mobile payments-moving closer to a world without wallets - emarkter september 2011

8/3/2019 Mobile Payments-Moving Closer to a World Without Wallets - eMarkter September 2011

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Digital Intelligence Copyright 2011 eMarketer, Inc. All rights reserved

The eMarketer View 2

Mobile Payment Opportunities 3

Mobile Payment Landscape 6 Adoption, Attitudes and Behavior 8

Opportunities for Marketers 14

Trends to Watch 16

Conclusions 17

eMarketer Interviews 18

About eMarketer 18

September 2011

Executive Summary: The potential or mobile payments is huge. Consumers globally make trillions o dollars in

credit and debit card transactions each year. Migrating just a small percentage o that spending to mobile-based

transactions would be a lucrative opportunity or the companies that acilitate it. Estimates or the volume o

those transactions vary widely but share a consensus that mobile payments will see sizable growth this year and

accelerate rapidly in 2012.129696

Many players will be needed to make such transactions possible.

From carriers to handset manuacturers to sotware providers

to retailers, mobile payments will give a wide variety o rms a

chance to make moneyand add value or the consumer.

Dening that value will be critical or consumer adoption. The

concept o a mobile wallet may appeal to technophiles, but the

average shopper approaches the idea with trepidation. Fears

about privacy and security weigh against the convenience

actors o mobile payments, and mobile carriers, credit card

companies and other service providers must be prepared to

address those concerns. Linking mobile payments with targeted

oers, easy-to-use loyalty programs, and deals and discounts

are carrots that may encourage consumer uptake.

Key Questions

What is the outlook or mobile payments in the US

and elsewhere?

Who are the key players and what are the leading platorms?

What are the drivers and inhibitors to the adoption o mobile

payment systems?

How do consumers eel about storing credit card inormation

on their phones?

Whats in it or marketers?

billionsMobile Payment Volume Worldwide, 2011 & 2015

2011

$240

2015

$670

Note: includes mobile payments for digital and physical goods, mobilemoney transfers and near-field communications (NFC) transactionsSource: Juniper Research, "Mobile Payment Strategies" as cited in pressrelease, July 5, 2011

129696 www.eMarketer.com

ContributorsChris Keating, Tobi Elkin, Lauren McKay

Mobile Payments:

Moving Closer to a World Without Wallets


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Mobile Payments: Moving Closer to a World Without Wallets Copyright 2011 eMarketer, Inc. All rights reserved. 2

The eMarketer View

The ability to make payments rom a credit card or

bank account simply by waving a mobile phone in

ront o a point-o-sale terminal is the latestand

probably most signicantaddition to the list o things a

smartphone can do to help todays harried consumers.

The technology to allow phones to work as a paymentmechanism has existed or over a decade, but mobile

payments at the point o sale are only now becoming an

everyday part o the consumer routine.

The mobile wallets promise is convenience. Mobile

payments can help put everything in one place, consolidated

in the single device consumers always have at hand. The high

pace o smartphone adoption will soon make it viable or more

consumers to use their devices as a payment mechanism.

To date, the key players in the mobile payments

ecosystem have been a limiting actor. The businessand technology ecosystems behind every new mobile

payment system are complex. On the business side, they

involve renegotiating some long-standing arrangements

around who gets what slice o each consumer transaction.

On the technology side, many payment systems require the

installation o new hardware. In the rst hal o 2011, these

actors began to be addressed with a slew o deals and

partnerships. More deals will no doubt take place as the many

potential beneciaries o payments made via mobile urther

position themselves or a piece o the action.

Service providers motivations or entering the mobile payments

space vary. Credit card companies want to retain their share o

the trillions o dollars in consumer business transacted through

their systems. Wireless carriers are desperate to diversiy their

revenue streams beyond voice minutes and data usage ees.

Handset manuacturers want to provide the phone technology

that enables the transactions. Google wants to be the conduit

between marketers and credit card companies or the marketing

messaging around the transactions. And a throng o startups

see the opportunity to provide a seemingly cost-ree service to a

potentially massive user base.

Selling consumers on the value proposition o mobile

payments remains the biggest hurdle to adoption. A

key selling point will be convenience, but that alone will not

address consumer ears about digital privacy and security.

Many consumers have become comortable with submitting

personal inormation, including sensitive nancial data, to

online service providers. In light o a constantly escalating

stream o news stories about security breaches and identity

raud, consumers are understandably reluctant to go a step

urther and have their phone enabled as a way to debit their

credit card or bank account.

Convenience is not the only consumer beneft

delivered by new mobile payment systems. Because

each o the systems proposed will entail gathering data about

what, where, when and how a consumer buys, the possibilities

or accurately targeted oers and discounts are huge. Add

in the option o no-hassle loyalty programs and the potential

upside or consumers is as signicant as it has been or any

major ecommerce initiative o the past 10 years.

And that is just in the US. In other parts o the worldmost

notably in many developing marketsmobile payments

will emerge as a substitute or the banking system, allowing

individuals to transer money as well as make payments or

goods and services.

For the list o industry experts interviewed or this

report, see the eMarketer Interviews section.


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Mobile Payment Opportunities

There has been a headlong rush into the mobile

payments space by mobile carriers, banks, credit card

companies and handset manuacturers, as well as a rat

o startups. The potential is huge in terms o the value

o transactions involved, the number o consumers

who would potentially use their phones as a paymentmethod and the quantity o transactions they would

be likely to conduct. And each transaction presents an

opportunity to deliver marketing messages specically

aimed at consumers based on real data about their

buying habits, preerences and location.

Mobile payments are still in an early stage o development,

but the potential size o the market once it grows to maturity

can be gauged by a look at credit and debit card purchases.

In 2009, US consumers spent $3.3 trillion on some 60 billion

credit and debit card transactions, according to the 2010Federal Reserve Payments Study released in April 2011. Even

i a small percentage o these transactions were to move rom

plastic to mobile, it would be an unprecedented nancial and

marketing opportunity or the companies that acilitate them.

