Mobile Payments Whitepaper Q3 2009

RK Consulting

Mobile Payments
A study on the mobile payments market for 2009 and beyond

Author: Rei Kasai | reikasai@gmail.com | www.linkedin.com/in/reikasai
Q3 2009

[MOBILE PAYMENTS] Q3 2009

Contents
Introduction .................................................................................................................................................. 4
Mobile Payment Business Model.................................................................................................................. 5
What is mobile payment? ......................................................................................................................... 5
What vendors participate in the mobile payment ecosystem? ................................................................ 5
Mobile payment is similar to credit/debit payment ................................................................................. 6
Mobile payment that uses carrier billing has a larger addressable market ............................................. 7
Mobile payment that use bank billing has better economics................................................................... 8
Mobile Payment Ready for Rapid Growth .................................................................................................. 10
Market enablers ...................................................................................................................................... 10
Market drivers ........................................................................................................................................ 12
.
The Remote, P2P, and NFC market segments of Mobile Payment ............................................................ 14
Remote Mobile Payments ...................................................................................................................... 14
.
• Premium Rate SMS (PSMS) ......................................................................................................... 15
• Carrier Billing ............................................................................................................................... 15
• Mobile Web/Applications ........................................................................................................... 16
Peer to Peer (P2P) Mobile Payments ...................................................................................................... 17
Contactless Mobile Payments (NFC) ....................................................................................................... 19
Market Sizing and Forecasts ....................................................................................................................... 20
Forecast methodology ............................................................................................................................ 21
Forecast assumptions ............................................................................................................................. 21
Selected Vendors in Mobile Payment Segments ........................................................................................ 23
Remote mobile payment market map .................................................................................................... 23
• mBlox company profile ................................................................................................................... 23
• Zong company profile ..................................................................................................................... 24
• boku company profile ..................................................................................................................... 24
• Aepona company profile ................................................................................................................. 25
• ClairMail company profile ............................................................................................................... 25
• Billing Revolution company profile ................................................................................................. 26
P2P mobile payment market map .......................................................................................................... 27
• obopay company profile ................................................................................................................. 27

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | Introduction 2


• Xoom company profile .................................................................................................................... 28
NFC mobile payment market map .......................................................................................................... 29
• Vivotech company profile ............................................................................................................... 29
• BlingNation company profile .......................................................................................................... 30
Conclusion ................................................................................................................................................... 31
Works Cited ................................................................................................................................................. 32
About the Author ........................................................................................................................................ 33



Introduction
In most parts of the world, the mobile phone has become a part of daily life. Surveys have shown that
consumers are more likely to leave their wallet than their mobile phone at home, and as such mobile
payment has emerged as a rapidly growing and evolving market. Mobile payment is an alternative
method of paying for goods and services with a mobile phone. Many examples across the globe are in
use today ranging from debiting train fares in Asia, purchasing virtual items in Internet games, splitting a
restaurant bill with friends, to immigrant workers sending remittances to family members in another
country. The adoption of mobile payments is just starting and has significant potential, as it is being
pulled through the rapid double‐digit expansion of mobile services across the globe. Wireless
Intelligence estimates there are over 4 billion mobile subscribers in the world today, growing at over
20% CAGR between 2003 and 2008. This equates to 1 million new subscribers daily and that over 60% of
the world population is a mobile user. This large and very rapidly growing potential customer base of
mobile payment users is relevant since less than 25% (1.6 billion) of the world population have bank
accounts and 15% (1 billion) have credit cards.

Figure Mobile services subscriber growth
This report starts with a review of the mobile payments value chain, stakeholders, and business models.
It then explores the market drivers, sizing, and forecast for the opportunity at hand. From there, an
analysis of market’s drivers, segments, sizing, and forecast. Lastly, a market map of each segment and
selected profiles of established ventures are provided.



Mobile Payment Business Model
What is mobile payment?
Mobile payment is a segment of the larger payments market, which is broadly categorized as the
monetary transaction between two parties in exchange for the purchase of goods or services.

Payments

Paper Electronic

Cash Check Credit/Debit Mobile

Figure Payments market

What vendors participate in the mobile payment ecosystem?
Executing a financial transaction between two parties using a mobile phone requires many parties and
as such the ecosystem is very broad with representatives from mobile device manufacturers, mobile
network operators (aka carriers), payment networks, merchants, financial institutions, and payment
applications.

Device Manufacturers
•Nokia, RIM, Samsung,
Financial Institutions HTC, Apple Mobile Network
•Provide mobile devices Operators
•Chase, Barclays, HSBC
that support payment
•Provide financial applications •Vodafone, AT&T,
services to consumers China Mobile
•Drivers‐ Increase
and merchants •Provide mobile data
mobile device sales
•Drivers‐ Increase services to consumer
customer deposits •Drivers‐ Maintain
ARPU, decrease
subscriber churn

Payment Applications Payment Networks
•PayPal, Obopay, Zong •Visa, MC
•Provide payment •Provide a network to
service to consumers transfer funds from
and merchants Merchants consumer to
•Drivers‐ Increase •Amazon, Wal‐Mart, merchant
transactions or Apple, Facebook •Drivers‐ Increase
transaction value on •Provide goods and transactions and
network services to consumer membership of
•Drivers‐ Decrease network
transaction costs

Source: RK Consulting

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | Mobile Payment 5
Business Model


Figure Mobile payment ecosystem

Mobile payment is similar to credit/debit payment
The value chain for mobile payment is best understood by comparing it with the established credit/debit
payment value‐chain. Visa and MasterCard are the two best known payment networks that underpin
this model.

