E-Banking Snapshot 34
M-payments: Variety may
August 2010
Digital economy and structural change
Author
Thomas Meyer
+49 69 910-46830
thomas-d.meyer@db.com
Editor
Antje Stobbe
Technical Assistant
Sabine Kaiser
Deutsche Bank Research
Frankfurt am Main
Germany
Internet: www.dbresearch.com
E-mail: marketing.dbr@db.com
Fax: +49 69 910-31877
Managing Director
Thomas Mayer
trump grand schemes
M-payments have stirred great expectations but shown limited
market success so far. According to Gartner, a technology advisory company,
less than 1% of European and less than 2% of North American mobile users also
pay with their mobile phones. Yet, new attempts to establish m-payments should
not be written off automatically. It may not be the grand m-payment schemes many
optimists imagine that succeed eventually, but a number of smaller, diverse and
intuitively useful applications. chart 1
M-payments usually cover payments involving a mobile phone (e.g.,
paying a parking ticket via premium SMS). There are many varieties depending on
the technology, the accounting vehicle, the purchase scenario or the service
provider. Some definitions exclude purely mobile content (e.g., ringtones), others
don’t. A key distinction is between proximity payments at the point of sale and
remote purchases. With the growing overlap of online and mobile experiences
(mobile internet) the answer to what constitutes an m-payment is becoming
increasingly blurred. chart 2
Successful applications can be seen e.g. in Japan or in some
developing countries. M-payments will be much harder to establish in Europe
and the US because the existing financial infrastructure (and cash) offers many
alternatives – unlike in some developing countries. Moreover, the supply side is
more fragmented than, say, in Japan. chart 3
Few consumers are excited about purchases via their phone. This
points to serious adoption hurdles in Europe and the US. Potentially game-
changing technologies (e.g., contactless payments via NFC) need substantial
infrastructure investments and broad support from shops and merchants before
consumers will sign up. chart 4
Yet, there are some purchase scenarios that stir more interest than
others. Germans are more open-minded when it comes to mobility-related
expenses. Lacking the right change to feed a parking meter is a scenario that
quite convincingly illustrates the usefulness of m-payments. chart 5
M-payments need to be safe and easy to use. Moreover, German
consumers don’t want to reveal their mobile phone number during the payment
process: nobody wants an unsolicited call from a business or a creepy salesman.
chart 6
Apps and mobile internet open up new business models. Modern
smartphones offer access to app stores and additional services. This has lowered
the entry barriers of new m-payment solutions substantially because almost
everybody can offer apps and mobile websites. As a consequence, we’ll likely see
a large number of different mobile applications with embedded payment
capabilities. chart 7
Many small front-end applications may integrate m-payments. Apps
and mobile internet unleash the creativity of developers to produce new,
unexpected and useful applications. Each may only have a limited scope (e.g., a
loyalty and payment app for a specific store) and rely on traditional payment
options for settlement. In fact, German smartphone owners already use many
apps in parallel. chart 8
Mobility and location-based applications are a good starting point.
They combine the highest consumer interest, the most likely purchase scenario
(on the move) and leverage the technical capabilities of modern phones. chart 9
E-Banking Snapshot 34 M-payments

M-payments have stirred great

Great expectations - limited success expectations but shown limited market
success so far. According to Gartner, a
technology advisory company, less
than 1% of European and less than 2%
of North American mobile users also
pay with their mobile phones. Yet, new
attempts to establish m-payments
should not be written off automatically.
It may not be the grand m-payment
schemes many optimists imagine that
succeed eventually, but a number of
smaller, diverse and intuitively useful
applications. back to front page

Source: DB Research, 2010 1

M-payments usually cover payments

Many varieties of m-payments involving a mobile phone (e.g., paying
Examples
a parking ticket via premium SMS).
There are many varieties depending on
Technology Accounting Purchase Service
vehicle scenario provider
the technology, the accounting vehicle,
the purchase scenario or the service
SMS Direct debit Shop Telecom provider. Some definitions exclude
operator purely mobile content (e.g., ringtones),
NFC Credit card Vending
(near field machine Financial others don’t. A key distinction is
communi- Pre-paid institution between proximity payments at the
cation) Remote point of sale and remote purchases.
purchase Third party With the growing overlap of online and
Mobile internet Phone bill
Money mobile experiences (mobile internet)
transfer the answer to what constitutes an m-
payment is becoming increasingly
blurred. back to front page
Source: DB Research, 2010 2

