E-Banking Snapshot 34

August 2010 Digital economy and structural change

M-payments: Variety may trump grand schemes
M-payments have stirred great expectations but shown limited market success so far. According to Gartner, a technology advisory company,

less than 1% of European and less than 2% of North American mobile users also pay with their mobile phones. Yet, new attempts to establish m-payments should not be written off automatically. It may not be the grand m-payment schemes many optimists imagine that succeed eventually, but a number of smaller, diverse and intuitively useful applications. chart 1
M-payments usually cover payments involving a mobile phone (e.g.,

paying a parking ticket via premium SMS). There are many varieties depending on the technology, the accounting vehicle, the purchase scenario or the service provider. Some definitions exclude purely mobile content (e.g., ringtones), others don’t. A key distinction is between proximity payments at the point of sale and remote purchases. With the growing overlap of online and mobile experiences (mobile internet) the answer to what constitutes an m-payment is becoming increasingly blurred. chart 2
Successful applications can be seen e.g. in Japan or in some developing countries. M-payments will be much harder to establish in Europe

and the US because the existing financial infrastructure (and cash) offers many alternatives – unlike in some developing countries. Moreover, the supply side is more fragmented than, say, in Japan. chart 3
Few consumers are excited about purchases via their phone. This

points to serious adoption hurdles in Europe and the US. Potentially gamechanging technologies (e.g., contactless payments via NFC) need substantial infrastructure investments and broad support from shops and merchants before consumers will sign up. chart 4
Yet, there are some purchase scenarios that stir more interest than others. Germans are more open-minded when it comes to mobility-related

expenses. Lacking the right change to feed a parking meter is a scenario that quite convincingly illustrates the usefulness of m-payments. chart 5
M-payments need to be safe and easy to use. Moreover, German
Author Thomas Meyer +49 69 910-46830 thomas-d.meyer@db.com Editor Antje Stobbe Technical Assistant Sabine Kaiser Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 Managing Director Thomas Mayer

consumers don’t want to reveal their mobile phone number during the payment process: nobody wants an unsolicited call from a business or a creepy salesman. chart 6
Apps and mobile internet open up new business models. Modern

smartphones offer access to app stores and additional services. This has lowered the entry barriers of new m-payment solutions substantially because almost everybody can offer apps and mobile websites. As a consequence, we’ll likely see a large number of different mobile applications with embedded payment capabilities. chart 7
Many small front-end applications may integrate m-payments. Apps

and mobile internet unleash the creativity of developers to produce new, unexpected and useful applications. Each may only have a limited scope (e.g., a loyalty and payment app for a specific store) and rely on traditional payment options for settlement. In fact, German smartphone owners already use many apps in parallel. chart 8
Mobility and location-based applications are a good starting point.

They combine the highest consumer interest, the most likely purchase scenario (on the move) and leverage the technical capabilities of modern phones. chart 9

E-Banking Snapshot 34

M-payments

Great expectations - limited success

M-payments have stirred great expectations but shown limited market success so far. According to Gartner, a technology advisory company, less than 1% of European and less than 2% of North American mobile users also pay with their mobile phones. Yet, new attempts to establish m-payments should not be written off automatically. It may not be the grand m-payment schemes many optimists imagine that succeed eventually, but a number of smaller, diverse and intuitively useful applications. back to front page

Source: DB Research, 2010

1

Many varieties of m-payments
Examples Technology SMS NFC (near field communication) Mobile internet Accounting vehicle Direct debit Credit card Pre-paid Remote purchase Phone bill Money transfer Purchase scenario Shop Vending machine Service provider Telecom operator Financial institution Third party

M-payments usually cover payments involving a mobile phone (e.g., paying a parking ticket via premium SMS). There are many varieties depending on the technology, the accounting vehicle, the purchase scenario or the service provider. Some definitions exclude purely mobile content (e.g., ringtones), others don’t. A key distinction is between proximity payments at the point of sale and remote purchases. With the growing overlap of online and mobile experiences (mobile internet) the answer to what constitutes an mpayment is becoming increasingly blurred. back to front page
2

Source: DB Research, 2010

Japanese inspiration
Share of consumers using m-payments in stores (%) 14 12 12 10 8 6 4 1 2 0 Japan Europe
Source: Forrester Research Inc., 2009

