Evolving Market Segments Mobile Operators European MPayments Services_1107_Current Analysis

7/31/2019 Evolving Market Segments Mobile Operators European MPayments Services_1107_Current Analysis

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Summary

Issue

Whether referred to as m-payments, mobile payments, mobile wallets, online payments, remote payments, e-commerce or something else, the market targeting newer, non-traditional payment methods for content,goods and services is a fast developing segment in which many diverse players have a keen interest, from

financial institutions to large retail chains to OTT operators and, of course, mobile providers. The latter areinvolved in varying kinds of payments initiatives, many truly mobile (for example, contactless, via NFC, or SMS-based) and some that cannot be so clearly labelled (such as co-branded credit cards or billing of online purchasesto a mobile account). This report examines the European mobile payments space from the mobile providers point of view, taking a snapshot of the current market landscape and highlighting recent and emerging trends, aswell as key takeaways for mobile operator participation in, and influence on, the evolution of mobile, remote andcontactless payments.

For further information and analysis, please see:Everything Everywhere, Telefnica UK & Vodafone UK Jointly Tackle Mobile Marketing & Payments , June 20, 2011MWC 2011 Trend Round-Up: Contactless Mobile Payments Arrive , February 22, 2011MWC 2011: Deutsche Telekom Targets Mobile Payments , February 16, 2011

Everything Everywhere Plans Mobile Contactless Payments Push , January 27, 2011NFC, or New-Fangled Collaboration , December 28, 2010

Perspective

Current Perspective

Landscape Much of the focus of new mobile payments initiatives spurred by MNOs centres on the use of contactless NFCtechnology, in two main categories: SIM-based (via a secure SIM card in an NFC-enabled handset) and card-based (via a secure chip and antenna embedded in a credit or debit card). In both cases, the device or card isbrought into close proximity with a contactless reader at point of sale to affect purchase. The same technology

can, and is, used for non-payments applications: as keys for buildings, hotel rooms or vehicles, or as ID cards,for example. While 2011 is seeing a significant ramping up of European NFC-based plans and deployments,commercial launches have already taken place elsewhere in Europe and neighbouring countries.

In Turkey, a contactless, SIM-based NFC system was commercially launched late in 2010 by mobile providerAvea, the Garanti Bank and MasterCard supporting payments at 35,000 retailers in Turkey and at 265,000locations worldwide, as well as Turkish transport ticketing and sports venue access. Alongside a prepaid accountand credit card payment functionality, mobile marketing also underpins the deployment, offering loyalty points,discounts and rewards, while initial take-up was incentivised with the offer of free prepaid account credit on SIMactivation. For a sampling of launches taking place in 2011, please see Table 1: Recent Developments below.

While NFC gets much of the attention, MNOs are encroaching on the payments segment in various other ways as

well, which are continuing alongside newer contactless schemes. Mobile SMS-based payments systems have

Advisory Report: Evolving Market Segments: Mobile Operators & European M-Payments Services

Report Date: July 12, 2011

Analyst: Rybak, Natasha

Service:Consumer Services Europe

Market: Mobile Media
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been in place for some time, primarily in areas such as ticketing, public transport and parking, while directoperator billing (where online purchases are made against a monthly mobile telephone bill or prepaid allotment)and co-branded credit and debit cards (often also offering additional mobile top-up credits or rewards pointswhen used) are also becoming more established.

Many SMS-based payments deployments facilitate micropayments, or low-cost purchases. A good example isBelgacoms PingPing, a consumer-facing brand launched in 2009, which also supports contactless, NFC-basedpayments. The Belgian incumbents involvement with mobile payments originated with SMS transport andparking ticketing services (which are still being enhanced and expanded), expanding to library check-outs andsmall purchases up to EUR 25.00 for use online and in shops, as well as NFC-enabled payments for stores,vending machines and school items such as lunches, and even electric car recharging and public bike rentals.

A1 Telekom Austria is another example of an incumbent mobile provider that has pursued the payments segmentfor some time, specifically via owned subsidiaries, in this case spanning both SMS-based purchases (Paybox,which also supports participants Orange, T-Mobile and tele.ring) and a co-branded credit card (A1VISA). Whileco-branded credit and debit cards are not a distinct mobile payments offer as such, they do provide the mobileoperator partner with entry into the financial services space, extending brand presence and allowing forexpanded bonus, loyalty and rewards schemes for mobile customers using the designated card, thus benefitingboth the financial and mobile operator partners with cross-promotional drivers to increased card and mobileservices usage.

The Importance of Partners While some mobile payments rollouts involve a single mobile operator facilitator, in many cases mobile providersare acting cooperatively to create more efficient deployments and enhance appeal to retailers by using a commonpayments system or methodology, while sharing and defraying the investment and resource load andencouraging economies of scale. Cooperative efforts can be expressed as agreements, partnerships or jointventures to pursue common standards evolution, support common platforms or launch unified, branded mobilepayments deployments, whether for SMS-based, operator-billed or contactless, NFC-based solutions.

