Alliance Activities : Publications : Proximity Mobile Payments Business Scenarios: Research Report on Stakeholder Perspectives
Proximity Mobile Payments Business Scenarios: Research Report on Stakeholder Perspectives
The smart card industry and media alike continue to focus on mobile payments, regularly reporting on interest being shown in the new payment method. The purpose of this new research report is to look at the journey towards proximity mobile payments by examining the progress that is being made to define a sustainable business model. While the logic behind proximity mobile payments is generally accepted, precisely when they will become widely available and how the industry will get there are still being debated. The convergence of mobile and payment is extremely complex, requiring the cooperation of many players and stakeholders.
As a result, the mobile payments landscape continues to evolve with various business models emerging worldwide. The Payments Council has considered four different business models for mobile payments deployment and surveyed key industry stakeholders on critical questions pertaining to the success of each model. The purpose of the survey was to develop a point of view on the emerging business models for the North American market. Expert opinion and even speculation were sought on the following topics:
- Likely business models
- Global examples where these business models have been implemented
- Relative business model advantages
- Relationships among ecosystem stakeholders for each model
- Benefits and business case drivers for each stakeholder
- Emerging “killer app” capabilities
Alternative Business Models Considered
The survey was conducted by members of the Smart Card Alliance Payments Council Mobile Payments Work Group, by either in-person or telephone interviews during December 2007 and January 2008.
The four potential mobile payments business model scenarios discussed with interviewees were as follows:
- Operator-Centric Model: The mobile operator acts independently to deploy mobile payment applications to NFC-enabled mobile devices. The applications may support a prepaid stored value model or the charges may be integrated into the customer’s wireless bill.
- Bank-Centric Model: A bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (POS) acceptance capability. Payments are processed over the existing financial networks with credits and debits to the appropriate accounts.
- Peer-to-Peer Model: An independent peer-to-peer service provider provides secure mobile payments between customers or between customers and merchants.
- Collaboration Model: This model involves collaboration among banks, mobile operators and other stakeholders in the mobile payments value chain, including a potential trusted third party that manages the deployment of mobile applications. Payments in this model are processed over the existing financial networks with credits and debits to the appropriate accounts.
For each business model, the industry experts that were interviewed were asked to comment on the following topics:
- What are the pros and cons of each model?
- What are the incremental benefits and business case drivers for each stakeholder?
- What is the reasonable split of the potential revenues to stakeholders?
- Are there other potential sources of revenue?
- Which stakeholder owns financial liability, risk, security and privacy?
- Are they aware of real-world commercial-scale implementations?
Interviewees were also asked to comment on the following topics:
- Which model holds the greatest potential for success?
- Are there other potential models or stakeholders that should be considered?
- What emerging capabilities will be “killer apps?”
- Which will reign supreme–remote mobile payments or proximity mobile payments?
Stakeholder views were sought from financial institutions, mobile operators, merchants, potential trusted service managers, service providers and non-traditional players. Conclusions were drawn on points of agreement, points of disagreement and surprising findings, including any notable quotes.
The objective was to find 20 willing participants from key organizations in the mobile payments arena. The Work Group successfully conducted 21 interviews from the five stakeholder ‘camps.’
The consensus of 86% of the industry stakeholders interviewed was that NFC-based proximity mobile payments will be adopted, and that the business model will require collaboration among banks, mobile operators, merchants, handset manufacturers and other service providers. Although the Collaboration Model appears most feasible, rapid adoption is hindered by the number of players.
Although the industry appears poised to deploy mobile payments, it is a classic case of strategic deadlock in which stakeholders are waiting for someone else to make the first move. A bold move is needed by a player in the role of trusted service manager to orchestrate the activities of collaborators and competitors.
The activities that require orchestration include final selection of handset and chip standards, merchant enablement, standards for certifying and deploying secure payment applications, and, finally and most controversially, development of a model for revenue-sharing arrangements among stakeholders.
The report includes detailed results describing the survey respondents’ perspectives on the pros and cons of each model and on their opinions of potential new sources of revenue from advertising, loyalty and rewards, co-branding arrangements, and customer fees for new services.
About the Smart Card Alliance Payments Council
The Payments Council is one of several Smart Card Alliance technology and industry councils. The Payments Council was formed to focus on facilitating the adoption of chip-enabled payments and payment applications in the U.S. through education programs for consumers, merchants, issuers, acquirers/processors, government regulators, mobile telecommunications providers and payments service providers. The group is bringing together payments industry stakeholders, including payments industry leaders, merchants and suppliers, and is working on projects related to implementing EMV, contactless payments, NFC-enabled payments and applications, mobile payments, and chip-enabled e-commerce. The Council’s primary goal is to inform and educate the market about the value of chip-enabled payments in improving the security of the payments infrastructure and in enhancing the value of payments and payment-related applications for industry stakeholders. Council participation is open to any Smart Card Alliance member who wishes to contribute to the Council projects.