1. technology and computing
2. consumer electronics
3. telephones
4. mobile phones

Compete or collaborate? How to succeed in digital commerce
Findings from the GSMA Mobile Network Operator Survey
DIGITAL COMMERCE BREAKFAST SERIES
Barcelona, 24 February 2014
STRICTLY CONFIDENTIAL / ALL RIGHTS RESERVED
This presentation may not be disclosed without the prior written consent of Innovalue
Agenda
I.
Results of MNO NFC mobile commerce survey
II. Wider industry influences and trends
III. Conclusion and outlook
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
The GSMA received 13 completed surveys; eight are from Europe, two from
North America and three from Asia
– Rationale and background of the survey –
Rationale
 The GSMA aims to create a ‘Best Practice Guide’ in 2014
 As a starting point the GSMA sent out a survey to Mobile Network Operators (MNOs) and MNO initiatives around the globe
 The guide is designed to be an over-arching reference document, portraying the rationale behind key strategic decisions whilst
providing a summary view of the enabling elements that are necessary for successful implementation
Framework
1)
13
8
2
3
4
4
6
QUESTIONNAIRES
EUROPE
NORTH AMERICA
ASIA
X-MNO
ASSOCIATIONS
SINGLE-MNO
Key topics of survey (extract)
COLLABORATION
MODELS
WALLET ARCHITECTURE
AND STRATEGY
1) One MNO double count
COMMERCIAL
MODELS
KEY ACTORS
USE CASES /
SERVICES
FUNDAMENTAL
TSM STRATEGY
GSMA GUIDELINES
SUPPORTED
STANDARDS
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Different collaboration models: equity joint ventures (JV), associations
responsible for standards, but also many single MNO initiatives
– Key findings of the survey (1/5) –
COLLABORATION MODELS
WHAT WE OBSERVED
WHAT IT MEANS
Equity JVs
4
 No leading MNO collaboration model
in the market
Associations
4
 Especially Europe very fragmented
6
Single MNOs
 Trend to collaborate (via JV /
association)
INNOVALUE BELIEF
Collaborative models will the most
successful, therefore degree of
current collaboration is not sufficient
(esp. in fragmented European
landscape)
n=141)
COMMERCIAL MODELS
WHAT WE OBSERVED
WHAT IT MEANS
Fees for…
8
SIM Rental
7
Activation / Integration
Free2)
 Transaction / success based fees only
in some cases
4
Transaction / Success
 SIM rental and activation / integration
fees is the dominant commercial
model
1
INNOVALUE BELIEF
SIM rental model under pressure
(competition, regulatory changes); shift
to success / transaction based models
expected; data & marketing as a
potential additional revenue stream
n=13
Source: MNO BP survey 2014
1) One MNO double count
2) Plan to switch to SIM rental model
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Key actors of the initiatives are MNOs, accompanied by banks, merchants
and public transport; other players to be integrated case by case
– Key findings of the survey (2/5) –
KEY ACTORS
WHAT WE OBSERVED
Banks
MNO
Transport
WHAT IT MEANS
TSMs
Merchant
 Partners of MNOs are banks, TSMs,
merchants and transport companies
 Degree of integration / collaboration
depends on type of collaboration
model
Other players are…
handset manufacturer, wallet provider,
SE provider, other payment players
INNOVALUE BELIEF
Since Service Providers (SP) such as
banks, merchants and transportation
companies are important key players,
MNOs should collaborate, and at least
follow standardized specifications to
ease integration of SPs.
USE CASES /
SERVICES
WHAT WE OBSERVED
WHAT IT MEANS
10
Payment
9
Loyalty
Transport
Others
 Payment is the base service
7
Couponing
 Payment will be accompanied by
transportation or couponing/loyalty
4
5
Source: MNO BP survey 2014
1) Others: Access (3), P2P (1), Local Search (1)
 Generally, MNOs start with one or two
use cases
INNOVALUE BELIEF
Payment is a mandatory service to drive
usage and a second service is
necessary to drive user uptake; also a
combination with non-NFC services can
help to accelerate user uptake
n=10
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Wallet and TSM architecture have been in the focus of the discussions over
the last years
– Key findings of the survey (3/5) –
WALLET ARCHITECTURE
AND STRATEGY
WHAT WE OBSERVED
WHAT IT MEANS
Is the wallet based on open or proprietary
Wallet model?
