Mobile Payments-Moving Closer to a World Without Wallets - eMarkter September 2011

Digital Intelligence Copyright ©2011 eMarketer, Inc. All rights reserved.

The eMarketer View 2

Mobile Payment Opportunities 3

Mobile Payment Landscape 6

Adoption, Attitudes and Behavior 8

Opportunities for Marketers 14

Trends to Watch 16

Conclusions 17

eMarketer Interviews 18

About eMarketer 18

September 2011

Executive Summary: The potential for mobile payments is huge. Consumers globally make trillions of dollars in credit and debit card transactions each year. Migrating just a small percentage of that spending to mobile-based transactions would be a lucrative opportunity for the companies that facilitate it. Estimates for the volume of those transactions vary widely but share a consensus that mobile payments will see sizable growth this year and accelerate rapidly in 2012. 129696

Many players will be needed to make such transactions possible. From carriers to handset manufacturers to software providers to retailers, mobile payments will give a wide variety of firms a chance to make money—and add value for the consumer.

Defining that value will be critical for consumer adoption. The concept of a mobile wallet may appeal to technophiles, but the average shopper approaches the idea with trepidation. Fears about privacy and security weigh against the convenience factors of mobile payments, and mobile carriers, credit card companies and other service providers must be prepared to address those concerns. Linking mobile payments with targeted offers, easy-to-use loyalty programs, and deals and discounts are carrots that may encourage consumer uptake.

Key Questions

■■ What is the outlook for mobile payments in the US and elsewhere?

■■ Who are the key players and what are the leading platforms?

■■ What are the drivers and inhibitors to the adoption of mobile payment systems?

■■ How do consumers feel about storing credit card information on their phones?

■■ What’s in it for marketers?

billionsMobile Payment Volume Worldwide, 2011 & 2015

2011

$240

2015

$670

Note: includes mobile payments for digital and physical goods, mobilemoney transfers and near-field communications (NFC) transactionsSource: Juniper Research, "Mobile Payment Strategies" as cited in pressrelease, July 5, 2011129696 www.eMarketer.com

Contributors Chris Keating, Tobi Elkin, Lauren McKay

Mobile Payments: Moving Closer to a World Without Wallets

Mobile Payments: Moving Closer to a World Without Wallets Copyright ©2011 eMarketer, Inc. All rights reserved. 2

The eMarketer View

The ability to make payments from a credit card or bank account simply by waving a mobile phone in front of a point-of-sale terminal is the latest—and probably most significant—addition to the list of things a smartphone can do to help today’s harried consumers. The technology to allow phones to work as a payment mechanism has existed for over a decade, but mobile payments at the point of sale are only now becoming an everyday part of the consumer routine.

The mobile wallet’s promise is convenience. Mobile payments can help put everything in one place, consolidated in the single device consumers always have at hand. The high pace of smartphone adoption will soon make it viable for more consumers to use their devices as a payment mechanism.

To date, the key players in the mobile payments ecosystem have been a limiting factor. The business and technology ecosystems behind every new mobile payment system are complex. On the business side, they involve renegotiating some long-standing arrangements around who gets what slice of each consumer transaction. On the technology side, many payment systems require the installation of new hardware. In the first half of 2011, these factors began to be addressed with a slew of deals and partnerships. More deals will no doubt take place as the many potential beneficiaries of payments made via mobile further position themselves for a piece of the action.

Service providers’ motivations for entering the mobile payments space vary. Credit card companies want to retain their share of the trillions of dollars in consumer business transacted through their systems. Wireless carriers are desperate to diversify their revenue streams beyond voice minutes and data usage fees. Handset manufacturers want to provide the phone technology that enables the transactions. Google wants to be the conduit between marketers and credit card companies for the marketing messaging around the transactions. And a throng of startups see the opportunity to provide a seemingly cost-free service to a potentially massive user base.

Selling consumers on the value proposition of mobile payments remains the biggest hurdle to adoption. A key selling point will be convenience, but that alone will not address consumer fears about digital privacy and security. Many consumers have become comfortable with submitting personal information, including sensitive financial data, to online service providers. In light of a constantly escalating stream of news stories about security breaches and identity fraud, consumers are understandably reluctant to go a step further and have their phone enabled as a way to debit their credit card or bank account.

Convenience is not the only consumer benefit delivered by new mobile payment systems. Because each of the systems proposed will entail gathering data about what, where, when and how a consumer buys, the possibilities for accurately targeted offers and discounts are huge. Add in the option of no-hassle loyalty programs and the potential upside for consumers is as significant as it has been for any major ecommerce initiative of the past 10 years.

And that is just in the US. In other parts of the world—most notably in many developing markets—mobile payments will emerge as a substitute for the banking system, allowing individuals to transfer money as well as make payments for goods and services.

For the list of industry experts interviewed for this report, see the eMarketer Interviews section.


Mobile Payment Opportunities

There has been a headlong rush into the mobile payments space by mobile carriers, banks, credit card companies and handset manufacturers, as well as a raft of startups. The potential is huge in terms of the value of transactions involved, the number of consumers who would potentially use their phones as a payment method and the quantity of transactions they would be likely to conduct. And each transaction presents an opportunity to deliver marketing messages specifically aimed at consumers based on real data about their buying habits, preferences and location.

Mobile payments are still in an early stage of development, but the potential size of the market once it grows to maturity can be gauged by a look at credit and debit card purchases. In 2009, US consumers spent $3.3 trillion on some 60 billion credit and debit card transactions, according to the “2010 Federal Reserve Payments Study” released in April 2011. Even if a small percentage of these transactions were to move from plastic to mobile, it would be an unprecedented financial and marketing opportunity for the companies that facilitate them. Worldwide, the totals would be commensurately larger.

In addition to revenue potential, mobile payment systems also promise to deliver a wealth of information to marketers on people’s shopping habits. Credit card companies do not freely share purchasing information, but involving other players such as mobile carriers and technology companies raises the promise of access to a mass of aggregate consumer data (individual financial records will remain confidential, however). For targeting purposes, that is extremely appealing to marketers.

“Mobile payments provide a larger data set than is available through other types of payment, so obviously there is a lot of interest.”—Ben Milne, CEO, Dwolla, in an interview with eMarketer, August 18, 2011

What Is a Mobile Payment?

