OTT players and telcos have been involved in the payment market for several years already, having designed their own payment systems. Most OTT players have an internal payment system allowing users to pay for virtual or physical goods directly on their platform. Telcos have developed carrier billing services that allow users to pay through their phone bill.
Discover Digital Money plenary session speakers!
New in-store payment systems progressively introduced
The in-store payment market is still led by ‘plastic’ payment cards and cash payments, but new payment systems are progressively being introduced at the point-of-sale: NFC mobile payment, barcode or QR code mobile payment or payment with a mobile bank account, the latter in developing countries.
NFC mobile payment: OTT vs Telcos
As for NFC mobile payment services, OTT players and telcos are currently involved in a fierce battle. On the one hand, the OTT players are providing services on their own, or with a limited number of partners, avoiding banks and telcos (and thus obviating intermediate costs). Telcos, on the other hand, are setting up partnerships with banks and other telcos to provide a unique telco mobile payment application.
Who is really likely to capture most of the value?
The business model of NFC-payment application is mainly advantageous to banks and payment systems, and is neither a gold mine for telcos, nor OTT players. In fact, these players may generate more revenue from services associated with the payment process than with payment itself; services such as loyalty programmes, couponing systems or transportation.Integrating these services on a ‘mobile wallet’ may generate revenue from, for instance, retailers or consumer brands. However, the need for partnerships, together with the need to design user-friendly applications integrating multi-brand couponing and loyalty programmes, presents a challenge.
DigiWorld Summit - Digital money Plenary Session (Nov.21 - 2:30pm)
More information about sessions, speakers, sponsors, partners and associate events on the DigiWorld Summit dedicated website:
Consultant at IDATE
Opportunities for telcos:
NFC & carrier billing
OTT players and telcos have been involved in the payment market for several years already, having designed their own payment systems.
On the one hand, most OTT players have an internal payment system allowing users to pay for virtual or physical goods directly on their platform. Telcos, on the other hand, have developed carrier-billing services that allow users to pay through their phone bill. This market segment is still growing and generates a significant volume of transactions. IDATE estimates the worldwide carrier- billing market to be 15 billion EUR in 2012 and expects it to reach 22 billion EUR in 2017. The internal payment systems of the large OTT players – Google, Apple and Facebook – generated about 10.5 billion EUR of virtual goods sales worldwide in 2012 (for these three players). Amazon generated 45 billion EUR of worldwide virtual and physical goods sales in 2012. These figures include payment card transactions, carrier-billing transactions and their payment system transactions. In addition, the PayPal payment system generated 73 billion EUR of transactions worldwide in 2012.
Overall e-commerce market estimated by IDATE at 789 billion EUR in 2012
Such figures, however, have to be taken in comparison with the overall e-commerce market, estimated by IDATE at 789 billion EUR in 2012. Furthermore, carrier billing remains a limited payment system as users can only pay small amounts of money and mainly for virtual goods. Hence, some telcos are trying to extend their payment activity to remote online payment systems, of the likes of PayPal; one such is Deutsche Telekom with its ClickandBuy system. In addition, telcos and the large OTT players are seeking to have in-store payment, in addition to online payment.
Positioning of telcos on the main payment services
The in-store payment market is still led by ‘plastic’ payment cards and cash payments, but some new payment systems are progressively being introduced at the point-of sale: NFC mobile payment, barcode or QR code mobile payment or payment with a mobile bank account, the latter in developing countries. Non-NFC payment systems are generally used by specific retailers, such as Starbucks, for internal use, except for PayPal introducing its payment system in-store through various non-NFC techniques. The NFC mobile payment system is still in its early stages; the number of users was estimated by IDATE to be 5 million worldwide in 2012, generating 1 billion EUR of transactions and likely to reach 141 million users in 2017 with 51 billion EUR of transactions.
5 million NFC mobile payment system users worldwide generating 1 billion EUR of transactions – in 2017 these figures will represent respectively 141 million user with 51 billion EUR of transactions
These figures should be compared with the number of payment cardholders – more than
4 billion. NFC-enabled phones are increasingly available among the smartphones currently for sale, allowing 248 million users to be equipped with an NFC phone in 2013, worldwide, according to IDATE research. As for NFC mobile payment services, OTT players and telcos are currently involved in a fierce battle. On the one hand, the OTT players are providing services on their own, or with a limited number of partners, avoiding banks and telcos (and thus obviating intermediate costs. Telcos, on the other hand, are setting up partnerships with banks and other telcos to provide a unique telco mobile payment application. The business model of NFC-payment application is mainly advantageous to banks and payment systems (as with Visa or MasterCard); it is not a gold mine for telcos, with their fees from SIM rental, or OTT players. In fact, telcos and OTT players may generate more revenue from services associated with the payment process than with payment itself.