Worldwide, the totals would be commensurately larger.

In addition to revenue potential, mobile payment systems also

promise to deliver a wealth o inormation to marketers on

peoples shopping habits. Credit card companies do not reely

share purchasing inormation, but involving other players such

as mobile carriers and technology companies raises the promise

o access to a mass o aggregate consumer data (individual

nancial records will remain condential, however). For targeting

purposes, that is extremely appealing to marketers.

Mobile payments provide a larger dataset than is available through other typeso payment, so obviously there is a lot o

interest.Ben Milne, CEO, Dwolla,in an interviewwith eMarketer,August 18, 2011

What Is a Mobile Payment?

The market is in such early days that the very idea o

mobile payments is still being refned.

Many frms count all mobile transactionsincluding

ecommerce transactions that take place on a mobile

devicein total spending fgures. But true mobile

payments are those where the phone is an integral part

o the transaction, where value is stored or where the

device itsel is the mechanism by which a users accountis debited.

Several technologies acilitate such payments, including

near-feld communications (NFC), SMS-based payments

and transers, smartphone credit card readers and

sotware-based solutions.

Because o varying defnitions among research frms,

this report will indicate what is included or excluded

rom the orecasts and estimates cited.

Mobile Payment Systems

Because truly mobile payments are just beginning to take o

in most o the world, there is an enormous variety o new and

proposed systems or carrying out transactions. Many are just

at the stage o gaining agreement rom the various providers

and will not be available to consumers until 2012. Competition

between systems is likely to continue as this is not an area

where a single dominant player must emerge to acilitate

consumer adoption.

The greatest excitement is around payment systems based

on near-feld communications (NFC). The customers

credit card details are stored on a smartphone chip that

allows secure communications with a similar transmitterat a retailers cash register or on a transit system. When a

purchase is rung up, the consumer swipes the phone near

the cash register transmitter and enters a PIN to complete

the transaction. NFC solutions have generated a lot o

interest because o the convenience they promise. However

in addition to involving credit card companies, mobile

carriers and handset manuacturers, they require retailers to

upgrade their credit card readers to include NFC capability.

SMS-based payments and transers use basic text

messaging services along with bank or service provider

personal identity codes. These allow users to authorize

transers to other individuals or businesses rom either an

existing bank account or a dedicated payment account

preloaded with unds at approved outlets. The user simply

sends a text message with the authorization code (which

is not stored on the phone), the amount and the recipient

to complete the transaction. SMS payments are particularly

popular in less-developed countries because the services only

require a basic mobile phone (as opposed to a smartphone).
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A variant on text messaging, Unstructured Supplementary

Service Data (USSD) is more secure because it uses a

dedicated, secure link between the phone and the server.

Both solutions require only the involvement o banks or other

institutions that allow the establishment o prepaid balances.

Retailers that want to accept payments also need to have

accounts with identication numbers on the same system.

Other initiatives include smartphone credit card

readers that allow payments to be received on a mobile

device. Examples include Intuits GoPayment and Square, a

company started by Twitter co-ounder Jack Dorsey. Ater

establishing an account with an initial credit card payment,

users can then send unds directly to other users. These

services require retailers to purchase and install a small

reader or use with a smartphone or tablet. Retailers using

Square do not need a credit card merchant account to

accept payments, just a bank account. Other systems,

including Intuits and VeriFones PAYware Mobile, however,

do require the establishment o merchant accounts with thecredit card companies beore payments can be accepted.

Sotware-based services (e.g., Dwolla) allow the user to

authorize payment requests rom retailers at the checkout

counter and to transer unds directly to other users o the

service. Some o these work with existing bank accounts, while

others require the establishment o a prepaid balance. These

services simply require the use o a smartphone app, though

the retailer must also use the same application (or subscribe

to the system by some other means) to accept payments.

Some services, such as Starbucks scheme to allow app-based

payments in its stores, also work with standard barcode or

quick response (QR) code readers that scan an image on the

phone and debit the users account or purchases.

Worldwide Mobile Transaction Volumes

Both startups and established companies are eager to enter

the mobile payments space, but the nascent state o mobile

commerce and mobile transactions means there is not yet a

consensus on how much money is actually on the table.

The one consensus that has emerged is that mobile payments

will see extraordinary growth, beginning this year and

accelerating at a breathtaking rate in 2012.

Gartners July 2011 orecast is one o the most conservative

or mobile payment volume. Gartner denes mobile payments

to include SMS, USSD and NFC payments as well as WAP/

mobile internet purchases. Gartner orecasts that total

worldwide mobile payments will rise to $86 billion in 2011, a

76% increase over its estimate or 2010.

Mobile Payment Users and Volume Worldwide,2010 & 2011

2010

2011

Users(millions)

102.1

141.1

Volume(billions)

$48.9

$86.1

Note: includes mobile payments via SMS, unstructured supplementaryservice data (USSD), WAP/mobile internet and near-field communications(NFC)Source: Gartner, "Market Trends: Mobile Payments Worldwide" as cited inpress release, July 21, 2011

130216 www.eMarketer.com130216

Gartners inclusion o mobile internet purchases means this

orecast goes beyond point-o-sale payments to include digital

and physical goods purchased through a mobile browser or

apps. In developed markets, Gartner noted, this latter category

will account or the bulk o transaction volume. This year, Gartner

estimated, 90% o mobile payments in North America and 77%

in Western Europe will go toward merchandise purchases rom

online retailers. In other markets, such as Eastern Europe, the

Middle East and Arica, money transers and top-ups o prepaid

accounts will drive mobile transaction volume

A July 2011 orecast rom Juniper Research predicted $240 billion

in mobile payments this yearabout 180% higher than Gartners

By 2015, Juniper predicted, worldwide mobile payments will total

a staggering $670 billion, indicating ve-year growth o nearly180% through 2015.

billionsMobile Payment Volume Worldwide, 2011 & 2015

2011

$240

2015

$670

Note: includes mobile payments for digital and physical goods, mobilemoney transfers and near-field communications (NFC) transactionsSource: Juniper Research, "Mobile Payment Strategies" as cited in pressrelease, July 5, 2011



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Like Gartner, Juniper includes both mobile payments, like NFC

and money transers, as well as remote payments or digital

and physical goods, such as ecommerce purchases made via

mobile browser or app.

