Mobile Payment Technology

Ryan Browning, Vibhor Chhabra, Derek Vaughn,

Dora Vedder, Matt Zalubowski

Marketing of High Technology

Document Overview

Introduction 2

Mobile Technology 4

Payments Industry Outlook

6

Market Opportunity 7

Adoption Projections 10

Steps to Ensure Success 11

Appendix 13

Background Information

• Mobile Phones have been adopted

• Credit Cards have been adopted

• Mobile Payment options available but not widespread

• Combination of Mobile and Credit Cards Value Chain

• Fast and Easy Check-out at low-value high speed retail locations

• Expansion of AMEX network of Merchant Acquirers

Status Quo Future

Major Hurdles: Infrastructure, User-Friendliness, Consumer Adoption, Vendor Adoption

Current Adoption across relevant technologies is varied

Emerging MatureDevelopment

Stage

Credit Card

Smartphone

Mobile

Mobile Payments

Why Mobile?

+6.1%

+1.7%

Mass adoptionGrowth

across segmentsHigh spending

consumer

Why Smart phones?

+25%

+154% 2.2m

-15%

Mobile broadband

125% YoY Growth

Device competition

O.S. Competition

Why American Express?

• 43 million cards-in-force• Each card member spends $12,000/year• American Express’ value proposition is its ability

to bring affluent customers to new merchants • Retail POS presents a new usage opportunity for

American Express members

Lower Value Transactions

High Volume Higher Revenue+ =

Marketing Mix demonstrates opportunity is affordable

Product• Payment via phone - no wallet

needed– Barcode scanning– Requires no new infrastructure

(merchant or consumer)

• Acts just like card, linked to existing account

Price• No specific charge(s)

– Offer to both credit and charge products

– Existing charge product membership fees cover software development costs

Promotion• Push & Pull

– Push: Educate consumers– Pull: Solicit inquiry via

demonstration

• PR and Publicity– Inexpensive– Thorough benefit explanation

Distribution• Leverages cardholders existing

mobile smart phones– Minimal cardholder training

required

• Leverages existing merchant barcode scanning infrastructure – Minimal merchant employee

training required

P R O D U C T P R I C E

P R O M O T I O N D I S T R I B U T I O N

3C’s indicate an opportunity to set a mobile payment standard

• Software development– Barcode display– Barcode scanning

• Existing cardholders– Communicate as added benefit– Emphasize convenience

• New consumers– Market specific to credit worthy

consumers– Emphasize smaller transactions

• Disjointed– SMS text messaging– WAP (webpage on phone)– Proprietary hybrid (PP, Google

Checkout)– MasterCard PayPass– RFID Chip

• Opportunity to establish a standard– Does not require

infrastructure– Potential first mover

advantage

C U S T O M E R

C O R P O R A T I O N

C O M P E T I T I O N

• Merchant coordination– Develop training

materials– Encourage adoption

ACCORD model validates ease of adoption

Advantage • Consumer: Simple to use• Merchant: Speeds transaction processing time

Compatibility

• Consumer: Leverages existing phones• Merchant: Leverages existing scanning infrastructure

Complexity • Consumer: None, merely show your phone to the merchant• Merchant: Already trained to scan sale items

Observable

• Consumer: Easily noticed by other customers in line• Merchant: Increased processing speed will receive industry coverage and attract new merchants

Risk • Consumer: Additional risk if phone is lost• Merchant: No new risk, card equivalent

Divisibility

• Consumer: Easy trial, leverages existing mobile smart phone• Merchant: Trial requires using existing scanning infrastructure

Adoption Projections - Several products/services can be used to predict the adoption of Mobile Marketing

• New user subscriptions will peak at 9.6 years• With p being higher than average, AMEX needs to pay

particular attention to external and internal influences

• The lower q suggests that advertising will have less of an effect than for the average product

AMEX Cumulative Mobile Banking Customers (Forecasted)

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Mobile Marketing Bass Diffusion Model

Analogous Products p q MCable Television 0.0029 0.174 74.7Cellular phones 0.003 0.364 209.1Online Banking 0.0142 0.545 42.9Weighted Average 0.0078 0.4011

Steps to Ensure Success

• Application infrastructure already exists• Develop for 5 mobile operating systems• Thorough testing and attention to security

• Educate existing and potential customers• Free application encourages mass adoption

• Infrastructure already exists• Vendor education• Enables faster and more frequent transactions

Software Development & Integration

Consumer Adoption

Vendor Adoption

Questions?

