mobile payments - diamond
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insight
Mobile payments have been highly
touted since it became apparent that
the mobile phone would emergeas a ubiquitous consumer device.
However early market adoption was
stunted by technological challenges,
a lack o standardization, ragmented
commercial eorts, and most impor-
tantly, a lack o sustainable business
models. More recently, however, there
have been signs o renewed interest
in mobile payments. Recent commer-
cial initiatives include NTT DoCoMo
and SK Telecom in Asia as well as
mobile payment trials in the U.S., by PayPal Mobile, Visa and MasterCard.
We believe mobile operators in the U.S. now have a real opportunity
to lead this market development, given their large customer bases, and
control o mobile device eatures, user interace, and subsidies.
We dene mobile payments (m-payments) as any payment transactions,
whether in-store or remote, executed on mobile devices. In this paper,
we rst assess the market opportunity or m-payments in comparison
to other traditional payment methods. We then identiy and evaluate
potential business models based on past and ongoing initiatives. Finally,
we highlight key strategic questions or mobile operators to assess the
mobile payment opportunity.
Mobile Payments: MobileOperator Market Opportunitiesand Business Models
By Hamilton Sekino, John Kwon and Se Han Bong
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Potential Drivers for Market
Adoption of Mobile Payments
While mobile operators, nancial services rms,
and retailers have been evaluating the easibilityo m-payments since early 2000, recent
developments on both the supply and demand side
are prompting the key players in the m-payments
value chain to get serious about its potential.
On the supply side, mobile operators
are under pressure to continue looking or
new revenue sources to counteract
voice pricing decline and subscriber growth
saturation. While mobile operators in the
U.S. are gaining traction with mobile data
content and applications, which already
represent 13% o total ARPU, the m-payment
market presents them with an opportunity
to urther expand non-voice revenues. Mobile
operators in mature wireless markets such
as South Korea and Japan, where mobile
data ARPU already reached 19% and 29% o
ARPU respectively, are aggressively leading
their respective m-payment ecosystems. We
estimate that mobile operators in the US
will need to generate more than $40B in non-
voice revenues by 2010 in order to sustain
overall ARPU, and they will be looking at
m-payments as one potential revenue source.
Furthermore, nancial institutions, acing
declining revenue growth rom traditional
credit cards, are also looking at cash-
dominated micro-payments (i.e. transactions
less than $5) to generate new revenue
streams. In 2004, micro-payments processed
through credit and debit cards accounted
or only $13.5 billion out o over $1 trilliontotal spent on micro-payments.
On the demand side, the growing ubiquity o
mobile phones and their increasing multi-
unctionality make mobile phones a compelling
candidate or replacing a physical wallet. In
the U.S. mobile penetration has passed 75%,
with 235M mobile phone users, compared
to 176M people with credit/debit cards.
Surveys reveal that U.S. consumers today
are more likely to leave home without their
wallets than their mobile phones.
In addition, consumers are increasingly
comortable in using their mobile phones or
applications other than voice. This is clearly
the case in Japan and South Korea, which are
leading m-payment deployments. It is reasonable
to expect this trend to carry over to the U.S.
market, where mobile data penetration is
projected to grow rom 21% to 52% by 2011.
Segmentation and Sizing of the
Mobile Payment Market
To help assess the market potential o mobilepayments, Diamond rst looked at the curren
payments market and identied and sized
segments that are more predisposed
to adopt mobile payments (Figure 1).
The market is segmented into 4 quadrants:
in-store vs. remote and micro vs. macro
transactions, where a micro transaction is
dened as less than $5. From this perspective, w
ocused on in-store transactions, aggregating to
more than $6 trillion in annual transactions, andon peer-to-peer (P2P) and international und
transers, a much smaller market with close t
$60B in annual transactions.
