Mobile and Alternative Payments in the U.S., 3rd Edition

• Publication date: November 2012
• Report size: 166 pages

The mobile payments industry stands at the epicenter of tremendous innovation and change, with market participants introducing a slew of emerging payments solutions—from Square to Google Wallet to Popmoney to Serve to V.me. Thanks to the widespread adoption of smartphones, the consumer audience now has the means to use them; however, they still may not be accustomed to or even well informed about the new topography of the payment landscape. ...

The mobile payments industry stands at the epicenter of tremendous innovation and change, with market participants introducing a slew of emerging payments solutions—from Square to Google Wallet to Popmoney to Serve to V.me. Thanks to the widespread adoption of smartphones, the consumer audience now has the means to use them; however, they still may not be accustomed to or even well informed about the new topography of the payment landscape.



The industry also serves as a nexus connecting the often competing interests of wireless carriers, phone manufacturers, payments networks, merchant acquirers, card associations, point-of-sale technology providers, nonbanking payment solution providers, banks, and retailers. At stake is the transformation of the consumer wallet—and the control traditional payment players have historically had over it—as well as the possibility of new revenue streams generated by data analytics, advertising, and other value-added products and services, above and beyond merchant payment fee revenue.



Even with mobile payments still in its nascent stage, Packaged Facts expects U.S. remote and point-of-sale mobile payments volume to grow by 275% in 2013, a testament to the impact of current product rollouts and consumer uptake already underway.



Mobile and Alternative Payments in the U.S. provides industry participants with the wealth of analysis and guidance they need to stay abreast of this quickly evolving market. Report coverage includes market sizing and forecast for U.S. mobile payments, as well as a comprehensive evaluation of competitor dynamics:

• Mobile payments strategies employed by the leading U.S. card associations, including American Express’ prepaid card innovation and Serve digital platform innovation, Discover Financial Services’ alternative payments strategy and PayPal and Google Wallet relationships, MasterCard PayPass and PayPass Wallet Services, and Visa V.me


• Mobile payment solutions developed by Digital Leaders, including online commerce behemoths Amazon, Apple, Google, Facebook, Groupon and PayPal; innovative offline commerce players LevelUp and Square; the Isis Mobile Commerce Network; and retailer mobile payment strategies


• Macro trends shaping the mobile payments landscape, including eCommerce growth, NFC payment growth. bill payment trends, P2P growth and associated metrics, and mobile payment fraud and security issues

• Mobile phone and smartphone ownership trends, app usage, and tablet ownership


• Mobile phone usage trends pertinent to mobile payments, including mobile phone usage trending over time and related demographic analysis


• Mobile payment methods (i.e. P2P, bill payment, etc.) and payment funding choices by demographic


• Mobile payers’ current and intended use of mobile payment, deposit and communication methods, broken out by smartphone users, non-smartphone users, mobile bankers, and mobile payers


• Recent and intended use of mobile phone financial, promotional & shopping tools


• Mobile phone and smart phone feature usage; smartphone share of mobile phone ownership by demographic; and voice, data and text plan penetration

Payment Processing Industry in the United States

Executive Summary

Report Scope

Market Size and Forecast

Macro Trends Shaping the Mobile Payments Landscape

Mobile Phone Usage Trends

Mobile banking trends

Mobile payments trends

Consumer Interest in Mobile Phone Financial, Promotional and Shopping Enhancements

Mobile Payments Strategies: Card Associations

Mobile Payments Strategies: Digital Leaders

Mobile Payments Strategies: Mobile Network Operators

Mobile Payments Strategies: Retailers

Chapter 1: Overview

Mobile financial services: banking and payments

Mobile financial services

Mobile banking

Mobile payments

Mobile payment technologies

SMS text messaging

WAP

RFID

NFC

2D Barcode

Mobile payment funding options

Online and offline payment methods/players

Chapter 2: Market Size and Forecast

Summary analysis

Mobile payments set for takeoff—but only after some dust settles

Worldwide mobile payment growth

The U.S. market

Mobile payment usage is on the uptake

But payment frequency remains low

Table 2-1: U.S. Mobile Payment Transaction Value, 2012-2016

Growth drivers

Piggybacking on online banking and bill payment

Giving merchant acceptance a shot in the arm

Non-banking mobile payments players transitioning online account goldmine to offline arena

