© 2012 OLIVER WYMAN FINANCIAL SERVICES Zilvinas Bareisis Senior Analyst, Banking Celent Banking...

© 2012 OLIVER WYMAN

FINANCIAL SERVICES

Zilvinas Bareisis

Senior Analyst, Banking

Celent Banking Event, Boston

25 January 2012

Preserving Merchant Relationships When Mobile Comes to the Retail POS

2© 2012 OLIVER WYMAN 10 April 2023

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Report qualifications/assumptions and limiting conditions


• The Complexity of Mobile Financial Services

• Key Battlegrounds For Mobile at the Retail POS

• Launching a Successful Mobile Wallet

• Implications for Banks

Contents


… channel for banking/ account

services(mobile

banking)

… payment initiation/

approval device(mobile

payments)

… traditional payment

instrument acceptance

device(mobile POS)

… media channel

… repository of non-payment “wallet services” (e.g. coupons, ID, etc.)

Mobile phone as a…

• Information services

• Transaction services

• Card POS• Check remote

deposit capture

• Money transfer• Mobile commerce• Retail POS

Mobile Financial Services

Source: Celent

The richness and diversity of customer mobile use cases gives rise to a complex web of mobile financial services

• Researches financial products

• Wants to check the balance of his bank account

• Wants to pay with a card where there is no traditional POS terminal

• Wants to pay using his/ her mobile device

• Receives and wants to spend a digital coupon

Example customer use of mobile

1

2

3 4

5

Focus of today’s discussion


UK Advertising Spend on Media Channels Is Misaligned with Time Spent on Those Channels by Consumers

14%

36%

11%

32%

7%

39.6%

29.0%

3.4%

27.5%

0.5%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Print TV Radio Desktop Mobile% o

f To

tal M

edia

Consu

mption/ A

d S

pen

d

in 2

010

Time Spent Ad Spend

1. Mobile phone as a media channel

• Financial Services industry ranks #7 internationally based on mobile advertising spend

• Banking and Car Insurance sectors lead within the FS vertical

Sources: Millenial Media SMART Reports, Media Usage Morgan Stanley Nov. 2010, UK Ad Spend– ZenethOptimedia July 2010, Mobile Squared Oct. 2010, Google, Celent

Mobile is growing in importance as a media channel, but remains underutilised by most industries, including FS

• Advertising spend by channel

• Cross-channel campaign management

• Consumer privacy

Key Issues and Priorities for Financial Institutions


Mobile payments

Money transfer

Retail POS

Mobile commerce

Domestic transfers

Bill pay

• Emerging vs developed markets• Different accounts as a basis: non-bank

(e.g. PayPal), voucher (e.g. Ukash), card (e.g. MasterCard MoneySend), MNO (e.g. M-Pesa), bank (e.g. Fiserv ZashPay)

Typically push, remote payments International

remittances

Initiate Approve

MNO account

Other account-

based payment methods

Car

rier

bil

lin

g

• Dominos pizza• iTunes

• Mobile ringtones• Games

• BOKU

• PayFair• Voice

Commerce

Payment account

Role of mobile in a transaction

“e-commerce via mobile”

• Access bill and initiate payment• Approve request to pay a bill• Take the bill picture, pay via online banking

• Card- (e.g. Visa Money Transfer) or non-bank/ non-card based account (e.g. Western Union)

Shopping on a high-street

• The battle for mobile at the retail POS

Source: Celent

4. Mobile phone as a payment initiation/ approval device

Mobile payments are incredibly diverse and represent the biggest challenge as well as opportunity for banks

Key Issues and Priorities for Financial Institutions

• Enabling bank-account based P2P, bill payments and remittances

• Finding ways to actively participate in mobile wallets

• Business model/ economics across multiple parties

• Maintaining the “issuer” role in mobile payments

• Preserving merchant relationships


While the timing of mass adoption of mobile payments is far from certain, connectivity is here to stay.


Source: Celent

Secure element

Multiple payments credentials

The Battle for Secure Element

• Where is the secure element storing payment credentials going to reside:– Inside the phone:

– SIM-based (e.g. Isis) – Embedded in the device (e.g. Google

Wallet)– MicroSD (e.g. Bank of America’s pilot)

– In the cloud (e.g. PayPal, MobilePay, Square)

The Battle for POS Communication Technologies

We expect the battle for mobile at the retail POS to be fought along four main domains (1/2)

1• What technologies are used to communicate

payment credentials at the point-of-sale?– NFC– QR codes– Sound-based data exchange– Various tokens to communicate cloud-based

account details– Other (e.g. SMS)

2


Source: Celent

Secure element

Payment credentials issuer’s interface

(e.g. Citibank)

