M-wallet as a product of multiservice evolution

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20.07.2012
 
Dr. Danny Fundinger, Management Consultant Core Banking and Payments, NTT Data (Germany)

The NFC-based Mobile Wallet is still a new concept which is currently tested and piloted in many countries and by many players. Most players in the payments industry expect it to be a new channel for their existing payments products like contactless cards. But the mobile wallet will be much more – it will have a major impact on the way the customer pays, on the ecosystem structure and roles, and on the business models of the involved players. There will be massive changes and challenges for the traditional payments industry, and opportunities for new players like Google and startups. On examples like the Google Wallet, Osaifu Keitai (Japan), Tesco’s virtual shopping approach, PayPal, etc. we will show that the value chain breaks up and the value of payments changes. Payment providers need to think beyond the pure payment transaction to be successful in this new era of payments.

Since ages, the concept of a "wallet" is closely linked with payments. Cash has always been and still is deposited in a physical leather wallet, as well as the plastic payment cards. With the rise of e-payments and e-commerce in the late 90s of the last decade, it did not take long until the so-called e-wallet has established as an aggregator for different payment methods like credit card, direct debit and bank transfers. PayPal is so far the best known e-wallet solution provider with an outstanding success story. Indeed, it has disrupted the payment market and broke the dominance of banks as payment providers for the end user. In the mobile age, a new concept arose and is starting to break into the payments market with even more disruptive energy – the so-called "Mobile Wallet".

The term Mobile Wallet refers to a concept that can securely interact with digitalized valuables . These valuables are securely stored in a so-called secure element, a separated, high secure hardware component based on smart card technology. The secure element can store several smart card-like services which can be accessed with traditional smart card readers. Indeed, the so-called NFC -technology allows a contactless short-distance transmission of data between a card reader like a POS terminal and emulated smart cards like a credit card situated in the secure element on the mobile phone. Besides payments cards, also other services like hotel or car keys, a personal ID or train and event tickets can be stored and accessed over an NFC-capable reader device or even the mobile network. All these services can also be issued on the smart phone over the mobile network. Hence, services like a car key or a hotel key can be issued quickly and, if required, only for a limited time.

There has been much confusion about the term Mobile Wallet. Often, it is still referenced similar to an e-wallet – a payment enabler or aggregator for the mobile phone. For example, the Mobile Wallet of Google, the Google Wallet, has often been referenced in the media as Google’s mobile payments solution. But the Mobile Wallet concept is much more than mobile payments, and Google understood that better than any other player in the market so far. Payment is only one of the services which are enabled by the Mobile Wallet – and if seen as a stand-alone service it is a rather boring solution for the end user. Indeed, payment in the mobile wallet is nothing more than the emulation of the plastic payment card which already resides in the physical wallet. The value proposition so far is that the card is not plastic anymore and that some additional interaction can happen like overview in spending (which is already available for cards online). No wonder, the question repeatedly arose – why should somebody ever need mobile payments and wallets? It might be a nice tool, but not the ground-braking revolution as it has always been promised.

But the mobile wallet is not the successor of the e-wallet, neither is it only mobile payments. It is the integrator for all services which enable high-security authentication and handle sensitive personal data. First of all, this is everything today carried in the physical wallet – payment cards, personal ID, driving license, company ID and access cards, health insurance and social security cards, and even cash (in the sense of valuable assets). Second, these are all kinds of keys which are usually carried in our pockets, like the car key, the key to our home and other keys like for a hotel room. Third, digital signatures and IDs to enable more secure internet payments and other authorization services.

The value proposition of the mobile wallet is to digitalize all of these physical assets and let the physical wallet eventually disappear. Furthermore, these assets, or services, can be issued, controlled and blocked much more flexibly over the mobile network. And – even more important – these services can be combined with each other and external services. This can be illustrated on the example of car sharing. Currently, car sharing requires firstly identifying yourself towards the car owner with a personal ID. Additionally, the driver license needs to be shown. Then a physical car key is handed over, and after car usage payment needs to be handled somehow. Imagine this scenario with a mobile wallet. Identification and authentication can be done with an ID service and the driving license stored in the mobile wallet at a reader device or also over the mobile network. The car key can be issued temporarily in the mobile wallet and payment happens with the payment card stored in the mobile wallet. This lowers entry barriers for end users to use such a service and allows a much more flexible handling of the rental processes. Production costs can also be lowered for hardware like keys, plastic cards and storage places like key safes.

