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Most conversations today surrounding mobile payment solutions are overly focused on the opportunities promised by near field communications technology and how this functionality will transform the point-of-sale experience in developed markets. Inevitably, however, these discussions quickly digress into the complexity surrounding handset and chip manufacturing, the security of cardholder data and payment information and the challenges involved in point of sale integration.
Mobile network operators don’t have to wait for these issues to be solved to deploy revenue generating mobile payments solutions including mobile wallets.
MNOs can leverage their growing prepaid customer base and capitalize on real customer needs for an easy way to conduct mobile commerce and mobile banking. MNOs can deploy a mobile wallet that is on-deck and includes the customer’s payment devices on file and/or they can give the customer a stored value account (general purpose reloadable card like Green Dot, NetSpend, etc.). Now the customer is ready to conduct mobile commerce including remote payments, mobile banking and top-ups.
Remote payments and mobile banking offer MNOs significant revenue opportunities today via the device prepaid mobile subscribers are quickly adopting: their smartphones.
Top-up is the killer app for m-commerce
PayPal had eBay and Apple had iTunes that were the drivers to getting consumers to load their payment devices into a stored value account and to then use it for mobile commerce. The MNOs have prepaid top-up.
With prepaid top-ups generating over $567 billion annually from over 4.6 billion subscribers, according to a report from GSMA, MNOs can leverage consumer acceptance of this convenient payment option to ignite adoption of their own mobile wallets.
Today, Google, Visa, MasterCard and American Express are all looking for any adoption driver to help get their mobile wallet strategy off the ground. But placing all bets on retail NFC will restrict these players to a very small number of retailers, supported handsets and supported issuers, complex deployments and years of waiting. The MNOs already have the killer app – and it’s top-up.
Why remote payments – not NFC – are dominating transactions?
While payment technologies like NFC essentially target postpaid subscribers in retail stores with checking accounts and bank cards, these solutions ignore e-commerce and remote payments (card not present transactions). Conversely, the significance of remote payments cannot be overlooked – especially when predicted to dominate mobile commerce transactions for the next five years, with growth expected to exceed $22.5 billion by 2014, according to a recent Gartner report.
A growing number of consumers are using their smartphones and tablets as their primary Internet device. A mobile wallet capable of making remote payment transactions enables the banked as well as the unbanked/under-banked consumer to easily engage in mobile commerce via their smartphone. The top remote payment transactions that will drive adoption are:
–Virtual (remote) top-up of prepaid accounts: currently the most widely used mobile commerce application today.
–M-commerce in the United States to exceed $22.5 billion by 2014 (Informa).
–Money transfers – $63 billion today, growing to $180 billion in 2014 – (42% compound annual growth rate), according to Gartner.
–Merchandise purchases – $34 billion today, growing to $142 billion in 2014 (62% CAGR), according to Informa.
–Ticketing – $717 million today, growing to $3.3 billion in 2014 (66% CAGR), according to Informa.
Mobile banking – great for MNOs and their customers
The hidden “poverty taxes” for being unbanked are significant. Not only are the fees for bill-pay, micro loans and money transfers high, but the act of cashing a paycheck can cost employees up to 5% or more. Additionally, executing these physical transactions consumes a user’s time. Mobile banking will give this demographic an easy and secure way to transact remotely with more efficient business models and rates.
In the United States alone there were 60 million unbanked and under-banked consumers in 2009, according to an FDIC survey, that can truly benefit from mobile banking. The high correlation of this segment with prepaid wireless accounts represents a tremendous opportunity for mobile network operators to deliver a mobile banking wallet that services the real needs of the unbanked.
The MNOs are in the best position to ship a wallet that lets their customers leverage stored value accounts and cards on file and interact with multiple, “best in class” financial services. This can all be delivered via the cloud – in a secure application that utilizes single sign-on, secure integration of payment devices, native contacts and APIs to strategic partners.
According to a new Forrester Research report, mobile banking is expected to reach about 46% of all U.S. bank account holders (108 million users) by 2017. This is up from about 13% of U.S. and 9% of European mobile phone owners who regularly use their banks’ mobile banking tools today.
An estimated 45 million unbanked people were using mobile money in 2009. This is expected to reach 360 million by the end of 2012 (according to a report by the GSMA, Consultative Group to Assist the Poor, and McKinsey & Company).
Summary: Mobile banking is rapidly being adopted globally by the banked as well as the unbanked and represents a significant opportunity for MNOs to deliver a mobile wallet combining top-up, the number one mobile commerce application today, with demographically targeted financial services. This pairing will provide the foundation for wallet usage, adoption, and create customer loyalty.
Delivering benefits with mobile wallets
How does the MNO benefit?
–Higher average revenue per user: The MNO’s customers can more easily top-up their prepaid phones. The channel cost for virtual top-ups is significantly less than the retail channel.
–Lower churn: The MNO’s churn rate drops as much as 10-times when the prepaid customer is using their mobile phone for financial transactions, according to an Aite Group report.
–New revenue: The MNO can increase their revenue through transaction fees from the financial services offered to their customers and from the slotting fees paid by brands wanting to be featured in the MNO’s mobile wallet.
How does the consumer benefit?
–Easy access: Consumers (banked and unbanked) can access online banking services without having to go to a retail location.
–Reduced task time: Transactions can quickly be completed through an optimized and easy to navigate user experience.
–Real-time: Funds are availability immediately upon successful transaction.
–Security: Consumers can securely store multiple payment devices for quick access anywhere.
How does the financial service provider benefit?
–New customers: Remote payment functionality gives providers access to a rapidly growing prepaid market that is eager to access financial services via their mobile phone.
–Increased use: The convenience of integrated remote payment services will stimulate repeat use and loyalty.
–Scalable/expandable model: Remote payment functionality gives providers an entry point that can be further expanded into the mobile market.
Over the next year, much of the electronic payments focus will still be on POS solutions for retail including NFC-enabled mobile wallets promoted by Google and Isis. While we wait for retailers and handset manufacturers to move the shopper into contactless wallets, there are many motivated stakeholders ready to service the banked, unbanked/under-banked and consumers making remote payments. The MNOs have a unique opportunity and are positioned to quickly develop and ship a mobile wallet for the banked and well as the unbanked.
Prepaid services are increasingly popular and represent a changing demographic. There are global models ready to be emulated in the United States and Europe, and while financial institutions need to be in the value chain, it is more likely that MNOs, payment and money transfer vendors will be the innovators in this sector.