The market is in such early days that the very idea of mobile payments is still being refined.

Many firms count all mobile transactions—including ecommerce transactions that take place on a mobile device—in total spending figures. But true mobile payments are those where the phone is an integral part of the transaction, where value is stored or where the device itself is the mechanism by which a user’s account is debited.

Several technologies facilitate such payments, including near-field communications (NFC), SMS-based payments and transfers, smartphone credit card readers and software-based solutions.

Because of varying definitions among research firms, this report will indicate what is included or excluded from the forecasts and estimates cited.

Mobile Payment Systems

Because truly mobile payments are just beginning to take off in most of the world, there is an enormous variety of new and proposed systems for carrying out transactions. Many are just at the stage of gaining agreement from the various providers and will not be available to consumers until 2012. Competition between systems is likely to continue as this is not an area where a single dominant player must emerge to facilitate consumer adoption.

■■ The greatest excitement is around payment systems based on near-field communications (NFC). The customer’s credit card details are stored on a smartphone chip that allows secure communications with a similar transmitter at a retailer’s cash register or on a transit system. When a purchase is rung up, the consumer swipes the phone near the cash register transmitter and enters a PIN to complete the transaction. NFC solutions have generated a lot of interest because of the convenience they promise. However, in addition to involving credit card companies, mobile carriers and handset manufacturers, they require retailers to upgrade their credit card readers to include NFC capability.

■■ SMS-based payments and transfers use basic text messaging services along with bank or service provider personal identity codes. These allow users to authorize transfers to other individuals or businesses from either an existing bank account or a dedicated payment account preloaded with funds at approved outlets. The user simply sends a text message with the authorization code (which is not stored on the phone), the amount and the recipient to complete the transaction. SMS payments are particularly popular in less-developed countries because the services only require a basic mobile phone (as opposed to a smartphone).

http://totalaccess.emarketer.com/Interview.aspx?R=6000549




A variant on text messaging, Unstructured Supplementary Service Data (USSD) is more secure because it uses a dedicated, secure link between the phone and the server. Both solutions require only the involvement of banks or other institutions that allow the establishment of prepaid balances. Retailers that want to accept payments also need to have accounts with identification numbers on the same system.

■■ Other initiatives include smartphone credit card readers that allow payments to be received on a mobile device. Examples include Intuit’s GoPayment and Square, a company started by Twitter co-founder Jack Dorsey. After establishing an account with an initial credit card payment, users can then send funds directly to other users. These services require retailers to purchase and install a small reader for use with a smartphone or tablet. Retailers using Square do not need a credit card merchant account to accept payments, just a bank account. Other systems, including Intuit’s and VeriFone’s PAYware Mobile, however, do require the establishment of merchant accounts with the credit card companies before payments can be accepted.

■■ Software-based services (e.g., Dwolla) allow the user to authorize payment requests from retailers at the checkout counter and to transfer funds directly to other users of the service. Some of these work with existing bank accounts, while others require the establishment of a prepaid balance. These services simply require the use of a smartphone app, though the retailer must also use the same application (or subscribe to the system by some other means) to accept payments. Some services, such as Starbucks’ scheme to allow app-based payments in its stores, also work with standard barcode or quick response (QR) code readers that scan an image on the phone and debit the user’s account for purchases.

Worldwide Mobile Transaction Volumes

Both startups and established companies are eager to enter the mobile payments space, but the nascent state of mobile commerce and mobile transactions means there is not yet a consensus on how much money is actually on the table.

The one consensus that has emerged is that mobile payments will see extraordinary growth, beginning this year and accelerating at a breathtaking rate in 2012.

Gartner’s July 2011 forecast is one of the most conservative for mobile payment volume. Gartner defines mobile payments to include SMS, USSD and NFC payments as well as WAP/mobile internet purchases. Gartner forecasts that total worldwide mobile payments will rise to $86 billion in 2011, a 76% increase over its estimate for 2010.

Mobile Payment Users and Volume Worldwide, 2010 & 2011

2010

2011

Users(millions)

102.1

141.1

Volume(billions)

$48.9

$86.1

Note: includes mobile payments via SMS, unstructured supplementaryservice data (USSD), WAP/mobile internet and near-field communications(NFC)Source: Gartner, "Market Trends: Mobile Payments Worldwide" as cited inpress release, July 21, 2011130216 www.eMarketer.com

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Gartner’s inclusion of mobile internet purchases means this forecast goes beyond point-of-sale payments to include digital and physical goods purchased through a mobile browser or apps. In developed markets, Gartner noted, this latter category will account for the bulk of transaction volume. This year, Gartner estimated, 90% of mobile payments in North America and 77% in Western Europe will go toward merchandise purchases from online retailers. In other markets, such as Eastern Europe, the Middle East and Africa, money transfers and top-ups of prepaid accounts will drive mobile transaction volume

A July 2011 forecast from Juniper Research predicted $240 billion in mobile payments this year—about 180% higher than Gartner’s. By 2015, Juniper predicted, worldwide mobile payments will total a staggering $670 billion, indicating five-year growth of nearly 180% through 2015.

billionsMobile Payment Volume Worldwide, 2011 & 2015

2011

$240

2015

$670

Note: includes mobile payments for digital and physical goods, mobilemoney transfers and near-field communications (NFC) transactionsSource: Juniper Research, "Mobile Payment Strategies" as cited in pressrelease, July 5, 2011129696 www.eMarketer.com

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Like Gartner, Juniper includes both mobile payments, like NFC and money transfers, as well as remote payments for digital and physical goods, such as ecommerce purchases made via mobile browser or app.

Yankee Group also joined in the mobile payment forecast fray in July. Its estimate for worldwide mobile payments transactions this year is firmly in line with Juniper’s, putting the total value at $246 billion. As with Juniper and Gartner, Yankee Group included in this total both real-world payments using a mobile phone to pay for goods and services as well as online payments via mobile applications.

Yankee Group also broke down its forecast by region, estimating that close to a quarter of the world’s total will come from North America, just over a third from Asia-Pacific and 40% from Europe, the Middle East and Africa.