Successful applications can be seen e.g. in Japan or in some developing countries. M-payments will be much harder to establish in Europe and the US because the existing financial infrastructure (and cash) offers many alternatives – unlike in some developing countries. Moreover, the supply side is more fragmented than, say, in Japan. back to front page

3

August 2010

2

E-Banking Snapshot 34

M-payments

Cold reception
Q: How interested are you in buying products or services via your mobile phone? (%) 74 64 80 70 60 50 40 30 20 10 0

6

8 1 4

13 3 3

7

10

12

Few consumers are excited about purchases via their phone. This points to serious adoption hurdles in Europe and the US. Potentially game-changing technologies (e.g., contactless payments via NFC) need substantial infrastructure investments and broad support from shops and merchants before consumers will sign up. back to front page

5 Very interested ...

Europe

2 1 ... not interested at all US
Source: Forrester Research Inc, 2010

4

Mobility-related expenses rank highest
Q: In which situations can you imagine using a mobile payment service? Score from 1 (not at all) to 5 (very well) Parking ticket Public transport Venue ticket Mobile stamps Online shopping Vending machine Transfer money to friends 0
Base: German consumers Source: Gapgemini, 2009

3.4 3.4 3.1 2.9 2.7 2.7 2.3 0.5 1 1.5 2 2.5 3 3.5 4 5

Yet, there are some purchase scenarios that stir more interest than others. Germans are more openminded when it comes to mobilityrelated expenses. Lacking the right change to feed a parking meter is a scenario that quite convincingly illustrates the usefulness of mpayments. It also demonstrates a clear advantage of m-payments over other payment options: users can often extend the validity of the parking ticket via phone without having to return to the car. Mobility-related expenses are thus often seen as a way to enlist a critical mass of consumers upfront to a new payment system. back to front page

Safe and easy
Q: What are the most important characteristics of a mobile payment system? Rank from 1 (most important) to 6 (least important) Secure Easy to use Does not disclose my mobile number Detailed information on my transaction Quick transaction Easy registration 0
Base: German consumers Source: Gapgemini, 2009

1.6 3.3 3.6 3.9 4.0 4.3 1 2 3 4 5 6

M-payments need to be safe and easy to use. Moreover, German consumers don’t want to reveal their mobile phone number during the payment process: nobody wants an unsolicited call from a business or a creepy salesman. back to front page

August 2010

3

E-Banking Snapshot 34

M-payments

Smartphones lead the way
German consumers who access mobile internet by type of phone used (%) All 17

Smartphone with touchscreen

55

iPhone

91

0

20

40

60

80

100 7

Apps and mobile internet open up new business models. Modern smartphones offer access to app stores and additional services. This has lowered the entry barriers of new m-payment solutions substantially because almost everybody can offer apps and mobile websites. As a consequence, we’ll likely see a large number of different mobile applications with embedded payment capabilities. back to front page

Source: Accenture, 2010

Many apps in parallel
Number of apps German smartphone owners use (%) 30 25 20 15 10 5 0 >40 21-40 11-20 6-10 <6 8

Many small front-end applications may integrate m-payments. Apps and mobile internet unleash the creativity of developers to produce new, unexpected and useful applications. Each may only have a limited scope (e.g., a loyalty and payment app for a specific store) and rely on traditional payment options for settlement. In fact, German smartphone owners already use many apps in parallel. back to front page

Base: German smartphone owners who use apps Source: Fittkau & Maaß, 2010

Start with navigation
Types of apps German smartphone owners use (%) Navigation Games News Weather Music Entertainment Social networking Education Photos / Videos Finance Lifestyle Shopping Travel Business Books 0 10 20 67.5 60.9 58.8 57.8 52.3 44.4 44.2 39.0 38.6 34.2 29.5 29.0 28.1 24.9 22.7 30 40 50 60 70 80 9

Mobility and location-based applications are a good starting point. They combine the highest consumer interest, the most likely purchase scenario (on the move) and leverage the technical capabilities of modern phones. back to front page

Source: Fittkau & Maaß, 2010

© Copyright 2010. Deutsche Bank AG, DB Research, D-60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht. In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange regulated by the Financial Services Authority for the conduct of investment business in the UK. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.

ISSN Internet: 1619-4829 / ISSN e-mail: 1619-6465

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