Move to m-payment gains momentum

The value of mobile payment transactions is forecast to expand 68% annually and reach almost $250 billion in 2012 from $29 billion in 2008. By then, accourding to Arthur D. Little, proximity payments will represent 51% of the total m-payment transactions.

Based on ADL's Global M-Payment Report Update 2009, the company believes these figures will be realized as telecom companies have an incentive to launch m-payment services to take advantage of the current window of opportunity. Additionally, transaction volume is expected to keep rising as m-payments will take market share from banking transactions due to lower service costs, and from online-payment services due to increased mobility.

M-payment services are largely still focused on a business-to-person environment, and are equally balanced between remote and proximity services. Volume-wise, remittances will globally be the strongest growth contributor, rising 25% annually over the next two years, before retail purchases will take the lead with 77% yearly growth until 2012.

A key factor influencing the potential for m-payments in any market - developed or emerging - is the banking infrastructure. M-payments have a greater opportunity in markets where the banking network is relatively less developed, acting as a competitive service channel.

ADL expects m-payment transactions in developed markets to grow 56% yearly,  representing a little over a third of the total transaction value by 2012. That same year, emerging markets will grow by 76% yearly and account for about two-thirds of the total.

The biggest share in 2008 came from the cluster of developed countries Japan, South Korea and Australia, with 24% of the global total. Western Europe is in the second spot with a 13% share, but will become the biggest contributor at 17% by 2012. South America will follow closely with 12% and North America with 11%.

In developed markets, ADL does not see m-payments substituting existing payment systems - as massive adoption is limited to convenience-enhancing applications and niche segments - but it will put pressure on existing transaction channel margins. In the next two years, m-payments will remain a complementary transaction channel in developed markets.

For an m-payment solution to be adopted on a mass scale, it must fulfill the key success factors, offering unmatched mobility, a user-friendly interface, a high number of contacts with banks and operators and a new level of convenience. Most of the m-payment applications supply niche segments.

Despite the current hype, ADL does not expect a massive adoption of near field communication (NFC) solution in a majority of developed countries until 2011 at the earliest. Instead, this is seen to be still two years away due to a delay in hardware standardization, the limited availability of NFC-enabled handsets and issues in the development of a viable business case for all stakeholders.

Also, improved regulations and movements toward a liberal ecosystem will push market developments into going "cross-border". As seen in the EU, m-payment market development depends on the creation of a liberal regulatory framework, enabling increased competition and aiming at streamlining cross-border m-payment transactions.
Concerns beyond convenience

As for emerging markets, m-payment services will become the first widespread cashless payment system in many countries, enabling cost-effective and secure transactions. As already seen from several successful service launches, emerging markets are a fertile ground for the development of m-payment solutions due to their limited banking infrastructure and growing mobile penetration.

End-users' benefits will mainly be created through low-value but high-frequency transaction services. Service providers will continue to focus on such transactions while leveraging their customer relationships. Regulators and governments are establishing a legal environment that encourages further development of m-payment services.

New know-your-customer (KYC) norms will be developed, forcing market players to find the balance between convenience of use and security concerns. Regulators, operators, banks and other players have to find the right balance between making the service very convenient and lowering barriers to adoption on one side, and appropriate security and anti-fraud controls on the other side.

Hence, value chain players should take an active role in defining the KYC norms to secure their influence on the development.
Remittance will be the strong growth driver for m-payment transaction volume and cross-border cooperation. Global mobile remittances, with 146% annual growth, will be the target area for m-payment services and will lead to the establishment of international strategic partnerships. This will positively influence the m-payment transactions.

For financial institutions, m-banking and related m-payment services can be a differentiating factor and a chance to tap into the trillion-dollar market of micro cash payments.

For merchants, it is best to evaluate the m-payment channel as a means to increase consumer convenience, mobility and accessibility of their services and goods.

ADL recommends that independent payment service providers increase their partnerships to become well-integrated and, thus, to increase their bargaining power concerning value chain margin distributions.