Consumer Merchant Acquirer Payment Issuer
•Purchases •Generates bill for (Merchant's Network (Consumer's
goods/services from transaction and Bank) •Intermediary Bank)
Merchant sends to Acquirer between Acquirer
•Provides banking •Provides Credit/
•Provides payment •Owns/leases services to Merchant and Issuer that Debit account to
account information software/hardware handles Consumer
•Contacts Payment
to Merchant to authenticate and communications
Network to check on •Authorizes or
•Owns Credit/ Debit process payment between banks
funds for bill declines payment of
account account information
bill from Merchant
•Sends payment to
Acquirer if funds
available

Consumer Merchant Acquirer Payment Network Issuer
•Makes $100 Purchase •Retains $97.70 •Retains $0.30 •Retains $0.25 •Retains $1.75

Source: RK Consulting, Portio Research Ltd., Jeffries & Co.

Figure Debit/Credit payment valuechain
The credit/debit payment value‐chain consists of consumers, merchants, acquirers, payment networks,
and issuers. Acquirers provide merchants the ability to accept and process payments with software
applications, smart‐card and/or magnetic stripe readers. Issuers provide payment devices and/or virtual
accounts to consumers to pay merchants, as well as transfer funds from the consumer to the merchant.
The payment network provider acts as an intermediary between the issuer and acquirer banks,
transferring information and funds between the banks. The payment network primary source of
revenue is fees generated by payment transactions executed through its network, as such the payment
network promotes its brand heavily to increase participating merchants and card‐members.

Mobile payment value‐chain has similar stakeholders to the credit/debit payment value‐chain, but their
responsibilities are slightly different. Mobile payment can be categorized by two business‐models, one

Business Model


that is based on a partnership with a mobile network operator and the other with the financial services
industry.

Mobile payment that uses carrier billing has a larger addressable market
The significant difference with this model is that the financial services industry is not part of the
payment value chain. The acquirer and the payment network are one entity that the merchant works
with to process a payment from a consumer. The mobile payment provider bills the consumer’s mobile
services account, pays the merchant, and then the carrier pays the mobile payment provider. The
advantage to this model is that it leverages the billing relationship between the consumer and the
carrier. Since a bank account is not required by the consumer, the potential addressable market is quite
large. Currently, there are over 4 billion people world‐wide that own mobile phones, but only 1.6 billion
people world‐wide own bank accounts, which represents approximately 60% and 25% of the world
population respectively. If this model can get to scale, it has the potential of providing a cost
competitive electronic payment service since there are fewer stakeholders in the value chain. In the
time being, the revenue model is currently in favor for the carrier, with transaction revenue often up to
50% going to the carrier, 20% to the payment network, and 30% to the merchant. Due to the economics,
this model is most suited for high‐margin electronic goods like digital media and micro‐transactions –
transactions less than $5. In most markets, carriers face regulatory hurdles that prevent them from
acting like a financial services organization to allow purchases of physical goods. Looking ahead, if these
regulatory restrictions are lifted, a cost competitive payment service should emerge to support both
electronic and physical goods purchases. If carriers wish to pursue this strategy, there will be challenges
with this model from a compliance and risk management perspective. The carrier and/or mobile
payment provider will need to acquire licenses to be compliant with banking regulation, as well as the
know‐how to manage risk with large‐value intra‐country and cross‐border transactions, both of which
are non‐issues for most financial services institutions.

Advantages: Disadvantages:
• Does not require a bank account • High transaction fees (20‐70%)
• Very large potential customer base • Limited support for cross‐border/ foreign
currency transactions
Best used for: Vendors:
• Digital media • mBlox
• Virtual goods • Zong
• Transactions < $5 • Boku
• M‐Pesa

Business Model


Consumer Merchant Acquirer/Payment Issuer (Carrier)
•Purchases goods/services •Generates bill for Network •Provides mobile services to
from Merchant transaction and sends to •Provides access to Consumer
•Provides payment account Payment Provider Payment Network to •Authorizes or declines bill
information to Merchant •Uses software to Merchant from Payment Provider
•Owns mobile account with authenticate and process •Intermediary between •Pays Payment Provider
Carrier payment account Merchant and Carriers with Consumer's mobile
information •Pays Merchant account funds
•Bills Carrier for Consumer's
purchase

Consumer Merchant Acquirer/Payment Issuer
•Makes $5 Purchase •Retains $1.50 Network •Retains $2.50
•Retains $1


Figure Carrier billing valuechain

Mobile payment that use bank billing has better economics
This model is an extension of the well developed financial services debit/credit payment service.
Payment applications will utilize existing financial services processes to transfer funds between a
consumer and merchant or consumer and consumer. Similar to carrier billing providers, bank billing
providers typically serve both as an acquirer and payment network, and in some cases as an issuer as
well to cover the entire payment value chain. Typically, the consumer will have an account with the
payment provider and will determine preferences to fund a transaction from the consumer’s bank
account, credit account, and/or funds deposited with the provider. The merchant sends the consumer’s
payment request to the payment provider. The payment provider will debit the appropriate funding
source based on the consumer’s preferences, then transfer funds to the merchant’s account. The
benefit to this business model is that existing financial services infrastructure for payments is used, thus
requires minimal setup costs. In addition, because consumers have a historical relationship with
financial institutions, payment providers have fewer hurdles to overcome consumer confidence when
supporting large transactions. Moreover, transaction costs are orders of magnitude more favorable for
bank billing when compared with carrier billing. On average, transaction costs are on par with existing
debit/credit transaction fees of 3% of transaction value. Lastly, for payment providers that are not
issuers (act as a bank for the consumer), there is less concern for compliance and risk management with
this model, because the partner financial institution have the appropriate regulatory licenses and core
competencies to support payment transactions both small and large, as well as in‐border and cross‐
border. The challenge with this business model is that there is more friction in completing a transaction