Mobile phones possess key value propositions
that make m-payments ideal or these segments
For in-store segments—in particular the micro-
payments segment—the value proposition is the
convenience and speed o contactless payments
enabled by mobile phones with embedded NFC
(Near Field Communication) chips. For on-line
P2P and international transer markets, the value
proposition is the inherent connectivity, ubiquity,
and near real-time verication capability
o mobile devices (via SMS, WAP, or IVR).
Overview of Payment Value Chains
Beore evaluating and recommending an
optimal new value chain and business model
or mobile operators, it is useul to rst
review existing payment models (Figure 2).
The Mobile Payment
Market Opportunity
For more information contact:
Hamilton Sekino, Partner
The Mobile Payment Market
Opportunity . . . . . . . . . . . . 2
Mobile Payment Business Models . . . 5
Conclusion: Recommendations or
Mobile Operators . . . . . . . . 10
About the Firm . . . . . . . . . . . . 12
About the Authors . . . . . . . . . . 12
table o contents
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Overview of Traditional Payment Value Chains
Cash
Credit /
Debit Cards
Checks
Online P2P
Payments
Mobile
Payments
Consumers
• Accept cash Pay cash
Consumers
• Accept payments using cardreaders that are connectedto merchant acquirers
Manage consumeraccounts and assumeassociated credit risk
Typically outsource back-office processing
Pay issuers and manageaccounts (via statementsor online access)
• Hold merchant accounts• Manage transaction info
& merchant payment
• Typically outsourcetransaction processing
• Connect and switchtransactions betweenmerchants & issuing banks
•
•
•
• •
•
•
•
•
Expand network andpromote brand awareness
Consumers
• Accept checks and verifyconsumers’ identity andaccount information
Monitor theirchecking accounts
Hold consumer accountsand issue checks
Not responsible forfraudulent checks
Outsource check printing
• Hold merchant accounts• Collect & process checks
(verification and guarantee)
• Clear checks & collect funds
Consumers
• Accept payments usingM-payment readers orexisting POS devicesconnected to merchantacquirers
Authorize payments andmanage wireless bills/creditcard bills/m-paymentaccounts & M-wallet
Pay bills and rechargeM-wallet
Monitor their accountsvia mobile phones
• Hold merchant accounts
• Manage transaction info& merchant payment
• • •
•
Connect and switchtransactions (either throughown network or existingpayment networks)
Consumers
• •One entity performs acquiring, issuing & processing (network function)• Transaction is identical to transferring funds between two accounts in a same bank • User accounts are typically linked to member credit cards or bank accounts• Service provider encourages users to maintain balances on their accounts by giving interest
(via money market accounts)
• Selling party must belong tothe same payment network as the paying party toreceive funds
Transfer funds betweenother accounts to theservice provider
Issuers AcquirersMerchants Payment Networks
Figure 2
Sources: Federal Reserve Bank of Philadelphia, 2006; IDC survey, 2006; eMarketer, 2006; Nilson Report, 2005; IMF, 2005; Diamond analysis.
TRANSACTION LOCATION
Micro-
Transactions
Macro-Transactions
1Vending, parking, coin-operated machines, quick-service
restaurants, and transit account for $160 billion.2Excludes P2P payments, catalog sales, i nfomercial sales,telesales or bill payments.
3 About 9% of US online shopping used peer-to-peer service,
such as PayPal, to make payments, and nearly 95% ofonline P2P were generated by auction-related payments.
4Total US remittance outflow (personal transfers from theUS to other countries) in 2005.
In-Store Remote
TRANSACTION
SIZE
U.S. Payments Market Segmentation and Sizing
Incumbents: Credit/Debit Cards,
Cash, Checks
Online sales2 = $176.4 billion+ Online P2P3 = $16.0 billion+ Int’l fund transfers4 = $43.5 billion
$235.9 billion
Payments over $5 in physical locations
= $5.0 trillion
Incumbent: Cash
Payments under $5 in physical locations
= $1.2 trillion1
Wireless content & app. download
= $2.0 billion
Incumbents: Credit/Debit Cards,
P2P Payments
Incumbent: Direct Wireless Billing
Figure 1
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Traditional payments typically involve a
merchant, acquirer, issuer, and a consumer.
