MOBILE WALLET SERVICES INDEX Index Table of contents Table of contents... i List of figures... vi Executive summary... 1 1 Introduction to mobile wallets... 3 1.1 Introduction... 3 1.1.1 Mobile wallets and value-added services... 3 1.1.2 Opportunities to engage with consumers in new ways... 4 1.1.3 Threats to the structure of the payments value chain... 5 1.2 Overview of the card payments industry... 6 1.2.1 The transaction process in card payments... 6 1.2.2 Costs of a card payment transaction... 7 1.2.3 Revenue distribution in the card payments industry... 9 1.3 Card payments and household consumption expenditures... 10 1.3.1 Breakdown of household consumption expenditures... 11 1.3.2 Card payment volumes... 12 1.4 Mobile payment technologies... 14 1.4.1 NFC... 14 1.4.2 2D barcodes... 15 1.4.3 Identification numbers and tags... 16 1.4.4 Other technologies... 17 2 Acceptance at the point of sale... 19 2.1 Overview of the POS terminal market... 19 2.1.1 Installed base of POS terminals... 20 2.1.2 Form factors... 21 2.2 Acceptance of mobile wallets at the POS... 23 2.2.1 Rollout of NFC-ready terminals... 23 2.2.2 Acceptance of Visa and MasterCard contactless payments... 25 2.2.3 Acceptance of value-added services at the point of sale... 29 STRATEGIC VAS RESEARCH SERIES i
INDEX MOBILE WALLET SERVICES 2.3 POS terminal vendors... 30 2.3.1 Equinox Payments... 32 2.3.2 ID Tech... 33 2.3.3 Ingenico... 33 2.3.4 PAX Technology... 35 2.3.5 Spire Payments... 36 2.3.6 VeriFone... 37 3 Mobile handsets... 39 3.1 Overview of the mobile handset market... 39 3.1.1 Mobile subscriptions and unique mobile users... 40 3.1.2 Smartphone platform market shares... 41 3.1.3 Smartphone ecosystem developments... 43 3.2 NFC and secure elements in mobile handsets... 45 3.2.1 NFC handset availability and sales accelerated in 2012... 45 3.2.2 NFC solution architectures and chipsets for handsets... 49 4 TSMs and mobile wallet platforms... 53 4.1 Trusted service managers... 53 4.1.1 Overview of SEI-TSM and SP-TSM solutions... 53 4.1.2 Commercially live SEI-TSM projects... 55 4.1.3 Commercially live SP-TSM projects... 57 4.1.4 TSM projects live and under implementation... 59 4.2 Mobile wallet platforms... 60 4.2.1 Competitive landscape... 60 4.2.2 Overview of a mobile wallet platform... 62 4.2.3 Commercially live mobile wallet deployments... 62 4.3 TSM and wallet platform vendor profiles... 64 4.3.1 AIRTAG... 66 4.3.2 C-SAM... 67 4.3.3 Cardtek Group... 68 4.3.4 Corfire... 69 4.3.5 Gemalto... 70 4.3.6 Giesecke & Devrient... 72 ii STRATEGIC RESEARCH SERIES VAS RESEARCH SERIES
MOBILE WALLET SERVICES INDEX 4.3.7 Fiserv... 73 4.3.8 MasterCard... 75 4.3.9 Monitise... 76 4.3.10 Oberthur Technologies... 78 4.3.11 Morpho... 80 4.3.12 Proxama... 81 4.3.13 Sequent... 82 4.3.14 SAP... 83 4.3.15 Visa Europe... 84 5 Mobile wallet operators... 87 5.1 Mobile wallet ecosystems... 87 5.1.1 Secure element issuers, service providers and wallet operators... 87 5.1.2 Controlling the secure element... 88 5.1.3 Universal wallets and merchant wallets... 89 5.1.4 The effective addressable market for NFC wallet services is still small... 91 5.1.5 The benefits and challenges faced by non-nfc wallet services... 93 5.1.6 The value of a mobile wallet ecosystem... 93 5.2 NFC mobile wallet service architectures... 96 5.2.1 Centralized architecture... 96 5.2.2 Decentralized architecture... 97 5.2.3 Hybrid architecture... 98 5.2.4 Open architecture... 99 5.3 Business models... 100 5.3.1 Interchange and other acceptance fees... 100 5.3.2 Secure element access... 101 5.3.3 Presence in the wallet... 102 5.3.4 Value-added services... 102 5.3.5 Services to issuers and acquirers... 103 5.3.6 Improve position in an adjacent market... 103 5.4 Case studies... 103 5.4.1 Apple launches Passbook... 104 5.4.2 Google moves to a staged model for mobile wallet services... 105 STRATEGIC VAS RESEARCH SERIES iii
