Mobile Payments:

An IBM Point of View

Dr. Mark Sherman
Lars van Dam
IBM
WebSphere Strategy

Outline

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Overview of retail payments: Participants

Cardholder

Issuer (Bank)

Merchant

Card Network

Acquirer

Overview of retail payments: Merchant, acquirer, network

and issuer interactions
Batches of
transactions are
queued by the
merchant, including
a $100 transaction
by Hans

Merchant sends a batch of

transactions to the acquirer to
receive payment

$100

Card network distributes

each transaction to the
issuer, including Hanss
$100 purchase

$97.80
$100

$$
$$

Acquirer subtracts discount

fees ($0.50) and pays
merchant

$98.30
Issuer subtracts processing
fees ($1.70) which are
exchanged with the card
network and submits funds,
including funds for Hanss
transaction

Card network routes

funds to acquirer

Acquirer submits batch of

transactions to card networks

Note: Names and fees are illustrative and are not from any particular vendor or relationship

http://www.creditcards.com/credit-card-news/how-a-credit-card-is-processed-1275.php

Outline

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Mobile money market: what is mobile money

Using a mobile device as payment vehicle
Mobile Banking
Balance inquiry
Account applications
Account transactions
Bank locations
Alerts

Mobile Commerce

Mobile Payments

Promotions
Behavior tracking
Loyality programs

Person to person transfers

Bill pay
Payment at POS
In application payments

Mobile Wallet: linking mobile device with accounts and account activity
Bank accounts

Bank balances

Receipts

Credit cards

Credit balances

Credit limits

Loyality cards

Gift cards

Phone balances

Mobile money market: payments are accelerating

in major markets
PayPal processed $4 billion worth of mobile payments in 2011*
$750 million in 2010*
$141 million in 2009*
David Marcus, vice president of PayPal Mobile*

Starbucks Mobile Application with rewards and mobile payments

Started with Northern California and Seattle
Now available nationwide in the US
Mobile application is available on apple and blackberry

Google Wallet payments are now supported by Toys R

Us, Macys, and Bloomingdales

Juniper Research reports consumers will use mobile

payments to pay for $670 billion worth of goods and
services by 2015.

Mobile money market: emerging markets

Application of mobile money varies
greatly among geographies
Emerging markets have a
combination of circumstances that
encourage adoption of mobile money
Formal banking reaches about 37 percent of the population
1 branch and 1 ATM per 10,000 people

Mobile phones have a penetration rate of 50 percent

5,100 mobiles phones per 10,000 people

Very small deposits and loans are not profitable for traditional
delivery models
1.7 billion people in emerging markets have a mobile phone and
no access to banking services

Source: McKinsey, 2010, Capturing the promise of mobile banking in emerging markets

2012 IBM Corporation

Mobile money market: sizing the market

Mobile money is modest now but growing rapidly
Global mobile transaction volume

Mobile transaction volume as a % of

non-cash consumer payments by
geo in 2015

$B

Mobile money transaction volume growing at greater than 50% CAGR thru 2015
Mobile payments are projected to be between 15% and 20% of total consumer
payment transaction volume by 2020
Mobile payments made by over 1 billion users by 2016
Sources: Gartner Forecast: Mobile Payments, Worldwide, 2008-2015; Pub May 2011; Winning After the Storm, BCG Global Payments Report, 2010, Portio Research, Mobile Payments
2012-2016 Analysis and Forecasts for the Worldwide Market for Mobile Payment Services, 2012.

2012 IBM Corporation

Outline

10

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Mobile money opportunities: overview

Customer Care and Insight

Mobile money software gives a holistic, single view of the customer and glean deeper insight into customer needs, so you
can innovate with less risk. Develop high quality, tailored services to restore customer confidence, increase loyalty, and
drive revenue.

Financial
Services

Retail

Mobile Banking
Branch of the Future
Mobile Payments
Mobile Commerce
Mobile Agents/Claims

Store of the Future

Virtual currency
Location based shopping
Personalized campaigns
Mobile cross-sell, up-sell

Telecomm
Mobile Network Monetization
Mobile field-force enablement

Mobile check-in, Mobile prescriptions

Healthcare Mobile payments

Mobile Health Monitoring & Prevention

Mobile enabled Clinicians

Virtual currency FF Miles

Customer Loyalty programs
Ecommerce Ticketing, Entertainment

Travel &
Transportation

Mobile money opportunities: key players

Merchants - leverage the users shopping patterns
Drives a more customer centric view; control point shifts to the
end-user with the mobile device.
Shift more towards one to one marketing and leveraging the
value of intelligent data from digital currency

