europe, Middle East, Africa Asia and Pacific Central + Latin America 5.13 Conclusions

• INSIGHT concludes that mobile financial applications are slated to grow a much higher rate as compared mobile phone subscriber growth.

• Mobile gaming will continue to be the largest application revenue earner as

well as data transfer revenue source, while mobile banking and mobile barcoding will have the largest number of subscribers.

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Reports


• Mobile credit card applications will be the fastest growing on subscriber acquisition application revenue and MNO earnings fronts.

• Applications that are actively driven by a diverse set of stakeholders will

grow faster than applications that are driven by a limited number of stakeholders. Good examples are mobile credit card and mobile proximity and retail, which are driven by the application developer, credit card companies MNO, system integrators, merchants and government bodies. Other applications such as gambling, banking, and stock trading will grow at a slower rate.

• MNOs can clearly help themselves by accepting ownership to

commensurate with their pre-eminent status to perk up their data transfer revenues as well as enhance customer loyalty.

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Reports

Appendix Reproduction without permission 149 of the publisher is prohibited

APPENDIX GLOSSARY

2G Second Generation IVRS Interactive Voice Response System 3G Third Generation J2ME Java 2 Micro Edition ADSM Abu Dhabi Securities Market JEE Java Enterprise Edition ALW A Little World JME Java Micro Edition APAC Asia Pacific KMEFIC Kuwait and Middle East Financial Investment Company ATM Automated Teller Machine MMOG Massively Multiplayer Online Gaming BC Business Correspondent MMORPG Massively Multiplayer Online Role Playing Game BSS Business Support System MNO Mobile Network Operators CALA Central and Latin America MTP Mobile Transaction Platform CCB Chinese Construction Bank NA North America CLDC Connected Limited Device Configuration NFC Near Field Communications CSP Customer Service Point NREGS National Rural Employment Guarantee Scheme DFM Dubai Financial Market NVTEQ Navigational Devices

DIFD Department for International Development OEM Original Equipment Manufacturer

DSP Digital Signal Processor OS Operating System EFTS Electronic Funds Transfer System OTA Over the Air EMEA Europe, Middle East, Africa P2P Peer to Peer FIX Financial Information Exchange PAN Personal Area Networking FSP Financial Services Platform PAT Phone Authorized Transfer GDM Global Delivery Model POI Point of Interest GSM Global System for Mobile PoP Point of Presence GSMA Global System for Mobile Association POS Point of Sale

HCM High Performance Cross Platform Mobile Technology PSB Public Sector Bank

HSDPA High Speed Download Packet Access QR Quick Response HTTPS Hypertext Transfer Protocol Secure RBI Reserve Bank of India IBT International Bank Transfer RBT Regional Bank Transfer IP Internet Protocol RF Radio Frequency iPRB Process Repository for Banks RFID Radio Frequency Identification Ir/RF Infrared Radio Frequency RPG Role-Playing Games IVR Interactive Voice Response SaaS Software as a Service

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Appendix Reproduction without permission 150 of the publisher is prohibited

SMSC Short Message Service Center SOA Service Oriented Architecture SOL Shadow of Legend TADAWUL Saudi Financial Market UPS Universal Product Code URL Uniform Resource Locator USSD Unstructured Supplementary Service Data WAE Wireless Application Environment WAP Wireless Application Protocol WDP Wireless Datagram Protocol

WiMAX Wireless Interoperabilty for Microwave Access

WML Wireless Markup Language WPAN Wireless Personal Area Network WSC Wallet Service Center WSP Wireless Session Protocol WTLS Wireless Transport Layer Security WTP Wireless Transaction Protocol

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