Mobile wallet provider’s

interface (e.g. Google Wallet)

Multiple payments credentials

The Battle of Interfaces

• Choice of payment methods

• Banking relationship

• Value-added services (e.g. loyalty)

The Battle for Payment Account

• What is the underlying account used to settle the payment with the merchant?– Traditional card scheme

credit, debit or prepaid account

– Traditional bank account– New multi-merchant scheme

(e.g. PayPal, Square, MobilePay)

– Single merchant/ closed loop account (e.g. Starbucks)

– Mobile Network Operator (MNO) account

We expect the battle for mobile at the retail POS to be fought along four main domains (2/2)

4

3


• Google’s primary interest is NOT payments– Google is not charging anything extra for the

payments transaction itself– Instead, it plans to make money from merchant

services surrounding the payments transaction (e.g. targeted ads, coupons, loyalty point management, etc.)

• Google will help driving market penetration for NFC-capable terminals

• An impressive list of launch partners: MasterCard, First Data, Citibank, and Sprint

Google Mobile Wallet is a significant development for NFC payments, although many challenges remain

• Challenges of expanding the ecosystem – Resistance from Isis members, particularly Verizon– No new banks since launch– Difficulties expanding internationally

• Needs to prove that consumers and merchants value Google Offers

• Broader issues around NFC-capable handset and terminal availability

+

?

Source: Google, Celent


Source: PayPal, Celent

The main alternative to NFC is cloud-based wallets – PayPal is likely to represent the biggest threat to banks with its vision of “redefined shopping experience”


Will banks manage to preserve their merchant and consumer

relationships in the new mobile world?


Successful mobile wallets need to deliver against requirements across four categories

Wallet as a consumer product

(availability, distribution, branding, customer service, etc.)

Availability and management of

payment credentials

Provision of relevant information(receipts, transaction

history, etc.)

Availability of other, nonpayment services(coupons, loyalty points,

tickets, ID, etc.)

Source: Celent


Should be able to… • Work on any (smart)phone – any operating system, any mobile operator, any device

• Be portable (to another carrier/ phone)

• Be easy to obtain and switch/ terminate

• Be clear on who to call when something goes wrong (i.e. customer service, dispute resolution, etc.)

• Allow linking of multiple payments credentials – any scheme, any issuer

• Allow storing (and using) value in a wallet account (cash equivalent, e.g. a prepaid card)

• Ensure security of those payment credentials

• Allow nominating a default account/ funding source

• Be widely accepted by merchants

Will probably be able to…

• Give an option to select a payment account at the time of purchasing

• Show available balance before and after transaction (at a minimum, for the prepaid account)

• Store electronic receipts

• Provide transaction history and statements by payment credential

• Allow linking loyalty/ retailer cards

• Allow receiving, storing and using merchant offers

May even be able to… • Automatically recommend a funding source at the time of purchasing based on pre-defined criteria (e.g. a relevant store card, risk-based criteria)

• Separate purchasing from payment

• Enable multiple payment use cases (e.g. retail POS vs P2P, etc.)

• Provide rich PFM tools (e.g. transaction analysis, budgeting and planning tools, alerts)

• Hold tickets/ access credentials for events/ transportation/ etc.

• Allow linking (and using) personal ID credentials (e.g. driver’s licence, medical ID, etc.)Source: Celent

However, mobile wallet capabilities are going to evolve over time

Your mobile wallet in the (near?) future…


Implications for Banks

• Support other industry efforts to promote NFC: engage with the pioneers, such as Google and respective MNO consortia, such as Isis, Oscar, and others. Support the schemes’ efforts, such as Visa’s incentive program for EMV and contactless in the US

• Engage with relevant international and domestic industry bodies to agree on the specific implementation options

• Help merchants make the right choices through acquiring and commercial banking relationships

Promote NFC

Get payment credentials ready for moible

• Obtain technical capability to provide payment credentials on an NFC chip. Consider whether to use a Trusted Service Manager

• Decide how you will manage credentials across multiple form factors (i.e. plastic and mobile)

• Define new mobile-related customer-facing processes and decide on a customer service strategy

Decide whether to compete at the interface level

• How sophisticated is your mobile banking platform? Can it be extended to deliver payments?

• Do you already have a strong rewards proposition that would entice the customer to use your app?

• What other value-added services can you provide?

• Would you consider launching your own-branded wallet to compete for customer relationships?

Source: Celent

© 2012 OLIVER WYMAN FINANCIAL SERVICES Zilvinas Bareisis Senior Analyst, Banking Celent Banking...

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Transcript of © 2012 OLIVER WYMAN FINANCIAL SERVICES Zilvinas Bareisis Senior Analyst, Banking Celent Banking...