Mobile Presents Major Prepaid Opportunity
October 31, 2011
By: Duygu TavanVRL provides independent incisive analysis and insight for the global cards and payments community.
Exclusive research presented at VRL Financial News' Prepaid Summit this week indicated that mobile payments are still facing serious barriers to consumer adoption, but discussions at the event concluded that prepaid could play a key role in overcoming them.
The research, carried out by consumer research specialists TNS who questioned 600 smartphone users across Italy, found that despite efforts from all parties in the payments value chain there is still a general lack of awareness among consumers. Moreover, many of those who were aware of mobile payments expressed serious security concerns.
"This suggests that investment in consumer education is key to banks and payments providers wanting to capitalize on the opportunity," said James Ratcliff, who chaired the conference. "It is not good enough to simply offer consumers the facility to make payments on their phone. Mobile payments providers need to clearly demonstrate the benefits of the service in order for it to truly take off."
In practice, this means industry stakeholders such as banks, telcos and retailers have to pool their expertise to offer incentives to drive mobile payment adoption.
The mobile opportunity quantified
The rewards for doing so are clear. A white paper commissioned by Vesta and compiled by Informa Telecoms & Media found that remote payments - and not NFC - provide the richest business opportunity for mobile operators.
The white paper estimated that mobile commerce services such as mobile banking, remote mobile payments, local mobile payments and mobile money transfers would turn into an industry with revenues of more than USD22.5 billion within the next three years.
Money transfer services alone will account for USD6 billion in revenues by 2014 a business case that presents better and more lucrative opportunities than NFC alone.
Mobile wallet is the key word here. Mobile operators can use their existing expertise in prepaid top-up, content purchases and bill payment services to drive the adoption of m-wallets. And because consumers are familiar with these services, operators can increase their subscribers' comfort levels with m-commerce transactions.
This will enable operators to position themselves at the heart of the m-commerce value chain, ahead of over-the-top players and in pole position to claim a significant share of the projected revenues, Vesta and Informa argued.
At the Summit Milind Kangle, CEO of MVNO Lyca Mobile explained how his business had developed from selling international phone cards, to becoming a telecoms network, to launching a payment card program. As a prepaid mobile network, Lyca is perfectly positioned to capitalize on the use of prepaid for international remittance. And according to Marshall Behling, vice-president of international business development at Vesta and Shailendra Pandey, senior analyst at Informa, Telecoms and Media, this is the biggest opportunity in m-commerce.
"If you consider cross-border remittances, then there would of course be legislation to comply with. The biggest opportunities operators have is reducing the cash-out option on prepaid cards because if you have transferred money to someone, if you can keep that amount on the mobile, by buying digital content or physical goods and services as long as they do not cash-out, there will be fewer regulations to worry about," argues Pandey.
"4-5 years ago, there was the view that emerging markets were where prepaid had the biggest potential to be a substantial business case. That has changed, now prepaid users are also growing in developed markets."
According to Pandey and Behling, the biggest advantage mobile phone operators have is the existing relationships they have with their subscribers.
"They've got this good prepaid infrastructure already, which they can use to offer advanced m-commerce services. I think that's the biggest way operators can compete with Google and Apple - and yes, I do think the business models for operators are changing and the operators need to look for forming partnerships at other places in order to generate revenues," says Pandey.
This is the key message of the white paper: Vesta and Informa found that operators have begun to focus on their existing strength - the prepaid infrastructure they have in place to drive remote payments.
Merchants themselves may continue to be reluctant to invest, but the point the white paper does is that there are areas other than the POS mobile operators can get very aggressive around, such as pricing and business models that do not have to deal with the complexities and the problems that the POS environment in the physical retail environment produces.
But operators need to partner with specialist companies to develop a valuable m-commerce service.
Pandey and Behling say that for physical purchases, operators do not actually need to partner with other players, such as Amazon or eBay to launch a payment app. Instead, they argue, operators should partner with the likes of Amazon or eBay and offer e-billing services.
The operators seem to finally begin to get the point they consider prepaid the number one application in the m-commerce industry because that is all of the money that goes through some kind of virtual wallet. And now companies are beginning to realize that this actually is a form of m-commerce it is one that consumers are already using.
TRENDS + INSIGHTS
In terms of mobile payments, consumer products could do worse than to take a lead from those developed for business use. more