Yankee Group also joined in the mobile payment orecast

ray in July. Its estimate or worldwide mobile payments

transactions this year is rmly in line with Junipers, putting the

total value at $246 billion. As with Juniper and Gartner, Yankee

Group included in this total both real-world payments using a

mobile phone to pay or goods and services as well as online

payments via mobile applications.

Yankee Group also broke down its orecast by region,

estimating that close to a quarter o the worlds total will come

rom North America, just over a third rom Asia-Pacic and

40% rom Europe, the Middle East and Arica.

Latin America$4 (2%)

North America$59 (24%)

Asia-Pacific$84 (34%)

EMEA$99 (40%)

billions and % of total

M-Commerce Transaction Value Worldwide, byRegion, 2011

Note: includes physical-world payments and online payments via mobileapps; physical world includes remittance, domestic P2P and proximitypayments using SMS, barcode and NFC

Source: Yankee Group as cited in company blog, July 27, 2011130527 www.eMarketer.com

130527

Juniper Research agreed with Yankee Group on the top

regions or mobile payments: North America, the Far East

and China, and Western Europe. It did not report a specic

breakdown based on region, however.

An earlier orecast rom Yankee Group, released in February

2011, pegged the value o global NFC transactions at $40

billion in 2014.

NFC-Enabled Phone Installed Base and Transactions

Worldwide, 2010 & 2014

Installed base

Transactions

2010

834,000

$27 million

2014

151 million

$40 billion

Note: NFC=near-field communicationsSource: Yankee Group, "A View from the Trenches: What Consumers Thinkof Mobile Transactions" as cited in press release, Feb 14, 2011


125052

Juniper also concurs with Yankee Group on the worldwide

level o NFC-enabled transactions. Its release in July 2011 put

the value at $50 billion in 2014, which will represent 8% o tota

mobile payments.

One major actor that makes reliable orecasting tricky is that

NFC-enabled transactions, which are likely to become the most

prevalent orm o mobile payment, depend on users having

compatible handsets. Currently there is only one such handset

available in the US: the Samsung Nexus S 4G, available only to

customers o Sprintone o the smaller tier 1 mobile carriers.

That does not translate into huge immediate potential, and

data or the use o NFC-enabled phones worldwide is patchy.

Yankee Group estimated in February that there were only

834,000 such phones in use worldwide in 2010, and orecast

that this would rise dramatically, to 151 million, by 2014.

IHS iSuppli released a much more bullish orecast in May,

estimating that 93.2 million NFC-enabled phones would ship

this year alone and 411.8 million would ship in 2014.

millions

NFC-Enabled Mobile Phone Shipments Worldwide,2011, 2014 & 2015

2011

93.2

2014

411.8

2015

544.7

Note: NFC=near-field communicationsSource: IHS iSuppli as cited in press release, May 12, 2011


As with mobile payment transaction volumes, the main point o

agreement here is on growth rather than current market size.

NFC is clearly the leading technology. It

provides the necessary security, two-waycommunication required or the consumerexperience, and is already recognizedby the major credit card brands as anacceptable way to securely replace cards.

Paul Rasori, senior vice president o marketing at

VeriFone, in an interview with eMarketer, August 18, 2011


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Mobile Payment Landscape

There is a complex and rapidly evolving ecosystem

growing up around mobile payments. Over the

next ew years many o the nascent systems will

undoubtedly all by the wayside, but the space is not

winner-take-all. Competing systems can live alongside

each other, within the same phone and even thesame retailer. The inevitable shakeout will see a

handul o players dominatelikely a larger group

than in other areas o digital commerce, such as

music sales, where Apples iTunes established such a

dominant position that it redened an entire industry.

For credit card companies and banks, keeping their slice o

noncash transactions is vital to their uture. Mobile carriers

are just as eager to extend their revenue streams beyond

payments or voice and data services. And Google and its

advertising customers see the opportunity to gain billionsmore points o contact with potential customers.

Worldwide Developments

Existing mobile payments systems in other parts o the world

are at various stages o maturity, but Japan is the leader in the

use o the mobile wallet, ollowed closely by South Korea.

Japan

Some 50% o Japanese mobile users have phones compatible

with the FeliCa mobile payments system, introduced in July 2004

by Sony and NTT DoCoMo, one o Japans largest mobile carriers.Because o the homogenous nature o the Japanese telecom

inrastructure, the system took o quickly. comScore estimates

around 10% o mobile subscribers in Japan have used their

mobile wallet to make a purchase, mostly rom convenience

stores, vending machines and on public transport.

FeliCa uses radio requency identication (RFID) technology

to make the connection between a mobile phone and a

point-o-sale terminal. This unctions the same way as NFC

and requires the inclusion o Sonys technology either inside

the phone or via stickers axed to the back o the device. The

NFC Forum includes in its specications that NFC chips need

to be compatible with FeliCa terminals. There are separate

eorts under way to bring true NFC payments systems

to Japan, but given how well entrenched FeliCa already is,

it is likely to remain the dominant orm o native mobile

transactions in Japan or many years.

Western Europe

In Western Europe, consumers are generally more enthusiastic

about using their phones to make payments than in the US,

but eorts to implement NFC systems are at a similar stage. In

the UK, or example, the largest mobile operators, Everything,

Everywhere (which includes T-Mobile and Orange), Vodaone and

O2, announced in June 2011 the ormation o a joint company

to provide a unied system or all mobile transactions. The

businesses are putting about $75 million into the as-yet-unnamedventure, which aims to be the clearinghouse or all mobile

payment transactions and provide a common platorm that will

simpliy implementation or credit card companies, banks and

retailers. The undertaking is due to launch by the end o 2011,

although approval rom regulators is needed rst.