INDEX MOBILE WALLET SERVICES 5.4.3 ING plans rollout of mobile wallet services in Europe... 108 5.4.4 LevelUp drives traffic to merchants with offers and mobile payments... 109 5.4.5 Mobito is a mobile wallet available to everyone in the Czech Republic... 111 5.4.6 Orange expands wallet services and plans new launches... 113 5.4.7 Samsung announces wallet and embedded secure element in new devices. 114 5.4.8 SEQR builds a new payment network and rolls out a mobile wallet service... 115 5.4.9 Swedbank launches mobile payment services in Sweden... 118 5.4.10 Swedish MNOs launch mobile wallet joint venture... 120 5.4.11 Telefónica sees mobile wallet opportunity in value-added services... 121 5.4.12 Turkcell pioneers mobile wallet services in Turkey... 123 5.4.13 US carriers launch the Isis wallet service... 125 5.4.14 US retailers form MCX consortium... 128 5.4.15 Visa launches the V.me wallet with initial focus on ecommerce... 129 6 Value-added services... 131 6.1 The revenue potential of value-added services... 131 6.1.1 Local advertising is big business... 131 6.1.2 The use of location data allows more advertisers to reach their customers... 132 6.1.3 Indoor location technologies enable new marketing possibilities... 132 6.1.4 Mobile phones enable personalized interactions with consumers in real-time 132 6.1.5 High performance motivates premium rates... 133 6.2 Types of value-added services... 133 6.2.1 Coupons and offers... 134 6.2.2 Loyalty solutions... 134 6.2.3 Product information... 135 6.2.4 Digital receipts and warranties... 135 6.3 Case studies... 136 6.3.1 Cardlytics enables card-linked offers based on purchase history... 136 6.3.2 Foursquare generates more than 5 million check-ins per day... 139 6.3.3 Groupon expands with new deal formats... 140 6.3.4 Proximus Mobility delivers relevant ads to consumers mobile devices... 141 6.3.5 Scanbuy enables measureable 2D barcode campaigns... 143 6.3.6 Shopkick drives foot traffic and enables in-store navigation at merchants... 144 iv STRATEGIC RESEARCH SERIES VAS RESEARCH SERIES
MOBILE WALLET SERVICES INDEX 6.3.7 Starbucks creates mobile payment experiences linked to loyalty programme 145 6.3.8 STM launches new reward programme with real-time personalized offers... 147 6.3.9 The Logic Group provides loyalty as a managed service... 148 6.3.10 Vouchercloud locates the nearest discounts and provides directions... 149 6.3.11 Warrantify enables digital management of warranties and receipts... 150 7 Conclusions and forecasts... 151 7.1 Market trends and analysis... 151 7.1.1 Network effects will limit the number of universal wallets in each market... 151 7.1.2 Mobile wallet operators need to build capabilities in value-added services... 152 7.1.3 The effective addressable market for NFC wallets is small but can grow fast. 153 7.1.4 Alternatives to mobile operator controlled secure elements emerge... 155 7.1.5 The CP/CNP dichotomy will be revised... 155 7.1.6 MasterCard introduces new rules that affect staged wallet operators... 156 7.2 Forecasts on infrastructure for NFC mobile wallet services... 157 7.2.1 NFC-ready POS terminals... 157 7.2.2 NFC-enabled handsets... 161 7.2.3 Rollout of TSM infrastructure... 163 7.3 The mobile wallet market in EU27+2... 164 7.3.1 Market analysis... 165 7.3.2 Forecasts... 167 7.4 The mobile wallet market in North America... 168 7.4.1 Market analysis... 169 7.4.2 Forecasts... 171 Glossary... 173 STRATEGIC VAS RESEARCH SERIES v
