MOBILE PAYMENTS
The Inflection Point is Now  

INVESTMENT CASE
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MOBILE PAYMENTS

 

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While the mobile payment infrastructure is now in place (NFC-enabled phones and POS terminals, various platforms such as Apple Pay), we are about to enter the second phase of growth for the theme, which is mass adoption of payment solutions by consumer

Increasing marketing and improving ergonomics, security and value-added services (such as rewards, loyalty and couponing) should give a major boost to consumer engagement as soon as 2017

Mass adoption is not a question of if, but when:
 

  • the example of e-commerce says it all: despite initial concerns around security, now most consumers make online transactions
  • new forms of mobile payments will expand the total addressable market: in-car payments and VR shopping
     

Government incentives for a cashless society are another major catalyst: increasing number of limits on cash transactions all around the world
 

The best way to capture this secular growth in the volume of digital payments is to get exposure to payment processors, which handle all these transactions

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WHAT IS IT ABOUT?
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THE MOBILE
AT THE HEART OF DIGITAL INTERACTIONS

 

Mobile payments refer to all payment transactions made from or via a mobile device and debited either on a bank account or on a mobile operator bill

      


TOP 5: SMARTPHONES PENETRATION

 

Source: geoba.se/usnews.com/emarketer

 

The rise of smartphones, tablets, and now wearables has driven new means of paying

               

 

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SMARTPHONES ARE USED TO PAY,
BUT ALSO TO GET PAID

(MERCHANTS)

 

All smartphones now allow contactless payments in a simple and quick way via an electronic mobile wallet, and can also become POS terminals for merchants

 

 

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THE FUTURE OF MOBILE PAYMENTS
IS ALREADY TAKING SHAPE

 

In-car payment solutions will allow drivers to pay for gas, toll fees or public parking without having to pull their credit card or smartphone from their pocket

 

Payments in virtual stores are another exciting opportunity:
 

  • consumers wearing a VR headset will soon have
  • the ability to visit virtual stores and make purchases
  • Alibaba recently unveiled a VR mall called Buy+ in which consumers gaze at products long enough to select them and nod their heads to buy them
  • Amazon is said to be working on a similar initiative

 

The seamless checkout experience (pioneered by Amazon Go) will deal a final blow to cash payments. In an Amazon Go store, you just walk in, pick the groceries you need and walk out without having to go through a checkout line. Your Amazon account is automatically debited when you exit the store. This revolutionary checkout experience is likely to be adopted by other major retailers in the future



WHAT IS HAPPENING NOW?
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THE USER EXPERIENCE

IS THE KEY IN MOBILE PAYMENTS ADOPTION

 

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  • The biggest challenge remains the change in consumer habits. It has to be simple, intuitive and comprehensive
  • Mobile payment requires better communication and education
     
  • Mobile payments allow the merchant to increase the visibility on its brand, target consumers and increase loyalty services (e.g. coupons)
     
  • As illustrated by the recent success of Samsung Pay’s loyalty program, rewards/couponing are expected to be a major catalyst for mobile payments adoption

 

 

 

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SECURITY CONCERNS
NEED TO BE IRONED OUT

 

With tokenization technologies and the emergence of biometrics, mobile payments become more secure than contactless card payments

 

 

 

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GOVERNMENTS AROUND THE WORLD
PUSH TOWARDS A CASHLESS SOCIETY

 

To fight money laundering and tax evasion in 2014, Israel limits cash transaction between businesses to 5,000 shekels (USD 1,400) and private transactions done in cash or by check to 15,000 shekels

In most EU countries cash payments are limited:
 

  • In 2015, France has limited the use of cash payments to EUR 1,000 from EUR 3,000
  • In 2016, Italy has limited the use of cash payments to EUR 2,999
  • Germany plans to impose a limit of EUR 5,000 on cash payments
     

India demonetized some of its banknotes at the end of 2016
 

The European Union plans to launch a service by the end of 2018 that allows mobile payments person-to-person using the mobile phone number as a proxy for the IBAN
 

 

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WHICH PAYMENT WOULD YOU CHOOSE?