Other Regions

In the rest o the world, mobile payments will be driven by

more basic systems, such as SMS or nancial transers

between individuals and institutions. eMarketer estimates

the number o mobile users worldwide in 2011 at 3.8 billion,

while the number o individual bank accounts is only around2 billion. Usage by the worlds unbanked population is widely

believed to be the most signicant driver o mobile payments

globally in the coming years. This means most growth will be

coming rom China and India, with their massive consumer

populations and already-high levels o mobile penetration.

Alibaba, Chinas predominant ecommerce platorm announced

in June 2011 that it planned to launch a mobile OS called Aliyun.

That OS is set to support mobile payments, though it is not yet

clear by what mechanism.

In both China and India, more basic systems based on text

messaging have the greatest potential. This explains why a groupo 10 banks in India ormed the Interbank Mobile Payments

Service. The SMS-based service, which launched in August 2010,

allows direct transers between individuals using bank-issued ID

codes. By July 2011, 11 million such codes had been issued.

The NFC Forum Looks to Create Standards

The NFC Forum is the world body that supervises the

creation o global NFC communication standards. It was

established in 2004 by ounding members MasterCard,

Sony and Microsot, as well as a host o Japanese

technology and telecom companies. Membership

now extends to all o the major credit card providersworldwide (with the exception o Discover in the

US), PayPal and Google, plus major North American

technology frms such as Research In Motion and Intel.

While the orums eorts will go a long way in propelling

the adoption o global standards and systems, its

primary ocus is technical. The details o the business

ecosystem that underlies mobile payments will still take

time to extend beyond regional arrangements.


7/18


US Developments

Two giants sit astride the mobile payments eld in the US, with a

rat o other players looking to make inroads into that territory.

Isis

One o the two top initiatives is Isis. Formed in November 2010

with an agreement between AT&T, T-Mobile and Verizon, Isis

is a true swipe-and-pay play, meaning consumers will store

credit card inormation on their phone and transactions will be

completed by communication with an NFC-enabled terminal at

retail outlets. American Express, Visa, MasterCard and Discover

have also signed up to be part o the service. Intuit and VeriFone

are on board to distribute NFC-enabled point-o-sale terminals.

With the range o carriers, credit cards and terminal providers

involved in Isis, it is in a strong position to become the dominant

player in the NFC mobile payments space.

Google Wallet

The other major US initiative in the true swipe-and-pay arena is

part o Google Wallet, announced in May 2011 and launched inSeptember. In partnership with Sprint, Citibank and MasterCard,

Google Wallets Tap & Go eature allows consumers to swipe their

phones at checkout to pay. Like Isis, Google Wallet will have credit

card data stored on a users mobile phone with transactions at

retailers completed via contact with an NFC-enabled terminal.

A key dierence between Tap & Go and Isis is that Google will not

take a slice o the transactions. Instead it will retain the right to

serve advertising to mobile phone users on the various screens

they use to conduct transactions and manage their account.

Google Wallet will work with MasterCards PayPass NFC system,

which is already operational in nearly 150,000 outlets in the US.

In combination with Googles past success in bringing marketers

on board to support online initiatives and its claim that the Tap &

Go system will be ree to all credit card companies that want to

participate, it is in a strong position to compete with the currently

much broader and deeper Isis coalition.

Both Google Wallet and Isis will oer mobile coupons,

discounts and loyalty programs, redeemable automatically at

retailers with no extra action required on the consumers part.

Square

Another key player in the mobile point-o-sale game is Square,

a service ounded in early 2010, with its Apple iOS-compatible

card reader. An initiative driven by Twitter ounder Jack Dorsey,

Square oers a physical device that plugs into an iPhone or

iPad to allow users to accept payments with a swipe rom a

traditional credit card. Initially positioned as an easy system to

allow small businesses to accept credit card payments, Square

is set to expand to allow peer-to-peer transers through aCard Case account app available or both iPhone and Android,

These will be established automatically once a consumer has

made a payment on the system, and will allow contactless

point-o-sale transactions in the uture.

Any individual or business with a bank account can accept

payments through Square, which dierentiates the service rom

traditional card swipe methods and NFC systems. Square charges

a single ee or the transaction and a key area o competition is

the level o ees charged. In August 2011 Square announced a

reduction in its transaction ees to bring the total in line with othe

point-o-sale credit card transactions.

Square has attracted a lot o attention, including rom investors.

Visas decision in June 2011 to invest put the companys valuation

at $1 billion. Square has sold over 500,000 o its card reader

devices and was reported to be processing $3 million worth o

transactions per day in June 2011. An implicit endorsement rom

Apple, which sells the card-reading devices in its stores, has

denitely helped the service.

PayPal

PayPal is well established as a mobile payments provider,

though with a ocus on peer-to-peer transactions. In the rst

hal o 2011 the service estimated that it was processing $6million per day in mobile transactions worldwide and orecast

that it would process a total o $7.5 billion by 2013.

Moreover, a series o acquisitions indicates PayPals interest

in expanding its mobile payment services. In July 2011,

PayPals parent company, eBay, purchased Zong, a service

that acilitates the addition o mobile purchases to a users

mobile phone bill. In April 2011, PayPal acquired startup Fig

Card, which provides a service very similar to Square, with a

small USB device that allows a merchant to accept payments

through an undisclosed connection system. In June 2011,

PayPal announced the orthcoming launch o an NFC-basedservice that would allow peer-to-peer transactions between

smartphone users whose phones include the required chip.

With over 230 million existing account holders and established

relationships with banks and credit cards, a successul extension

o PayPals peer-to-peer payment service to point-o-sale

transactions would be a very signicant development and

provide sti competition or other mobile payment options.


8/18


Mobile Payment Landscape

American Express

Aside rom its involvement in Isis, American Express is also

making moves to deliver its own mobile payments platorm.

