Looks at why mobile payments hasn't taken off in most places around the world and what has to happen for mobile payment platforms to ignite. Keynote presentation at the Berkeley Mobile Money Conference on October 11, 2013

1. Igniting Mobile Payments
David S. Evans
Market Platform Dynamics
University of Chicago Law School
Mobile Money Conference
Berkeley, CA
11 October 2013
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2. My All Payments Sunday in Boston Last Year
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Used to pay for Starbucks
coffee with cash
Used to pay for taxis with cash
Now uses Starbucks iPhone
App to pay even for small
purchases
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Used to pay for lunch with cash
Now uses LevelUp iPhone App
Now uses Uber iPhone App to
order and pay for car service in
Boston and many cities
throughout the US
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3. MOBILE PAYMENTS GROWTH IS EXPLODING!
JUST READ THE HEADLINES
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4. Explosive Growth of Mobile Payments Around the World!
…worldwide transaction value of mobile payments will total $984 billion by 2014, up from $162
billion last year. That includes transactions from mobile banking, international and domestic
remittances, contactless cards, mobile coupons and near-field communications.
Mobile payments will represent 15% of all card transactions by 2013, and will overcome card
volumes within 10 years if growth continues at the same rate, according to the World Payments
Report 2011.
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5. The Japanese & Koreans Use Mobile Payments Like Crazy
“Each month last year, four million South Koreans
bought music, videos, ring tones, online game
subscriptions and articles from newspaper archives and other online items and charged them to their
mobile phone bills, without going through any bank or credit card. The amount totaled 1.7 trillion
won, or $1.4 billion at current exchange rates, last year. South Koreans have done this since 2000.”
– The New York Times, 2009
…Japan and Korea are widely acknowledged as global
leaders in … m-payments…”
– KPMG, 2007
“Emerging markets in Asia will lead the way in mobile payments
(m-payments) over the next several years..”
– ZD Net, 2011
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6. And Mobile Payments Use Is Accelerating in the US
Mobile devices are edging closer to fulfilling their long-delayed promise as digital wallets.
Consumers are beginning to see the advantage of channeling offline payments through their mobile
devices, rather than carrying around clunky coins and cash — even debit and credit cards.
Consumers are primed to go wallet-free and begin paying for goods and services via their mobile
devices, and as a result, mobile payments are set to explode.
- July 2013
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7. Mobile Payments Is Growing Like Gangbusters Outside the US,
What’s Wrong With Us?
“Prevalent elsewhere in the world, particularly
Europe and Asia, mobile payments have a
combined global market value projected to top
$600 billion by 2013. In some developing countries,
mobile payment devices are even being used for
micropayments…. Yet, in the United States, mobile
payments have failed to gain traction”
- April 2009
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“Consumers in Japan also pay with their
cellphones more than Americans do, said Ray
Ledford, who lives in Japan but spends half his
time in the United States on work.”
- July 2013
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8. Everything
I’ve
Just
Told
You
Is
a
Lie!!!!
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9. THE REALITY VS. THE HYPE
What’s Really Going On
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10. Hundreds of Mobile Payments Pilots and LaunchesAround the World
in Last 7 Years
Source: PYMNTS.com, CTIA, NFC Times
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11. Yet Mobile Payments Has Significant Volume in Few Countries
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12. Even Japan and Korea Aren’t As Successful as You’ve Been Lead to Believe
DoCoMo’s gamble on contactless wallet phones has yet to
pay off, despite the impressive numbers of contactless
phones, mobile applications and acceptance points.
Transactions figures showing how much Japanese subscribers use the phones are hard to come by.
Some estimates put regular use at about 10%, though more tap their phones to pay on a less
frequent basis.
- November 2009
…a lack of understanding between the
finance and communication industries has so
far held up the development of the (Korean)
mobile payments market.
- February 2012
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13. Outside of Starbucks Most Americans Can’t Pay at POS with Mobile
Peoria isn’t Palo Alto! In most of the country the only place you could pay with mobile is
at a Starbucks. The penetration of true mobile payment platforms is VIRTUALLY ZERO!
Total US Merchants
Total Card Accepting Merchants = 8.5 million
And not many transactions are happening
at the few places that take mobile
payments—except Starbucks.
5,000 Merchants
Square Wallet: 250,000 Merchants
7,000 US its stores
@ Physical POS: 250,000
Merchants
Source: Company websites, MPD Analysis
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14. What Is a Mobile Payments Platform?
Mobile payments platform enables many consumers
to transact with many unaffiliated merchants—just like
“general purpose cards”
LevelUp is a mobile payments platform
because consumers with the app can pay
at many independent merchants
Single-use applications for paying such as Starbucks,
Uber, iTunes are important for mobile payments but
aren’t platforms—they are like “store cards”
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Our focus today is on
mobile payments
platforms and igniting
two-sided platform for
consumers and merchants