Leapfrogging the near-term NFC hurdle

Awareness and education set to rise

Convenience/portability

Greater payment flexibility

Growth inhibitors

Too many cooks spoil the broth

Technology standardization

Security and fraud

On the fence

Speed

Financial service provider fees

Chapter 3: Macro Trends Shaping Mobile Payments Landscape

Mobile phone usage nears saturation

Graph 3-1: Mobile Phone Users and Usage Penetration, 2004-2012

Smartphone shares reaches majority status

Smartphone share passes 50%

Table 3-1: Consumer Mobile Phone Ownership, Smartphone Ownership and Ownership Share, 2012

Past the tipping point—onward and upward

Apps and more apps

Graph 3-2: iTunes Music and App Store Downloads

Tablet usage share triples in less than 18 months

Table 3-2: Tablet Ownership, Spring 2011-Summer 2012

Tablet and smartphone demographic synergy

Table 3-3: Consumer Tablet Ownership, by Demographic, Summer 2012

E-commerce gains

Graph 3-3: Quarterly E-Commerce Retail Sales, Percentage Growth, and Percent of Retail Sales, 2003-2012

NFC: low penetration to high penetration—but when?

A small merchant footprint

Contactless a small ripple in a big pond

PayPass merchant adoption at 400,000

Bottom line: incremental growth does not a revolution make

Looking down the road: 2015 will tell a different story

An EMV nudge

Consumer bill pay methods: mail continues to dwindle

Among alternatives, online bill pay rising fastest

Graph 3-4: Consumer Bill Pay Preferences: Forms Used, 2007-2012

Online banking and bill pay add more users

Graph 3-5: Online Banking and Bill Payment: Household Usage, 2002-2011

Eyeing P2P

Players

The P2P usage universe

Table 3-4: Domestic and International Person-to-Person Money Sending/Receipt, 2010-2012

U.S. mail dominates; Western Union, Money Gram and PayPal are key players

Table 3-5: Domestic Person-to-Person Money Sending/Receipt: By Method, 2010-2012

Lots of checks and cash left to convert

95% of dollar value in cash and checks!

Mobile banking usage lags awareness

Graph 3-6: Mobile Banking Feature Awareness vs. Use

Security and fraud concerns holding adoption back

Security concerns thwart use of mobile banking

Specific mobile banking security concerns

Graph 3-7: Mobile Banking Feature Awareness vs. Use

But can mobile payments actually be more secure than traditional payments?

Mobile phone as fraud reducer

Dynamic authentication

Password-protect phone and payment app

Facial recognition

Am I protected? It depends on the funding

If protection level is not tied to phone, then what’s the problem?

Security in the Cloud

Pros

Cons

Reducing fraud

Google Wallet vulnerability: fire flared up, then put out

Reaching the unbanked

Mobile phones can help them connect more deeply to financial services

It’s more a question of data plan and internet usage, not access

Table 3-6: All Consumers vs. Unbanked Consumers: Cell Phone Usage, Cell Phone Text Messaging, Web Browsing, Data Plan, App and Operating System Usage/Population, Tablet

Ownership/Population, and Online Banking Usage/Population, 2012

And the underbanked

Convenience a mobile banking driver

Chapter 4: Mobile Phone Usage Trends

Summary analysis

Mobile phone ownership nears saturation point

Graph 4-1: Mobile Phone Ownership and Ownership Penetration, 2004-2012

Increasing variety of features making their way onto mobile phones

Texting usage nears 60%

Camera/picture phone use bodes well for remote check deposit

Table 4-1: Mobile Phone Features and Services Penetration, 2007-2012

Feature engagement

Downloading apps, GPS and camcorder phone engagement above 50%

Graph 4-2: Mobile Phone Feature Usage and Engagement: By Feature, 2012

Data plans attached to a third of mobile phones

Graph 4-3: Share of Mobile Phone Owners with Limited and Unlimited Voice, Data and Text Plans, 2012