Again, Google is aware of these opportunities with the Google wallet. Although currently only a payment service is available, Google emphasizes that couponing and loyalty services are the main focus and will soon follow, providing detection and redemption by one touch together with the payments. The advantage for the end user is that he has no need to carry around loyalty cards or coupons and also no need to show them to the cashier. Indeed, he can easily use all those cards and coupons which he usually forgets at home or for which he simply does not have any space left in his physical wallet. For Google, the advantage is even higher – by tracking the payment, the company knows which of their promoted products have eventually been sold by the retailer. And Google also knows which loyalty schemes affected sales and how they affected it. In an information-based society, this is highly valuable information. Indeed, this information is or soon might be much more valuable than the fee for a transaction – the base of revenue in every traditional business case for payments. Also PayPal is following a similar approach – the company recently started entering brick-and-mortar retailers with an alternative payment service which links the PayPal account to gift cards and stores’ private-labels cards. Furthermore, PayPal intends to offer the customer additional information services, like finding alternative offers for scanned products, and also intends to share more data with retailers such as purchases and shopping activities.

Indeed, an impressive example is also Osaifu-Keitai, the first Mobile Wallet worldwide, which was commercially released by Sony and NTT DOCOMO in 2004 - years ahead of other launches. Though pure payment services like credit card payments were expected to establish as the main business cases, it’s not all it’s cracked up to be. Instead, it was Kazasu Coupon, a couponing service of McDonald’s which exceeded expectations with more than 4.5 million new subscribers within 18 months. Also prepaid card schemes of large retailers, like WAON, proved to be exceptionally successful when associated with points programs – over 15 million users have subscribed for the service since its launch in 2008.

Considering this, the traditional fee-based business model of the payments industry will be outdated in the near future. Innovative players will monetize payments and transactions by breaking up their isolation and combining it with other services to build new revenue sources. And the Mobile Wallet will provide the fertile ground for that.

Couponing and loyalty services are probably the most obvious examples, but opportunities go far beyond. Banks can combine payment with customized product offerings at the point-of-sale - the insurance for the new car or the installment credit for the new television can be offered when payment for the core product is initiated. The core values of trust and security can be monetized by offering other core mobile wallet services besides payments, like access keys, authorization and identification. Indeed, in the world of social networks, identification is an asset which is becoming increasingly important and valuable. Also data sharing about purchase and shopping activities is a revenue source which has, in the offline world of bricks-and-mortar businesses, so far only scarcely exploited in combination with payment transactions. Additionally, payment applications require a more flexible integration into other services. Open APIs and interfaces for payment services will open up opportunities in enabling new, innovative mobile wallet services. And, finally, the ones who can establish themselves as mobile wallet brands are the most powerful players in this future ecosystem.

The opportunities ahead can be illustrated on a new service provided by Tesco in South Korea. The retail chain recently introduced a new virtual shopping approach – posters of supermarket shelves have been installed in metro stations. While waiting for the next train, customers could choose products by touching them on the posters, and Tesco would deliver them straight to their homes. As a key enabler for this virtual shopping, a payment service is required but also an identification service which provides the home address of the customer or even takes care of the product delivery. Combining both of these services in a mobile wallet would be a powerful value proposition – for retailers like Tesco as well as for the end user. This example clearly shows - it is not only about payment anymore. It’s about the wallet, stupid- as former US president Bill Clinton would have said.


[1] See also „Mobile Wallet – Definition and Vision Part 1, Mobey Forum, 2011"

[2] Near-Field-Communication


Journal:  PLUS Journal 6 (182) 2012

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