 

 

PERSPECTIVES
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STRONG GROWTH OUTLOOK

 

The annual transaction volume via mobile payments in 2015 was $450bn and is expected to exceed $1tn in 2019

 

Asia Pacific and Africa are early and faster adopters of mobile payments with more than 100 million mobile payments users

 

 

AFRICA AND CHINA ARE THE PIONEERS OF MOBILE PAYMENTS

 

Mobile Payments are a solution for providing financial services to unbanked people:

In Sub Saharan Africa, the mobile penetration in Africa is 70% but only 10% of the population have a bank account

Payments via mobile are the faster and cheaper way to send money to family. The SMS and USSD technology is compatible with 99% of mobiles

 

In China, under the impulse of e-commerce and due to the low use of bank cards online payment, and especially mobile-commerce, has become a reality

 

Annual transaction volume in $Bn
Mobile Payments


Source: AtonRâ Partners, TrendForce, NFC

 

Mobile payment users by region
(in millions)


Source: AtonRâ Partners, Gartner Inc.

          

PLAYERS
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THE PAYMENT INDUSTRY:
A PRIVATE CLUB?

 

 

  • New players enter the payment industry, already benefiting from a large customer base and offering many online services: Internet and Tech giants such as Google, Apple, PayPal and Amazon are providing new mobile payments solutions

     
  • The legacy players (telecoms, banks, card networks…) must assert themselves. The need for innovation is the opportunity to boost these institutions and offer them a new position in the payment industry

 

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A LOOK AT THE PAYMENTS INDUSTRY
MAIN PLAYERS

 

 
 

CARD ISSUANCE
Wirecard
First Data
TSYS

  POS TERMINAL
Ingenico
VeriFone
NCR Corp
 
 
  SIM CARD, SECURITY
Gemalto
G&D
Oberthur
  ATM HARDWARE
NCR Corp
Wincor Nixodorf
Diebold Inc
 
 
 

SEMICONDUCTOR
Infineon
Samsung
STMicro

 

 
  Acquirers differ
depending on regions

(can be banks or
financial institutions)
  Some acquirers*
outsource the
processing to third
party processors
 
 
  IN US:
First Data
Global Payments
BOA
  *TSYS
Planet Money
WorldPay
IPPay
 
 
 

TERMINAL SERVICES
Ingenico
Many regional
banks offer these
services to merchant

 

     
 
  PHONE LINE
AT&T
Sky
British Telcom
  CREDIT CARDS
Visa
Mastercard
Discover
American Express
 
 
 

INTERNET
AT&T
Sky
British Telecom

 

  DEBIT CARDS
Maestro
Visa Electron
 

 

HARDWARE AND CARD ISSUANCE
TECHNOLOGY PROVIDERS

 

  • Card issuance
    credit and debit card suppliers and
    software for banks
     
  • Semiconductors
    at the heart of IT servers, network
    routers and smartphones
     
  • NFC technology
    magnetic strip or EMV chips for
    bank cards
     

Point of Sale terminals providers (PoS)

MERCHANT SERVICES
 

  • Acquiring services

    The acquirer : providing  the merchant  the services to accept a transaction. The acquirer will route the encrypted transaction details to the card association/network (Visa/MasterCard)

    Distribution and maintenance of PoS

    Most large acquirers do the processing part

  • Processors

    The technological side of payment processing: clearing and settlement

    Acquirers, processors and POS terminal providers offer value added services to merchants:  reporting, fraud management, loyalties program, big data analysis

CONNECTION
 

  • Networks
    Identify which financial institution issued the card and re-route the information to the cardholder’s issuing bank

    Set the interchange fees
     
  • Connectivity
    Mobile operators and internet:
    provide connectivity and data transfers

 

 

 

 

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A LOOK BEHIND THE SCENES

 

I - Banking data capture and authorization

 

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II - Clearing and settlement

 

The merchant pays to the acquirer a "merchant discount“ of  ~ 2.50%. How are these costs shared?

 

 

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