Latin America $4 (2%)

North America $59 (24%)

Asia-Pacific $84 (34%)

EMEA $99 (40%)

billions and % of total

M-Commerce Transaction Value Worldwide, byRegion, 2011

Note: includes physical-world payments and online payments via mobileapps; physical world includes remittance, domestic P2P and proximitypayments using SMS, barcode and NFCSource: Yankee Group as cited in company blog, July 27, 2011130527 www.eMarketer.com

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Juniper Research agreed with Yankee Group on the top regions for mobile payments: North America, the Far East and China, and Western Europe. It did not report a specific breakdown based on region, however.

An earlier forecast from Yankee Group, released in February 2011, pegged the value of global NFC transactions at $40 billion in 2014.

NFC-Enabled Phone Installed Base and TransactionsWorldwide, 2010 & 2014

Installed base

Transactions

2010

834,000

$27 million

2014

151 million

$40 billion

Note: NFC=near-field communicationsSource: Yankee Group, "A View from the Trenches: What Consumers Thinkof Mobile Transactions" as cited in press release, Feb 14, 2011125052 www.eMarketer.com

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Juniper also concurs with Yankee Group on the worldwide level of NFC-enabled transactions. Its release in July 2011 put the value at $50 billion in 2014, which will represent 8% of total mobile payments.

One major factor that makes reliable forecasting tricky is that NFC-enabled transactions, which are likely to become the most prevalent form of mobile payment, depend on users having compatible handsets. Currently there is only one such handset available in the US: the Samsung Nexus S 4G, available only to customers of Sprint—one of the smaller tier 1 mobile carriers.

That does not translate into huge immediate potential, and data for the use of NFC-enabled phones worldwide is patchy. Yankee Group estimated in February that there were only 834,000 such phones in use worldwide in 2010, and forecast that this would rise dramatically, to 151 million, by 2014. IHS iSuppli released a much more bullish forecast in May, estimating that 93.2 million NFC-enabled phones would ship this year alone and 411.8 million would ship in 2014.

millions

NFC-Enabled Mobile Phone Shipments Worldwide,2011, 2014 & 2015

2011

93.2

2014

411.8

2015

544.7

Note: NFC=near-field communicationsSource: IHS iSuppli as cited in press release, May 12, 2011127867 www.eMarketer.com

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As with mobile payment transaction volumes, the main point of agreement here is on growth rather than current market size.

“NFC is clearly the leading technology. It provides the necessary security, two-way communication required for the consumer experience, and is already recognized by the major credit card brands as an acceptable way to securely replace cards.” —Paul Rasori, senior vice president of marketing at VeriFone, in an interview with eMarketer, August 18, 2011


Mobile Payment Landscape

There is a complex and rapidly evolving ecosystem growing up around mobile payments. Over the next few years many of the nascent systems will undoubtedly fall by the wayside, but the space is not winner-take-all. Competing systems can live alongside each other, within the same phone and even the same retailer. The inevitable shakeout will see a handful of players dominate—likely a larger group than in other areas of digital commerce, such as music sales, where Apple’s iTunes established such a dominant position that it redefined an entire industry.

For credit card companies and banks, keeping their slice of noncash transactions is vital to their future. Mobile carriers are just as eager to extend their revenue streams beyond payments for voice and data services. And Google and its advertising customers see the opportunity to gain billions more points of contact with potential customers.

Worldwide Developments

Existing mobile payments systems in other parts of the world are at various stages of maturity, but Japan is the leader in the use of the mobile wallet, followed closely by South Korea.

Japan

Some 50% of Japanese mobile users have phones compatible with the FeliCa mobile payments system, introduced in July 2004 by Sony and NTT DoCoMo, one of Japan’s largest mobile carriers. Because of the homogenous nature of the Japanese telecom infrastructure, the system took off quickly. comScore estimates around 10% of mobile subscribers in Japan have used their mobile wallet to make a purchase, mostly from convenience stores, vending machines and on public transport.

FeliCa uses radio frequency identification (RFID) technology to make the connection between a mobile phone and a point-of-sale terminal. This functions the same way as NFC and requires the inclusion of Sony’s technology either inside the phone or via stickers affixed to the back of the device. The NFC Forum includes in its specifications that NFC chips need to be compatible with FeliCa terminals. There are separate efforts under way to bring “true” NFC payments systems to Japan, but given how well entrenched FeliCa already is, it is likely to remain the dominant form of native mobile transactions in Japan for many years.

Western Europe

In Western Europe, consumers are generally more enthusiastic about using their phones to make payments than in the US, but efforts to implement NFC systems are at a similar stage. In the UK, for example, the largest mobile operators, Everything, Everywhere (which includes T-Mobile and Orange), Vodafone and O2, announced in June 2011 the formation of a joint company to provide a unified system for all mobile transactions. The businesses are putting about $75 million into the as-yet-unnamed venture, which aims to be the clearinghouse for all mobile payment transactions and provide a common platform that will simplify implementation for credit card companies, banks and retailers. The undertaking is due to launch by the end of 2011, although approval from regulators is needed first.

Other Regions

In the rest of the world, mobile payments will be driven by more basic systems, such as SMS for financial transfers between individuals and institutions. eMarketer estimates the number of mobile users worldwide in 2011 at 3.8 billion, while the number of individual bank accounts is only around 2 billion. Usage by the world’s unbanked population is widely believed to be the most significant driver of mobile payments globally in the coming years. This means most growth will be coming from China and India, with their massive consumer populations and already-high levels of mobile penetration.

Alibaba, China’s predominant ecommerce platform announced in June 2011 that it planned to launch a mobile OS called Aliyun. That OS is set to support mobile payments, though it is not yet clear by what mechanism.

In both China and India, more basic systems based on text messaging have the greatest potential. This explains why a group of 10 banks in India formed the Interbank Mobile Payments Service. The SMS-based service, which launched in August 2010, allows direct transfers between individuals using bank-issued ID codes. By July 2011, 11 million such codes had been issued.

The NFC Forum Looks to Create Standards

The NFC Forum is the world body that supervises the creation of global NFC communication standards. It was established in 2004 by founding members MasterCard, Sony and Microsoft, as well as a host of Japanese technology and telecom companies. Membership now extends to all of the major credit card providers worldwide (with the exception of Discover in the US), PayPal and Google, plus major North American technology firms such as Research In Motion and Intel.