Banks - leverage the users financial profile data

Help banks protect and grow revenue by maintaining brand
relevance and leveraging emerging business models
Provide a safe way to transact business, secure assets, reduce
fraud, ensure compliance
Offer secure digital vault services to aggregate coupons, transport,
loyalty rewards, traditional currencies

Telcos - Leverage subscriber base and delivery

channel
Mobile Money will allow MNO's to increase customer retention and
generate new revenue through value added services

New mobile
money entrants
transform business
Create new value by
aggregating data and
applying insights across
the enterprise,
Provide secure, high
availability, large scale
transaction processing
Leverage Smarter
Commerce

Outline

13

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Application scenario: consumer on-line

purchase with tablet
Customer

Merchant

Acquirer

In the last year, tablets commerce traffic increased 348%

Tablets converted visits into purchases at a rate of 3.23
percent, well ahead of smartphones at 1.39 percent.
Payment processing for tablets mirrors web on line
purchases
Special considerations beyond web experience
Exploitation of location information
More accessible than PCs
Need tablet-aligned gestures (e.g., sweeps)
Need visually large carts

Source: Monetate, Couch Commerce: How Tablet Shoppers are Changing Online Sales, 2012

14

Credit Card

2012 IBM Corporation

Bank

Application scenario: mobile banking

Customer

Bank

Customers interact directly with bank

like on the web
Special considerations beyond web
experience
Diversity of devices beyond browsers
Smaller screen UI redesign necessary
Location awareness enables services
such as ATM and branch locations
Authentication streamlined for mobile
devices
15

2012 IBM Corporation

Application scenario: consumer purchase at

retailer NFC (Near Field Communication)
Customer

Mobile Wallet

Merchant

Acquirer

Credit Card

Mobile device uses information in mobile

wallet to act as credit card
Communicated at POS thru NFC
Much hyped, little used
Not a compelling convenience compared to a
credit card
Gartner Hypecycle: For the past decade, NFC
has been a technology looking for a solution

May revive for virtual currency (loyalty points)

Source: Gartner, Hype Cycle for Mobile Device Technologies, 2011

16

2012 IBM Corporation

Bank

Application scenario: consumer purchase at

retailer bar code platform control
Merchant

Customer

Mobile
payment
platform

Credit
card

Bank

Merchant generates transaction information

Customer uses custom app to send to mobile
payment platform
Mobile payment platform also serves as acquirer
Purchase confirmation sent to merchant thru different
path
Mobile payment platform may require return path to
go through its system
17

2012 IBM Corporation

Application scenario: consumer purchase at

retailer bar code merchant control
Merchant

Customer

Mobile
payment
platform

Merchant

Conventional
processing

Merchant generates transaction information

Customer uses custom app to send to mobile
payment platform
Mobile payment platform provides wallet information
to merchant
Merchant processes transaction as if credit card
presented

18

2012 IBM Corporation

Application scenario: consumer purchase

soft goods
Customer

Mobile Wallet

Merchant

Acquirer

Credit Card

Inventory

Soft goods include tickets, phone cards,

music
Mobile device uses information in mobile
wallet to act as credit card number
Communicated thru web interface
Optional documentation back thru mobile wallet

19

2012 IBM Corporation

Bank

Application scenario: consumer to consumer

payments telco mediated
Payer

Payer
Agent

Payer
Telco

Payee
Telco

Common scenario in emerging

economies for P2P payments
Agents conduct the cash-in and cashout functions, enabling customers to
convert cash into electronic money
and back again at convenient
locations
Telcos arrange funds transfers
among their accounts
20

2012 IBM Corporation

Payee
Agent

Payee

Application scenario: consumer to consumer

payments mobile platform mediated
Emerging scenario in both
established and emerging
markets

Payer

Requires established accounts

with either bank or mobile
money platform vendor

Source: Venture Beat

21

2012 IBM Corporation

Payer
Bank

Mobile
Money
Platform

Payee

Payee
Bank

Application scenario: transformative

scenarios

Mobile devices have unique properties beyond credit

cards, cash, banks and PCs

Bus, subway and train fares

Delivery of gift cards over the phone

Integration of loyality, context and location for
promotion
Streamline general admission event ticketing
Credit extension based on mobile activity
Competitive interception based on mobile application
activity
Multichannel offerings

Parking (knows your car), vending

Location and destination based pricing

ShopSavvy

Everyday micropayments

Omnipresent: people always carry their phone with them

Personal: mobile identifies the specific person
Context: mobile has location, acceleration, orientation
information
Multiple inputs: gestures, audio, video

Prepare then retrieve ATM withdrawal

Preorder fast food

Reminders to replace consumables

Personal credit card acceptance

Square

Outline

23

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Impacts: new paths for payment processing introduced

