frost & sullivan mobile phone analyst briefing

Convergence of the Mobile Phone and the Wallet - Is the Market Ready?

Shyam Krishnan, Industry Analyst

Smart Cards Practice

September 30, 2008

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Focus Points

Agenda

• M-Commerce Overview

• NFC Overview

• Business Models

• Conclusion

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Mobile Commerce

A brief overview

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Overview – Smart Card Payments and m-Commerce

• Contactless cards are revolutionizing the payment industry.

• MasterCard working on initiatives to migrate to contact-less

readers in retail.

• Concerns over low-value transactions alone being mobile-

phone compatible. Higher values of transactions need to be

approved.

• Contactless smart cards would enable greater numbers of

m-commerce transactions worldwide.

• Tie-ups of online and mobile transactions would further boost

industry – companies like Paypal are working on this.

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Value Chain for Mobile Payment Solutions

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Mobile Payment

• Value chain includes

• Telecommunication sector (mobile operator, device vendors, solution

providers, and others)

• Financial sector (financial institutions such as banks, billing intermediaries)

• Consumers

• SIM/Payment software developers

• Application providers

• Trusted service managers

• Merchants

• Handset manufacturers

• SMS Based, WAP based payments gaining momentum

• Mobile payment is a multi-billion dollar market worldwide

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Near Field Communication

An overview

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NFC

• Simple and powerful communication mode

• Short read range technology

• Typically operates at 13.56 MHz

• Secure transactions for short range communication

• Active and passive modes exist

• Mobile phone compatible

• Apart from P2P transactions, mobile banking and proximity payment, NFC adoption for marketing purposes is expected to be widespread

• Integration could vary from –

• Card Emulation

• Reader Mode

• P2P Mode

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NFC Challenges

• Standards – Need to ensure inter-operability between various platforms

• Merchant Adoption for smaller-value transactions

• Co-operation between major participants in the eco-system; fee and cost splits

• Proving the business case to vendors who prefer standalone-contactless based payment systems

• Ensuring significant installed base by 2015 – to achieve global NFC penetration

• Gather momentum from pilot phase to enter roll out phase

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Advantages of NFC – Payment perspective

• Brings simplicity and security across verticals.

• Ensures a higher degree of personalization, with no card swipingor contactless card interference.

• One phone – for all applications; OTA personalization and deployment for transit applications are predicted to drive growth.

• Enables tying in preferences with transactions. Ex: Saved searches and preferred purchases could be brought up from memory to make next automatic transaction.

• Trials in 2007 and 2008 – Include initiatives from Citi, HSBC, Nokia, Vivotech, US Bank, Wachovia (now Citi), Wells Fargo, Master Card – all in different deployment trials across application areas.

• NFC Marketing is expected to be widely popular by 2015 –enables marketers to reach consumer directly.

Audience Poll Question

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Business Models

Solution Providers

• Transactional Model – Fixed, per transaction

• Percentage share of merchant transactions

Mobile Operators

• Transaction fee

• Data traffic

• Application management on the handset

Financial Institutions

• Soft-card issuance

P2P Model

Collaborative Model

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Global Handset Forecasts

Global Handset Sales Forecast

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Handsets

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Conclusion

• Though NFC is popular and is gaining momentum, with many US based vendors showing interest, the returns on the investment in R&D on NFC integrated with mobile payment has to be evaluated.

• Currently, the technology has to move beyond the pilot phase to the roll out phase – the only way to reach more end-users.

• More and more targeted user segments (Ex: teens, young professionals, etc.) should be brought into focus for spreading awareness.

• Economic slowdown in the US will affect NFC deployment – however, the ecosystem’s stakeholders should ensure that a mandate is set for complete deployment in the next 10 years or so – by 2020.

• The opportunities that NFC presents are immense; but the market is just not ready yet – going by past evidence, NFC-oriented optimism needs to translate into tangible market presence.

• Nokia handsets with NFC supporting Google Android is expected todrive growth.

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Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by taking our survey.

What would you like to see from Frost & Sullivan’s Smart Card practice research?

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For Additional Information

• To leave a comment, ask the analyst a question, or receive the

free audio segment that accompanies this presentation, please contact Stephanie Ochoa, Social Media Manager at (210) 247-

2421, via email, analystbriefings@frost.com, or on Twitter at

http://twitter.com/stephanieochoa.