15. GETTING TO SIZZLE RATHER THAN FIZZLE:
LESSONS LEARNED FROM MULTISIDED PLATFORM ECONOMICS
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16. OpenTable Is An Intermediary Between Diners and Restaurants
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17. OpenTable Solved a Transaction Cost Problem
$162 million revenue in 2012 | $1.4 billion markets cap
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18. Restaurants Pay & Consumers Use for Free
$139 million NA revenue in 2012 | $1.4 billion markets cap
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19. Positive Feedback Effects Fueled Growth
122 million diners seated with
OpenTable in 2012, up from
96 million in 2011
27K restaurants in 2013 Q1
up from 24K in 2011 Q4
More than 15% annual growth
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20. OpenTable is a Two-Sided Platform
It provides a web-based “platform” that
enables diners and restaurants to find
each other and get together.
The platform is an intermediary between
restaurants and diners.
General purpose payments is a two-sided
platform involving senders and receivers
of funds.
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21. Platforms need critical mass to ignite
Critical mass
Critical mass refers to the minimal set of customers on each side that is
large enough to attract more customers and result in sustainable positive
feedback
Cri$cal
mass
depends
on
scale
and
balance
Probability of customers from two sets getting together and exchanging
value increases with the number of customers on each side
Pla2orms
implode
if
they
can’t
reach
cri$cal
mass
If there aren’t enough customers on the other side the probability of
advantageous exchange falls and customers don’t join and the early
adopters who have eventually leave
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22. WHY NO MOBILE PAYMENTS MOJO IN THE US?
IT’S NOT A TOUGH QUESTION TO ANSWER
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23. Problem 1: Problem, What Problem?
Consumers and merchants can transact easily with
plastic cards
Swipe transactions take about a second
Consumers have muscle memory in doing them
Merchants are all set up to take them
Almost ubiquitous use by consumers and
merchants
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Where’s the
transaction-cost
problem?

24. Problem 2: Merchant Acceptance
Millions of merchants have sunk cost
investments in POS equipment
POS systems integrated with back-end
systems
Change requires training sales clerks
Any change in POS risks disruption and loss
sales in addition to incremental investment
cost
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Show me the
money!!!

25. Problem 3: Consumer Adoption
Why download and use a new mobile payment
app if you can’t use it at many merchants?
And the merchants that take it get so few
transactions the clerk doesn’t know what to do.
Paying with mobile isn’t any faster than swiping,
so why bother?
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Show me the value!!!

26. Meta-Problem: No Chickens or Eggs
Consumers don’t have a compelling reason to
want to pay with mobile
Merchants don’t have a compelling reason to
accept mobile payments
Both problems are hard to fix unless mobile
payments is significantly better than what
consumers and merchants are now doing
But it can’t be (much) faster …
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Show me the critical
mass!