Loyalty programmes – couponing sytems – transportation: such services on a 'mobile wallet' may generate extra revenues for telcos or OTT players
The services related to payment are usually loyalty programmes, couponing systems or transportation. The integration by telcos or OTT players of such services on a ‘mobile wallet’ may generate revenue from, for instance, retailers or consumer brands. Some telcos even launched these related services before launching their payment solution. This was the case with the UK telco O2; it launched a multi-brand loyalty programme that now already attracts five million users. Google provides its NFC mobile payment application Google Wallet along with the coupon application Google Offers or the pushed suggestion application Google Shopper. The adoption of NFC technology on mobile devices by consumers will thus probably be facilitated more by the development of these related applications than by the payment application alone. However, related applications require partnerships between telcos or OTT players and retailers, and the design of user-friendly applications that may integrate multi-brand couponing system or loyalty programmes.
Consultant at IDATE
Payment and transportation: vectors of development for NFC?
Recently, IDATE has published its report on "NFC & mobile payment" which presents the current situation of the mobile payment and mobile NFC technology markets. It analyzes the prospects for the market from a technical and economic point of view, by looking at challenges facing the economic models in key areas, including: automation, commerce, advertising, public services and transport.
"One of the major problems for NFC on mobile devices is how to define viable business models for a particular type of application in which the different stakeholders can find some level of financial balance", comments Julien Gaudemer, project manager for the NFC study. He insists:"In numerous initiatives, obstacles often lie in the difficulties local stakeholders encounter in defining a stable cooperation framework for offering services to users."
Complex business models
A different business model often exists based on application type (essentially payment and transport) and geographical region. Relations between stakeholders can vary from region to region. The types of stakeholders may also vary (different operators from one country to the next, for instance).
- For transport applications, the business model seems relatively balanced between the costs incurred by NFC on mobile devices and the direct revenues that carriers can generate from NFC. These revenues are first used to cover the costs of NFC for mobile usage. Since the different transport networks do not all have standardized NFC infrastructures, each carrier must, in principle, develop its own NFC mobile transport application.
- For payment applications, the business model may be more complex since, unlike the transport ecosystem which is relatively closed (a single entity manages the various transport activities), payment applications require many different players who must cooperate in order to offer an NFC payment service. While most already maintain relations to offer traditional card payment services, NFC incurs new costs, particularly for banks (application, TSM, operators where necessary). These costs may then be passed on to customers (particularly private users), although this may be dissuasive. However, other strategies can be adopted to cover the technology cost, such as advertising on mobile
- For other applications, the business model is simple, in which service providers invest in a mobile application and tags, and then recover the revenues, usually indirectly.
An overcrowded ecosystem
Compared with traditional payment methods and transport ticketing (credit/debit cards or NFC travel cards), the business model for NFC applications is different. More stakeholders are present in the ecosystem. This is explained by the fact that mobile usage requires the presence of certain players: manufacturers of mobile devices, mobile operators and SIM card manufacturers, primarily. Alongside these are other stakeholders, such as TSMs, most of which were previously smart card manufacturers who converted the value of a physical product into an intangible service. This ecosystem mainly differs from non-NFC mobile payment in that there are fewer technical issues and the conflict between stakeholders is not as fierce. Some players, such as chip or mobile device manufacturers, do not even enter the arena.
The NFC mobile ecosystem therefore comprises a multitude of stakeholders, each jostling to get ahead in a particular application. This is mainly the case with payment applications which can generate substantial revenues and consequently attract many businesses. Some stakeholders in this ecosystem have invested fully in NFC technology and in rolling out initiatives, while others seem more cautious, particularly Web giants such as Apple, Facebook and Amazon.
Competing technical architectures
The fact that the ecosystem comprises a multitude of stakeholders, and since some have
some clearly chosen a technical architecture (SE type) that is most financially viable for
them, conflicts arise between them. These technical architectures only affect so-called
“secure” applications such as payment and transport.
Operators fully support SEs in the SIM card since it enables them to generate revenues
from renting secure space on the SIM card. Service providers are more opposed to this
architecture since they are seeking to minimize costs and have as few intermediaries as
possible. This is the case for Google, which bases its Google Wallet on an SE built into the
Manufacturers of mobile devices are caught in the middle:
- on the one hand, they want the built-in SE they have inserted in their devices to be
promoted via applications (and initiatives);
- on the other hand, they must satisfy the demands of operators who prefer the SIM card
and are mostly responsible for selling the mobile devices of manufacturers.
The same is true for manufacturers of NFC chips and SIM cards who are looking to
please all of their potential customers, and who must therefore support initiatives based on
the SIM-card, as well as on other types of SE to avoid focusing on a single market segment.
Consultant at IDATE
> Visit our website for more information