Mobile Payments Market Opportunities and Business Models

I have managed some m-payments initiatives (i.e. Vodafone in 2003 and 2004).

Mobile payments (m-payments) are defined as any payment transactions, whether in-store or remote, executed on mobile devices.

1. Potential Drivers for Market Adoption of Mobile Payments
Mobile operators are under pressure to continue looking for new revenue sources to counteract voice pricing decline and subscriber growth saturation. The m-payment market also presents them with an opportunity to further expand non-voice revenues.

Furthermore, financial institutions, facing declining revenue growth from traditional credit cards, are also looking at cashdominated micro-payments (i.e. transactions less than €5 - €10) to generate new revenue streams.

On the demand side, the growing ubiquity of mobile phones and their increasing multifunctionality make mobile phones a compelling candidate for replacing a physical wallet.

In addition, consumers are increasingly comfortable in using their mobile phones for applications other than voice.

2. Segmentation of the Mobile Payment Market
The market can be segmented into 4 quadrants: in-store vs. remote and micro vs. macro transactions, where a micro transaction is defined as less than €5 - €10.

Mobile phones possess key value propositions that make m-payments ideal for these segments. For in-store segments, the value proposition is the convenience and speed of contactless payments. For remote segments, the value proposition is the inherent connectivity, ubiquity, and near real-time verification capability of mobile devices (via SMS, WAP, or IVR).

3. M-Payment value chain
Traditional payments typically involve a merchant, acquirer, issuer, and a consumer. The roles of merchants and consumers are obvious. Acquirers are responsible for acquiring merchants and enabling merchants to process payments. Issuers are responsible for issuing payment devices to consumers and processing the transfer of funds from consumer accounts to merchants. In the case of credit and debit cards and other electronic forms of payment, a payment network provider, such as Visa or MasterCard, resides between acquirers and issuers to facilitate the transfer of information and funds. Payment network providers are also responsible for expanding their merchant networks and user membership to ensure wide acceptance and drive revenue growth.