27. THE NFC DEBACLE & THE TRAGEDY OF THE HYPE
We’ve Seen This Movie Before
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28. NFC’s Chicken and Egg Problem
Card networks have been pushing NFC-based
contactless cards since early 2000s globally.
Massive hype on success of NFC and the
inevitability of NFC-based payments at point
of sale
Reality has been only small portion of
merchants in most countries have installed
contactless terminals
Consumers have shown little interest in using
the cards
Leading to merchants having even less interest
in investing in terminals.
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After a decade
there is modest
success in
Canada, UK, and
Poland… but NFC
is a complete bust
in the US and
almost
everywhere else

29. The Incredible Shrinking Inevitable Technology
Yet many industry analysts continue to predict growth in NFC only to reduce their optimism later on.
In fact, Gartner this past July was highly publicized for cutting their NFC forecast by 40%. Juniper
also reported significant drops in forecasted volume vs. previous reports.
NFC Forecasts 2009 – 2013
$USD Billions
June 2012
$200.0
$150.0
Dec 2012
March 2012
$100.0
July 2013
Feb 2011
June 2011
$50.0
Sept. 2009
Sept. 2011
March 2012
$2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Juniper, Gartner, Yankee Group, Informa, NPD Group
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30. Hundreds of Millions of Contactless Cards But No Place to Use Them
Global MasterCard-Enabled POS Terminals
Total Terminals = 35.9 million
PayPass-Enabled terminals today:
886,000 or approx 2.5%
Planed 3yr deployment in Japan:
410,000 will bring total to 3.6%
Source: MasterCard 2012 annual report, company press releases
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31. Payments Networks and Telecoms Banked on NFC
And Tried to Convince That NFC Was Growing Rapidly and “Inevitable”
PROJECT OSCAR
PARTNERSHIPS
NFC SPECS
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“Vodafone’s customer base spans
across more than 30 countries, which
means our partnership may become
one of the biggest, global
implementations of NFC and mobile
commerce,” said Dr. Jae Chung,
CorFire’s president and CEO.
- October 2012

32. The NFC Debacle and the Mobile Fizzle
Many Mobile Payments Startups and Pilots Walked into the NFC Trap
A FEW EXAMPLES
• Hundreds of millions of $ wasted on
NFC initiatives
• Lost decade of innovation at the POS
• Driven by NFC-devotees and fueled
by hype
• Massive distraction for mobile
payment platform entrepreneurs
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33. FIZZLES & SIZZLES
A FEW CASE STUDIES
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34. Fizzle (So far) | Google Wallet
Google’s 2011 Strategic Priorities
1| Focus on developing the underlying fast mobile network
2| Increase the availability of inexpensive smartphones for the entire world
THE HOPE
3| Development of mobile money
• Osama Bedier recruited away from PayPal in 2011
• Team swells to 500 by 2012
• Android market share growing at pace of 400k
devices per day
“Google [Wallet] doesn’t have a chicken-and-egg problem: It
is reasonably banking on the natural consumer upgrade cycle
for smartphones to help fuel demand for NFC phones, which
in turn will put Wallet in more pockets.”
THE BET
- Sam Gustin, Wired, May 2011
Minimal Acceptance x Minimal Adoption=Fizzle
THE FIZZLE
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•
•
•
•
Merchant, MNO, & Network resistance
Negligible transaction volume
Bedier departs May 2013 (really late 2012)
Losses total an estimated $500M
Closed down and folded into advertising/commerce
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35. Sizzle| mPesa
mPesa Users and Agent Growth
• Addressed massive transaction costs
associated with moving money between
urban in rural areas
• Launched by Vodafone/Safaricom in March
2007 as a service to facilitate banking
deposits, P2P, and bill pay
• By 2010 was adopted by 40% of the adult
population and 60% of Safaricom customers
• Processes more transactions than Western
Union does globally
• Now used by over 17m Kenyans, equivalent
to more than two-thirds of the adult
population & approx. 25% of GDP now
flows through it
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Source: The Economics of M‐PESA , 8/2010