Business Model


as more parties are involved. Furthermore, consumers must have access to banks in most cases for this
model to work. This poses a problem for the unbanked consumers that are either too young to have a
relationship with a bank or do not have those services available. Secondly, because the mobile service
providers are relegated to only providing mobile data services, their lack of attractive economics in the
value chain could potentially delay or curb the adoption of this payment method.

Advantages: Disadvantages:
• Low transaction fees (~3%) • Requires a bank account
• Full support for cross‐border/ foreign • Limited potential customer base
currency transactions
Best used for: Vendors:
• Remittances • Paypal
• Physical goods • Obopay
• Alternative to cash • Xoom
• Transactions > $5

Consumer Merchant Acquirer/Payment Issuer (Bank)
•Purchases goods/services •Generates bill for Network •Provides banking services
from Merchant transaction and sends to •Provides access to   to Consumer
•Provides payment account Payment Provider Payment Network to •Authorizes or declines
information to Merchant •Uses software to Merchant debit transaction from
•Owns account with bank authenticate and process •Intermediary between Payment Provider
payment account Consumer and Merchant •Pays Payment Provider
information accounts with Consumer's bank
•Pays Merchant account funds
•Debits Consumer's bank
account or stored value
account with Payment
Provider

Consumer Merchant Acquirer/Payment Issuer
•Makes $100 Purchase •Retains $96.80 Network •Retains $0.05 ‐ $0.50
•Retains $3.15 ‐ $2.70


Figure Bank billing valuechain

Business Model


Mobile Payment Ready for Rapid Growth
The market enablers and drivers for mobile payments have been categorized to be those that impact
the supply and those that impact the demand of mobile payment services. The following is a summary
of those factors:

•Carriers investing in applications to combat declining ARPU
•Faster and more ubiquitos mobile data services
Enablers •Mainstream adoption of smart‐phones

•Improved user experience with mobile e‐commerce
•Advances in distribution and consumption of digital media
Drivers •Skyrocketing use of virtual goods in games and social
networks


Market enablers
Carriers are investing heavily in next generation services that generate new revenue streams such as
mobile payment to stabilize declining customer ARPU (average revenue per user). In developed markets,
carriers are under considerable pressure to maintain ARPU despite subscriber saturation and downward
pricing pressure from the marginalization of their services. Wireless Intelligence estimates North
America carrier’s ARPU has been flat at around $51 since 2006, and Western Europe has been falling by
5.4% CAGR over the last three years (Wireless Intelligence, 2009).

Figure Next generation mobile apps needed to sustain ARPU

Ready for Rapid Growth


In addition, the rapid deployment and adoption of mobile broadband data services across the globe will
fuel growth for a variety of mobile services that will pull mobile payment along. A similar parallel has
already been witnessed in the e‐commerce industry, in which its growth was due to the adoption of
fixed broadband data services. 3G Americas reports over 60% of all mobile subscribers have access to
high‐speed packet access (HSPA) networks (3G Americas, 2009). Wireless Intelligence reports there is
currently over 4 billion mobile subscribers of which 200 million use broadband mobile data services. (In
contrast, the global desktop PC user market only accounts for 1/3 the global mobile phone user market.)
Forecasts project by 2013, there will be 5.8 billion mobile subscribers of which 1.1 billion (19%) will use
broadband mobile data services (Wireless Intelligence, 2009).

Figure Mobile broadband to reach 2 billion users by 2014

Lastly, smart phones also play a critical role in the adoption of mobile payment. While there are many
mobile payment providers that do not require smart phones, many of the mobile applications that use
mobile payment do. Gartner reports 14% of all new mobile phone sold are smart phones (Gartner, 2009),
and Ovum forecasts this figure to be 29% by 2014 (Ovum, 2009).



Figure Rapid growth of Smartphone users

Market drivers
Mobile services such as mobile e‐commerce will directly drive the adoption of mobile payment. Mobile
e‐commerce is a sub‐segment of the larger e‐commerce market, which is currently growing at 8% CAGR
from 2008 to 2013, and represents $451 billion in revenue for 2010. (Morgan Stanley, 2009) The US
represents $193 billion in revenue from e‐commerce for 2010, which is 4% of all US commerce. Mobile
e‐commerce in the US is not as robust yet, with sales only representing $21.8 billion, which is mainly
driven by sales of digital media. Japan is showing significant uptake of mobile e‐commerce and mobile
payment, with Rakuten Ichiba, the leading online shopping mall, driving over 18% of its sales through
mobile handsets. Japan is the most advanced mobile market and is a leading indicator for adoption of
advanced mobile applications for the rest of the world.