The roles o merchants and consumers
are obvious. Acquirers are responsible oracquiring merchants and enabling merchants
to process payments. Issuers are responsible
or issuing payment devices to consumers
and processing the transer o unds
rom consumer accounts to merchants.
In the case o credit and debit cards and
other electronic orms o payment, a payment
network provider, such as Visa or MasterCard,
resides between acquirers and issuers
to acilitate the transer o inormation and
unds. Payment network providers are
also responsible or expanding their merchant
networks and user membership to ensure
wide acceptance and drive revenue growth.
In recent years, PayPal spearheaded
the development o a simplied payment
value chain to acilitate rictionless
payment methods or on-line commerce
between individuals and on-line merchants.
In this online peer-to-peer (P2P) payment
model, one entity, PayPal, holds the relationship
with both merchants and consumers, thus
playing the role o both acquirer and issuer.
For providing these payment services,
the various players in the value chaintypically take a percentage o the payment
transaction that ranges between 1 and 3%.
Typical share o interchange ees or
players in the value chain, along with the
U.S. market size or each payment types,are illustrated in Figure 3.
These interchange ees are considered
a major cost actor or merchants and
have been an extremely contentious issue
between merchants and nancial
services rms in recent years. Any new
payment model or mobile payments
must be cognizant o these interchange
ees and attempt to reduce or match
these ees to be successul, especially or
micro payments.
Breakdown of Processing Fees Across the Value Chains
Cash
Credit /
Debit Cards
Checks
Online P2P
Payments
Mobile
Payments
• Keep 100% of payment value
• CC: • Keep 0.4% (shared w/processors)
• Keep 0.25% (shared w/ processors)
• 2005: 49B trans($1.4T)
• 2009: 47B trans($1.7T)
• 2005: 46B trans($2.6T)
• 2009: 63B trans($3.7T)
• 2005: 26B trans($2.0T)
• 2009: 23B trans($1.4T)
• 2005: ($16B*)
• 2009: (25B)
• 2005: Negligible
• 2009: 0.4B trans($5B)
• Keep 0.16% (shared w/processors)
• Keep 1.5% (shared w/processors)
• Keep 0.77% (shared w/ processors)
• Keep 0.25% (shared w/processors)
•
• Keep 0.1%
• Keep 0.05%
• Offline DC:
• Online DC:
Keep ~98%
Keep ~99%
Keep >99%
Keep 0.1%
•• Keep ~96% of payment value May collect fees fromconsumers
• $0.25 per transaction(verification) AND 2% + $0.15to $0.25 per transaction(guarantee)
• Keep ~97% of payment value Keep 1.2% (less than halftheir usual 2.5 cut)
• Keep 1.3% (1.0% going tosubsidizing Moneta phones)
• •Keep 0.1%
• 1.9% to 2.9% + $0.30 per transaction• Keep ~97% of payment value
• 2% + $0.20 per transaction• Keep ~98% of payment value
Issuers AcquirersMerchantsU.S. MarketSize
Payment Networks
Sources: The Nilson Report; eMarketer 2006; UBS; FDC; EFT data book; Card Association Interchange Schedule; SK Telecom.
*About 9% of US online shopping (i.e. 9% of total $176.4B) used peer-to-peer service, such as PayPal, to make payments. Nearly 95% of online P2P were generated by auction-related payments.
Note: Breakdown of payment value based on an $100 transaction.
Figure 3
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Diamond evaluated seven representative
m-payment initiatives in the market, or both
in-store purchase and P2P remote payments,
to assess their easibility in the U.S. market.
In-store Payments
To understand the m-payment options or
in-store purchases, we look at our current
m-payment initiatives (Figure 4): NTT DoCoMo
(DCM) FeliCa in Japan; SK Telecom Moneta in
South Korea; MasterCard m-payment trials in
the U.S.; and the Mobilelime venture in the U.S.