Successful applications can be seen

Japanese inspiration e.g. in Japan or in some developing
Share of consumers using m-payments in stores (%)
countries. M-payments will be much
14 harder to establish in Europe and the
12
12 US because the existing financial
infrastructure (and cash) offers many
10 alternatives – unlike in some
8 developing countries. Moreover, the
supply side is more fragmented than,
6 say, in Japan. back to front page
4

1 2

0
Japan Europe

Source: Forrester Research Inc., 2009 3

August 2010 2
E-Banking Snapshot 34 M-payments

Few consumers are excited about

Cold reception purchases via their phone. This points
Q: How interested are you in buying products or services via your mobile to serious adoption hurdles in Europe
phone? (%)
74 80
and the US. Potentially game-changing
64 70 technologies (e.g., contactless
60 payments via NFC) need substantial
50 infrastructure investments and broad
40 support from shops and merchants
30 before consumers will sign up. back to
13 10 12 20 front page
6 8 7
1 3 10
0
5 4 3 2 1
Very interested ... ... not interested at all
Europe US
Source: Forrester Research Inc, 2010 4

Yet, there are some purchase

Mobility-related expenses rank highest scenarios that stir more interest than
Q: In which situations can you imagine using a mobile payment service?
Score from 1 (not at all) to 5 (very well) others. Germans are more open-
minded when it comes to mobility-
Parking ticket 3.4 related expenses. Lacking the right
change to feed a parking meter is a
Public transport 3.4 scenario that quite convincingly
illustrates the usefulness of m-
Venue ticket 3.1
payments. It also demonstrates a clear
Mobile stamps 2.9 advantage of m-payments over other
payment options: users can often
Online shopping 2.7 extend the validity of the parking ticket
via phone without having to return to
Vending machine 2.7
the car. Mobility-related expenses are
Transfer money to friends 2.3 thus often seen as a way to enlist a
critical mass of consumers upfront to a
0 0.5 1 1.5 2 2.5 3 3.5 4 new payment system. back to front
Base: German consumers
page
Source: Gapgemini, 2009 5

M-payments need to be safe and easy

Safe and easy to use. Moreover, German consumers
Q: What are the most important characteristics of a mobile payment system?
Rank from 1 (most important) to 6 (least important) don’t want to reveal their mobile phone
number during the payment process:
Secure 1.6 nobody wants an unsolicited call from a
business or a creepy salesman. back to
Easy to use 3.3 front page

Does not disclose my mobile number 3.6

Detailed information on my transaction 3.9

Quick transaction 4.0

Easy registration 4.3

0 1 2 3 4 5
Base: German consumers
Source: Gapgemini, 2009 6

August 2010 3
E-Banking Snapshot 34 M-payments

Smartphones lead the way Apps and mobile internet open up new
German consumers who access mobile internet by type of phone used (%) business models. Modern smartphones
offer access to app stores and
All 17 additional services. This has lowered
the entry barriers of new m-payment
solutions substantially because almost
Smartphone with touchscreen 55 everybody can offer apps and mobile
websites. As a consequence, we’ll
iPhone
likely see a large number of different
91
mobile applications with embedded
payment capabilities. back to front
0 20 40 60 80 100 page
Source: Accenture, 2010 7
Many small front-end applications may
Many apps in parallel integrate m-payments. Apps and
Number of apps German smartphone owners use (%) mobile internet unleash the creativity of
30
developers to produce new,
25 unexpected and useful applications.
20 Each may only have a limited scope
15 (e.g., a loyalty and payment app for a
specific store) and rely on traditional
10
payment options for settlement. In fact,
5 German smartphone owners already
0 use many apps in parallel. back to front
>40 21-40 11-20 6-10 <6 page
Base: German smartphone owners who use apps
Source: Fittkau & Maaß, 2010 8

Mobility and location-based

Start with navigation applications are a good starting point.
Types of apps German smartphone owners use (%)
They combine the highest consumer
Navigation 67.5 interest, the most likely purchase
Games 60.9 scenario (on the move) and leverage
News 58.8 the technical capabilities of modern
Weather 57.8
phones. back to front page
Music 52.3
Entertainment 44.4
Social networking 44.2
Education 39.0
Photos / Videos 38.6
Finance 34.2
Lifestyle 29.5
Shopping 29.0
Travel 28.1
Business 24.9
Books 22.7

0 10 20 30 40 50 60 70 80

Source: Fittkau & Maaß, 2010 9

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