Mobile phone usage and smartphone usage share

Smartphone share passes 50%

Youth, higher income consumers and racial/ethnic minorities lead the way

Table 4-2: Consumer Mobile Phone Ownership, Smartphone Ownership and Ownership Share, 2012

Smartphone users vs. non-smartphone users: feature usage, bill and downloads

Texting carries across smartphones and non-smartphones

Data-driven feature usage is smartphone dependent

Strong feature-driven user base for mobile payments providers to target

Table 4-3: Feature Usage, Phone Bill and App Download Frequency: Smartphone Users

vs. Non-Smartphone Users, 2012

25-34s drive usage, but internet, text and e-mail penetration implies broad target population

Table 4-4: Smartphone User Feature Usage, Phone Bill and App Download Frequency: By Age Bracket, 2012

Usage consistent across incomes despite significant billing differences

Table 4-5: Smartphone User Feature Usage, Phone Bill and App Download Frequency: By HH Income, 2012

Chapter 5: Mobile Banking Trends

Summary analysis

Mobile bankers

25-34s and non-whites pivotal demographics

Table 5-1: Mobile Banking: Usage Penetration, 2012

Mobile banking features and services

Almost 50 million using phone to check account balance/recent transactions

Remote check deposit is quickly gaining traction

Table 5-2: Mobile Banking Features and Services Usage Penetration and Population: U.S. Population, Mobile Phone and Smartphone Users, 2012

Mobile bankers = smartphone users

Table 5-3: Mobile Banking and Mobile Banking Frequency: Mobile Phone, Smartphone and Non-Smartphone Users, 2012

Chapter 6: Mobile Payments Trends

Summary analysis

Mobile payers

Gaining a foothold

Table 6-1: Mobile Payments Usage Penetration, 2012

But marked by infrequent use

Table 6-2: Mobile Payments Per Month, 2012

Mobile payment methods

Bill payment has widest usage footprint

P2P taking hold

1 in 10 tapping phone at POS; using virtual wallets

Table 6-3: Mobile Payment Methods, 2012

It’s a generational issue more than a financial one

Table 6-4: Mobile Payment Methods: Analysis by Gender, Age and HH income, 2012

Payment cards prevailing funding option, followed by bank account and PayPal

Table 6-5: Mobile Payments Funding Sources, 2012

Youth and money

Table 6-6: Mobile Payments Funding Sources: Analysis by Gender, Age and HH income, 2012

Past 12 months vs. next 12 months: mobile payment, deposit and communication methods

Current state of affairs

Future state of affairs

Graph 6-1: Mobile Payers’ Mobile Payment, Deposit and Communication Methods:

Current vs. Intended Use, 2012

Interest during next 12 months

Interest more prevalent among smartphone users

Table 6-7: Interest in Mobile Phone Payment, Deposit and Communication Methods in Next

12 months: Mobile Phone, Smartphone and Non-Smartphone Users, 2012

Mobile bankers and mobile payers express similar interest

Table 6-8: Interest in Mobile Phone Payment, Deposit and Communication Methods in Next

12 months: Mobile Phone Users, Mobile Bankers and Mobile Payers, 2012

65+ smartphone users could benefit from barcode scanning app

Table 6-9: Interest in Mobile Payment by Text, Barcode Scan and Web Browser in Next 12 Months: Smartphone Users vs. Non-Smartphone Users by Demographic, 2012

Hispanic intention to tap phone at POS lags average

Table 6-10: Interest in Mobile Payment by App, POS Tap and Picture Bill Payment in Next 12 Months: Smartphone Users vs. Non-Smartphone Users by Demographic, 2012