In March 2011, Amex announced the launch o Serve, which

uses a prepaid card and account number to acilitate online

and point-o-sale payments. In April, the company announced

it had bought a stake in Payone, which allows purchases madeto be added to a users mobile phone bill. Whether or not this

becomes serious competition with Isis, the move illustrates

the complexity o the mobile payments space. In August 2011,

Verizon announced that it was partnering with American

Express to roll out the Serve platorm on some o its handsets.

Dwolla, FaceCash and Zumogo

Other US-based moves in the mobile payments space include

Dwolla, FaceCash and Zumogo. Dwolla allows users to make

online and ofine payments directly to merchants rom their

checking accounts. FaceCash requires a prepaid account but

allows point-o-sale transactions that include user verication

with a photo displayed to the retailer. Zumogo also requires a

prepaid account but it permits the end user to simply conrm

a payment request rom the merchant either online or ofine

at the register.

The potential advantage o systems like these is that they

are completely sotware-based, requiring no new devices

or the consumer or seller. While they are small players

compared with Isis, Square and Google, the possibility remains

that retailer and consumer adoption o these systems

could take o and present the bigger players with some

genuine competition.

Adoption, Attitudes and Behavior

Consumers, particularly those in the US and Europe, are

not sold on the benets o being able to pay and transer

money using their phones, with a majority generally

saying they are not interested. Even in Asia-Pacic, where

mobile payments are more established, consumers share

the same privacy and security concerns that eed thereticence o their US and European counterparts.

Consequently, mobile payment providers ace the dual tasks

o selling consumers on the benets and reassuring them in

the ace o security and privacy concerns. However slick the

new technology and clever the business arrangements, new

orms o mobile payments will not succeed unless consumers

in the US and around the world embrace them.

Overall, the adoption pattern will probably resemble that

seen with ecommerce. But given consumers level o mobile

phone penetration and their existing comort with phone-

and web-based purchases, mobile payments could take o

more quickly. Ultimately, adoption will depend on how soon

providers resolve the complexities o implementation, sell the

advantages o paying by phone to consumers and, to a lesser

extent, calm consumer anxieties about privacy and security.

There is no doubt in my mind that theintersection o mobile, commerce and

consumer engagement will be the uture.Michael Becker, North American CEO at the Mobile

Marketing Association, in an interview with eMarketer,

August 22, 2011


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Worldwide Attitudes and Behavior

Refecting the act that mobile payments are well established

in Asia-Pacic, consumers there are signicantly more

enthusiastic about paying with their phones than their

Western counterparts. According to a January 2011 survey

by Accenture, 69% o Asia-Pacic internet users surveyed

stated they consider paying with their phone more convenient

than other orms o payment. Among combined US and EU-5

respondents, only 26% thought the same.

Similarly, 64% o Asia-Pacic respondents said they would

welcome the day when they can make most o their payments

using their phone, compared with only 29% in the US/EU-5. It

should be noted that the survey sampled tech orwards, a

subset o internet users who owned at least our networked

devices. A high, positive response rate is more likely among

such early adopters. Nonetheless, there is a marked dierence

between the responses o tech orwards in Asia-Pacic

compared with those in the US/EU-5.

% of respondents

Attitudes of Internet Users in Asia, Europe and the USToward Mobile Payments, Jan 2011

Using my mobile phone for payments makes me worry about myprivacy

79%

69%

Mobile phone payments increase the risk of identity theft andother fraudulent activities

77%

66%

The mobile phone is more convenient than other forms ofpayment

69%

26%I welcome the day when I will make most of my paymentsthrough my mobile phone

64%

29%

Asia US & Europe

Note: ages 18+ who own at least four networked devices and use at leastfour internet servicesSource: Accenture, "The Brave New World of Mobile Commerce"conducted by Lightspeed Research, Feb 15, 2011


The Accenture survey also illustrated an important point about

adoption o mobile payments: More extensive usage could

actually increase ears rather than reduce them. Despitetheir enthusiasm, nearly 80% o Asia-Pacic respondents said

using their phone or payments made them worry about their

privacy, compared with less than 70% in the US/EU-5. And

77% o Asia-Pacic respondents said using mobile payments

made them worry about the risk o identity thet and other

raudulent activities, vs. 66% o US/EU-5 respondents.

O course, more transactions mean more opportunities

or something to go awry. But clearly, security and privacy

concerns are not in themselves an insurmountable

impediment to adoption o mobile payment services. In

Japan, or example, where consumers have been able to

make payments directly rom their phones or several years,

data rom comScore shows that 10% o mobile users took

advantage o such systems in December 2010.

The comScore data illustrates where mobile phone users inJapan, who have had the acility to pay with their phones or

close to seven years, have made mobile wallet purchases

(dened by comScore as using NFC-enabled phones). Smaller

mobile transactions were predominant, with 43% taking place in

convenience stores. Just over 18% were purchases at vending

machines, closely ollowed by 15% on public transport. This

shows that small, daily, on-the-go transactions are likely to drive

uptake when mobile payments systems are rolled out.

millions

Location of Mobile Wallet* Purchases Among MobilePhone Users in Japan, Dec 2010

Retail or convenience store 7.6

Vending machine 3.2

Public transportation 2.7

Grocery store 2.6

Restaurant 1.5

Note: *using NFC-enabled mobile phones in place of debit or credit cardsfor in-person purchasesSource: comScore, Inc., "2010 Mobile Year in Review," Feb 14, 2011


Data on mobile wallet use in selected countries, released

by TNS in May 2011, shows the variations in the levels oadoption in other markets. The results do not paint the whole

picture because TNS dened a mobile wallet as one that is

preloaded with unds, only one variant o possible mobile

payment solutions.

However, the data shows the expected patterns. In Asia-Pacic

markets that have had some orm o mobile payments or a

ew years, adoption is higher, with Hong Kong and Singapore

expected to see 17% and 13% o mobile users, respectively,

making mobile wallet payments (as dened by TNS) in 2011.