INDEX MOBILE WALLET SERVICES Index List of figures Figure 1.1: Typical payment transaction flow... 7 Figure 1.2: Visa interchange fees in the UK and the US... 8 Figure 1.3: Revenue distribution in card payments... 9 Figure 1.4: Card payments as a share of HCE and GDP (World 2011)... 10 Figure 1.5: Household consumption expenditures by service and product (EU27 2011)... 11 Figure 1.6: Card payments in Europe and North America (2011)... 12 Figure 1.7: Card payment volumes (EU27 and NA 2007 2011)... 13 Figure 1.8: Different forms of 2D barcode payments... 16 Figure 2.1: Installed base of POS terminals (World Q4-2011)... 19 Figure 2.2: POS terminal density by country (World 2011)... 20 Figure 2.3: Stationary and mobile POS terminals... 21 Figure 2.4: mpos devices... 22 Figure 2.5: NFC-ready POS terminals by region (World 2012)... 24 Figure 2.6: Visa paywave POS terminals (Europe 2012)... 26 Figure 2.7: PayPass and paywave POS terminals (World 2012)... 28 Figure 2.8: Acceptance of mobile wallets at the point of sale... 30 Figure 2.9: POS terminal shipments by manufacturer (World 2012)... 31 Figure 2.10: Equinox Payments POS terminals... 32 Figure 2.11: PAX Technology POS terminals... 35 Figure 3.1: Handset shipments by segment (World 2008 2012)... 39 Figure 3.2: Mobile subscriptions by region (World 2011 2012)... 40 Figure 3.3: Unique mobile users and mobile phones in use (World 2010 2012)... 41 Figure 3.4: Smartphone shipments by vendor and OS (World 2012)... 42 Figure 3.5: Number of NFC handsets available on the market (2010 2013)... 46 Figure 3.6: NFC handset vendor market shares (2010 2012)... 47 Figure 3.7: Examples of commercially available NFC-enabled handsets (Q2-2013)... 48 Figure 3.8: NFC solution architectures in handsets... 49 Figure 3.9: Examples of NFC controllers and combo chipsets by vendor... 50 vi STRATEGIC RESEARCH SERIES VAS RESEARCH SERIES
MOBILE WALLET SERVICES INDEX Figure 4.1: SEI-TSMs and SP-TSMs in the NFC ecosystem... 54 Figure 4.2: Commercially live SEI-TSM projects (World Q1-2013)... 56 Figure 4.3: Commercially live SP-TSM projects for banks (World Q1-2013)... 58 Figure 4.4: TSM projects live and under implementation (Q1-2013)... 59 Figure 4.5: Competitive landscape for wallet platform vendors... 61 Figure 4.6: Mobile wallet platform deployments by vendor (Q1-2013)... 64 Figure 4.7: Overview of TSM and wallet platform vendors (World 2013)... 65 Figure 5.1: Examples of universal wallets... 90 Figure 5.2: Examples of merchant wallets... 91 Figure 5.3: Effective addressable market for NFC mobile wallet services... 92 Figure 5.4: The value components of a mobile wallet ecosystem... 94 Figure 5.5: Centralized architecture for NFC services... 97 Figure 5.6: Decentralized architecture for NFC services... 98 Figure 5.7: Hybrid architecture for NFC services... 99 Figure 5.8: Open architecture... 100 Figure 5.9: LevelUp offering and FTUB white-label payment solution... 110 Figure 6.1: Cardlytics offers in online and mobile banking... 138 Figure 6.2: Starbucks payments and rewards... 146 Figure 7.1: Effective addressable market for NFC wallets by region (World Q1-2013)... 154 Figure 7.2: NFC POS terminal shipments by region (World 2011 2017)... 159 Figure 7.3: NFC POS terminal installed base by region (World 2011 2017)... 160 Figure 7.4: Forecasts on NFC handset shipments (World 2011 2017)... 161 Figure 7.5: Smartphone shipments (EU27+2 and NA 2011 2017)... 162 Figure 7.6: Installed base and penetration of NFC handsets (World 2011 2017)... 163 Figure 7.7: Rollout of TSM infrastructure (World 2011 2013)... 164 Figure 7.8: Mobile wallet users and transactions (EU27+2 2012 2017)... 168 Figure 7.9: Mobile wallet users and transactions (NA 2012 2017)... 172 STRATEGIC VAS RESEARCH SERIES vii
INDEX MOBILE WALLET SERVICES viii STRATEGIC RESEARCH SERIES VAS RESEARCH SERIES