While some o these services oer payment
applications beyond in-store purchases, orthe purpose o this assessment we will ocus
on their in-store payment capabilities as
the dominant service oering.
nNTT DoCoMo FeliCa —
Operator-Dominated Model
NTT DoCoMo launched e-wallet mobile
phones using Sony’s FeliCa technology inJuly, 2004 with very positive results. By
2006, DoCoMo already had more than 24,000
POS readers throughout Japan and over
18 million e-wallet service subscribers (35%
o the total subscriber base).
Here’s how the DoCoMo FeliCa service
works. Customers get a FeliCa-enabled phone
that comes with a smart chip embedded in
the device. Once customers use their phones
to activate the service, they can choose rom
a prepaid account similar to a debit account
or an extended credit account. In addition,
Felica users can apply or multiple third-party
Assessing
Mobile Payment
Business Models
Potential Business Models for In-store Payment Segment
Operator-dominated
Model(DoCoMo FeliCa)
M-wallet Aggregator
Issuers AcquirersMerchantsPaymentNetworks
POS Requirement:New DoCoMoFeliCa reader
Primary Acquirer:DoCoMo
Processing:DoCoMo
Issuer: DoCoMoBilling: DoCoMoInterchangeCollector: DoCoMo
M-wallet: DoCoMoProvisioning: OTA by DoCoMo
Device: FeliCa-embedded
phone
Activation: Via phonemenu (OTA)
Payment: Wave phone (NFC)
Operator/FSCollaboration
Model(SKT Moneta)
POS Requirement:New Monetapayment reader
Primary Acquirer:SKT Moneta
Processing:Leverages existing
VISA & MC networks
Issuer: BanksBilling: BanksInterchangeCollector: Banks
M-wallet: SKT Moneta
Provisioning: Smartchip distributed bybanks
Device: Moneta-enabledphone
Activation: Insertion of smartchip into phone
Payment: Wave phone (NFC)
FS-dominatedModel
(MasterCard)
POS Requirement:New Paypasssensors
Primary Acquirer:MasterCardleverages existingacquirers
Processing:Leverages existingMasterCard network
Issuer: BanksBilling: BanksInterchangeCollector: Banks
M-wallet: IssuingbanksProvisioning: OTA by issuing bank
Device: Nokia 3220 w/NFC(from at&t)
Activation: OTA
Payment: Tap & Go (NFC)
3rd-partyIntermediation
Model(Mobilelime)
POS Requirement:Registration only
Primary Acquirer:Mobilelime
Processing:Mobilelime
Issuer: MobilelimeBilling: NA Collector: NA
M-wallet: NA Provisioning: None
Device: No new phonesrequired
Activation: Online registration
Payment: Call IVR
Person orMerchant
Wireless Operator Financial Services New Entrant
Figure 4
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services such as transit tickets, ID cards, and
electronic keys to be incorporated into their
e-wallet phones.
Unique to the DoCoMo model is its vertical
integration. DoCoMo purchased a bank to
handle account management, credit issuance,
and merchant acquisition processes. In
this model DoCoMo has established an end-
to-end service delivery model: acquisition,
payment network, and issuance.
This model allows the operator great
fexibility in implementing the payment value
chain, particularly in establishing attractive
processing ees. Since there are no otherplayers in the value chain, the operator is ree
to set appropriate device costs and lower
transaction ees to entice new merchants.
In addition, having the ull range o
relationships as a wireless provider and
a banker is likely to increase the
stickiness o the consumer relationship,
thus reducing overall churn.