As stated above, much of mobile e‐commerce revenue is driven by sales of digital media. The continued
improvements in being able to easily acquire digital media assets on mobile phones will accelerate the
adoption of mobile payment. In the past few years, there have been significant innovations around the
ability to purchase and instantly consume books, DVDs, music, and games on mobile devices. The
carrying medium has been shifting from physical (hardcover book and CD disk) to digital files (Amazon
Kindle eBook and mobile app‐store download). The rapid consumption of these digital media assets has
been enabled by the adoption consumer electronics that have fixed and mobile broadband data services.
Market leader Apple, has reported over 6 billion downloads of games, music, and videos from its iTunes
service. While Apple and Amazon have significant market share in digital video, music and publications,
there are other segments in digital media such as virtual goods that is rapidly diving adoption of 3rd party
mobile payment services.

The skyrocketing adoption of the social games, virtual worlds, and social networks has created a social
environment consumers are willing to pay for virtual goods, which are digital items used to personalize
and differentiate themselves from their peers. Market traction is strong in Asia, accounting for the bulk
of $1.6 billion in revenue for 2009. In contrast, the US is still developing with $600 million in revenue
according to Piper Jaffray (Piper Jaffray, 2009). The global market is forecasted to grow 3x to $6 billion
and the US market to grow 4x to $2.5 billion in 2014. Much of the innovations in mobile payment have
been seen in the social web/virtual goods ecosystem because they are trying to maximize the
conversion of paying customers for intangible zero‐COGS virtual goods.

Lastly, the lack of financial services for much of the population in the emerging markets will drive mobile
payment services that serve these markets. The success of Vodafone's Kenya subsidiary Safaricom with
its mobile money service M‐Pesa has provided evidence in the potential of mobile money services in
emerging markets. Since its launch in 2007, M‐Pesa delivered over $3 billion in mobile payment
transactions through 8 million registered users. Ovum predicts that the most likely scenario will be a
market where service penetration reaches between 30% and 40% of the emerging market's mobile
users in 2014 (Ovum, 2009). One of the key assumptions for the uptake of mobile money services in this



market is the relatively low penetration of access to financial services compared to higher and fast‐
growing penetration of mobile services.



The Remote, P2P, and NFC market segments of Mobile Payment
Advances in security, pervasive network access and speed, and NFC (near field communications) enable
consumers to use this technology to shop easily and securely on the mobile phone, transfer money to
friends and family, or accelerate purchases at retail locations. These use cases segment the mobile
payment market into three broad categories of mobile payment defined by the recipient (merchant or
consumer) and the location (online or brick & mortar) of the payment. We will examine the mobile
payment market based on the following categories:

1. Remote mobile payments
2. Peer‐ to‐Peer (P2P) mobile payments
3. Contactless mobile payments


Figure Mobile payment market segments

Remote Mobile Payments
This form of payment is characterized by the use of the mobile phone to execute a payment between a
customer and a merchant for goods and services in an online environment such as an Internet e‐
commerce site, social network site, or networked video game. This market segment is highly fragmented
with participants differentiating on the technology used to execute the payment transaction (Premium

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | The Remote, P2P, and 14
NFC market segments of Mobile Payment


SMS, SMS, mobile web/applications, and mobile wallet) and the fulfillment of payment (carrier billing,
financial institutions, and credit card networks.) The following sub‐segments in remote mobile payments
have been identified based on technology and payment fulfillment.

• Premium Rate SMS (PSMS)
Premium rate SMS is the most established form of remote mobile payment. Vendors providing low‐
value digital assets such as ringtones, wallpapers, and games use PSMS to charge mobile phone
customers in the form of premium rate SMS charges on mobile phone user pre‐paid balances or
monthly bills. Example companies include content publisher aggregators Allopass and Netsize, as well as
SMS aggregator, wholesaler, and billing services companies Sybase 365 and mBlox. This form of
payment, while speedy and simple for the end user (frictionless), is highly uneconomical for vendors
with much of the transaction value (50%) shared with the carrier. This economic model is similar to
carrier billing relationships described next.

Figure How mBlox works with publishers

• Carrier Billing
Carrier billing is a method in which a vendor is able to fulfill payment of the purchase of goods and
services using the carrier’s billing relationship with the mobile phone customer. Originally used to
support the OTA (over the air) purchase of mobile applications such as a solitaire card game, the market
has evolved to support payment of virtual goods and services bought during mobile application use such
as buying clothing for a character in a network virtual game. Similar to PSMS transactions, carrier billing
is frictionless, but the economics are in favor for the carrier. As such, both PSMS and carrier billing based
payment vendors are best suited to support use cases for low‐value, high‐margin, and high‐transaction
sales environments such as digital assets and virtual goods and services. Example companies in this
segment include payment providers Zong and BOKU.



Figure How Zong works with Facebook

• Mobile Web/Applications
With the advancements in mobile data services and handsets, executing payment on a mobile phone for
Internet commerce sites is finally a reality. It is widely known browsing commerce sites on mobile
phones is an acceptable user experience. However, the conversion of those potential customers to a
purchase is quite low due to the cumbersome process of entering credit card information and other
order related information on a phone. Mobile web payment solutions are a natural extension of existing
Internet e‐tailors’s payment infrastructure. Solutions in this segment are characterized by a stored
profile by the payment provider’s online site that a mobile user authenticates and authorizes its use on a
mobile phone to provide a frictionless payment experience. Because billing is typically fulfilled through
credit card networks that have minimum transaction fees, this payment scheme is not suitable for low‐


value digital assets and virtual goods and services, nor is suitable for the credit less, including youth and
population in certain emerging markets. Example companies in this segment include Google, Amazon,
and PayPal.

