Advanced Payments Report 2014 - presentation€¦ · about"the"technology"itself"! Need"to"oﬀer"valuedadded" featuresthatboostboth merchantacquisitionand" consumerusage" % Conﬁdential

2014 Advanced Payments Report

The 5 key questions and answers you should know about mobile payments

© Edgar, Dunn & Company, 2014

Contact information

2

Edgar, Dunn & Company 120 Cannon Street London, EC4N 6AS UK

Tel +4420 7283 1114 Mobile +44 78 2502 7525

[email protected]

Mark Beresford Director

Confidential

3

The financial services and payments industries are increasingly cross-‐border and global enterprises

EDC leverages its global footprint and 30+ years of experience to facilitate development and implementation of successful strategies for our clients that satisfy both their market-‐specific and global needs

Today we serve clients in more than 45 countries on six continents from eight locations worldwide

EDC Provides Global Reach and Local Market Expertise Through Six Locations Worldwide

Global Financial Services & Payments

EDGAR, DUNN & COMPANY (EDC) is an independent global

financial services and payments consultancy. Founded in 1978,

the firm is widely regarded as a trusted advisor to its clients,

providing a full range of strategy consulting services, expertise

and market insight.

The Advanced Payments Report 2014 reveals key trends in the development of mobile payment solutions

A yearly analysis of the evolution of advanced payments:

! Key topics: ¡  Success factors, drivers and challenges ¡  Drivers for merchants and consumers ¡  Impacts of technologies, services, data

and security on the mobile value proposition

! Survey and interviews of 500+ payment industry respondents across the world

! Focus on mobile and emerging payments (e.g. mobile wallet)

! EDC’s client experience and expertise in mobile payments

Confidential 4

Confidential 5

What does mobile payments mean for your business?

$

Mob

ile Pro

ximity

Pay

men

ts M

obile Remote Paym

ents

Mobile contactless / proximity

Mobile online payments (goods & services)

Mobile as POS

Mobile online payments (digital goods)

Mobile in-‐app payments

Direct interaction and social networks

Customer Knowledge

Purchase-‐related services

EDC Mobile Payments Matrix

Loyalty, couponing, marketing offers

Value Added Services

Confidential 6

1.  Who is expected to drive the growth of mobile payments?

2.  Which technologies are the most attractive?

3.  What are the expected benefits of mobile payments?

4.  What are the main industry challenges for mobile payments?

5.  What about security?

Agenda – finding the answers to these 5 key questions

Confidential 7






Agenda

Established alternative payment providers and traditional payment institutions expected to drive m-‐Payments growth

Confidential 8

91%

70%

81%

82%

91%

72%

74%

76%

77%

82%

85%

0% 20% 40% 60% 80% 100%

Merchant and merchant initiatives

Emerging alternative players

Banks and financial institutions

Web-‐related companies

Card networks / payment schemes

Established alternative players

2014 2012

Players most likely to drive the growth of mobile payments

Source: EDC Advanced Payment Survey 2014

Examples

No data available for 2012

Nevertheless, players with a focus on P2P and eCommerce could have an advantage in the next few years

Confidential 9 Source: EDC Advanced Payment Survey 2014

What type of mobile payment services will be the most successful in 2-‐3 years?

mPOS is an area, which is expected to experience significant growth, not only targeting small merchants

Confidential 10 Source: EDC Advanced Payment Survey 2014

About the mPOS opportunity

mPOS is a significant opportunity for all types of retailers, as acknowledged by 68% of respondents

Large retailers are turning to mPOS to differentiate their customer service offering

Confidential 11

! Retailers and consumers like mPOS because ¡  It offers convenience ¡  Provides a face to face personal

service ¡  It is immediate ¡  It can be anywhere in the store

! Great way to bust a queue

! As competition rises, stakeholders have realised that the mPOS business is not only about the technology itself ¡  Need to offer valued-‐added

features that boost both merchant acquisition and consumer usage

Confidential 12






Agenda

When it comes to the preferred technology, NFC still comes first, but a new credible competitor comes with BLE

Confidential 13

Which technology will be most successful to drive mobile proximity commerce going forward?