However, there are added risks and
disadvantages to going it alone. In addition
to the initial investment o acquiring a
bank with credit-issuing capability, DoCoMo
also had to invest in acquiring new
merchants and distributing new POS readers
throughout Japan. Given the geographical
size and population o the U.S., this would be
an even greater challenge or operators
here. DoCoMo was able to establish
partnerships and standards very quickly by
leveraging their dominant market share
in the Japanese mobile market. This may bechallenging in the U.S. market where there
is not a single dominating operator.
n SK Telecom Moneta—Operator
and FS Collaboration Model
Originally trialed in South Korea in 2002 using
inra-red readers, SKT Moneta currently
uses a NFC chip inserted into mobile phones
to acilitate payments. Visa and SKT also
announced that they will be oering Universal
SIM (USIM) cards, which can be personalized
over-the-air (OTA) starting in April 2007.
The SKT Moneta service has over 500,000
POS readers and 2.6 million subscribers
with Moneta phones.
Customers sign up or the SKT Moneta service
via the web or through their local bank branch.
Customers then receive a personalized
chip that they insert into the phone to activate
the service. Starting in April, 2007 customers
are able to sign up and get their mobile
phones provisioned OTA and no longer need
to wait or a new chip. Once activated, the
mobile device can be used as an e-money
account, credit card, transit ticket, membership
loyalty card, and or mobile online trading.
SKT is the m-wallet owner, meaning that
customers are able to hold multiple accounts
rom dierent issuers under one mobile
device that is serviced by SKT.
The SKT Moneta service exemplies a
collaboration model between a mobile
operator and nancial services rms.
Credit/account issuance is perormed bythe partnering banks and payments are
processed through the existing Visa and
MasterCard networks. SKT develops new
payment applications and is responsible
or rolling out new POS readers to merchants.
For those investments, SKT partakes in
a portion o the transaction revenue rom
the payments. SKT receives 1.3% o the
transactions, payment networks 0.1% and
issuing banks 1.2%, which is less than
their usual ee o 2.5% in South Korea.
We believe the operator/nancial services
collaboration model implemented by SKT
may be a better t or U.S. operators than
the operator-dominated model. In this model,
the payment service is issued in partnership
with existing bank issuers. Hence, all credit
issuance and account management are
perormed by the partnering banks and not
by the mobile operator, which may be
a point o concern or U.S. consumers who
preer to receive banking services rom
nancial services rms.
However, while SKT had to invest in the
rollout o new payment readers in South
Korea, U.S. operators should collaborate
with nancial services rms to leverage
the existing payment networks and
their contactless payment inrastructure.
Visa, MasterCard, and American Express
already have a big lead in rolling out
contactless payment readers and they are
likely to continue their investments.
Partnering with those rms would reduce
the investment required in rolling out
new readers and help to expand m-payment
adoption by establishing a single standard
across operators and nancial services rms.
nMasterCard M-Payments Trial—
FS Firm Dominated Model
MasterCard’s m-payment trials in Dallas
and New York illustrate a nancial services-
dominated model. In November, 2006
MasterCard launched its trial o m-paymentservice in Dallas, partnering with Mobile
Virtual Network Operator 7-Eleven Inc.’s Speak
Out Wireless and Peoples Bank o Paris
Texas. MasterCard later launched a similar trial
in New York, partnering with Cingular
and Citibank. In both trials, customers received
a NFC-enabled Nokia 3220 phone that
is activated OTA using the carrier network. Once
activated, customers can “tap and go” to
pay or goods in more than 32,000 merchant
locations that accept Paypass, including7-Eleven stores, McDonald’s, CVS, Duane Reade,
Sheetz, and Regal Entertainment Group.
The m-payment works just like the
MasterCard Paypass cards in that a customer
taps the reader to initiate the payment.
No signature is required or purchases lower
than $25, making it ideal or replacing
cash transactions.
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The MasterCard m-payment trial exemplies
a nancial services-dominated model
by leveraging existing payment value chains.
The New York trial works with a customer’sexisting Citibank credit account and payment
is processed using MasterCard’s existing
payment network. While a permanent business
model has yet to be established, currently
the mobile operator’s involvement is limited
to providing the wireless network or
OTA provisioning o the mobile payment
device and participating to provide mobile
banking services.
