The Future of Payments: Prepaid cards, contactless and mobile payments

• Publication date: April 2008
• Report size: 122 pages

Card payments have increasingly become an important part of our everyday lives, especially as more and more people utilize the Internet and financial institutions offer various payment services that preclude writing checks or using cash. From a business standpoint and despite growing transaction volumes, financial institutions are facing margin pressures on their payments businesses as competition has grown. From a technology standpoint, there ha...

Card payments have increasingly become an important part of our everyday lives, especially as more and more people utilize the Internet and financial institutions offer various payment services that preclude writing checks or using cash. From a business standpoint and despite growing transaction volumes, financial institutions are facing margin pressures on their payments businesses as competition has grown. From a technology standpoint, there has been little change in the past two decades. However, there are indications that suggest the next few years will yield interesting changes to how the electronic payments landscape will look.

Financial Services Industry

Table of Contents
The Future of Payments
Market context: The US and Europe 8
Market context: Asia Pacific and pre-paid cards 9
The future of co-branded cards 10
Contactless payments 11
Mobile payments 12
Chapter 1 Market context: the US and Europe 16
Summary 16
Introduction 17
Prepaid cards 18
Contactless payments 19
Market issues 20
SEPA 23
Future strategies 24
Payments fraud 26
Chapter 2 Market context: Asia-Pacific and pre-paid cards 30
Summary 30
Introduction 31
Definitions 31
Affinity cards 31
AAGR 31
Balances outstanding 32
Branded prepaid cards 32
CAGR 32
Co-branded cards 32
Private-label cards 32
Prepaid cards 33
Pre-paid markets 39
iv
The European market vs the US and Japan 39
The youth market 39
Corporate market 41
Unbanked customers 42
Conclusions 43
Teen market 43
Corporate and government sectors 47
Chapter 3 The future of co-branded cards 52
Summary 52
Market context 53
Loyalty schemes 56
Types of co-branded card programs 57
Benefits to card issuers of co-branded programs 59
Benefits to merchants of co-branded card programs 61
Risks 62
Conclusions 63
Product differentiation 65
Co-branding relationships 66
Market share in growing markets 66
Co-branding profitability 67
High costs 68
Chapter 4 Contactless payments 72
Summary 72
Market context 73
Market sizing 78
Conclusions 80
Potential obstacles and solutions 81
Interoperability 81
Security 82
Cost 82
The future 83
The Americas 85
Asia-Pacific 86
Europe 86
Chapter 5 Mobile payments 90
Summary 90
v
Defining mobile payments 91
Market context 91
Costs and risks 93
Market drivers 95
mPayment trials 98
Mobipay – Europe’s great mPayment success story? 98
NTT DoCoMo – turning the mobile phone into a contactless e-wallet 101
The collapse of Simpay 106
Problem 1: Premium SMS is a highly inflexible means of payment 107
Problem 2: A lack of common standards makes life difficult for merchants and restricts cross-border sales 108
Conclusions 110
Payment and billing structures 113
Interoperability and acceptance 115
The cost of accepting mPayments 117
The future 120
Index 122
List of Figures
Figure 1.1: European retail banks’ payment project priorities 22
Figure 1.2: European retail payment players 25
Figure 1.3: Retail banks’ fraud priority areas 27
Figure 2.4: Prepaid cards have their place in the current payment card landscape 35
Figure 2.5: Asia-Pacific target youth market, 2007 40
Figure 3.6: Defining card partnership models 54
Figure 3.7: Combining brand and expertise in a co-branding relationship 55
Figure 4.8: Global market opportunity for contactless payments 78
Figure 5.9: Cash is the dominant payment mechanism for transactions up to the value of £10.00 in the UK 96
Figure 5.10: NTT DoCoMo has taken the traditional mobile phone proposition and added extra functionality 101
Figure 5.11: Applications for mobile payments 111
List of Tables
Table 2.1: Forecast prepaid card spend by country ($bn), 2010 39
Table 2.2: Asia-Pacific target youth market (0-17 years), 2007 40
Table 2.3: Youths and their aspirational ages 45
Table 3.4: forecast for pay later card numbers across five markets, 2006–2010 64
Table 5.5: The aspects of the mPayment value chain that interested parties are keen to secure or avoid 94