While the forum’s efforts will go a long way in propelling the adoption of global standards and systems, its primary focus is technical. The details of the business ecosystem that underlies mobile payments will still take time to extend beyond regional arrangements.


US Developments

Two giants sit astride the mobile payments field in the US, with a raft of other players looking to make inroads into that territory.

Isis

One of the two top initiatives is Isis. Formed in November 2010 with an agreement between AT&T, T-Mobile and Verizon, Isis is a true swipe-and-pay play, meaning consumers will store credit card information on their phone and transactions will be completed by communication with an NFC-enabled terminal at retail outlets. American Express, Visa, MasterCard and Discover have also signed up to be part of the service. Intuit and VeriFone are on board to distribute NFC-enabled point-of-sale terminals. With the range of carriers, credit cards and terminal providers involved in Isis, it is in a strong position to become the dominant player in the NFC mobile payments space.

Google Wallet

The other major US initiative in the true swipe-and-pay arena is part of Google Wallet, announced in May 2011 and launched in September. In partnership with Sprint, Citibank and MasterCard, Google Wallet’s Tap & Go feature allows consumers to swipe their phones at checkout to pay. Like Isis, Google Wallet will have credit card data stored on a user’s mobile phone with transactions at retailers completed via contact with an NFC-enabled terminal.

A key difference between Tap & Go and Isis is that Google will not take a slice of the transactions. Instead it will retain the right to serve advertising to mobile phone users on the various screens they use to conduct transactions and manage their account. Google Wallet will work with MasterCard’s PayPass NFC system, which is already operational in nearly 150,000 outlets in the US. In combination with Google’s past success in bringing marketers on board to support online initiatives and its claim that the Tap & Go system will be free to all credit card companies that want to participate, it is in a strong position to compete with the currently much broader and deeper Isis coalition.

Both Google Wallet and Isis will offer mobile coupons, discounts and loyalty programs, redeemable automatically at retailers with no extra action required on the consumer’s part.

Square

Another key player in the mobile point-of-sale game is Square, a service founded in early 2010, with its Apple iOS-compatible card reader. An initiative driven by Twitter founder Jack Dorsey, Square offers a physical device that plugs into an iPhone or iPad to allow users to accept payments with a swipe from a traditional credit card. Initially positioned as an easy system to allow small businesses to accept credit card payments, Square is set to expand to allow peer-to-peer transfers through a Card Case account app available for both iPhone and Android, These will be established automatically once a consumer has made a payment on the system, and will allow contactless point-of-sale transactions in the future.

Any individual or business with a bank account can accept payments through Square, which differentiates the service from traditional card swipe methods and NFC systems. Square charges a single fee for the transaction and a key area of competition is the level of fees charged. In August 2011 Square announced a reduction in its transaction fees to bring the total in line with other point-of-sale credit card transactions.

Square has attracted a lot of attention, including from investors. Visa’s decision in June 2011 to invest put the company’s valuation at $1 billion. Square has sold over 500,000 of its card reader devices and was reported to be processing $3 million worth of transactions per day in June 2011. An implicit endorsement from Apple, which sells the card-reading devices in its stores, has definitely helped the service.

PayPal

PayPal is well established as a mobile payments provider, though with a focus on peer-to-peer transactions. In the first half of 2011 the service estimated that it was processing $6 million per day in mobile transactions worldwide and forecast that it would process a total of $7.5 billion by 2013.

Moreover, a series of acquisitions indicates PayPal’s interest in expanding its mobile payment services. In July 2011, PayPal’s parent company, eBay, purchased Zong, a service that facilitates the addition of mobile purchases to a user’s mobile phone bill. In April 2011, PayPal acquired startup Fig Card, which provides a service very similar to Square, with a small USB device that allows a merchant to accept payments through an undisclosed connection system. In June 2011, PayPal announced the forthcoming launch of an NFC-based service that would allow peer-to-peer transactions between smartphone users whose phones include the required chip.

With over 230 million existing account holders and established relationships with banks and credit cards, a successful extension of PayPal’s peer-to-peer payment service to point-of-sale transactions would be a very significant development and provide stiff competition for other mobile payment options.


Mobile Payment Landscape

American Express

Aside from its involvement in Isis, American Express is also making moves to deliver its own mobile payments platform. In March 2011, Amex announced the launch of Serve, which uses a prepaid card and account number to facilitate online and point-of-sale payments. In April, the company announced it had bought a stake in Payfone, which allows purchases made to be added to a user’s mobile phone bill. Whether or not this becomes serious competition with Isis, the move illustrates the complexity of the mobile payments space. In August 2011, Verizon announced that it was partnering with American Express to roll out the Serve platform on some of its handsets.

Dwolla, FaceCash and Zumogo

Other US-based moves in the mobile payments space include Dwolla, FaceCash and Zumogo. Dwolla allows users to make online and offline payments directly to merchants from their checking accounts. FaceCash requires a prepaid account but allows point-of-sale transactions that include user verification with a photo displayed to the retailer. Zumogo also requires a prepaid account but it permits the end user to simply confirm a payment request from the merchant either online or offline at the register.

The potential advantage of systems like these is that they are completely software-based, requiring no new devices for the consumer or seller. While they are small players compared with Isis, Square and Google, the possibility remains that retailer and consumer adoption of these systems could take off and present the bigger players with some genuine competition.

Adoption, Attitudes and Behavior

Consumers, particularly those in the US and Europe, are not sold on the benefits of being able to pay and transfer money using their phones, with a majority generally saying they are not interested. Even in Asia-Pacific, where mobile payments are more established, consumers share the same privacy and security concerns that feed the reticence of their US and European counterparts.

Consequently, mobile payment providers face the dual tasks of selling consumers on the benefits and reassuring them in the face of security and privacy concerns. However slick the new technology and clever the business arrangements, new forms of mobile payments will not succeed unless consumers in the US and around the world embrace them.

Overall, the adoption pattern will probably resemble that seen with ecommerce. But given consumers’ level of mobile phone penetration and their existing comfort with phone- and web-based purchases, mobile payments could take off more quickly. Ultimately, adoption will depend on how soon providers resolve the complexities of implementation, sell the advantages of paying by phone to consumers and, to a lesser extent, calm consumer anxieties about privacy and security.