This model has some advantages in terms o
consumer adoption. Given that the issuer
o the m-wallet is the issuing bank, it works
with existing credit accounts and does
not require customers to apply or new ones.
The trial uses MasterCard’s existing
payment networks and Paypass readers,
avoiding new investments in payment
readers or acquisition o new merchants.
MasterCard and Citibank, the issuing
bank in the New York trial, were able to
leverage their trusted brand names whichshould help to mitigate security concerns
around m-payments.
However, outside o the trial, a permanent
business model that would satisy all
players has yet to be determined. In the
trial, the operator acilitated the OTA
provisioning o the phone via the wireless
network, but all the other aspects o
the payments process are managed and
owned by the nancial services rms.
The mobile operator does not partake in
the interchange ees or own the m-wallet.
Given that U.S. operators have a dominant
relationship with device manuacturers
and heavily subsidize mobile devices, we
believe it is unlikely that operators would
be satised with such a passive role in the
value chain.
nMobilelime—3rd Party
Intermediation Model
Mobilelime’s third party intermediation
model represents another approach.Mobilelime works to combine marketing and
loyalty programs with m-payment service.
Initially designed with marketing and loyalty
programs in mind, Mobilelime and partnering
merchants provide discounts and send
optional promotional inormation to customers
via SMS.
To pay using Mobilelime, customers
call a 1-800 number and enter a PIN along
with a specic vendor location number to
initiate a payment. The vendor then inputs
the last 4 digits o the customer’s phone
number to receive the payment. Once
the payment is veried, Mobilelime transers
the money to the vendor rom a pre-
registered customer credit card similar to
a PayPal online payment. Merchants can
also participate in Mobilelime’s marketing
and loyalty programs to send promotional
inormation via SMS and track consumer
behavior via a customer’s phone number.
Mobilelime banks on consumer desire
or discounts and merchant interest in
maintaining eective loyalty programs to
motivate m-payments. Additionally, their IVR-
based payment method does not require any
new POS readers at the merchant location or
NFC-enabled handsets, which are adoption
barriers or other mobile payment methods
discussed earlier.
However, Mobilelime’s payment processesare cumbersome. Furthermore, Mobilelime
currently lacks the brand awareness and
marketing muscle to acquire new users and
the credibility to acquire merchants in
large numbers. We believe that it will be very
dicult or any third party new entrant to
disintermediate mobile operators and nancial
services incumbents in the value chain.
Targeting Remote &
Macro Payments
To understand m-payment options or remote
(mainly P2P) payments Diamond lookedat three m-payment initiatives in the market:
SMART Money in the Philippines and two
mobile services recently launched in the U.S.,
Obopay and PayPal Mobile (Figure 5, page 8).
While some o these services oer payment
applications beyond mobile P2P, or the
purpose o this assessment we will ocus on
their mobile P2P capabilities as the dominant
service oering.
n SMART Money—Operator and
FS collaboration Model
SMART Money, the world’s rst reloadable
e-wallet account, was launched in 2000
by SMART, a leading mobile operator
in the Philippines, and Banco de Oro. Each
SMART phone is shipped with a SMART
Money application pre-loaded on its SIM
card. Customers activate the SMART
Money service OTA using the pre-loaded
SMART Money menu on the phone.
Once activated, customers can use SMART
Money to send unds to other subscribers,
pay merchants, pay utility bills, and pay or
prepaid mobile airtime. Customers can also
reload or deposit cash into their SMART
Money account in over 700,000 retail locations
that participate as SMART Money reloading
stations. SMART also distributes an optional
prepaid MasterCard that can be used to
access unds in SMART Money.
In the SMART Money payment value chain,
all o the account management and payment
processing (except or MasterCard transactions)
is perormed by the partnering bank,
Banco De Oro. SMART handles marketing and
acquisition o new merchants and consumers.