Intended use of picture check deposit among 35-44s lag average

Table 6-11: Interest in Picture Check Deposit and Two-Way Alerts in Next 12 Months: Smartphone Users vs. Non-Smartphone Users by Demographic, 2012

Chapter 7: Consumer Interest in Mobile Phone Financial, Promotional and Shopping Enhancements

Summary analysis

Introduction

Mobile Phone Financial and Promotional Organization

Mobile Financial and Promotional Organization Tools: Current Use and Future Use

Graph 7-1: Mobile Payers: Current and Future Use of Mobile Financial and Promotional Organization Tools, 2012

Non-smartphone users interested, too

Table 7-1: Interest in Mobile Financial And Promotional Organization Tools in Next 12 months:Mobile Phone, Smartphone& Non-Smartphone Users

Mobile bankers most apt to express interest in variety of methods

Table 7-2: Interest in Mobile Financial and Promotional Organization Tools in Next 12 Months: Mobile Phone Users, Mobile Bankers and Mobile Payers, 2012

Mobile Phone Shopping Enhancements

Mobile Shopping Tools: Current Use and Future Use

Stop using that cell phone to find a better offer and then shop elsewhere!

Keep them in the store and upsell them

Comparing prices while shopping a popular phenomenon

Graph 7-2: Mobile Payers: Current and Future Use of Mobile Shopping Tools, 2012

Non-smartphone users interested, too

Table 7-3: Interest in Mobile Shopping Tools in Next 12 months: Mobile Phone, Smartphone and Non-Smartphone Users, 2012

Mobile banker interest suggests platform development route

Table 7-4: Interest in Mobile Shopping Tools in Next 12 months: Mobile Phone Users, Mobile Bankers and Mobile Payers

Chapter 8: Mobile Payments Strategies: Card Associations

American Express

Payment diversification

Prepaid moves

Filling a void

Strong consumer value proposition

Bluebird takes flight

Part of the digital wallet

Serve

Tapping younger, affluent customers

Building use base via partners with large customer bases

Ticketmaster

Verizon

Funding agnostic

P2P and other nifty things

Bridging online and offline

Personalized offers

My Offers personalizes daily deals

Go Social

Location-based SMS text messaging for feature phone users

Location-based offers for iPhone on the way

Loyalty automation

Serve revenue

Table 8-1: Serve Revenue Drivers and Cost Drivers

Discover Financial Services, Inc.

Discover building significant relationships

Alternative payments strategy

PayPal card

Google Wallet card

MasterCard

PayPass

Security

PayPass Wallet Services

PayPass network remains very small

MasterCard inControl: Security, financial control and awareness

The bigger picture: EMV is the key

Strong on security

Weak on adoption

Visa

Priority 1: driving consumer adoption

Rollout with major banking and retail partners

V.me makes huge splash abroad

Visa mobile payments relationship building

Chapter 9: Mobile Payments Strategies: Digital Leaders

Introductory competitive analysis

The mobile payment solution with the most users wins?

Table 9-1: Leading E-Commerce Mobile Payments Players: Consumer Usage Metrics

Who has the fee edge?

Table 9-2: Leading E-Commerce Mobile Payments Players: Merchant Processing Fees

And how/where do I pay?

Table 9-3: Leading E-Commerce Mobile Payments Players: Payment Options

New technologies at the point of sale

Table 9-4: Leading E-Commerce Mobile Payments Players: POS Payment Method

Amazon Payments

Drawing from an enormous consumer usage base

Table 9-5: Amazon.com Website Monthly Usage Penetration and Visits per Month, 2007-2012

Checkout by Amazon

Checkout by Amazon Mobile

Amazon Simple Pay

Amazon WebPay

Amazon Mobile Payments Service

Flexible Payment Services

Pricing and fees

Table 9-6: Amazon Payments: Fee Structure, 2012

Apple

Passbook

Dipping a toe in offline space

NFC still not on the menu, but perhaps fingerprints are?