Appendix

Background Information (extended version)

Currently there are two mature markets on the verge of crossing paths. Mobile phones have taken off in the US and the majority of Americans have adopted this technology. Likewise Americans have changed their spending habits through the adoption of credit cards as a form of payment. Despite the proliferation of these two technological breakthroughs in two distinct industries, the marriage of the two has been slower to take off. We want to look into the intersection of these two technologies and how a particular firm, Amex can play a role in increasing the adoption of this technology among its members and the payments industry as a whole.

ADIA Model reveals membership rewards will create buzz

Attention• The privilege of membership,

now on your mobile phone– Advertise: National campaign

(prioritize metropolitan areas)– Media: Television, billboards,

mobile messaging

Desire• Convey cumbersome nature of

fumbling for ones wallet– Call attention to how paying

could be better

• Demonstrate the improved mobile purchasing experience

Interest • Demonstrate advantage via

comparison– Outperforms other mobile payment

mechanisms– Provides greater convenience

than other “contactless” payment mechanisms

Action • Provide American Express

reward incentive to motivate trial

• Align with regular use merchants (e.g. convenience stores and fueling stations) to stimulate regular use

Competition• SMS text message – uses short message

service protocol to send a payment request to a short code (a smaller number) where a charge is then applied to the users phone bill

– Poor reliability – Slow speed– High cost – cost of setting up short codes –

often passed on to customer– Low payout rates – often payout to merchants

as low as 30%– Low follow on sales, failure to remember where

purchased– Seldom used for physical goods

• WAP (wireless application protocol) – using a webpage on ones phone

– Allows for purchase of physical goods– URL can be bookmarked and used again– High customer satisfaction – quick and

predictable– Ease of use – similar to web

• Direct operator billing– Simplicity - the operators already have a billing

relationship with the consumers– Instantaneous payments giving the highest

customer satisfaction

3C’s Supporting materials

– Accurate responses showing success and reasons for failure (no money for example)

– Security to protect payment details and consumer identity

– Best conversion rates from a single click-to-buy and no need to enter any further payment details.

– Reliability that builds confidence– Reduced customer support costs for merchants

and operators– Higher payout rates with operators such as

Vodafone in the UK delivering up to 80% in some cases

• Online companies – PayPal, Amazon, and Google Checkout

– PayPal provides a hybrid – • eBay payments, person-to-person, buy from

mobile websites• PIN number for safety

– Amazon• TextBuyIt – buying items on Amazon.com on

phone – text keywords to Amazon, reply with yes/no, answer call to confirm

• www.amazoncheckout.com

– o Google Checkout• Like using Google Checkout online – not a barcode• www.googlecheckout.com

Source: http://en.wikipedia.org/wiki/Mobile_Payment

Appendix – Bass Model

Mobile Marketing Bass Diffusion Model

Value Add Infrastructure reqs Ease of adoption Complexity of techAnalogous Products p q M 8 7 5 3 Overall Similarity ScoreCable Television 0.0029 0.174 74.7 2 2 5 8 79Cellular phones 0.003 0.364 209.1 5 5 7 5 125Online Banking 0.0142 0.545 42.9 8 5 8 6 157Weighted Average 0.0078 0.4011

Ranking of 1-9 based on similarity to Mobile MarketingTypical Values 0.03 0.38

Product Attribute Similarity

Amex Market 43Time of Peak 9.61867151Peak Sales Rate 4.48264407Cumulative Sales Peak 21.079312

YearCumulative

Sales Sales1 0.41297757 0.4129782 1.01988529 0.6069083 1.90152694 0.8816424 3.16096923 1.2594425 4.91766742 1.7566986 7.28807323 2.3704067 10.3474779 3.0594058 14.0772649 3.7297879 18.32073 4.243465

10 22.7852156 4.46448611 27.111719 4.32650312 30.9832045 3.87148613 34.2080394 3.22483514 36.7377476 2.52970815 38.6303286 1.892581

AMEX Yearly Sales

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Sales

Source: American Express Annual Report 2007

Cardholder Data