“There is no doubt in my mind that the intersection of mobile, commerce and consumer engagement will be the future.” —Michael Becker, North American CEO at the Mobile Marketing Association, in an interview with eMarketer, August 22, 2011


Worldwide Attitudes and Behavior

Reflecting the fact that mobile payments are well established in Asia-Pacific, consumers there are significantly more enthusiastic about paying with their phones than their Western counterparts. According to a January 2011 survey by Accenture, 69% of Asia-Pacific internet users surveyed stated they consider paying with their phone more convenient than other forms of payment. Among combined US and EU-5 respondents, only 26% thought the same.

Similarly, 64% of Asia-Pacific respondents said they would welcome the day when they can make most of their payments using their phone, compared with only 29% in the US/EU-5. It should be noted that the survey sampled “tech forwards,” a subset of internet users who owned at least four networked devices. A high, positive response rate is more likely among such early adopters. Nonetheless, there is a marked difference between the responses of tech forwards in Asia-Pacific compared with those in the US/EU-5.

% of respondents

Attitudes of Internet Users in Asia, Europe and the USToward Mobile Payments, Jan 2011

Using my mobile phone for payments makes me worry about myprivacy

79%

69%

Mobile phone payments increase the risk of identity theft andother fraudulent activities

77%

66%

The mobile phone is more convenient than other forms ofpayment

69%

26%

I welcome the day when I will make most of my paymentsthrough my mobile phone

64%

29%

Asia US & Europe

Note: ages 18+ who own at least four networked devices and use at leastfour internet servicesSource: Accenture, "The Brave New World of Mobile Commerce"conducted by Lightspeed Research, Feb 15, 2011125077 www.eMarketer.com

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The Accenture survey also illustrated an important point about adoption of mobile payments: More extensive usage could actually increase fears rather than reduce them. Despite their enthusiasm, nearly 80% of Asia-Pacific respondents said using their phone for payments made them worry about their privacy, compared with less than 70% in the US/EU-5. And 77% of Asia-Pacific respondents said using mobile payments made them worry about the risk of identity theft and other fraudulent activities, vs. 66% of US/EU-5 respondents.

Of course, more transactions mean more opportunities for something to go awry. But clearly, security and privacy concerns are not in themselves an insurmountable impediment to adoption of mobile payment services. In Japan, for example, where consumers have been able to make payments directly from their phones for several years, data from comScore shows that 10% of mobile users took advantage of such systems in December 2010.

The comScore data illustrates where mobile phone users in Japan, who have had the facility to pay with their phones for close to seven years, have made mobile wallet purchases (defined by comScore as using NFC-enabled phones). Smaller mobile transactions were predominant, with 43% taking place in convenience stores. Just over 18% were purchases at vending machines, closely followed by 15% on public transport. This shows that small, daily, “on-the-go” transactions are likely to drive uptake when mobile payments systems are rolled out.

millions

Location of Mobile Wallet* Purchases Among MobilePhone Users in Japan, Dec 2010

Retail or convenience store 7.6

Vending machine 3.2

Public transportation 2.7

Grocery store 2.6

Restaurant 1.5

Note: *using NFC-enabled mobile phones in place of debit or credit cardsfor in-person purchasesSource: comScore, Inc., "2010 Mobile Year in Review," Feb 14, 2011125042 www.eMarketer.com

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Data on mobile wallet use in selected countries, released by TNS in May 2011, shows the variations in the levels of adoption in other markets. The results do not paint the whole picture because TNS defined a mobile wallet as one that is preloaded with funds, only one variant of possible mobile payment solutions.

However, the data shows the expected patterns. In Asia-Pacific markets that have had some form of mobile payments for a few years, adoption is higher, with Hong Kong and Singapore expected to see 17% and 13% of mobile users, respectively, making mobile wallet payments (as defined by TNS) in 2011.



In less-developed countries with significant mobile penetration but large unbanked populations, adoption is expected to be even wider. For example, TNS found some 25% of mobile users in Kenya were using this form of mobile wallet in 2011. For similar reasons, take-up in China was expected to accelerate this year, reaching over 20% of mobile users. This is in contrast to US mobile users, 6% of whom were estimated to have made use of preloaded mobile wallet payments in 2010, rising to 8% in 2011.

% of total mobile phone usersMobile Wallet Users* in Select Countries, 2010 & 2011

Hong Kong16%

17%

Kenya10%

25%

Singapore10%

13%

Brazil9%

20%

China9%

21%

US6%

8%

Chile1%

7%

2010 2011

Note: *use of the mobile phone as a payment device that is pre-loadedwith fundsSource: TNS, "Mobile Life" as cited in press release, May 12, 2011127976 www.eMarketer.com

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The convenience factor of mobile payments is already swaying users elsewhere. May 2011 survey data from the UK, released by YouGov, is a good illustration. When UK mobile phone users who had already said they were interested in a smartphone with built-in payment capabilities were surveyed, nearly 90% said the convenience of paying was a significant factor. Two-thirds (67%) listed speed of payment as a top reason, while the same percentage said it was easier to pay with their phone than taking cash or credit cards with them.

% of respondents

Reasons UK Internet Users Would Get a Mobile Devicewith Mobile Payment Capabilities, May 2011

The convenience to pay87%

Speed of paying (e.g., tapping at a machine)67%

Easier to pay with mobile than taking cash/cards with67%

Better for the environment (e.g., no paper receipts)37%

No paper receipts so less chance of losing any personalinformation

35%

I will be able to keep track of how much I am spending moreeasily than other methods

29%

Less likely to have fraud17%

I want to have the latest piece of technology14%

Other3%

Don't know4%

Note: n=170 who are likely to get a mobile device with mobile paymentcapabilitiesSource: YouGov, "Mobile Wallet Track" as cited in press release, June 10,2011130248 www.eMarketer.com

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US Attitudes and Behavior

Lack of consumer interest remains the major obstacle to broader mobile payment adoption. In a May 2011 Adweek and Harris Interactive survey of 2,000 US consumers, 80% of respondents were either “not very interested” or “not at all interested” in mobile wallet technology that stores credit card information on their phone to allow them to make payments.