Missing pieces

The iTunes connection

400 million accounts worldwide

Millions of highly engaged U.S. users

Who align well with smartphone demographic

Table 9-7: iTunes Annual, Weekly and Daily Usage Population and Demographic Analysis, 2012

Key mobile technology groups likely to use iTunes

Table 9-8: iTunes Annual, Weekly and Daily Usage Penetration and Population Universe: By Cell Phone Owners, Cell Phone Data Plan, Android and iOS Users, App Downloaders, Tablet Owners, and Online Bankers, 2012

Graph 9-1: iTunes Annual, Weekly and Daily Usage Penetration: By Cell Phone Owners, Cell Phone Data Plan, Android and iOS Users, App Downloaders, Tablet Owners, and Online Bankers, 2012

Google Wallet

Wallet 1.0: lots of fanfare; little success

Wallet 1.5: putting it in the cloud

Calling all cards

Save to Wallet feature

Online/offline integration: Enter the virtual prepaid card

Online purchases: ubiquity, courtesy of MasterCard

In-store purchase limited by NFC

Security enhancement

Wallet 2.0: Leapfrogging NFC with a physical card

Thank you, Discover

The interchange issue: Google loses on transaction revenue

Facebook

Direct to carrier billing payments strategy; digital content focus

Providing opportunity for Facebook App Center

15% of revenue from payments

Mobile active users set to top 500 million

Graph 9-2: Facebook Mobile Active Users and Average Revenue Per User, 2011-2012

Groupon Payments

Very attractive pricing

LevelUp

The best pricing: no interchange

Incentive programs, merchant partnerships and user base

LevelUp makes its money from added-value analytics

Merchant-driven customer discounts

Addressing security concerns

Table 9-10: LevelUp Security Summary

PayPal

Bill Me Later

Zong

100 million accounts and counting

The PayPal P2P usage base

Online and mobile capability

PayPal Wallet

PayPal Here: POS solution

The Discover network connection

The card you use to pay matters: lower interchange = better for PayPal

Location-based mobile advertising

Addressing fraud

Square, Inc.

How much it costs

Table 9-12: Square Pricing Options and Fees

How it works

Open tab feature

Loyalty tracking

Security

Tools

Square Card Reader

Square Register

Starbucks breaks it wide open

Starbucks

Chapter 10: Mobile Payments Strategies: Processors and

POS Solution Providers

Heartland Payment Systems

Going Mobuyle

Penetrating higher education

Fiserv

Leveraging relationships to build an integrated platform

Table 10-1: Fiserv Customer Relationships, by Payment Method and Device

Electronic banking

Electronic bill payment and presentment

Digital channels

P2P opportunity

2010 P2P launch

2011 Popmoney integration

Demand surging

Fast transaction execution

Integration with bill payment

Spot Pay: Setting sights on Square and PayPal

Windows 8 Digital Banking

Verifone

1 million NFC terminals shipped

Terminal upgrades coming

Straddling emerging wallets

Chapter 11: Mobile Payments Strategies: Mobile Network Operators

Isis

230 million accounts is a nice start

Table 11-1: Verizon, AT&T, Sprint and T-Mobile Subscribers, ARPU and Service Revenue, 2009-2011

Isis

A challenge to the payment networks

Open wallet approach

Table 11-2: Isis: What’s in the Wallet and How It Works

Off the ground after delays

Chapter 12: Mobile Payments Strategies: Retailers

Merchant Customer Exchange

Wal-Mart testing

Starbucks

Starbucks takes the barcode route

100 mobile million transactions and counting

Stored value card foundation

Benefits

Square partnership—a Square investment

Restaurant chains

McDonald’s

Dunkin Donuts

Appendix

Consumer survey methodology

Market size and forecast

Report table interpretation

Abbreviations

Terms and definitions

Explanatory tables

Table: Appendix – 1: Mobile Phone, Smartphone, Non-Smartphone, Mobile Banking and

Mobile Payments Users: 2012

Table: Appendix – 2: U.S. Cell Phone Ownership/Use, by Demographic: 2012 Survey Comparison