Figure How Amazon works on mobile

Strengths Weaknesses
• Capital efficient • Challenging to gain economies of scale due
to highly fragmented emerging market
with many niches
Opportunities Threats
• Online publishers/merchants and • Publishers and merchants developing
consumers looking for more efficient and proprietary payment features
economical alternative to debit/credit
payment networks

Peer to Peer (P2P) Mobile Payments
P2P Mobile Payments are distinctly different from remote mobile payments given recipients of P2P
payment are individuals rather than merchants. Example of a P2P payment is a group of friends splitting
a bill of a restaurant bill using their mobile phones to send money to each other. Typically there is a
concept of a stored value account/e‐wallet payment scheme. Similar to a bank, vendors provide
customers the ability to credit and debit an account hosted by the vendor. Payment is typically



supported by existing banking infrastructure. Customers can send a payment through not only mobile
web/applications, but also SMS messages. Due to the low transaction fees associated with executing
transactions on banking infrastructure, this payment scheme could support both low and high‐value
goods and services. However, similar to mobile web schemes, P2P schemes have challenges to support
youth and certain emerging markets due to these customers being under‐banked/un‐banked. Example
companies in this segment include Obopay and Paypal.

Figure How to send money with Paypal

A sub‐segment of this market is mobile remittances where immigrant workers send money to their
home country using their mobile phones in place of Western Union and other money transfer services.
Recently, a variety of Internet and mobile services have launched to support this market and partner
with these transfer services to execute the funds transfer. While the P2P mobile payments and P2P
mobile remittances models of transferring money are similar, P2P mobile remittances are different due
to cross‐border nature of the transactions and the associated money currency exchange that is typically
required to consummate the transfer. Examples companies in this segment include Western Union and
Xoom.

• Large and well‐defined existing market • Requires local knowledge and
local/international presence due to
regionalized requirements
• The lack of viable alternatives to financial • Existing remittances leaders (Western
services for the unbanked in both Union and MoneyGram) have significant
developed and emerging markets economies of scale to create competitive
barriers



Contactless Mobile Payments (NFC)
Contactless Mobile Payments is well established in Japan and is being tested in pilot deployments in the
U.S. by the major credit card networks. This payment method involves the use of NFC (near field
communications) technology in which a mobile phone or a thin plastic card with a radio frequency
emitting chip sends payment information to a nearby receiver placed at a physical payment location
such as a gas station island, market checkout stand, or train station turnstile. This solution allows
customers to experience a frictionless payment by waving their phone or card, which automatically pays
the merchant with credit or debit funds. It is ideally used as a replacement for cash purchases. Japan has
successfully deployed this solution countrywide for several years, but other western economies have
lagged due to resistance by retailers to upgrade their existing credit card processing terminals. Example
companies include ViVOtech who supply the NFC chip technology and NFC POS (point of sale) terminals,
Nokia, and Visa, American Express, and MasterCard.

Figure Completing a POS transaction with a NFC enabled mobile phone

• Large and well‐defined existing market • Requires a hardware component that must
be distributed and setup for both
consumers and merchants
• Merchants looking for alternatives for • Existing payment network leaders
high‐transaction costs for current (Visa/MC) have significant economies of
debit/credit payment networks scale to create competitive barriers



Market Sizing and Forecasts
The mobile payment sizing and forecast includes estimate for the remote, P2P, and NFC market
segments. We estimate the total addressable market for mobile payment is $13 billion in 2010, growing
to $27.9 billion in 2014.

$27.9B 2014E
$1,662

$13B 2010E $249 $3,750
$350
Remote‐
eCommerce
Remote‐ Digital $10,40
Media 0
$5,280
$12,00
Remote‐ Virtual $7,000 0
Goods
P2P $180
$124
(In Millions $)
Source: RK Consulting, Morgan Stanley, Piper Jaffray, Juniper Research

Figure 2010E to 2014E mobile payments market forecast
Mobile Payments Forecast

(In millions) 2010E       2014E
1
e‐Commerce Physical Goods $415,000 $554,000
X Mobile Market Share 2%    10%

Total Mobile e‐Commerce Transaction Value $8,300 $55,400
X Commission Rate 3% $249 3% $1,662

2
Mobile Digital Media
Add Music $12,000 $15,000
Add Games $7,500 $10,000
Add Video $5,000 $9,000
Add Infotainment $5,000 $5,000
Add Adult $3,000 $5,000
Add UGC/Social Media $2,000 $5,000
Add Gambling $500       $3,000

Total Mobile Digital Media Transaction Value $35,000 $52,000
X Commission Rate 20% $7,000 20% $10,400

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | Market Sizing and 20
Forecasts


3
Virtual Goods Total Transaction Value $3,100 $6,000
X Mobile Market Share 20%       30%

Total Mobile Virtual Goods Transaction Value $620 $1,800
X Commission Rate 20% $124    10% $180

Total Remote Payments Addressable Market $7,373 $12,242

4
Mobile Transfers and Remittances Total Transaction Value $44,000 $100,000
X Commission Rate 12% $5,280    12% $12,000

Total P2P Payments Addressable Market $5,280 $12,000

5
Mobile Tickets, Food, and Beverages Total Transaction Value $7,000 $75,000
X Commission Rate 5% $350    5% $3,750

Total NFC Payments Addressable Market $350 $3,750

Total Addressable Market    $13,003    $27,992

1 2 3
Morgan Stanley State of e‐Commerce 2009, Juniper Research Mobile Entertainment in a Recession 2009, Piper Jaffray Pay to Play:
4 5
Paid Internet Services 2009, Juniper Research Mobile Money Transfers & Remittances 2009, Juniper Research NFC Mobile
Payments & Marketing Opportunities 2009

Source: RK Consulting, Morgan Stanley, Piper Jaffray, Juniper Research

Table Mobile payments market forecast model

Forecast methodology
The basic model used to estimate the total addressable market for mobile payment was top‐down
calculation of estimating the total transaction value of each market segment executed on a mobile
phone then multiplying a commission rate to determine the total revenue the mobile payment market
could generate.