As might be expected, age had some bearing on the answers, with younger respondents expressing more interest. Some 26% of internet users ages 18 to 34 said they had at least some interest in using their phone as a mobile wallet, compared with only 10% of those ages 55 and over.

% of respondents

US Internet Users Who Are Interested in Mobile Wallet* Technology, by Age, May 2011

18-34

35-44

45-54

55+

Total

Veryinterested

11%

7%

5%

1%

6%

Somewhatinterested

15%

16%

20%

9%

14%

Not veryinterested

27%

27%

19%

14%

21%

Not at allinterested

47%

50%

56%

76%

59%Note: *mobile phones with the ability to store credit card information,allowing users to make credit card purchases without using their physicalcredit cardSource: Adweek/Harris Interactive, May 26, 2011130895 www.eMarketer.com

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In an earlier survey from the same source, US consumers made it clear they were alarmed at how much online companies knew about them. In every gender and age category, nearly three-quarters of respondents said they believed online companies like Google and Facebook already control too much of their personal information. This is a strong indication that consumers are not going to be comfortable with simply giving away further precious information, such as credit card data.

% of respondents in each group

US Consumers Who Agree that Some OnlineCompanies Control Too Much of Their PersonalInformation*, by Age and Gender, April 2011

Female 79%

Male 74%

18-34

Gender

Age

74%

35-44 76%

45-54 76%

55+ 79%

Total 76%

Note: e.g., Facebook or Google; respondents who chose "strongly agree" and "somewhat agree"; numbers may not add up to 100% due to rounding; *and know too much about their browsing habitsSource: Adweek/The Harris Poll as cited in press release, May 17, 2011129194 www.eMarketer.com

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While mobile shopping encompasses much more than just mobile payments, consumer concerns about mobile shopping reflect the same concerns they have over mobile payments. In February 2011, the e-tailing group polled US online buyers who spent at least $250 per year online and who owned a smartphone or tablet about why they would not shop using their smartphones. Aside from the clunkiness of smartphone interfaces, the chief reason was concern over the security of credit card information.

% of respondents

Reasons for Not Shopping More on SmartphonesAccording to US Online Buyers*, Feb 2011

Awkward shopping experience on phone49%

Concerns over credit card information36%

Slow connection/connectivity31%

Image of product not good26%

Not easy to view product information23%

Takes too long20%

Product information is limited18%

Full product selection is not offered13%

Customized experience based on location9%

Other12%

Note: *who spend $250+ online annually and own a smartphone and/ortabletSource: the e-tailing group, "The 'Shopping' Mindset of the MobileConsumer" sponsored by Coffee Table, May 17, 2011128008 www.eMarketer.com

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Two factors will ultimately offset this consumer reticence:

■■ They will appreciate the convenience of being able to simply swipe a phone to pay at the checkout counter, or to transfer money to another individual with a few screen taps.

■■ They will be wooed by special offers, discounts and loyalty programs—all managed through a single interface and all applied automatically on payment.

“Consumer reluctance is tied to the lack of an easily understood value proposition. They need to know how a change in their behavior provides a benefit.” —Paul Rasori, senior vice president of marketing at VeriFone, in an interview with eMarketer, August 18, 2011



Once this happens, consumers will probably put security and privacy concerns aside, much as they did with the shift to online purchases in general.

In fact, consumers may find some reassurance in the institutions offering mobile payment services, such as credit card companies, which have done a great job over the past 40 years of creating a secure, convenient and reliable global payments system.

Though technology firms and online payment companies will inevitably be involved, mobile payments will face less consumer resistance if they are perceived as initiatives coming from the major credit card firms.

August 2011 research from OgilvyOne and OgilvyAction showed that consumers clearly have more faith in credit card companies than they do in technology firms and online payment firms as agents to deliver trustworthy mobile payments. When asked which brands they trusted to handle mobile payment services, more than 35% of US internet users listed Visa, MasterCard and American Express. PayPal, which has spent 12 years establishing itself as a trusted online payment method, was cited by 34.3%, but technology companies were cited as trusted brands by fewer than 23% of respondents. However, no single brand received more than a 40% vote of confidence, leaving little doubt that security concerns will remain a significant hurdle to mobile payment adoption until consumers are effectively sold on the benefits.

% of respondents

Brands Trusted by US Internet Users to Handle MobilePayment Services, March 2011

Visa 39.6%

Mastercard 35.9%

American Express 35.8%

PayPal 34.3%

USPS 24.6%

Apple 22.9%

Microsoft 22.3%

Google 19.5%

Motorola 17.0%

eBay 15.5%

Facebook 12.1%

Source: OgilvyOne and OgilvyAction, "From Armed to Charmed: Preparingfor and profiting from the new mobile-enabled point of sale" as cited inAdvertising Age, Aug 9, 2011131309 www.eMarketer.com

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Another factor that will sway consumers is how they ultimately pay for mobile transactions. Some proposed schemes involve direct payments from consumers’ bank accounts or prepaid accounts. The latter are likely to predominate in less-developed countries, but in the US the choice will largely come down to charges applied to a credit card account or appearing on mobile bills.

In a June 2011 survey, Myxer found that payment preferences vary by age. Some 38% of respondents ages 18 to 24 said they would prefer to see all charges on their mobile phone bill, with only 14% saying they would like to see them on their credit card bill. Those ages 25 to 34 had similar responses, with 30% preferring charges on their phone bills vs. 16% who wanted charges on their credit card statements. Conversely, among respondents ages 35 to 54, 28% were in favor of charges on their credit cards, compared with 23% who wanted them on their phone bill.

% of respondents

Preferred Payment Method for Mobile PhonePurchases According to US Mobile Phone Users, byAge, June 2011

18-2438%

14%

25-3430%

16%

35-5423%

28%

Charged to phone bill Credit card

Note: n=1,272 mobile users of m.myxer.com who have made a mobilepurchaseSource: Myxer, "Q2 2011 mCommerce Report: Shop Till Your Calls Drop,"July 11, 2011130929 www.eMarketer.com

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In terms of what consumers will do once they have bought into the advantages of mobile payments, current mobile purchasing habits may offer some insight. A Q4 2010 survey by Google and Ipsos OTX MediaCT showed that entertainment and electronics were the most popular purchases for US consumers via their smartphones. Some 48% of US smartphone users who had made mobile purchases in the previous year reported buying some form of entertainment via their phones. Electronics and clothing were the next most popular categories, with 45% of respondents reporting a purchase. Wireless and mobile services were also popular.