36. Sizzle or Fizzle?| Square
Square Annual Processing Volume
($USD Billions)
• Launched in 2010 as a mobile POS reader to enable small
merchants to accept payments
• The reader didn’t have a chicken & egg problem. Consumers
already had cards & Square solved for the friction of
needing to pay small merchants by cash or check
$15
Moneris: $12B
$12
EVO: $10B
• Reporting $15 billion in annualized volume outside of
landmark partnership to process payment for all 10,000+ US
Starbucks stores
$9
• Expanded to become a true mobile payments & commerce
player with the launches of Card Case (now Square Wallet)
and Square Market.
$6
• Reported 3MM customers and 250,000 merchants using
Square Wallet in December 2012 but there is no indication
on how active either of these players are. Independent field
tests report that most merchants don’t know how Square
Wallet works and haven’t had customers ask to use it
$3
BB&T: $7B
$M-12
J-12
N-12
M-13
J-13
Source: Company Reports, Nilson
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37. SECURING MOBILE PAYMENT
PLATFORM IGNITION
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38. Bedrock of Platform Ignition
A new platform has to generate significant
additional value to get customers on both sides
to join and interact.
Successful platforms such as OpenTable and
Uber generally do this by solving a significant
transaction problem.
That “value generation” provides incentives to
join or revenue stream that can be used to
subsidize hard-to-move but necessary
participants.
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39. Igniting Mobile Payments Won’t be About Payments
There’s no significant transaction problem
involving consumers making payments and
merchants receiving payments at the physical
point of sale.
“Payments” innovation in fact historically hasn’t
been about payments but time shifting of
payments and receipts, fraud protection, and
value-added services such as financing.
Mobile “payments” will need to provide a value
beyond what physical cards can do today.
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AMERICAN EXPRESS isn’t
successful because they
enable payment. Its because
of everything else that comes
with being a cardholder

40. The App is the Key to Mobile Payments Ignition
Its About Closing the Loop Between Consumers & Merchants
THE PAYPAL ECOSYSTEM
Mobile phone apps provide ability to
bundle many services that facilitate
commerce
Mobile
payments app
Search is now for an app that provides
enough value to merchants and
cardholders to reach critical mass
Handsfree at
the POS
Competition currently focused on
providing location-based offers and
rewards to drive incremental sales for
merchants and value to consumers
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Beacon

41. Why Ignition Will be Slow
Unconvinced merchants
with long POS
replacement cycles
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•
•
•
8 million merchant
2-3 year replacement cycle
Don’t know what technology to
invest in—NFC, bar code,
Bluetooth, ?
Have little appetite to invest
without clear ROI
Consumer “muscle
memory” & lack of
motivation
2012 UK Study
64%
68%
52%
Worried about
theft of acct &
payment data
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Tension among major
stakeholders
Ok with how
they pay
Concerned
about fraud
& security
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42. Why Takeoff Could Happen Sooner & Be More Rapid
• Innovations in cloud-based solutions with slick interfaces persuade merchants they need to
change POS experience: innovative retail or die
• Competition among “app” developers results in “killer” app for mobile payments leading
consumers to want to use it and merchants to want to take it.
• A “Black Swan” emerges with a mobile solution no one had every thought about
Apple iBeacons Ecosystem
Total iTunes Accounts
In Millions
575
iOS-Powered POS Systems
400
160
10
50
Ave square meters per store: 16,258
Beacons to cover
an entire store =
75
NFC Tags for
100k products =
$5,000
200
2005 2008 2009 2010 2011 2012 2013
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SAMPLE iBEACON ECONOMICS
$10,000
Source: Gigaom, Estimote
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43. SO WHAT?
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44. Reflections on the Mobile Commerce Field of Play
1 | Ignition delayed because players have focused on the technology for paying rather
than solving for value
2 | Mobile payments delayed because networks and telcoms hyped a technology that
gave them control but couldn’t secure critical mass.
3 | Mobile payments ignition delayed because entrepreneurs and investors vastly
underestimated the complexity of changing POS involving sunk cost investments in
hardware, software, training, etc.
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45. Retail Reinvention … The Catalyst for Mobile Commerce Ignition
Simultaneous adoption of mobile POS solutions
as part of the reinvention of retail
and increased use by consumers of mobile phones
provides foundation for ignition –
Once there is a killer app!
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46. THANK YOU
David S. Evans
David.Evans@MarketPlatforms.com
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