Last year in the Czech Republic, operators Telefnica O2, T-Mobile and Vodafone came together to promoteexisting m-payments capabilities to end users and merchants via a new association (the Association of MobileNetwork Operators, or APMS), which launched an online information site and joint logo. The effort aimed tounderscore the types of mobile purchase methods available in the country, including m-payments for transportticketing, parking, event ticketing, gaming, travel insurance, donations and TV show voting. The providers areworking cooperatively to offer competing payments services using consistent payments systems, supportingremote payments by premium SMS and direct operator billing (debiting prepaid credit, or charged on themonthly mobile phone bill).

Similar cooperative payments efforts are in place in other European countries, such as Germanys mpass, whichhas supported SMS-based purchases for several years and now includes MNO participants O2, Telekom andVodafone. Many of the launches planned and deployed in 2011 and discussed for later introduction in 2012 andbeyond follow a cooperative model, especially at the national level involving most or all of a countrys MNOplayers. This ensures maximum reach in terms of geography and existing customers that can be targeted withnew payments services, as well as presenting a stronger unified front to retailers, financial institutions,advertisers and, in the case of SIM-based NFC programs, handset vendors.

Recent Developments: 2011 Mobile Operator Payment Services Launches Launch Mobile

Operator/FinancialPartners

Description Retail Ecosystem

Contactless PaymentsOrange Quick Tap,UK

Orange, Barclaycard Contactless, SIM-basedNFC payments forpurchases up to GBP15.00

Reportedly 50,000 stores,including Pret A Manger,EAT., Subway, Little Chef,Wembley Arena, Wilkinson &McDonalds; Samsung ToccoLite handset

Orange Cash, UK Orange, Barclaycard, Contactless NFC 30 million locations worldwide


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Other Developments: Post-2011 Mobile Operator Payments Services Launches

Key Takeaways

While the same mobile operators (and financial institution partners) may work together to roll out mobilepayments services in more than one country, deployments in Europe to date are characterised by limitation to asingle country market. This is not surprising considering differing regulatory and legal requirements (although theEuropean Payments Council is pursuing more standardisation and interoperability for cross-country mobilepayments), compounded by varying local market conditions. The complexity and number of parties necessarilyinvolved in launching more advanced, large-scale, SIM-based NFC payments services is another factor limitingpractical deployment opportunities to being undertaken on a country-by-country basis.

NFC gets much of the attention as regards mobile payments, but this segment is by no means limited tocontactless deployments, and mobile operators are not limiting themselves to these types of rollouts. Many of thenew launches in 2011 are NFC-oriented, but SMS-based payments, direct operator billing and other remote

online payments initiatives are being maintained, expanded and introduced. Given the uncertainty surrounding

SFR, BNB Paribas, CreditMutuel, CIC, CreditAgricole

NFC payments pilot usinghandsets in Nice to eightother cities; mobileoperators target 1 millionNFC-enabled handsetsales in 2011

retailers and financial, transit,educational and localgovernment organisations

Buyster, France (JV) Bouygues Telecom,Orange, SFR, Atos Origin

Common remotepayments serviceallowing for direct billing

of online retail purchasesto the customers bankcard using the registeredmobile phone number

Backed by online retailersAquarelle, Brandalley, Darty,Rue de Commerce

Cooperative NFCPaymentsDevelopment,Belgium

BASE, Belgacom,Mobistar, Febelfin(Financial IndustryFederation)

Cooperative developmentof common contactlessNFC payments standard

Not cited

Common PaymentsPlatform, Italy

3 Italy, Fastweb,PosteMobile, TIM,Vodafone, Wind

Common operator billingplatform allowing fordirect billing of digitalcontent and services to

the customers mobilephone account using theregistered mobile phonenumber

Interest from digital contentproviders Caltagirone Editore,Class Editori, Monks Guide,Espresso, Il Sole 24 Ore,

Microsoft Italy, Mondadori,Monrif/Editorial Poligrafici,Paperlit, RCS, Shenker,LUnione Sarda

Common Open NFCPayments Platform,UK (JV, pendingcompetitionclearance)

Everything Everywhere,Telefnica O2, Vodafone

Common & opencontactless, SIM-basedNFC payments platform;will also offer single pointof contact for mobileadvertising interests

Not cited

Launch MobileOperator/FinancialPartners

Description Timeline

Cooperative InitiativesCooperative NFCPayments Development,Spain

Orange, Telefnica,Vodafone

Cooperative developmentof common contactlessNFC payments standard

Not Cited

Common NFC PaymentsPlatform, Denmark (JV)

3 Denmark, TDC, Telia,Telenor

Common contactless NFCpayments platform

Year-end 2012


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consumer and retailer acceptance of mobile payments, the practical realities of consumer purchase patterns, thetypes of transactions subject to remote purchase, and the possibilities regarding future evolution of pan-European mobile payments standards, experimentation with different models is a logical choice.