% of respondents

Leading Products/Services Purchased via SmartphoneAmong US Smartphone Users, Q4 2010

Entertainment items48%

Electronics45%

Clothing or apparel45%

Wireless or mobile phone service34%

Travel34%

Office supplies, products or technology28%

Beauty and cosmetic items26%

Jewelry or watches24%

Note: n=1,255 ages 18-64 who purchased products/services via mobile inthe past yearSource: Google and Ipsos OTX MediaCT, "The Mobile Movement:Understanding Smartphone Users," April 27, 2011127583 www.eMarketer.com

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Some indication of what US consumers will do with mobile banking can be gleaned from what activities they have adopted in online banking. A study by Novarica showed that researching bank products, checking account balances and fund transfers were the most popular online banking transactions in 2010. The data also showed how far mobile payments have to catch up. While 60% of those surveyed said they used online banking to transfer funds in 2010, only 3% said they had done so using some form of mobile banking. Similar patterns can be seen for checking account balances and researching bank products online vs. via mobile.

% of respondents

Online vs. Mobile Banking Activities of US Consumers,2005 & 2010

Research bank products2005

42%

1%

Check account balances40%

2%

Transfer funds31%

1%

Research bank products2010

70%

2%

Check account balances68%

6%

Transfer funds60%

3%

Online Mobile

Source: Novarica, "Consumer Preferences in Retail Banking Distribution,Part 2: Digital Channels," June 1, 2011129367 www.eMarketer.com

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Opportunities for Marketers

The advent of new mobile payment systems represents an exciting opportunity for marketers, primarily because they stand to gain access to data on 60 billion consumer transactions. This can lead to better targeting of advertising, discount offers and loyalty programs based on that real data about what consumers are doing.

Credit card companies have had this data for many decades, of course, but it is eminently proprietary. With the introduction of other partners into the mix, however, consumer spending data—even down to individuals—can be shared anonymously in the aggregate, without actually sharing private financial data. Just as advertisers serve up online advertising geared to an individual’s online behavior without actually knowing the identity of the consumers they are targeting, messages based on consumers’ buying patterns can be laser-focused without marketers having access to private financial data.

“Merchants consistently see people get out of line and decide the item ‘isn’t worth the wait.’ Mobile payments can make an impact on some of those line jumpers with a simple ‘tap and pay’ solution.” —Ed McLaughlin, chief emerging payments officer at MasterCard, in an interview with eMarketer, August 21, 2011

Marketers are already getting close to being sold on the benefits of paying for goods and services via mobile. May 2011 data from Chief Marketer shows that 43% of US marketers either offer a transactional mobile site already or plan to by 2012.

% of total

US Marketers Whose Companies Offer M-Commerce,May 2011

Source: Chief Marketer, "2011 Mobile Marketing Survey," June 13, 2011129529 www.eMarketer.com

Do not have a transactional mobile site now and don't plan to do so this year 57%

Do not sell over mobile now but plan to do so in the next year 29%

Currently enable mobile transactions14%

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Such sites include browser-based transactions that go beyond true mobile payments. Meanwhile, November 2010 data from RIS News and IHL Group showed 26% of US retailers planned to launch some form of NFC- or RFID-based payment system within two years.

% of respondents

Types of Payment-Oriented Mobile Apps that Retailers in North America Use or Plan to Use, Nov 2010

Support for regular barcode scanning

Coupons on mobile screen

Support for 2-D barcode

Coupons by NFC/RFID loyalty

Support by NFC/RFID for payment

Consumer self-checkout*

Currently have

19%

7%

7%

1%

3%

3%

Within 12 months

29%

41%

25%

16%

7%

6%

12-24 months

22%

20%

22%

19%

19%

10%

Note: *consumer device and appSource: RIS News and IHL Group, "Store Systems Study 2011," Dec 5, 2010123969 www.eMarketer.com

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Opportunities for Marketers

Interview: Adam Brotman, VP and general manager of digital ventures at Starbucks

Starbucks is one of the few US national retailers with a mobile payment system that allows consumers to pay at the checkout counter with their phone. Using existing barcode reader technology, the Starbucks app, available for Android, BlackBerry and iOS devices, enables consumers to scan their phone at checkout and have their prepaid accounts debited for the cost of their purchases. The apps also allow users to check their Starbucks Card balance, reload their account with any major credit card, find nearby Starbucks with the store locator feature, and check their My Starbucks Rewards status.

eMarketer: Why did Starbucks get involved with mobile payments?

Adam Brotman: Innovation, responding to customer feedback and enhancing the customer experience are at the core of Starbucks’ mission. Starbucks’ mobile platform builds on the success of the Starbucks Card, which has grown from a popular stored-value card to a significant method of payment in stores. Extending the program to a mobile platform was a natural opportunity to enhance the experience and allow customers to manage their Starbucks Card on the go.

eMarketer: Why did the company go with the Starbucks Card mobile app and how does it work?

Brotman: Our customers told us they want a faster and easier way to pay, and Starbucks mobile payment apps are the fastest way to pay. Customers control the mobile payment transaction by holding their mobile device in front of a scanner on the countertop and scanning the barcode on the screen to make a purchase.

eMarketer: What kind of consumer response has the mobile payments program received?

Brotman: We’ve had a great customer response. Within nine weeks of the national launch of mobile payment, customers in stores paid more than 3 million times using our mobile payment app, and this number continues to grow at a steady rate. Additionally, My Starbucks Rewards members who sync their registered Starbucks Card accounts with the app and pay for purchases earn My Starbucks Rewards benefits. The My Starbucks Rewards program has more than 1 million gold-level members, and with the convenience of Starbucks Card mobile payment, it is a powerful catalyst for customer loyalty and retention.

eMarketer: Has adoption and use of the mobile payment app met or exceeded expectations?

Brotman: We’ve found that customers appreciate the ease and utility of the app. Once they download it, they use it regularly as a fast and easy way to make purchases and manage their Starbucks Card accounts on the go with their mobile phone.

eMarketer: What are the biggest benefits of mobile payments?