10/18



In less-developed countries with signicant mobile penetration

but large unbanked populations, adoption is expected to be even

wider. For example, TNS ound some 25% o mobile users in

Kenya were using this orm o mobile wallet in 2011. For similar

reasons, take-up in China was expected to accelerate this year,

reaching over 20% o mobile users. This is in contrast to US

mobile users, 6% o whom were estimated to have made use o

preloaded mobile wallet payments in 2010, rising to 8% in 2011.

% of total mobile phone usersMobile Wallet Users* in Select Countries, 2010 & 2011

Hong Kong

16%

17%

Kenya

10%

25%

Singapore

10%

13%Brazil

9%

20%

China

9%

21%

US

6%

8%

Chile

1%

7%

2010 2011

Note: *use of the mobile phone as a payment device that is pre-loadedwith fundsSource: TNS, "Mobile Life" as cited in press release, May 12, 2011


The convenience actor o mobile payments is already

swaying users elsewhere. May 2011 survey data rom the UK,

released by YouGov, is a good illustration. When UK mobile

phone users who had already said they were interested in a

smartphone with built-in payment capabilities were surveyed,

nearly 90% said the convenience o paying was a signicant

actor. Two-thirds (67%) listed speed o payment as a top

reason, while the same percentage said it was easier to paywith their phone than taking cash or credit cards with them.

% of respondents

Reasons UK Internet Users Would Get a Mobile Devicewith Mobile Payment Capabilities, May 2011

The convenience to pay

87%

Speed of paying (e.g., tapping at a machine)

67%

Easier to pay with mobile than taking cash/cards with

67%

Better for the environment (e.g., no paper receipts)37%

No paper receipts so less chance of losing any personalinformation

35%

I will be able to keep track of how much I am spending moreeasily than other methods

29%

Less likely to have fraud

17%

I want to have the latest piece of technology

14%

Other

3%

Don't know

4%

Note: n=170 who are likely to get a mobile device with mobile paymentcapabilitiesSource: YouGov, "Mobile Wallet Track" as cited in press release, June 10,2011



11/18


US Attitudes and Behavior

Lack o consumer interest remains the major obstacle to

broader mobile payment adoption. In a May 2011 Adweek

and Harris Interactive survey o 2,000 US consumers, 80% o

respondents were either not very interested or not at all

interested in mobile wallet technology that stores credit card

inormation on their phone to allow them to make payments.

As might be expected, age had some bearing on the answers,

with younger respondents expressing more interest. Some

26% o internet users ages 18 to 34 said they had at least

some interest in using their phone as a mobile wallet,

compared with only 10% o those ages 55 and over.

% of respondents

US Internet Users Who Are Interested in Mobile Wallet*Technology, by Age, May 2011

18-34

35-44

45-54

55+

Total

Veryinterested

11%

7%

5%

1%

6%

Somewhatinterested

15%

16%

20%

9%

14%

Not veryinterested

27%

27%

19%

14%

21%

Not at allinterested

47%

50%

56%

76%

59%

Note: *mobile phones with the ability to store credit card information,allowing users to make credit card purchases without using their physicalcredit cardSource: Adweek/Harris Interactive, May 26, 2011


In an earlier survey rom the same source, US consumers made

it clear they were alarmed at how much online companies knew

about them. In every gender and age category, nearly three-quarters

o respondents said they believed online companies like Google and

Facebook already control too much o their personal inormation.

This is a strong indication that consumers are not going to becomortable with simply giving away urther precious inormation,

such as credit card data.

% of respondents in each group

US Consumers Who Agree that Some OnlineCompanies Control Too Much of Their PersonalInformation*, by Age and Gender, April 2011

Female 79%

Male 74%

18-34

Gender

Age

74%

35-44 76%

45-54 76%

55+ 79%

Total 76%

Note: e.g., Facebook or Google; respondents who chose "strongly agree"and "somewhat agree"; numbers may not add up to 100% due to rounding;*and know too much about their browsing habitsSource: Adweek/The Harris Poll as cited in press release, May 17, 2011


While mobile shopping encompasses much more than just

mobile payments, consumer concerns about mobile shopping

refect the same concerns they have over mobile payments.

In February 2011, the e-tailing group polled US online buyers

who spent at least $250 per year online and who owned a

smartphone or tablet about why they would not shop using

their smartphones. Aside rom the clunkiness o smartphone

interaces, the chie reason was concern over the security o

credit card inormation.

% of respondents

Reasons for Not Shopping More on SmartphonesAccording to US Online Buyers*, Feb 2011

Awkward shopping experience on phone

49%

Concerns over credit card information

36%

Slow connection/connectivity

31%

Image of product not good

26%

Not easy to view product information23%

Takes too long

20%

Product information is limited

18%

Full product selection is not offered

13%

Customized experience based on location

9%

Other

12%

Note: *who spend $250+ online annually and own a smartphone and/ortabletSource: the e-tailing group, "The 'Shopping' Mindset of the MobileConsumer" sponsored by Coffee Table, May 17, 2011


Two actors will ultimately oset this consumer reticence:

They will appreciate the convenience o being able to simply

swipe a phone to pay at the checkout counter, or to transer

money to another individual with a ew screen taps.

They will be wooed by special oers, discounts and loyalty

programsall managed through a single interace and all

applied automatically on payment.

Consumer reluctance is tied to the lack oan easily understood value proposition.They need to know how a change in theirbehavior provides a beneft.Paul Rasori,

senior vice president o marketing at VeriFone, in an

interview with eMarketer, August 18, 2011


12/18



Once this happens, consumers will probably put security and

privacy concerns aside, much as they did with the shit to

online purchases in general.

In act, consumers may nd some reassurance in the

institutions oering mobile payment services, such as credit

card companies, which have done a great job over the past

40 years o creating a secure, convenient and reliable global

payments system.

Though technology rms and online payment companies

will inevitably be involved, mobile payments will ace less

consumer resistance i they are perceived as initiatives

coming rom the major credit card rms.