Total Transaction Value

Total Mobile
Transaction Value

Total
Transaction Fees

Figure Topdown model of mobile payments market

Forecast assumptions
The remote payments market is an aggregate of purchases of physical goods through e‐commerce,
digital media and virtual goods. Using Morgan Stanley’s forecasts for global e‐commerce and subtracting
the digital media and virtual goods markets, we estimate global e‐commerce total revenue to be $415
Forecasts


billion for 2010 and $554 billion in 2014 (Morgan Stanley, 2009). We estimate that mobile payment
should grow from 2% to 10% market share, using Asia’s current metrics as a proxy of what is to come
world‐wide. This represents an estimate of $8.3 billion in 2010 and $55.4 billion in 2014 for total value
of global mobile e‐commerce transactions. Total transaction fees will be approximately $249 million in
2010 and $1.6 billion in 2014, which represents an industry norm of a 3% fee due to credit/debit or bank
billing being the payment pathway of choice.

Digital Media forecast has been separated from the larger e‐commerce market to illustrate its current
market traction with mobile payment. Mobile industry research firms Juniper Research and Pyramid
Research forecast global mobile digital media total revenue to be $35 billion in 2010 and $52 billion in
2014. Total transaction fees will be approximately $7 billion in 2010 and $10.4 billion in 2014, which
represents a conservative estimate of a 20% fee due to carrier billing being the payment pathway of
choice.

Similar to the digital media market, the virtual goods market is also exhibiting traction with mobile
payment, and as such has been separated from the larger e‐commerce market. This market was non‐
existent until recently in the U.S. Piper Jaffray forecasts the global virtual goods market to be $3.1 billion
in 2010 and $6 billion in 2014. (Piper Jaffray, 2009). We estimate mobile market share to be significantly
higher than other segments due to several key vendors providing payment services to the virtual goods
leaders. Based on 20% to 30% mobile market share in 2010 and 2014 respectively, total value of global
mobile virtual goods transactions will be $620 million in 2010 and $1.8 billion in 2014. Total transaction
fees will be approximately $124 million in 2010 and $180 million in 2014, which represents a decrease in
fees from 20% to 10% due to an expected decrease in carrier‐billing commission costs and the
availability of more cost‐competitive bank‐billing options for consumers.

The second largest market is the P2P transfers and remittances market. The World Bank forecasts global
remittances to developing countries to be $267 billion in 2009 and $341 billion in 2014. (The World Bank,
2008). Juniper Research forecasts mobile global remittances to grow from $44 billion in 2010 to $100
billion in 2014. Total transaction fees will be approximately $5.3 billion and $12 billion in the same time
period, which represents a 12% mean fee for existing remittances services.

The NFC market is expected to have the most growth within the next four years. Juniper Research
forecasts mobile NFC payments used to purchase tickets, food, and beverages to be $7 billion in 2010
and $75 billion in 2014. NFC transaction fees are similar to credit/debit transaction fees. We estimate
fees will be 5% which represents $350 million and $3.7 billion respectively.

Forecasts


Selected Vendors in Mobile Payment Segments
Remote mobile payment market map
The remote mobile payment market has the largest number of participants due to their focus on
providing payment solutions for commerce. The following chart depicts the current competitive
landscape of the market:


Figure Remote Mobile Payment competitive landscape

The following are selected profiles of market participants:

• mBlox company profile

Company Description Company provides carriers reliable message delivery, financial settlement and
billing solutions. Its suite of services allow major corporations to handle
mobile billing through WAP and SMS technologies, as well as integrate
inbound SMS messages from their clients into existing applications and bulk

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | Selected Vendors in 23
Mobile Payment Segments


message outbound SMS content.
HQ Sunnyvale, CA
Investors Trident, BofA, Norwest, Scale, Avanti, DAG
Employees/Financials 260/2009P Revenue $100M
Customers MySpace, Adidas, NBA and customers around the world in 180 countries
Considerations • One of the largest mobile transaction network worldwide with
connection to 500+ mobile operators in 180 countries
• Processes over $500M in mobile transaction in 2008
• Formed partnership with MySpace to power the site’s SMS alert
program across a variety of mobile carriers
• Low operating margin

• Zong company profile

Company Description Mobile payment solution provider that allows users to pay for digital media
and other goods on online gaming and social netwoRKng web sites using their
mobile phone number.
HQ Palo Alto, CA/Geneva, CHE
Investors Advent Venture Partners, Newbury Ventures
Employees/Financials 60/2008 Revenue $38M
Customers Facebook, Offerpal, IMVU, Habbo, Meez, Gaia, Super Reward, RockYou,
Playfish, Blizzard
Considerations • 10x conversion rate vs. traditional payment methods such as credit
cards
• Highly scalable platform that processed over 170M mobile transaction
in 2008
• Direct connectivity to all major carriers in the U.S. and Europe

