28-08-2012, 10:32 AM
Mobile Payments Business Models
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Mobile payment is a part of the mobile transactions and is catching the imagination of a lot of people. This is clear evident from the number of comments I got on my last post “Mobile Payments – Will the Consumers Adopt it”. In the last post, I had discussed the consumer issues. Now I am going to talk about the emerging business models in the mobile payment space and the pros and cons of each of the model.
Carrier Dominance Model – In this model, the carrier is responsible for all the roles across the value chain, i.e. carrier is the acquirer, payment network as well as the issuer. The carrier provides the mobile payment application to the customer. The customer holds a prepaid or a postpaid account with the carrier. When the customer pays through his mobile, the bill is charged to his prepaid or postpaid account. The entire network and interchange is managed by the carriers themselves. The PoS is also provided to the merchants by the carrier. The payment to the merchant can be made using NFC or Peer-to-Peer SMS.
DoCoMo used this model by creating an e-wallet using Sony’s FeliCa technology for its NFC based proximity payments and GCash is another example of operator centric Peer-to-Peer SMS based payments. Mobipay in Spain is based on carrier dominance model as well.
However, it is unlikely for this model will succeed in the long run as the carriers need to behave like a bank here and carriers are not banks!!! The merchant and customer trust is missing in this case or to put it in other words, the level of trust for a carrier is not at the same level as that for a bank. Moreover, the cost of recruiting a merchant is too high and there are no synergies expected from the current carrier operations on this count unlike banks which already have business relationships with the merchants. The carrier carries the maximum risk and reward in this model. The risk appetite of carriers may vary across regions and geographies. It would be a significant change to operator business as operators would need to focus on new areas which are very different from their traditional core.
Collaboration Model
This model is about collaboration between the carriers and the banks who can distribute the roles of the value chain amongst themselves. The carriers typically are responsible for providing and provisioning m-wallet on the consumer’s hand phone apart from the providing the POS equipment to the merchants. The roles of acquirer, payment network and issuer remain with the financial institutions; one or more financial institutions may collaborate together in assuming the roles of acquirer, payment network and issuer.
Collaboration Model is seen as most feasible because it allows the stakeholders to focus on their own core competencies, opens the door for new revenue from incremental services, drives customer retention and loyalty, and responds to fundamental demand from customers. All in all, this seems to be a good model. In a survey conducted by Smart Cards Alliance, 86% respondents supported this model as having the greatest potential for long term success. However, there are complicated relationships and hence complexity in negotiating deals amongst players. SK Telecom Moneta is an example of real-world rollout of collaboration model.
What’s in it for the ecosystem players?
The opportunity is big for all the players and what is needed is collaboration between them so that the opportunity can be profitably exploited. According to Mckinsey in its latest report titled “Making Mobile Payments Pay”, the small transactions (< Euro 20) value in Europe is $ 200 billion per year and for mid size (Euro 20-40) transactions, the value is $2.5 trillion per year. On top of this, the annual international remittance is to the tune of $250 billion. Even 0.5% transaction fee on the above gives a huge potential for the mobile payments.
The need of the hour is to work out a ”Just & Fair” collaboration amongst the different players. This opportunity would not only help reduce the risk of marginalization of carriers but would also help the carriers increase their EBIDTA (also read case study on how can carriers earn 40% EBIDTA margins with 2 cents per min of voice). The players need to understand that the consumers value simplicity and security which can only be provided if all the players collaborate to arrive at the common platform and build enough trust in the minds of the consumers towards this service.