The development of NFC has not met expectations but Host Card Emulation (HCE) could boost NFC deployment

Confidential 14

Host Card Emulation (HCE) is an alternative to standard NFC card emulation

! HCE does not require the use of a secure element within the device

! A smartphone application emulates the card and communicates directly with the NFC reader

! HCE creates a virtual smart card and hosts it in the cloud

! This technology may encourage wider adoption of NFC solutions through removing the requirement of a secure element holding the payment credentials

Beacons use Bluetooth Low Energy (BLE) technologies

Confidential 15

! Uses Bluetooth 4.0 ¡  New format of Bluetooth that is built

into many smartphones including all iPhones from Apple 4S upwards and the Android devices such as the Samsung Galaxy S III

¡  No need for devices to be paired

! The beacon transmits a signal up to 50 metres depending on the environment

! The smartphone user will see a notification on their home screen ¡  For example, offering a discount, or a

reward incentive or contextual suggestion is near by

¡ Works even if the phone is locked

Beacons are a cost-‐efficient device for retailers to influence customer behaviour

Examples of beacons

Confidential 16

Beacons: significant potential for retailers

! Description: low-‐cost device based on BLE (Bluetooth Low Energy) technology

! Why is it considering as significant? ¡  Does not affect current payment

infrastructure ¡  Can directly increase sales and influence

customer behaviour at point-‐of-‐sale ¡  Enable location-‐specific services such as

indoor navigation, advertisement delivery, couponing, payments, file transfer, etc.

! Current status: a few example retailers in the US and sports events

1

23

4

Navigate indoors Check-‐in /

receive coupons

Proximity marketing

Frictionless payments

Bar and QR codes are already in use in closed loop systems, very successfully in the case of Starbucks

Confidential 17

Highlights of Starbucks’ mobile solution

! Started in 2009 based on bar and QR codes with significant results:

! 4.5 million payments a week with mobile

! Mobile wallet accounts for 11% of sales, equivalent to an estimated $272 million (Q3 2013 in North America)

! Focus on innovation (e.g. partnership with Square and ‘pay by name’ functionality)

! A reference for many retailers across the globe

Source: Starbucks

It is early days for payments based on biometrics but various initiatives exist around the globe

Examples of initiatives

Confidential 18

Biometrics payments: some potential but significant concerns

! Description: use of biological data to authenticate a client and authorise a transaction

! Why is it considered as significant? ¡  Different types : fingerprint, palm vein

sensors, iris, voice ¡  Uniqueness of biological data for each

individual leads to strong security ¡  Potential to enable frictionless

payments

! Current status ¡  Different initiatives like Brazilian

Bradesco bank (palm vein sensors) or National Security in France (fingerprint)

¡  Significant concerns regarding the use of biological data

Confidential 19






Agenda

Data analytics remain hot topics of discussion: it is a very relevant opportunity but one which should be approached carefully

Confidential 20

M-‐payments can drive benefits for merchants by enabling multichannel user experience and advanced data analytics

About advanced data analytics (and data mining)


21

Mobile is a key element in any multichannel retail strategy

Source: EDC -‐ MRC report – Payments at the heart of multichannel Confidential

The adoption of new technologies creates new shopping trips and new customer experience

22

Having an integrated multichannel strategy could bring several benefits for merchants

Top benefits of an integrated multichannel strategy for merchants

Source: EDC -‐ MRC report – Payments at the heart of multichannel Confidential

36%

42%

54%

61%

62%

73%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Provide competitive advantage

Improve operational efficiency

Access to new customer segments

Improve shopping experience

Improve customer loyalty

Increase sales

Confidential 23

A sound data analytics strategy could fuel some of the most attractive added-‐value services for mobile wallets

29%

39%

40%

52%

58%

0% 10% 20% 30% 40% 50% 60%

Location-‐based specific offers

Electronic receipt

Price comparison tool

Bank account balance

Payment integrated with loyalty or coupons


Top value-‐added services for mobile wallets

Confidential 24

Digitalisation of the retail point of sale (POS) is combining virtual and physical worlds

