The Market for Mobile Payment Solutions: Scenarios for Future Diversity at the Point-of-Sale

• The field of mobile payments is a growth market with great potential

• Value-added chain expands to include mobile payment functions

• Card readers of various providers turn mobile devices into points-of-sale

• Scenarios of future development

• The diversity of options caters to the differentiated demand of the market

The market for mobile payments has long been identified as a growth market with great potential. This market is predicted to achieve a sales volume of over US$ 700 billion by 2017, some experts have even forecast that this volume will increase to nearly US$ 1 trillion as early as 2015. The rapid growth of the mobile payment market becomes clear when compared with that of the online payment sector. While the number of online transactions is set to double between 2009 and 2013, it is expected that the number of payment transactions via mobile devices will increase fivefold during the same period (Fig. 1).

Figure 1: Comparison of Online and Mobile Payments

The possibility of paying via mobile devices such as smartphones and tablets expands the value-added chain of payment transactions. The integration of a payment function into mobile devices creates added value for customers by increasing their mobility and convenience when it comes to payment transactions. This is the point at which business models with innovative concepts step in. They increase customers’ mobility in order to derive added value for the providers. On the one hand, this occurs indirectly, such as through data collection and personalized or statistically optimized advertising, and on the other hand, it occurs through payments from the customer or the payee.

Different types of companies have recognized this development. The first to catch on were start-ups and credit card organizations, increasingly followed by telecommunications and retail chains, internet companies, and payment transaction processors. Most recently, a growing number of providers has been targeting the market for mobile payments with specifc concepts. The companies offer card readers that allow mobile devices to process debit and credit card payments thanks to an additional piece of attachable hardware. This enables basically any smartphone or tablet to be turned into a mobile point-of-sale (mPOS). The providers are thereby mainly addressing the supply side of the market rather than the paying customers. They are turning to small businesses, merchants and vendors, for whom an alternative POS solution is attractive, as the POS systems currently available on the market are usually accompanied by high fixed costs and are primarly designed for stationary transactions. Since appearing on the market, the providers of mPOS solutions have also begun working together with retail chains to support their stationary systems.

A pioneer in this field is the start-up Square, founded in the US in 2009 and well-known due to its cooperation with Starbucks. Its European counterpart is iZettle, founded in 2010, which is active in the Scandinavian and British markets. While these companies were the only providers of their kind for quite some time, a new range of products from different producers and providers has recently begun to hit the market (Fig. 2).

Figure 2: Regional and transregional providers of card readers

In the US and in parts of Canada, this group of new providers includes PayPal Here, GoPayment (Intuit), Punchey, PAYware Mobile (Verifone), and SpotPay (Fiserv); in Germany the players include streetpay, SumUp and payleven (Rocket Internet); transregional actors include the American company NCR Silver and the German company wirecard. The functions of the products are similar for the most part. They combine the card reader with an app that usually enables other functions, such as a comprehensive POS system along with data warehousing or the scanning of checks. These specifications are based on the idiosyncrasies of the respective market, such as the widespread use of checks in France, and on the framework conditions stemming from technical factors (magnetic strip vs EMV chips), operating systems (iOS and Android), and regulations.

In light of this development on the market for mobile payments, the question of whether mPOS solutions will assert themselves increasingly fades into the background. Instead, the question regarding which scenarios for the future are most likely becomes more important. In regard to the card reader, meaning a hardware solution, two scenarios in particular deserve attention. Furthermore, a third scenario consists of solutions that enable an mPOS without additional hardware.

• In the first scenario, one or several providers of card readers will assert themselves. The companies will independently distribute their products under their own name, at first mostly in the context of small businesses, as Square has done. The providers will increasingly partner with companies conducting stationary transactions. PayPal Here is currently realizing this scenario together with Home Depot, the largest hardware retail chain in the world.

• In a second scenario, several providers of card readers will also assert themselves on the market, but will distribute their products as white label solutions. They will offer companies and business groups a card reader that is branded with the company’s respective logo, and will provide an app that can also be individually customized. An example of this scenario is Wirecard, whose white label solution is used by orderbird, a provider of POS systems in the food service industry. Fiserv’s SpotPay is similar in that it is not directly targeted at merchants, but at specific financial institutes who can then offer the card reader to their customers.

• Finally, a third scenario moves from hardware-based card payments to mobile payment solutions that provide payment options to clients from within service apps or mobile wallets. As long as the wallets are not based on Near Field Communication (NFC), such as Google Wallet, they do not require a direct connection between different devices. For example, the myTaxi app provides users with the option of paying for their taxi ride via an app by using the UMTS connection of their smartphone. Apple’s Passbook, announced as part of iOS 6, seems to also be based on this solution, offering various apps the opportunity to integrate additional functions, including payment options.

The scenarios are not mutually exclusive. For the foreseeable future, it is likely that mobile payment transactions will consist of a combination of the scenarios described here. On the one hand, there will be various brands and emotional bonds with these brands. On the other hand, retail corporations can make use of standard products and customize these according to their needs. The diversification of products and services enables retailers and merchants to choose from a variety of solutions in order to provide their customers with payment options. They can thereby act based on their target groups, interests, and requirements. This will lead to diversity on the supply side in the market for mobile payment solutions, with which the equally diverse requirements on the demand side of this market can by fulfilled in a differentiated manner.

Market for Mobile Payments

http://www.americanbanker.com/issues/177_156/mobile-transactions-will-reach-730-billion-dollars-by-2017-juniper-1051775-1.html

http://www.iemarketresearch.com/documents/3Q2011GlobalMobilePaymentMarketForecastOverview-September6-2011.pdf

http://www.de.capgemini.com/insights/publikationen/world-payments-report-2011/

Square

http://www.squarup.com

iZettle

http://www.izettle.com

PayPal Here

https://www.paypal.com/webapps/mpp/credit-card-reader

Punchey

https://www.punchey.com/

GoPayment

http://gopayment.com/

PAYware Mobile

http://www.paywaremobile.com/

SpotPay

http://investors.fiserv.com/releasedetail.cfm?ReleaseID=705859

http://www.finextra.com/news/Fullstory.aspx?newsitemid=24047

streetpay

http://www.streetpay.com

SumUp

http://www.sumup.de

payleven

http://www.payleven.de

NCR Silver

http://www.ncrsilver.com

Wirecard

http://www.wirecard.de/presse/pressemeldungen/presseberichtedetailansicht/article/wirecard-lau-1/

http://coretechmonitor.com/wirecard-praesentiert-mobilen-kartenleser-fuer-smartphones/

myTaxi-App

http://www.mytaxi.net

http://coretechmonitor.com/mytaxi-base-targobank-oder-die-leise-integration-von-bezahlfunktionen/

Apple Passbook

http://www.apple.com/ios/whats-new/#passbook

http://coretechmonitor.com/apples-passbook-ein-weiterer-schritt-zur-iwallet/