While SMART does not get a portion o the
transaction ees, the transactions are perormed
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using SMS, thus contributing to the carrier’s
overall data revenue. Moreover, SMART reports
that using SMART Money and SMART
reload stations to recharge prepaid airtimehave reduced their prepaid top-up costs.
We believe mobile operators and large
retailer banks under a collaboration model
similar to SMART Money may create a
valuable proposition to consumers with an
on-the-go P2P service. For example, parents
could send money to their kids on amily
plans upon receiving a request or more
unds on their accounts; or teenagers could
exchange small amounts through mobile
P2P replacing cash.
However, the major limitation o the model
is the “interoperability” between mobile
operators allowing P2P transers between
subscribers o dierent operators. The
importance o “interoperability” is shown
by the adoption curve o SMS in the US
that only took o ater SMS exchanges
across operators became available and more
reliable. Mobile operators should collaborateon P2P as well to ensure cross-network
transers.
nPayPal Mobile—Third-Party
Intermediation Model
PayPal, a leading online P2P payment
provider with more than 100 million users
worldwide, launched a SMS-based
mobile payment service in 2006 that allows
U.S. and Canadian members to send money
using their mobile phones on-the-go. Existing
PayPal members can activate their service
online by registering their Mobile number along
with a PIN. PayPal Mobile works with
any mobile phone, either via SMS or IVR.
Once registered, customers can send money
by texting the amount to be paid along
with the payee’s phone number to PayPal
or by calling a 1-800 number and using
the IVR system. For SMS requests, PayPal
authenticates the transaction by callingback the payer and veriying their PIN. For
IVR requests, the PIN is veried on the initial
call. Once the payment is conrmed, PayPal
noties the payee with instructions on how
to claim the payment. PayPal is also working
with merchants and charity organizations to
oer “text to buy” and “text to donate” codes.
For participating merchants and charities,
customers can buy items on ads or donate to
a charity simply by texting the “text to buy”
or “text to donate” codes to PayPal.
PayPal Mobile’s value chain is identical
to PayPal online. In act, PayPal provides
one account or both online and mobile
payment services; the only dierence is the
mode o communication when requesting
and acknowledging payments.
Potential Business Models for the Remote P2P Segment
M-wallet Aggregator
Issuers AcquirersMerchantsPaymentNetworks
Operator/FSCollaboration
Model(SMART Money)
POS Requirement:Registration only
Primary Acquirer:SMART
Processing: P2Pprocessed by BDO;optional prepaid MCprocessed via MC
Issuer: BDOBilling: None (prepaid)InterchangeCollector: BDO
M-wallet: SMARTProvisioning: SMART (OTA)
Device: SMART-enabledphones
Activation: Via phonemenu (OTA)
Payment: SMS via phonemenu
3rd-partyIntermediation
Model(Obopay)
POS Requirement:Registration only
Primary Acquirer:Obopay
Processing: Obopaytransfers fundsbetween twoObopay accounts
Issuer: ObopayBilling: ObopayInterchangeCollector: Obopay
M-wallet: NA Provisioning: OTA (participatingoperators)
Device: No new device
Activation: Download Javasoftware
Payment: SMS via Obopay
menu of IVR
3rd-partyIntermediation
Model(PayPal Mobile)
POS Requirement:Registration only
Primary Acquirer:PayPal
Processing: PalPaltransfers fundsbetween twoPayPal accounts
Issuer: PayPalBilling: PayPalInterchangeCollector: PayPal(free for now)
M-wallet: NA Provisioning: None
Device: No new phonesrequired
Activation: Online registration
Payment: Send text or call IVR
Person or Merchant
Person or Merchant
Person or Merchant
Wireless Operator Financial Services New Entrant
Figure 5
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nObopay—Third-Party
Intermediation Model
Launched in March, 2006, Obopay oers on-
the-go P2P mobile payment service. Similar
to PayPal, both payee and payer must belong
to Obopay to send and receive unds. Also
similar to PayPal, Obopay links to a user-
provided bank or credit account to replenish
account balances when payment is made.