Payers

Card
Holder

Merchant

Facilitators
Acquirer

Credit Card
Company

Issuer

Payment
Provider

Emerging Market

Acquirers and credit

card companies can
be utilized by or
disintermediated by
telcos and payment
providers in mobile
transactions

Fund Holders

Mobile
Payment
Market Dynamics

Telco

Shift from cash and checks to cards and electronic payments

Mobile and social commerce are creating a discontinuity in the market.
Agents in Emerging Markets play an important role in distribution and liquidity

Agent

Major Market

Credit/Debit
Card Payment

Payees

Impacts: consumer and retail experiences are transforming

Context-Aware Marketing
Non-location-aware
Location-aware

Online Transactions

Consumers

P2P

Retailers

B2B

In-Person Transactions
Non-interactive

Swipe
NFC

Interactive

Optical
Scan
OTA

Impacts: retailers, banks and facilitators look to expand

their roles
Both Acquirers and
credit card companies
can be utilized in or
disintermediated from
electronic payments

Payment Providers

In major markets
banks act as the
fund holders

Acquirers

Credit Card Companies

Retailers

Banks
Telcos

Telcos and payment

providers can either
access payers funds
directly through banks
or indirectly through
acquirers and credit
card networks

Outline

27

Overview of retail payments

Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Operations: security and fraud detection

Mobility adds additional vectors to
conventional fraud
Technical

RFID jamming
Nishing
Data validation: ensure all formats adhered to
Malware

Some signs to track

Source: McAfee Threats Report: First Quarter 2012
Know-Your-Customer: black lists
Account activity: mobile banking supports easy account creation and dormant accounts
could be used for laundering
Behavior profiles of customers: amount, timing, velocity, source and destination
location of transactions
Behavior profiles of agents: in addition to customer checks, looking for splitting
payments to increase fees

Mobile devices offer additional capabilities to manage security

Faster data on location for potential intercept
Potential use of biometrics (e.g. face image) to reduce false positives
Remote management

28

2012 IBM Corporation

Operations: Support of parallel channels

Expectation of consistency across
multiple channels
Pay bills anywhere

Expectation of cross channel

interaction
Finish ATM, food order or
application transaction
Video interaction with call center
from tablet and ATM

Need one view of the customer

maintained across all systems
supporting channels
Including in-flight interactions

Operations: scaling to meet transaction volume

About 750B global mobile money

transactions expected in 2020
About 25,000 transactions a second

Likely to grow rapidly for use in

micropayments
Currency equivalents, like loyalty
points, drive the number higher

Source: BCG Global Payments, 2011

30

2012 IBM Corporation

Operations: ensuring availability

Qualities of service can be insufficient in emerging markets

Sub-Saharan Africas
manufacturing enterprises
experience power outages on
an average of 56 days per year.
World Bank, 2009

India loses power to

600M people for up to
two days. NYT and CNN,
7/31/2012

Total data center outages

occurred once a year on average.
An average data center outage for
an e-commerce company costs
more than $1 million. Poneman
Institute, 2011

Sources: http://www.informationweek.com/hardware/data-centers/data-center-outages-generate-big-losses/229500121; World Bank, Underpowered:

The State of the Power Sector in Sub-Saharan Africa, 2009;

31

2012 IBM Corporation

Operations: integration driven by partnerships

Many interconnected players
Merchants, banks, telcos, mobile
payment platforms, acquirers,
credit card companies

Many interconnection systems

ACH, ATM, Swift, EDI, SMS
aggregators, 3rd party financial
interconnection networks

Competing wallets
Connecting with large number of
mobile wallets will be challenging

32

2012 IBM Corporation

Operations: How can IBM help

For 100 years, IBM has advanced payment systems across the world

1962: IBM created the Sabre airline reservation

system for American Airlinesa precursor of
everything from the ATM to e-commerce

"Visa relies on System z for global transactions processing--and confirmed the ability
to handle the 2010 Christmas peak of almost 11,000 transactions a second.".

WebSphere MQ worldwide supported over $1 quadrillion of transactions

CICS software is accessed by virtually every ATM around the world
2012 IBM Corporation

Operations: IBM can help bring assets

to provide business value
Strategic role in mobile money

Neutral provider of capabilities from IBM and

partners, including business consulting,
technology consulting and software

IBM middleware can provide the enterprise

backbone for mobile money enabling
transactional insight and connectivity, and the
ability to connect mobile devices to payment
interactions

IBM is a thought leader in the space, contributing

to standards and driving innovative customer
transformation

IBMs Global Business Services provides

reference architectures for the mobile money
ecosystem

Fund
Holders:
Banks

Payers:
Consumers
Businesses

P2P

B2B

Facilitators

Payees:
Merchants
Businesses
Governments

Operations: from theory to practice

Consumer payment platform

Merchant Point of Sale

Mobile application platform (Worklight)