August 2011 research rom OgilvyOne and OgilvyAction

showed that consumers clearly have more aith in credit

card companies than they do in technology rms and online

payment rms as agents to deliver trustworthy mobile

payments. When asked which brands they trusted to handle

mobile payment services, more than 35% o US internet

users listed Visa, MasterCard and American Express. PayPal,

which has spent 12 years establishing itsel as a trusted

online payment method, was cited by 34.3%, but technology

companies were cited as trusted brands by ewer than 23%

o respondents. However, no single brand received more than

a 40% vote o condence, leaving little doubt that security

concerns will remain a signicant hurdle to mobile payment

adoption until consumers are eectively sold on the benets.

% of respondents

Brands Trusted by US Internet Users to Handle MobilePayment Services, March 2011

Visa 39.6%

Mastercard 35.9%

American Express 35.8%

PayPal 34.3%

USPS 24.6%

Apple 22.9%

Microsoft 22.3%

Google 19.5%

Motorola 17.0%

eBay 15.5%Facebook 12.1%

Source: OgilvyOne and OgilvyAction, "From Armed to Charmed: Preparingfor and profiting from the new mobile-enabled point of sale" as cited inAdvertising Age, Aug 9, 2011


Another actor that will sway consumers is how they

ultimately pay or mobile transactions. Some proposed

schemes involve direct payments rom consumers bank

accounts or prepaid accounts. The latter are likely to

predominate in less-developed countries, but in the US the

choice will largely come down to charges applied to a credit

card account or appearing on mobile bills.

In a June 2011 survey, Myxer ound that payment preerences

vary by age. Some 38% o respondents ages 18 to 24 said they

would preer to see all charges on their mobile phone bill, with

only 14% saying they would like to see them on their credit

card bill. Those ages 25 to 34 had similar responses, with 30%

preerring charges on their phone bills vs. 16% who wanted

charges on their credit card statements. Conversely, among

respondents ages 35 to 54, 28% were in avor o charges on

their credit cards, compared with 23% who wanted them on

their phone bill.

% of respondents

Preferred Payment Method for Mobile PhonePurchases According to US Mobile Phone Users, byAge, June 2011

18-24

38%

14%

25-34

30%

16%

35-54

23%

28%

Charged to phone bill Credit card

Note: n=1,272 mobile users of m.myxer.com who have made a mobilepurchaseSource: Myxer, "Q2 2011 mCommerce Report: Shop Till Your Calls Drop,"July 11, 2011



13/18



In terms o what consumers will do once they have bought

into the advantages o mobile payments, current mobile

purchasing habits may oer some insight. A Q4 2010 survey

by Google and Ipsos OTX MediaCT showed that entertainment

and electronics were the most popular purchases or

US consumers via their smartphones. Some 48% o US

smartphone users who had made mobile purchases in the

previous year reported buying some orm o entertainmentvia their phones. Electronics and clothing were the next most

popular categories, with 45% o respondents reporting a

purchase. Wireless and mobile services were also popular.

% of respondents

Leading Products/Services Purchased via SmartphoneAmong US Smartphone Users, Q4 2010

Entertainment items

48%

Electronics

45%

Clothing or apparel45%

Wireless or mobile phone service

34%

Travel

34%

Office supplies, products or technology

28%

Beauty and cosmetic items

26%

Jewelry or watches

24%

Note: n=1,255 ages 18-64 who purchased products/services via mobile inthe past yearSource: Google and Ipsos OTX MediaCT, "The Mobile Movement:Understanding Smartphone Users," April 27, 2011


Some indication o what US consumers will do with mobile

banking can be gleaned rom what activities they have

adopted in online banking. A study by Novarica showed

that researching bank products, checking account balances

and und transers were the most popular online banking

transactions in 2010. The data also showed how ar mobile

payments have to catch up. While 60% o those surveyed said

they used online banking to transer unds in 2010, only 3%said they had done so using some orm o mobile banking.

Similar patterns can be seen or checking account balances

and researching bank products online vs. via mobile.

% of respondents

Online vs. Mobile Banking Activities of US Consumers,2005 & 2010

Research bank products2005

42%

1%

Check account balances

40%

2%

Transfer funds

31%

1%

Research bank products2010

70%

2%

Check account balances

68%

6%

Transfer funds60%

3%

Online Mobile

Source: Novarica, "Consumer Preferences in Retail Banking Distribution,Part 2: Digital Channels," June 1, 2011



14/18


Opportunities or Marketers

The advent o new mobile payment systems

represents an exciting opportunity or marketers,

primarily because they stand to gain access to data

on 60 billion consumer transactions. This can lead to

better targeting o advertising, discount oers and

loyalty programs based on that real data about whatconsumers are doing.

Credit card companies have had this data or many decades,

o course, but it is eminently proprietary. With the introduction

o other partners into the mix, however, consumer spending

dataeven down to individualscan be shared anonymously

in the aggregate, without actually sharing private nancial

data. Just as advertisers serve up online advertising geared to

an individuals online behavior without actually knowing the

identity o the consumers they are targeting, messages based

on consumers buying patterns can be laser-ocused without

marketers having access to private nancial data.

Merchants consistently see people get outo line and decide the item isnt worth

the wait. Mobile payments can make animpact on some o those line jumpers witha simple tap and pay solution.Ed McLaughlin, chie emerging payments ofcer at

MasterCard, in an interview with eMarketer, August 21, 2011

Marketers are already getting close to being sold on the

benets o paying or goods and services via mobile. May 2011

data rom Chie Marketer shows that 43% o US marketers

either oer a transactional mobile site already or plan to

by 2012.

% of total

US Marketers Whose Companies Offer M-Commerce,May 2011

Source: Chief Marketer, "2011 Mobile Marketing Survey," June 13, 2011


Do not have atransactional mobilesite now and don'tplan to do so this year57%

Do not sell overmobile now butplan to do so inthe next year29%

Currently enable mobile transactions14%

129529

Such sites include browser-based transactions that go beyond

true mobile payments. Meanwhile, November 2010 data rom

RIS News and IHL Group showed 26% o US retailers planned

to launch some orm o NFC- or RFID-based payment system

within two years.