• boku company profile

Company Description Company enables users to make micropayments for games and applications
without needs for credit card or bank account. Users enter their cell phone
number on the site, reply to a BOKU text message and then all virtual charges
are automatically charged to the user’s monthly cell phone bill.
HQ San Francisco, CA
Investors Benchmark, Khoshla Ventures, Index
Employees/Financials 30/ Not Available
Customers Hi5, Aeria Games, Gambit, Jambool, Meez, Offerpal, Playfish, Slide, Super
Rewards



Considerations • BOKU was the result of merger between Paymo and Mobillcash
• Global presence with services accessible in 45 markets around the
globe, including Europe, North and South America, the Middle East,
Africa and Asia
• Strong customer base, and in particular, signed up Hi5 to allow the
social network’s user to purchase virtual currencies through BOKU

• Aepona company profile

Company Description Aepona entered the mobile payments market through its acquisition of Valista
in July 2009. Valista Operator Payments Service acts as a bridge between
external parties and the carrier’s billing infrastructure. It supports multiple
payment models including integration with billing and prepay systems, credit
card, banking networks, Paypal, and stored value. Developed in partnership
with the GSMA, Aepona provides the reference design and implementation of
the mobile payments standard for carriers.
HQ Belfast, Ireland
Investors Amadeus Capital, Polaris, Trinity, Innovacom
Employees/Financials 180 / 2008 Revenue $25M

Customers KPN, France Telecom/Orange, Sprint, E‐Plus, Telecom Italia, Sprint, BT, TELUS
Considerations • Recent entrant into the carrier billing space through acquisition of
Valista
• Strong relationship with the carriers, including some of the world’s
largest broadband operators
• Combined entity provides an end‐to‐end solution for the Network as a
Service business model

• ClairMail company profile

Company Description Provider of 2‐way mobile banking and payments solutions. The company
offers a comprehensive 2‐way mobile platform for banking, payments and
card services to financial institutions. ClairMail can generate and send mobile
alerts with bill payment details directly to consumers and allows consumers to
immediately pay by replying to the alert.
HQ Novato, CA
Investors Norwest, Outlook Ventures, JAFCO
Employees/Financials 75 / Not Available
Customers PNC, City Bank, Bank of Stockton, Veridian Credit Union, State Bank, 1st



National Bank of Scotia
Considerations • Mobile payment service similar to PayPal and Google Checkout
• Company’s technology synchronizes with any phone and integrates
with mobile devices’ existing software and standard capabilities,
making the consumer experience simpler and shortening the learning
curve
• Revenue grew by 200% in Q2 ‘09 vs. Q2 ‘08

• Billing Revolution company profile

Company Description Company provides technology that enables secure credit card purchases from
a mobile phone. Merchants use Billing Revolution’s proprietary “single‐click”
technology to provide a mobile optimized purchase experience, allowing users
to make credit card purchases without a user name or pin code requirement.
HQ Seattle, WA
Investors SK Telecom Ventures
Customers MoVoxx, Kraft, Sears, and 1‐800‐Flowers
Considerations • Company charges a 3.5% transaction fee plus 50 cents per transaction
– not ideal for mobile apps that are sold for $1 or $2
• With commerce powered by the company, retailers can bypass large
carrier fees of 40%‐60%
• Recently partnered up with MoVoxx, a mobile advertising network
that leverages SMS messaging to place commerce ads on mobile
phones



P2P mobile payment market map
The P2P mobile payment market is equally competitive to the remote mobile payment market, as it
addresses not only remittances market, but also mobile financial services market. Common go to market
strategy for remittance players have been collaboration with money transfer organizations such as
MoneyGram and G‐Cash.


Figure P2P Mobile Payment competitive landscape


• obopay company profile

Company Description Company’s solution allows consumers and businesses to purchase, pay, and
transfer money through any mobile phone using Obopay’s mobile application,
text message, mobile Web, or Obopay.com. The company also has the ability
to issue prepaid MasterCard debit cards to as a method of payment.



HQ Redwood City, CA
Investors Qualcomm, Redpoint, Onset, Citigroup, Nokia, SG
Employees/Financials 125 / Revenue $1.8M
Customers Citibank, Fidelity, MasterCard MoneySend, Tata Indicom, Bancorp, Verizon,
AT&T, YES Bank
Considerations • Recreating the mobile version of PayPal’s P2P model for transferring
funds between individuals without the need for a credit processing
system
• Company is targeting the unbanked population in India and other
parts of the world where a large portion of the population don’t have
bank acct
• Obopay’s prepaid MasterCard cards are accepted at 24M merchant
locations and over 1.1M ATMs around the world
• Both the sender and receiver of funds must have Obopay account

• Xoom company profile

Company Description Xoom is an international money transfer service that allows users to transfer
funds from its website to friends and family who are off line and in other
countries. Xoom transactions do not require bank accounts on either side and
users can use funds in their PayPal account for the payment.
HQ San Francisco, CA
Investors Sequoia, NEA, DAG, Fidelity Ventures
Employees/Financials 75 / Profitable
Customers Available in 40 countries, including Argentina, China, India, Mexico, Brazil,
Chile, Philippines
Considerations • Remittance fees ranging from 4% for small transactions to 1.1% for
large ones, substantially lower than Western Union
• 66,000+ cash pick up locations worldwide
• Philippines is the company’s largest market today followed by Latin
America
• Company is able to predict revenue with <1% error rate



NFC mobile payment market map
The NFC mobile payment market is highly fragmented with existing payment networks, carrier branded
services, and niche players.