Point of sale devices, software, integration and

management (IBM Retail Store Solutions/Toshiba)
IBM Payment Systems Services -- addresses
merchant/acquirers/credit card processors

Integrated buying experience

(WebSphere Commerce)
Banking Transformation Toolkit (BTT)

Customer

Mobile Wallet

Merchant

Acquirer

Credit Card

Merchant Consumer Interaction

Transaction/payment processing

Marketing management (Unica)

Analytics and marketing optimization
(Coremetrics, Cognos, SPSS, Tealeaf)
Event-driven interactions (Ilog and
WebSphere Business Events)
Smarter Commerce

Bank

Messaging and Integration - WebSphere MQ & ESB

Transaction processing (CICS & WAS)
Financial Transaction Manager
Banking industry process and data models
WebSphere Decision Management
Smarter Commerce: WebSphere Commerce
Analytics: Cognos
Financial Fraud Detection: SPSS, i2

Outline

36

Overview of retail payments

Defining mobile money
Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

ING Direct France

Leading iPhone banking app in France with a unique user experience

Flexibility: Valued HTML5, but preferred starting native
Mobile adaptation of data integration and authentication layers

Lotte Credit Card

Augmenting offerings with IBM Worklight

The need:

Korean companies are facing a demand for mobile apps from over 7
million smartphone users, up from only 800,000 in 2009, forcing them to
vigorously explore options for value-added services.

The solution:
To capitalize quickly on this rapidly growing trend, Lotte Credit Card
turned to IBM Worklight to develop an advanced application with a rich
and engaging user experience using over 100 screens, location-based
features and scannable mobile coupons. The application incorporates
augmented reality componentsa first in the regionhelping users find
the retail locations of its reward partners on the go.

We chose IBM Worklight

because it was the best
technology for Lotte to
consolidate application
development, enhancement
and maintenance, while
ensuring cost savings and
timely delivery to our
customers.
Kim, Young Sam, IT Planning
Team Leader, Lotte Credit Card

Solution components:

The benefit:

IBM Worklight

Reduced time to market and associated costs

Finance All Solutions (FAS)

Deployment of one of the regions most advanced financial mobile

applications
Enabling better customer and employee user experience across more
devices
WSP14583-USEN-00
38

39

Architecture for monitise IBM solution

deploy to
app store

monitise

Worklight
Studio

IBM
push

provision
app

MESSAGING
SERVER

download

SMS
email

Worklight
Server
B2B/
B2C

MA
TM
-2
JS
ON 65-1
0
/H
TTP 0
S

security/
activation

monitise
ENTERPRISE PLATFORM
(WAS)
WebSphere
Application Server

IBM CICS
Adaptor
IBM MQ

JRULES
DB2

COGNOS
DATA WAREHOUSE

2003 2012 Monitise Group Limited. All Rights Reserved. Confidential.

DataPower

Android

IBM
CICS

Visa provides real-time technology to

achieve breakthrough marketing
effectiveness for merchants.
Visas real-time messaging
technology (RTM) creates a
seamless experience for
merchants who want to increase
engagement with their
consumers through

Personalized
offers
Visa created a new revenue
stream by maximizing the value
of

Real-time
purchase
location
information

Business problem
Merchants operate in a highly competitive environment where the keys to success
are bringing customers in the door and then keeping them loyal to the merchants
brand.
Solution: Visas real-time messaging technology (RTM) allows merchants to
provide more relevant offers to enrolled consumers by combining historical
purchasing behavior with real-time purchase location information. Offers are
delivered to enrolled consumers through their mobile devices and personalized to
them.

Outline

41

Overview of retail payments

Defining mobile money
Mobile money market
Mobile money opportunities
Scenarios of mobile money
applications
Impacts to existing payment
systems
Operational issues for
implementing mobile money
Case studies
Summary
2012 IBM Corporation

Summary
Mobile money encompasses existing and new forms of
payment processing
Todays opportunity is modest, but growth in selected
applications is expected to be explosive
Many scenarios for mobile money alter existing payment
processes while others create new patterns and
opportunities for commerce
Deploying mobile money solutions requires a mix of
business and technical depth

42

2012 IBM Corporation

Copyright and Trademarks

IBM Corporation 2012. All Rights Reserved.
IBM, the IBM logo, ibm.com are trademarks or registered trademarks of
International Business Machines Corp., registered in many jurisdictions worldwide.
Other logos, product and service names might be trademarks of IBM or other
companies. A current list of IBM trademarks is available on the Web at Copyright
and trademark information at www.ibm.com/legal/copytrade.shtml.