% of respondents

Types of Payment-Oriented Mobile Apps that Retailersin North America Use or Plan to Use, Nov 2010

Support for regular barcode scanning

Coupons on mobile screen

Support for 2-D barcode

Coupons by NFC/RFID loyalty

Support by NFC/RFID for payment

Consumer self-checkout*

Currentlyhave

19%

7%

7%

1%

3%

3%

Within 12months

29%

41%

25%

16%

7%

6%

12-24months

22%

20%

22%

19%

19%

10%

Note: *consumer device and appSource: RIS News and IHL Group, "Store Systems Study 2011," Dec 5, 2010



15/18


16/18


Trends to Watch

The mobile payments ecosystem continues to

take shape. Most major nancial and technology

players and leading mobile carriers have thrown in

with at least one o the proposed mobile payment

schemes. The exact details o the technological

implementations that make it to market will inevitablyevolve, but signs o progress (or stalemate) should be

discernable in the meantime.

Agreements between major nancial companies, mobile

carriers, technology rms and handset manuacturers will

only add impetus or the ull rollout o alternative payment

systems. Though most o the leaders are already involved

in at least one major mobile payments initiative, some

reshufing is inevitable.

In particular, the Google Wallet deal involves ewer

established players in the payments world but its structure

could see others jumping on board soon. No initial

investment is required and Google has a preerence or

open architecture in its sotware eorts. When combined

with Googles talent or pushing its avored projects into

the mainstream, a handul o credit card companies getting

on board could mean that Isis aces an uphill struggle or

consumer acceptance. But since Google typically pursues

multiple high-prole projects concurrently, that leaves open

the possibility that other business imperatives will distract

attention rom its mobile wallet plan.

Similarly, watch what Google does ater its purchase o

Motorola Mobility is nalized. Much o its business nowrests on growth in mobile usage. I announcements in early

2012 include new Google/Motorola handsets with NFC

technology, that will be an even clearer signal Google is

betting a large chunk o its uture on being in the middle o

mobile payments. Similarly, monitor announcements rom

other handset manuacturers about NFC-enabled phones.

RIM, or example, announced in late August 2011 that its

new BlackBerry Bold 9900 would include an NFC chip.

Be on the lookout or any announcements on the installation

o point-o-sale hardware. Without the widespread ability or

retailers and other outlets to accept payments directly romphones, many mobile payment eorts will come to nothing. In

this context, Visas announcement in early August 2011 that it

will not charge the usual ee to merchants that upgrade to new

NFC-enabled credit card readers is signicant.

Monitor any news on consumer trust growing with regard

to storing data on their phone or even online. In parallel to

the push toward mobile payments is a related push toward

cloud computing, which will see data and inormation stored

remotely as a matter o course. Any signs o enthusiastic

consumer adoption o remote data or inormation storage

systems refect a growing comort level that will have an

impact on how quickly mobile payments systems are adopted.

Watch or marketers and advertisersincluding thoseemployed by signicant back-end players like credit card

companiespushing the benets o mobile payments to

consumers. Paying by phone will be the emphasis here, going

well beyond the convenience actor to include the no-eort

integration with coupons, discounts, loyalty programs and

the act o managing credit card and bank accounts. In the US,

national TV and online campaigns with signicant reach are

very likely to begin beore the end o 2011.


17/18


Conclusions

Mobile payments will take o in the US and around

the world as a mainstream way o purchasing goods

and services. Ater close to a decade o maneuvering,

the key players are now ormally lined up behind specic

initiatives. The nal technical and nancial arrangements

around truly native mobile commerce are shaking out right

now. Credit card companies, banks, mobile carriers, handset

makers, and technology and online companiesincluding

Googlehave all committed to playing a role.

Consumer adoption is the fnaland biggesthurdle.

Consumers will need reassurance on the security and privacy

issues related to making the mobile handset an actual

payment device. Although they have shown many times in

recent years that such concerns can be overcome, consumers

will need convincing o the benets o adopting a new

payment technology that requires them to again surrender

precious personal inormation.

The companies that are lining up to provide mobile paymentsystems are well aware o this and will ocus on selling

the benets to consumers now that the details behind the

business and technology arrangements are being worked out.

Some smaller players will inevitably all by the wayside, but the

space is not a winner-take-all proposition. The eorts o those

with large marketing budgets will also help smaller initiatives

such as Dwolla and Zumogo become viable.

To accelerate consumer adoption, the value o mobile

payments must be clearly defned. Part o what will make

mobile payments convenient is integration with targeted

oers, coupons and store loyalty programs. Combined in a

user- and merchant-riendly way, these will make or a potent

orce at the point o sale.


18/18

Mobile Payments: Moving Closer to a World Without Wallets Copyright 2011 eMarketer Inc All rights reserved 18

eMarketer Interviews

Starbucks Perks Up Mobile Payments Program

Adam Brotman

VP and General Manager o Digital Ventures

Starbucks

Interview conducted August 19, 2011

Dwolla Helps Overcome Consumer Reluctance toMobile Payments

Ben Milne

CEO

Dwolla


Michael Becker

North American CEO

Mobile Marketing Association


Ed McLaughlin

Chie Emerging Payments Ofcer

MasterCard


Paul Rasori

SVP o Marketing

VeriFone

Interviewed conducted August 18, 2011

Related eMarketer Reports

Mobile Banking: Financial Services Firms Look to Cash In

Mobile Coupons: Oers and Deals Light Up the Last Mile

Related Links

Google Wallet

Isis

NFC Forum

Square

About eMarketer

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Editorial andProduction Contributors

Susan Reiter Managing EditorNicole Perrin Senior EditorCli Annicelli Copy EditorDana Hill Production ManagerJoanne DiCamillo Production ArtistStephanie Gehrsitz Production ArtistAllison Smith Director o ChartsAlison Berge Chart EditorElissa Hunter EditorChris McNinch Chart Data Specialist

Lindsey Carter Chart Data Specialist
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mobile payments-moving closer to a world without wallets - emarkter september 2011

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