Brotman: One of the benefits of mobile payment we have found is that people tend to always have their phone, but not always their wallet. Additionally, it often takes people longer to discover that they’re missing their wallet than their mobile device. Customers can also check the balance on their card and reload while in line, and checkout at the point of sale is faster and easier than ever.

We are dedicated to offering as many of our customers as possible the opportunity to experience the fastest way to pay through mobile payment at Starbucks locations. The mobile payment app can be downloaded for free and used on approximately 90% of smartphones currently on the market. It’s good in 6,800 US company-operated stores, as well as more than 1,000 Starbucks in Target stores and almost 1,000 Starbucks locations at Safeway stores.

eMarketer: What have been the major obstacles?

Brotman: In developing the app, it was important for us to ensure that there were no barriers for entry for customers. We deployed this program independent of carriers, handset manufacturers or payment companies, so as many customers as possible can download and use the app. Additionally, we were unwilling to wait for the NFC landscape to mature. We use barcodes because it meets our needs, allowing all customers to use this technology to access the fastest way to pay at Starbucks.

eMarketer: Where are mobile payments heading?

Brotman: Based on enthusiastic customer feedback and positive early results, we believe that our customers are ready to embrace mobile payment. We are committed to innovating and offering new features that customers will find useful. In fact, on June 30, we introduced a new Starbucks for iPhone app that includes a new Starbucks Card egift feature that allows fast and easy virtual gifting. We will continue to watch trends in the mobile space and listen to customer feedback to provide new features as part of our evolving mobile platform.


Trends to Watch

The mobile payments ecosystem continues to take shape. Most major financial and technology players and leading mobile carriers have thrown in with at least one of the proposed mobile payment schemes. The exact details of the technological implementations that make it to market will inevitably evolve, but signs of progress (or stalemate) should be discernable in the meantime.

■■ Agreements between major financial companies, mobile carriers, technology firms and handset manufacturers will only add impetus for the full rollout of alternative payment systems. Though most of the leaders are already involved in at least one major mobile payments initiative, some reshuffling is inevitable.

In particular, the Google Wallet deal involves fewer established players in the payments world but its structure could see others jumping on board soon. No initial investment is required and Google has a preference for open architecture in its software efforts. When combined with Google’s talent for pushing its favored projects into the mainstream, a handful of credit card companies getting on board could mean that Isis faces an uphill struggle for consumer acceptance. But since Google typically pursues multiple high-profile projects concurrently, that leaves open the possibility that other business imperatives will distract attention from its mobile wallet plan.

■■ Similarly, watch what Google does after its purchase of Motorola Mobility is finalized. Much of its business now rests on growth in mobile usage. If announcements in early 2012 include new Google/Motorola handsets with NFC technology, that will be an even clearer signal Google is betting a large chunk of its future on being in the middle of mobile payments. Similarly, monitor announcements from other handset manufacturers about NFC-enabled phones. RIM, for example, announced in late August 2011 that its new BlackBerry Bold 9900 would include an NFC chip.

■■ Be on the lookout for any announcements on the installation of point-of-sale hardware. Without the widespread ability for retailers and other outlets to accept payments directly from phones, many mobile payment efforts will come to nothing. In this context, Visa’s announcement in early August 2011 that it will not charge the usual fee to merchants that upgrade to new NFC-enabled credit card readers is significant.

■■ Monitor any news on consumer trust growing with regard to storing data on their phone or even online. In parallel to the push toward mobile payments is a related push toward cloud computing, which will see data and information stored remotely as a matter of course. Any signs of enthusiastic consumer adoption of remote data or information storage systems reflect a growing comfort level that will have an impact on how quickly mobile payments systems are adopted.

■■ Watch for marketers and advertisers—including those employed by significant back-end players like credit card companies—pushing the benefits of mobile payments to consumers. Paying by phone will be the emphasis here, going well beyond the convenience factor to include the no-effort integration with coupons, discounts, loyalty programs and the act of managing credit card and bank accounts. In the US, national TV and online campaigns with significant reach are very likely to begin before the end of 2011.


Conclusions

Mobile payments will take off in the US and around the world as a mainstream way of purchasing goods and services. After close to a decade of maneuvering, the key players are now formally lined up behind specific initiatives. The final technical and financial arrangements around truly native mobile commerce are shaking out right now. Credit card companies, banks, mobile carriers, handset makers, and technology and online companies—including Google—have all committed to playing a role.

Consumer adoption is the final—and biggest—hurdle. Consumers will need reassurance on the security and privacy issues related to making the mobile handset an actual payment device. Although they have shown many times in recent years that such concerns can be overcome, consumers will need convincing of the benefits of adopting a new payment technology that requires them to again surrender precious personal information.

The companies that are lining up to provide mobile payment systems are well aware of this and will focus on selling the benefits to consumers now that the details behind the business and technology arrangements are being worked out. Some smaller players will inevitably fall by the wayside, but the space is not a winner-take-all proposition. The efforts of those with large marketing budgets will also help smaller initiatives such as Dwolla and Zumogo become viable.

To accelerate consumer adoption, the value of mobile payments must be clearly defined. Part of what will make mobile payments convenient is integration with targeted offers, coupons and store loyalty programs. Combined in a user- and merchant-friendly way, these will make for a potent force at the point of sale.


eMarketer Interviews

Starbucks Perks Up Mobile Payments Program

Adam Brotman VP and General Manager of Digital Ventures

Starbucks Interview conducted August 19, 2011

Dwolla Helps Overcome Consumer Reluctance to Mobile Payments

Ben Milne CEO

Dwolla Interview conducted August 18, 2011

Michael Becker North American CEO

Mobile Marketing Association Interview conducted August 22, 2011

Ed McLaughlin Chief Emerging Payments Officer

MasterCard Interview conducted August 21, 2011

Paul Rasori SVP of Marketing

VeriFone Interviewed conducted August 18, 2011

Related eMarketer Reports

Mobile Banking: Financial Services Firms Look to Cash In Mobile Coupons: Offers and Deals Light Up the Last Mile

Related Links

Google Wallet Isis NFC Forum Square

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http://www.paywithisis.com

http://www.nfc-forum.org

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Documents

Mobile Payments-Moving Closer to a World Without Wallets - eMarkter September 2011