Figure Contactless Mobile Payments competitive landscape


• Vivotech company profile

Company Description ViVOtech provides contactless/NFC payment software, RF chips, over the air
card provisioning, promotion, and transaction management infrastructure
software, and contactless readers/writers that enable consumers to make
payments with radio frequency‐enabled credit cards, debit cards, key fobs,
and NFC‐enabled mobile phones.
HQ Palo Alto, CA



Investors Alloy Ventures, DFJ, Nokia, First Data, Motorola
Customers Citibank, VISA, Sprint, Taipei Fubon Bank, Mastercard, Chase, KPN, Jack in
the Box
Considerations • Complete software and hardware infrastructure play
• Strong partnerships with ecosystem players including credit card
companies and banks
• Widely field tested but commercial roll out isn’t expected until early
2010

• BlingNation company profile

Company Description Bling Nation works with banks in local communities to set up the
infrastructure required for its Redi Pay Bling mobile payments service. NFC
stickers are provided to customers to be attached to mobile phones and NFC
readers are provided to local merchants.
HQ Palo Alto, CA
Investors Lightspeed, Meck, Camp Ventures
Employees/Financials 28 / Pre‐revenue
Customers State Bank of La Junta, Park State Bank of Woodland Park
Considerations • Strong Advisory Board including John Reed, former Chairman of NYSE,
as well as former Presidents of American Express and VISA
• Requires the deployment of NFC sticker and reader by both the buyer
and merchant



Conclusion
The mobile payments market is characterized by two business models underpinned by leveraging the
billing relationship with the consumer for mobile phones or banks. While carrier billing models have a
larger potential customer base due to mobile ownership being almost three times more than bank
account ownership, the carrier billing economics are unfavorable for most applications. Until carrier
billing fees become in line with bank billing fees, carrier billing based payment providers will be limited
to high‐margin/zero‐margin digital goods markets. For the rest of the market of low‐margin tickets, food,
and beverages, as well as high value big‐ticket items, then a bank billing based payment provider is the
only economical solution.

The mobile payment market is split into the remote, P2P, and NFC segments. The P2P and NFC markets
are well established existing markets, but are extremely large and thus have tremendous potential.
However, each has incumbent players with significant market share to create formidable competitive
barriers. In addition, the additional resources required for international presence and hardware
deployment for P2P and NFC respectively, make each a challenging market to succeed in. On the other
hand, the remote payment market is highly fragmented, but is evolving and growing very rapidly. This
segment is the most promising since there is the ability to develop hybrid services that leverage both
carrier billing and bank billing, thereby creating a company that can leverage both the large customer
base of the carriers with the favorable economic terms with the banks. It is our belief that those
companies that can execute this hybrid strategy will be well positioned in the market for explosive
growth.

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | Conclusion 31


Works Cited
3G Americas. (2009, August 20). GSM‐HSPA Achieves Nearly 20 Percent Annual Growth in the Americas
Despite Economic Uncertainty. Retrieved from
http://www.3gamericas.org/index.cfm?fuseaction=pressreleasedisplay&pressreleaseid=2451

Gartner. (2009, August 12). Retrieved from http://www.gartner.com/it/page.jsp?id=1126812

Morgan Stanley. (2009). Morgan Stanley State of eCommerce August 2009.

Ovum. (2009, July 5). Retrieved from http://www.enterpriseinnovation.net/content/ovum‐
smartphones‐lead‐handset‐market

Ovum. (2009, July 30). Mobile money to become a mass‐market service by 2014: Ovum. Retrieved from
http://www.thestandard.com/news/2009/07/30/mobile‐money‐become‐mass‐market‐service‐2014‐
ovum

Piper Jaffray. (2009). Pay to Play: Paid Internet Services.

The World Bank. (2008). Migration and Development Brief, Outlook for Remittance Flows 2008‐2010.
The World Bank.

Wireless Intelligence. (2009). Asia Pacific Anaylst Briefing.

Wireless Intelligence. (2009, 9 11). Reported ARPU Figures Too Low, says Wireless Intelligence. Retrieved
from Mobile Marketing Magazine: http://www.mobilemarketingmagazine.co.uk/2009/09/reported‐
arpu‐figures‐too‐low‐says‐wireless‐intelligence.html

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | <Works Cited 32


About the Author
Rei Kasai has over 11 years of experience in high‐growth VC‐backed software companies in Silicon Valley.
Most recently, he served as a product management lead at Dexterra, an enterprise mobile applications
company that raised over $100M in funding and grew to over 250 employees. Prior to Dexterra, he was
with consumer mobile web company Net6 (acquired by Citrix for $50M) and internet‐based CRM
company Octane Software (acquired by E.piphany for $3.2B). Currently, he is a start‐up consultant on
issues of strategy, operations, and technology for mobile and cloud services companies, as well as a
venture advisor for mobile and cloud to Sierra Ventures, a venture capital firm with over $1.5B under
management. Rei has an MBA from the University of California at Berkeley's Haas School of Business.

RK Consulting | reikasai@gmail.com | www.linkedin.com/in/reikasai | About the Author 33

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