Proprietary
4
Open
4
 Currently no clear trend, but open
wallet architecture is getting more
important
INNOVALUE BELIEF
Open wallets with standardized
architecture to simplify and standardize
integration of service providers
necessary; user interface and
experience is fundamental
n=8
FUNDAMENTAL
TSM STRATEGY
WHAT WE OBSERVED
Generally trend to shared TSM /
TSM hub approach
Source: MNO BP survey 2014
WHAT IT MEANS
 TSM or TSM hub will allow scale
effects for MNOs and easier
integration / less complex integration
for Service Providers
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INNOVALUE BELIEF
Need for cross MNO and cross country
shared TSM / TSM hubs in order to
simplify integration for multinational
Service Providers
© Innovalue 2014 I STRICTLY CONFIDENTIAL
MNOs have understood the importance of open standards to increase
interconnectivity of the ecosystem; but there is still a long way to go
– Key findings of the survey (4/5) –
GSMA GUIDELINES
WHAT WE OBSERVED
WHAT IT MEANS
Compliant with guideline regarding…
6
NFC MNO-SP interfaces
NFC Handset APIs
NFC UICC Requirements
NFC SP Applet
8
8
4
 Most initiatives have adopted GSMA
guidelines proving the relevance of
GSMA to develop and define industry
standards
INNOVALUE BELIEF
The use of open standards for technical
delivery can engender consistency
helping extend the reach of payment
cards, loyalty programmes, coupons
and tickets, and therefore generate
scale
n=8
SUPPORTED STANDARDS
WHAT WE OBSERVED
WHAT IT MEANS
INNOVALUE BELIEF
Compliant with…
Global Platform (Card)
Global Platf. (Messaging)
TSM Mode (SM)
TSM Mode (DM)
TSM Mode (AM)
7
 Initiatives show all a high openness to
industry wide standards
4
4
6
Alignment on technical standards and
adoption of an open architectural
solution will allow easier /standardised
integration with SPs.
2
n=8
Source: MNO BP survey 2014
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Different findings per region – Europe more fragmented whereas in Asia we
find more Single MNO initiatives and in North America collaborative models
– Key findings of the survey (5/5): Regional differences –
NORTH AMERICA
EUROPE
ASIA
Market characteristics:
Market characteristics:
Market characteristics:
 A few big MNOs (low fragmentation)
 Fragmented MNO landscape
 Some very large MNOs
 Strong mobile payment and
commerce competition from other
industries
 Many saturated, mature markets with
established payment and banking
infrastructure
 Fast GDP growth and increasing
share of middle class
 Start-ups gaining traction
Specific characteristics / findings
Specific characteristics / findings
 Fragmented landscape: Single MNO
models as well as collaborative
models
 xMNO initiatives with very strong
shareholder backing
 Payment as enabler service for high
margin commerce service (more
holistic)
Source: MNO BP survey 2014
 Mainly SIM rental, but also other
commercial models
 1-2 use cases; payment as base
service
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 To some extent under-banked
societies with high potential for
mobile payments
Specific characteristics / findings
 Single MNO initiatives are dominant
 SIM rental is dominating
 Payment and transport are key use
cases
© Innovalue 2014 I STRICTLY CONFIDENTIAL
Agenda
I.
Results of MNO NFC mobile commerce survey
II. Wider industry influences and trends
III. Conclusion and outlook
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Different trends are influencing the mobile payment and commerce
business
– Payment and commerce trends –
1
6
Merchant
internationalization
New market
entrants1)
2
3
5
Convergence of
channels
Online
4
Value added services &
new business models
Secure element
diversification
Embedded
SE
Cloud
Offline / POS
2.0
Tokenization
HCE
Mobile
Source: Innovalue
1) Non-MNOs
Growing
wallet market
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Companies from different industries are entering the mobile payment
space and have different strength and weaknesses
– Trend 1: New market entrants1) –
Innovative payment player
Other companies
Mobile Payment
and Commerce
Traditional payment player
Merchants
Key learnings
Many other players are
competing
Source: Innovalue
1) Non-MNOs
The different players have different advantages (e.g. access to terminals, brand, customer base);
partnerships are recommended; nevertheless developing strong USPs for MNOs is key
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Lots of the new markets entrants define Mobile Wallet as a key service of
their portfolio and fight heavily for market shares
– Trend 2: Growing Wallet Market –
Wallets
Alternative products
1. (x)-MNOs
2. Schemes
tokenization
3. OEM1)/OS2)
bank-based
app
4. Third party
(own brand)
5. Established
online players
3)
3)
bank-based
app
6. Merchants
Key learnings
There is high competition within the wallet
space (competition and cooperation)
Source: Innovalue
1) Original Equipment Manufacturer
2) Operating systems
3) Expansion from Online to Mobile Wallet
Wallets are competing with alternative products offering similar services
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Currently, within the POS, UICC based mobile wallets are dominating;
internet companies and start-ups are working on alternatives
– Trend 3: Secure element diversification –
POS
Operating
system
Remote/POS
Software based
Manufacturer
Tokenization
+
All
KitKat
2.0
Secure
Element
UICC
Wallets
Cloud
HCE1)
MNO
Wallets
Embedded
SE
Tokenization
2014/
2015?
