Arthur D. Little Reports on M-Payments in Developed and Emerging Markets

April 24, 2009

In the last five years, markets with mobile payment offers have matured with a variety of players entering the industry value chain and new services being launched. Initially, there was a race to enter the market and a strong rivalry between different technological propositions that would facilitate mobile transaction channels. Today, we observe that, in many national markets, only one or two dominant mobile payment platforms (e.g. the paybox platform in Austria) have prevailed, and key issues now being addressed include cross border interoperability and standardization. While the prevailing financial crisis poses challenges to value chain players, we still believe that m-payment services will significantly develop over the coming years with the rise of mobile internet, the continuous improvement of mobile handsets and the younger generation's preference for mobile services.

Arthur D. Little's new global m-payment report - M-Payments surging ahead: distinct opportunities in developed and emerging markets - provides insights into the current stages of the m-payment market development in different countries and regions, and draws conclusions for relevant value chain players.

Arthur D. Little expects m-payments to grow globally at 68% p.a. and to reach a transaction volume of almost USD 250 billion by 2012. M-payments will develop differently in emerging and developed markets resulting in emerging countries growing faster, representing 65% of the total transaction volume by 2012. In developed markets, m-payment services will not substitute existing payment systems, as massive adoption will be limited to niche segments. "Despite the current hype, we do not expect to see a massive Near-Field-Communication (NFC) adoption in a majority of developed countries until 2011 at the earliest", says Karim Taga, co-author of the report and Director at Arthur D. Little's Telecoms, Information, Media & Electronics (TIME) Practice. Leveraging existing customer relationships will be critical to encourage market adoption, while cross-border partnerships will become more important. In emerging markets, m-payment services will become the first widespread, cashless transaction system. End user's benefits will mainly be created through low-value, but high-frequency transaction services, while remittances will be the strong growth driver for transaction volume and cross-border cooperation.

The report provides these recommendations for the relevant value chain players:

• Mobile network operators should focus on low-value, high-frequency transaction services in emerging markets and especially on remittances. Playing an active role in shaping the regulatory environment is crucial to preserve the long-term market development potential, and establishing inter-country operability will ensure the success of remittance services. In developed markets, mobile network operators need especially to focus on reaching the required critical mass in terms of retailing partners, as we expect a shift from predominant low-value services to Near-Field-Communication (NFC)-enabled high-value services in the medium-term. Partnerships with independent payment service providers are one way to speed up the expansion of the value chain network.
• For financial institutions, m-banking and related m-payment services can be a differentiating factor and a chance to tap into the trillion US$ market of micro cash payments.
• For merchants, it is best to evaluate the m-payment channel as a means to increase customer convenience, mobility and accessibility of their services and goods.
• We recommend independent payment service providers to expand their partnerships in order to become better integrated in the market, and hence to increase their bargaining power concerning value chain margin distributions.
• Suppliers (e.g. handset and point-of-sale terminal vendors) should participate in Near-Field-Communication (NFC) trials in order to improve their readiness for market growth.

Worldwide, 3.5 billion people lack access to financial services. By 2012, 1.7 billion of these unbanked individuals are expected to have access to mobile phones.

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