Adidas

Marks & Spencer

Argos

Burberry

Superdry

Confidential 25






Table of contents

Confidential 26

A profitable business model appears to be the major hurdle but all stakeholders acknowledge they need to go mobile

64%

59%

45%

66%

43%

46%

47%

55%

56%

57%

61%

0% 10% 20% 30% 40% 50% 60% 70%

Different technology standards

Partnerships with other stakeholders

Development of an acceptance network

Confusion due to the large quantity of alternatives

Security and increased fraud risks

Value proposition not adapated to consumer needs

Profitable business model

2014

2013

Net % of respondents that agree minus those that disagree


Key hurdles to the development of mobile payment solutions

Confidential 27

So how can we make m-‐payments work?

Offer a smooth and practical consumer experience

Leverage existing payment infrastructure

Consider whole purchase experience – payments not the centre of value proposition

42% 27% 11% Source: EDC Advanced Payment Survey 2014

Key success factors driving mobile payment usage

Confidential 28

What a mobile payment proposition must be able to do…

! Demonstrate at least neutral if not positive merchant economics ¡ Able to deliver new customers? ¡ Create more loyal customers? ¡ Encourage more frequent visits? ¡ Promote greater spend per visit? ¡ Lower operational and/or marketing costs of the merchant?

! Provide a better alternative to the payment methods consumers are content to use today

! Have sufficient number of merchant acceptance locations so consumers can experience the value of these services in their everyday lives

Changing customer behaviour may be one of the biggest challenges in launching mobile payments

Confidential 29






Table of contents

Confidential 30

Is the relevance of security in mobile payment systems overhyped?... Definitely not, but there needs to be a balance

77% 68%

38%

-‐25% -‐40%

-‐20%

0%

20%

40%

60%

80%

100%

Net % of respondents that agree minus those that disagree

There should be a balance between

consumer experience and

security

No payments can be 100% secure –

consumer protection should

be offered as it is on cards

Security is the biggest concern in the future

Security is overhyped – it is mainly a customer

perception issue


Respondents were asked to comment on the relevance of security in mobile payments

Whilst respondents recognize the importance of security, they also believe this should not be achieved at the expense of the consumer experience

So what is the best place to store payment information? – Cloud solutions seem to be attractive for survey respondents

31

Where is the most suitable location for the secure element?

Source: EDC Advanced Payment Survey 2014 Confidential

Whilst SIM and embedded chip technology still have the potential to act as the secure element, cloud software solutions are maturing and

support for this technology is growing

Simplicity Speed Convenience Frictionless customer experience

Confidential 32

Mobile payments need to strike a balance between convenience and security

Towards a frictionless customer experience...

Convenience Security vs.

... but a balance between convenience and security needs to be found

Source: EDC -‐ MRC report – Payments at the heart of multichannel

33

In Summary…

Confidential

1. M-‐wallet = convenience + multichannel approach + services beyond payments considering the whole purchase process

2. Mobile as POS is a significant opportunity, not only targeting small retailers

3. NFC is expected to drive mobile payments but other alternatives like beacons or QR codes offer significant potential in the short-‐term

4. Solutions with a secure element based in the cloud / software are expected to fuel mobile payment growth

5. Data analytics are expected to create significant revenues and will power the use of value-‐added services for mobile wallet

Confidential 34

The Advanced Payments Report 2014 reveals 5 key trends in the development of mobile payment solutions

Confidential 35

As a trusted advisor across the globe, EDC could assist your business to increase revenues or develop new initiatives

Contact information

36

Edgar, Dunn & Company 120 Cannon Street London, EC4N 6AS UK

Tel +4420 7283 1114 Mobile +44 78 2502 7525

[email protected]

Mark Beresford Director

Confidential

Documents

Advanced Payments Report 2014 - presentation€¦ · about"the"technology"itself"! Need"to"oﬀer"valuedadded" featuresthatboostboth merchantacquisitionand" consumerusage" % Conﬁdential