Customers can send money using an Obopay
application (which can be downloaded OTA or
subscribers o select operators), SMS, or
via a 1-800 number (IVR). The receiving party can
acknowledge payments and request payment
via the same Obopay application. Obopayalso provides an optional prepaid MasterCard
that can be used with the Obopay account
to make purchases at MasterCard locations
and to get cash at ATMs.
Obopay’s business model is based on
a simplied value chain, much like PayPal,
where Obopay holds accounts or both the
payee and payer and manages the transer o
unds between the two customers. Just like
PayPal, Obopay customers rely on existing
payment networks (credit or debit accounts)
to reload their virtual accounts.
The third-party intermediation model being
pursued by PayPal Mobile and Obopay oers
an inherent value proposition by enabling
customers across multiple mobile operators
to request and send money on-the-go at
anytime. Additionally, in PayPal’s case, they
already have a substantial user base and
the payment inrastructure established rom
their online P2P payments.
However, compared to the collaboration model
there are signicant limitations. Because
the third-party intermediation model does not
involve the mobile operators directly, the
user experience may not be ideal. In PayPal’s
case, the payment is initiated by texting
to PayPal’s number or by calling PayPal.
Obopay does oer a downloadable
application or select operator subscribers
but relies on SMS or IVR via a 1-800 number
or other operator subscribers. Even i
the provider has an SMS-based application,
some mobile operators may block messages
to the providers’ short codes, and even i the
provider has a Java-based downloadable
application, it is an issue to ensure that the
application will work across all handsets.
Involving the operators may help to develop
an on-deck application that is conducive to
a better customer experience.
Moreover, without partnerships with mobileoperators or well known nancial services
partners, the provider may also lack the brand
awareness to drive adoption o the service,
a particular challenge or new players such
as Obopay.
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Ater years o hype surrounding mobile payments, recent developments in NFC technology
and standardization eorts by Visa and MasterCard have nally paved the way or U.S.
mobile operators to think realistically about their role in a world o contactless payments.
While the appropriate business model has yet to be developed in the U.S., operators in othermarkets have achieved success, thus demonstrating the viability o the m-payment concept.
U.S. operators will need to play an active role in developing an m-payments value chain to
ensure that they capture a air share o revenue rom a payments market sized at $8 trillion in
2009 thereby urther monetizing their investments in customer acquisition and retention, and
justiying the cost o higher handset subsidies.
Diamond’s analysis suggests that an Operator/Financial Services collaboration model has the
highest likelihood o success or implementing an m-payment strategy in the U.S. market.
However, mobile operators and their nancial services partners have to address key strategic
questions on the demand and supply sides beore committing organizational and capital
resources to pursue the m-payment opportunity:
Conclusion:
Recommendations or
Mobile Operators
Key Questions—Demand:
End-users:
• What is the value proposition o
the m-payment oer as compared to
competing payment methods?
• Would consumers adopt m-payment?
• What are the early adoption segments?
• Would they accept costs or theservice in the orm o nancial ees or
mobile data charges?
Retailers:
• What is the value proposition
o m-payment as compared to
competing payment methods?
• What is the expected speed o
upgrade to POS terminals that are
NFC reader enabled?
• How can the upgrade cycle be
accelerated?
• Would they accept any additional ees
or the service?
Key Questions—Supply:
Financial services frms:
• What incremental revenues can
m-payment generate?
• What is the upside to the core
business in terms o retention
and acquisition o new customer
segments?
• Is the collaboration model a protable
proposition considering incremental
acquisition, IT, and care costs?
Mobile operators:
• What is the incremental ARPU that
m-payment can generate?
• What is the upside to the core
business in terms o retention, data
plan uptake, and casual data usage?
• Is the collaboration model a
protable proposition considering
incremental handset subsidies,
IT and care costs?
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