For mobile operators, the impetus to enter the payments space is not simply to facilitate purchases and openup a potential new revenue stream. Expanding brand awareness into a new service area, enhancing andbroadening customer interaction, and forging new touch points in the daily life of the consumer are all integral inmaintaining competitiveness and keeping customers for mobile operators and, in fact, any telecommunicationsservice provider. Payments represents an attractive area for these reasons, and because it is a segment wheremobile operators can carve out a value proposition hinging on their knowledge, expertise and existing networkinfrastructure and subscriber relationships for their own benefit as well as retailer and advertiser partners.

Many of the recent and soon-to-be-deployed contactless products slated for 2011 have emerged in the UK(Orange Quick Tap, Orange Cash, O2 Money, the planned Everything Everywhere offer and the NFC jointventure), where there is already prevalent use of contactless payments cards at retailers and for transport soboth the infrastructure and consumer understanding of this form of payment have already seeded the ground forfurther, wider-ranging deployments. In other countries, lack of retailer confidence and reluctance to invest in andinstall appropriate point-of-sale kit, alongside consumer awareness, will present barriers that need to beovercome for these types of deployments to take place.

Sourcing NFC-enabled handsets has proven difficult for MNOs, and the ability to offer consumers choice amonga range of devices will be key to enabling large-scale, SIM-based contactless deployments. While contactlesscards are a useful intermediary step, for the mobile provider the secure SIM is the method that best ensurescustomer lock-in, while allowing for a variety of transactional applications from different financial servicesproviders and retailers to be accessed. However, as the primary channel to market for mobile devices, mobileoperators are well placed to promote and drive demand for NFC-enabled handsets in tandem with services,especially as they begin to act more cooperatively for deployments, presenting a common procurement demand.

Recommended Actions

Vendor Actions

Several of the mobile payments initiatives planned or already in place are emphasising the logical alignmentwith advertising opportunities, and this is a relationship that should be nurtured. As deployments evolve, so willthe interplay between mobile payments and mobile advertising, benefiting the interests of participants on bothsides of the equation. Product marketing, discounting and couponing and tailored, limited-time location and userprofile-based promotions (down to the aisle a shopper is occupying in a supermarket and a history of their recentpurchases) are all ways in which mobile advertising can leverage mobile payments systems, and vice versa.

Just as there are a variety of different mobile payments methodologies aside from contactless NFCdeployments, there are a large number of opportunities for mobile providers to exploit NFC technology outside of the payments space. NFC can be used to support controlled access to vehicles, properties and homes, as well asbeing a source for remote control and monitoring within these locales. Medical offices and other businesses canuse NFC to track and assist patients and customers; car-sharing schemes can be enabled by NFC keys; andcheck-in and room access can be facilitated by NFC technology, as is being done by Telia and the Clarion Hotel inStockholm.

Mobile operators are not essential to the mobile payments space; online players such as PayPal have no needto coordinate with mobile providers, and merchants and financial institutions can also circumvent them on thecontactless side using cards and other contactless devices (for example, although it is also party to cooperativeinitiatives, VISA is launching a contactless payments trial in France using NFC-enabled iPhone cases). Mobileproviders need to make the case for the value they can bring to the payments segment: very specific technicalexpertise, existing customer reach and experience with mobile services and device management.

Unlike some of the other players converging on the mobile payments feeding frenzy, MNOs really cannot do italone; partnerships are key. Financial institutions and transaction enablers, retailers and merchants, advertisersand manufacturers of secure storage elements and NFC-equipped devices are all participants in the paymentssegment, and the way in which it evolves. Mobile operators should also be monitoring the advance of Google


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Wallet; for Sprint in the US, partnering with Google presents a very quick, high-profile entry into the segment, anavenue that might be of interest to other mobile providers, should the opportunity arise.

Security is a significant worry for consumers when payments are involved; for mobile operators, partneringwith a well-known and trusted bank or financial services brand can help to allay these fears. Privacy is also aconcern for some consumers, and mobile operators moving into payments and targeted advertising need to beaware that the issue of being tracked, monitored and profiled will likely emerge as a key debate even asarguments are made that these actions benefit the consumer with user-specific bargains, alerts and rewards.Ease and ubiquity of use are other important factors; the process needs to be simple, easy, and widely availableand accessible.

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Evolving Market Segments Mobile Operators European MPayments Services_1107_Current Analysis