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Mobile Payments - Diamond

Mobile Payments - Diamond



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Published by Pushkar Kumar
Mobile Payments India Diamond Telecommunication Bank Telecom
Mobile Payments India Diamond Telecommunication Bank Telecom

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Published by: Pushkar Kumar on Mar 24, 2009
Copyright:Attribution Non-commercial


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Mobile payments have been highlytouted since it became apparent thatthe mobile phone would emergeas a ubiquitous consumer device.However early market adoption wasstunted by technological challenges,a lack o standardization, ragmentedcommercial eorts, and most impor-tantly, a lack o sustainable businessmodels. More recently, however, therehave been signs o renewed interestin mobile payments. Recent commer-cial initiatives include NTT DoCoMoand SK Telecom in Asia as well asmobile payment trials in the U.S., by PayPal Mobile, Visa and MasterCard.We believe mobile operators in the U.S. now have a real opportunityto lead this market development, given their large customer bases, andcontrol o mobile device eatures, user interace, and subsidies.We dene 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 comparisonto other traditional payment methods. We then identiy and evaluatepotential business models based on past and ongoing initiatives. Finally,we highlight key strategic questions or mobile operators to assess themobile payment opportunity.
Mobile Payments: MobileOperator Market Opportunitiesand Business Models
By Hamilton Sekino, John Kwon and Se Han Bong
Potential Drivers for MarketAdoption of Mobile Payments
While mobile operators, nancial services rms,and retailers have been evaluating the easibilityo m-payments since early 2000, recentdevelopments on both the supply and demand sideare prompting the key players in the m-paymentsvalue chain to get serious about its potential.On the supply side, mobile operatorsare under pressure to continue looking ornew revenue sources to counteractvoice pricing decline and subscriber growthsaturation. While mobile operators in theU.S. are gaining traction with mobile datacontent and applications, which alreadyrepresent 13% o total ARPU, the m-paymentmarket presents them with an opportunityto urther expand non-voice revenues. Mobileoperators in mature wireless markets suchas South Korea and Japan, where mobiledata ARPU already reached 19% and 29% oARPU respectively, are aggressively leadingtheir respective m-payment ecosystems. Weestimate that mobile operators in the USwill need to generate more than $40B in non-voice revenues by 2010 in order to sustainoverall ARPU, and they will be looking atm-payments as one potential revenue source.Furthermore, nancial institutions, acingdeclining revenue growth rom traditionalcredit cards, are also looking at cash-dominated micro-payments (i.e. transactionsless than $5) to generate new revenuestreams. In 2004, micro-payments processedthrough 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 compellingcandidate or replacing a physical wallet. Inthe U.S. mobile penetration has passed 75%,with 235M mobile phone users, comparedto 176M people with credit/debit cards.Surveys reveal that U.S. consumers todayare more likely to leave home without theirwallets than their mobile phones.In addition, consumers are increasinglycomortable in using their mobile phones orapplications other than voice. This is clearlythe case in Japan and South Korea, which areleading m-payment deployments. It is reasonableto expect this trend to carry over to the U.S.market, where mobile data penetration isprojected to grow rom 21% to 52% by 2011.
Segmentation and Sizing of theMobile Payment Market
To help assess the market potential o mobilepayments, Diamond rst looked at the currentpayments market and identied and sizedsegments that are more predisposedto adopt mobile payments (Figure 1).The market is segmented into 4 quadrants:in-store vs. remote and micro vs. macrotransactions, where a micro transaction isdened as less than $5. From this perspective, weocused on in-store transactions, aggregating tomore than $6 trillion in annual transactions, andon peer-to-peer (P2P) and international undtransers, a much smaller market with close to$60B in annual transactions.Mobile phones possess key value propositionsthat make m-payments ideal or these segments.For in-store segments—in particular the micro-payments segment—the value proposition is theconvenience and speed o contactless paymentsenabled by mobile phones with embedded NFC(Near Field Communication) chips. For on-lineP2P and international transer markets, the valueproposition is the inherent connectivity, ubiquity,and near real-time verication capabilityo mobile devices (via SMS, WAP, or IVR).
Overview of Payment Value Chains
Beore evaluating and recommending anoptimal new value chain and business modelor mobile operators, it is useul to rstreview existing payment models (Figure 2).2
The Mobile PaymentMarket Opportunity
For more information contact:
Hamilton Sekino, PartnerHamilton.Sekino@diamondconsultants.com
The Mobile Payment MarketOpportunity
. . . . . . . . . . . .
Mobile Payment Business Models
. . .
Conclusion: Recommendations orMobile Operators
. . . . . . . . 10About the Firm
. . . . . . . . . . . .
12About the Authors
. . . . . . . . . .
 table o contents
Overview of Traditional Payment Value Chains
CashCredit /Debit CardsChecksOnline P2PPaymentsMobilePayments
Accept cashPay cash
Accept payments using cardreaders that are connectedto merchant acquirersManage consumeraccounts and assumeassociated credit risk Typically outsource back-office processingPay issuers and manageaccounts (via statementsor online access)Hold merchant accountsManage transaction info& merchant paymentTypically outsourcetransaction processingConnect and switchtransactions betweenmerchants & issuing banksExpand network andpromote brand awareness
Accept checks and verifyconsumers’ identity andaccount informationMonitor theirchecking accountsHold consumer accountsand issue checksNot responsible forfraudulent checksOutsource check printingHold merchant accountsCollect & process checks(verification and guarantee)Clear checks & collect funds
Accept payments usingM-payment readers orexisting POS devicesconnected to merchantacquirers Authorize payments andmanage wireless bills/creditcard bills/m-paymentaccounts & M-walletPay bills and rechargeM-walletMonitor their accountsvia mobile phonesHold merchant accountsManage transaction info& merchant paymentConnect and switchtransactions (either throughown network or existingpayment networks)
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 accountsService 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 fundsTransfer 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.
Vending, parking, coin-operated machines, quick-servicerestaurants, and transit account for $160 billion.
Excludes P2P payments, catalog sales, infomercial sales,telesales or bill payments.
 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.
Total US remittance outflow (personal transfers from theUS to other countries) in 2005.
U.S. Payments Market Segmentation and Sizing
Credit/Debit Cards,Cash, Checks
Online sales
= $176.4 billion+Online P2P
= $16.0 billion+Int’l fund transfers
= $43.5 billion$235.9 billionPayments over $5 in physical locations= $5.0 trillion
Payments under $5 in physical locations= $1.2 trillion
Wireless content & app. download= $2.0 billion
Credit/Debit Cards,P2P Payments
Direct Wireless Billing
Figure 1

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