Samsung
Transaction
technology
BLE2)
BLE
BLE
BLE
BLE
Key learnings
The secure element is an asset,
but alternatives are already gaining traction
Source: Innovalue
1) HCE: Host card emulation
2) BLE: Bluetooth low energy
MNOs need to be more agnostic to ensure large reach
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Non-MNOs who enter the mobile payment and commerce space are
pioneering business models with stronger focus on success-based fees
– Trend 4: New business models –
Product and features
Strategic rationale
Revenue streams
 Mobile wallet for POS
 Online payments
 Commerce features
(coupons/ offers, loyalty)
 Additional channel for
advertising and data collection
 Connection with Google Offers
 Advertising revenues
 Commercialisation of profile
information
 Payment not as core revenue
stream
 Very broad and diversified
product range for mobile
payments
 Extension of the product
portfolio
 Development of true
omnichannel product suite
 Usage of existing customer
relationships
 Transaction-based fees for
payments
 Starbucks app that enables
customers to pay using a
surrogate of a QR code
 Additional loyalty points
 Customer retention
 Extension of the existing loyalty
card
 No revenue from mobile
payment
 Potential increase of revenue
through customer retention
Key learnings
Payment is usually the base service and will be accompanied
by valued added services
Source: Innovalue
Shift from pure SIM rental models to success based fees
and marketing revenues might be necessary
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Consumers demand a seamless experience regardless of channel;
Merchants search for omni-channel capable service providers
– Trend 5: Convergence - representation of the product range –
Online
 PayPal Wallet
Mobile
Offline / POS
 PayPal Wallet/App
(mobile optimized)
 QR Shopping
 Mobile Acceptance
 QR Acceptance
 PayPal Beacon
Consumer
Merchant
 Payment Acceptance:
− Standard
− Advanced
− Pro
 PayPal Beacon
Key learnings
Seamless flows when switching channels is one of the future
key requirements
Multi-channel offering required to offer merchants as well as
consumers a real value add
Source: Innovalue
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Merchants are internationalizing their offering to adhere to globalised
consumer base; MNOs should be aware of this fact
– Trend 6: Merchant internationalisation –
Consumers demanding globally available goods & services
Media
Retail
Gambling
Gaming
Key learnings
International service providers demand global solutions (e.g.
Coca Cola, MasterCard,…)
Source: Innovalue
Not only xMNO but also cross country solutions
are important
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Agenda
I.
Results of MNO NFC mobile commerce survey
II. Wider industry influences and trends
III. Conclusion and outlook
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Conclusion & Outlook
1. The Mobile Payments and Commerce segment is still in development, is highly fragmented and
highly competitive - there’s no winner yet
2. Mobile Wallets will be, if they are well designed, a very important consumer-facing instrument
3. For the success of Mobile Wallets the development of solutions that add real value is key; it is
important to start with one or two use cases that are relevant (value, acceptance, frequent
usage)
4. SIM based secure elements are an important asset, but they will be complemented by additional
secure technologies such as HCE, hardware based secure elements or even alternative
solutions
5. Current commercial models are focused on SIM rental revenues; SIM rental models will be
complemented and even replaced in the future by transaction and success based models
6. Since the integration of Service Providers into Mobile Wallets will be a differentiator, MNOs
should support the integration of a SP with standardized integration processes and standardized
technical specifications.
To be successful in the Mobile Payments and Commerce segment MNOs should collaborate
(primarily) with each other, follow standards where possible and be more agnostic especially with
regard to commercial model and technology
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© Innovalue 2014 I STRICTLY CONFIDENTIAL
Contact:
Mirko Krauel
Principal
Mobile
+49 172 51 93 115
E-Mail
[email protected]
Office Hamburg, Heimhuder Strasse 69
Office London, 3 More London Riverside
Office Frankfurt, Siesmayerstrasse 21
Thomas Korn
Senior Associate
Mobile
+49 172 51 93 134
E-Mail
[email protected]
Internet
www.innovalue.com
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