MOBILE WALLETS The Future of Cash Whitepaper www.juniperresearch.com
1 1.1 Introduction With the arrival of Apple Pay, interest in mobile wallets has been rekindled. In developed markets, an array of stakeholders, including banks, handset vendors and Over The Top providers are now introducing their own wallet offerings, anxious to capitalise in the increased interest in (and awareness of) contactless payment. However, mobile wallets offer for more than a means of in-store purchases, serving as the repositories for loyalty cards and account details as well as for credit/debit cards. In a number of developing markets, wallet use for Person to Person transactions is already widespread, with adoption for merchant payment, bill payment and loan disbursement growing fast. 1.2 Mobile Wallets for Developing Markets In most cases there is also a fairly clear demarcation between wallets aimed at developed markets and those aimed at developing markets. In the latter case, they were primarily designed as means of banking the unbanked: providing an Stored Value Account which would enable the account holder to receive remittance on their mobile device and then translate that remittance into cash via an agent of the mobile wallet service provider. In the former, wallets are increasingly perceived as a means of enabling contactless payment via the handset, as well as being a repository for coupons and loyalty cards; they are also seen as potentially facilitating user identification and authentication.the beauty of such arrangements is that they enable consumers to transfer money without incurring the high fees traditionally associated with international remittance, or the lack of security associated with informal channels. 1.2.1 The ecommerce Wallet It is worth emphasising that not only do many emerging/developing markets have limited access to financial infrastructure, but that fixed Internet access is also limited. Thus, in markets where there is a burgeoning smartphone user base, ecommerce will be primarily driven through those devices. It should also be observed that in many such markets, banked penetration is such that wallet products need to be geared to banked as well as unbanked individuals. A key case in point is India, where the proportion of adults with an account at a formal financial institution (53% in 2014) is far higher than those in neighbouring markets such as Bangladesh (29%) and Pakistan (9%). The most popular wallet is the country is Paytm: its licence holder, One97 Communications, launched services in early-2014 and within 18 months the service had already attracted 100 million registered users and was supported by more than 80,000 merchants. While Paytm and other established services cater primarily for the banked 52%, the RBI has now introduced Payments Banks licenses aimed at offering wallet services to the unbanked remainder. In August 2015, the RBI announced that 11 entities had granted approval in principle to provide a limited range of products, such as, acceptance of demand deposits and remittances of funds. These licencees would add value by
2 adapting technological solutions to lower costs and would offer services to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force. 1.3 Mobile Wallets for Developed Markets Typically, although by no means exclusively, the mobile wallets which have thus far been deployed in developed markets have been aimed at individuals that already have a bank account. This is unsurprising, given that across West Europe, the proportion of adults with such an account exceeds 90% and in the US is approaching this mark 1.3.1 The Rise of Apple Pay In September 2014, Apple confirmed that its contactless payment solution, Apple Pay, would utilise NFC (Near Field Communications), with an embedded SE (Secure Element) together with Touch ID authentication. Apple said that consumers would be able to add their credit or debit card on file from their itunes Store account. The service has been integrated into Apple s Passbook wallet; it launched in the US in October 2014 and in the UK in July 2015. It is expected to be launched in parts of continental Europe and developed Asia during late 2015. The service uses tokenisation, whereby each transaction is authorised with a one-time unique number using the Device Account Number stored in the embedded SE, with a dynamic security code to securely validate each transaction. At the outset, Apple Pay was supported by Visa, MasterCard and American Express, while Apple confirmed that it would function in more than 220,000 contactless enabled outlets in the US. By December 2014, Apple said that Apple Pay supported cards that represent about 90 percent of the credit card purchase volume in the United States, while by mid June 2015 it was supported in nearly a million stores across the US However, in addition to its functionality at POS, Apple Pay can also be used as an online payment mechanism. Numerous apps support Apple Pay in the US, including Best Buy, Disney Store, Eventbrite, Staples, StubHub, Target and Ticketmaster. Within 3 days of launch, Apple Pay had more than 1 million registered users. By the end of December 2014, Bank of America was reporting that it had 800,000 active users of 1.1 million registered Apple Pay cards, although it did not specify how many were making transactions online or how many at POS. More recently, in February 2015, Chase Bank also said that it had more than 1 million registered Apple Pay users amongst its cardholders. i. Prognosis We would now argue that Apple Pay will not only drive adoption, but will create a halo effect for contactless payment in general. We still believe that in most markets this will primarily be driven by contactless card transactions, but that the greater awareness of handset contactless payments that Apple will generate will, in turn, result in an uplift in adoption and usage. Indeed, Apple Pay has been followed in its approach (the embedded SE) by Samsung, which will launch Samsung Pay in South Korea and the US during late 2015.
3 1.4 Mobile Wallet Forecasts In the overwhelming majority of markets, only a small minority of wallets thus far deployed have been equipped with contactless payment capabilities, including NFC and Quick Response code payments. From an NFC perspective, despite the increasing availability of handsets with NFC controllers, only a small proportion are being used for commercial transactions due to a lack of commercial NFC initiatives. Figure 1 Mobile Wallets with Contactless Capability, Year End 2016, Split by 8 Key Regions (200 million) However, due to the introduction of Apple Pay in the US and the UK in late 2014 and mid 2015 respectively, together with a raft of HCE-based NFC deployments by financial service providers, this is now changing. The launch of Samsung Pay (initially in South Korea and the US, with deplyments expected elsewhere during 2016) and Android Pay should provide further impetus to the market. Until comparatively recently, contactless wallets accounted for the majority in Far East & China due to the high levels of Osaifu Keitai adoption in Japan, but the recent surge in (non-contactless) Alipay wallets in China has meant that the proportion in the region has fallen dramatically. However, an array of Chinese contactless initiatives (such as the UnionPay launch in late 2014) should see significant adoption of NFC wallets in this market over the next few years. Despite a few initiatives to enable NFC adoption on featurephones (such as a recent offering from Mahindra Comviva targeted at sub-saharan Africa), we believe that few wallets in these developing markets are likely to feature contactless as standard. North America Latin America West Europe Central & East Europe Far East & China Indian Subcontinent Rest of Asia Pacific Africa & Middle East Source: Juniper Research By the end of 2016, we envisage that there will be around 200 million wallets with contactless capability worldwide.
4 Order the Full Research Mobile Wallets: Contactless & Remote Payments 2015-2020 This market-leading research explores current and planned wallet deployments across both developed and developing markets, analysing the key criteria for success in each case and considering the opportunities that they present for players across the value chain. Key Features Wallet evolution, key trend and primary challenge assessment. Key market case studies and analysis. Opportunities assessment for key stakeholder segments. Market forecasts for mobile wallet users, usage and revenue opportunities split by 8 key regions and by 11 national markets. What s in this Research? Interactive Forecast Excel Highly granular dataset comprising nearly 1,000 data points, allied to an Interactive Scenario tool giving user the ability to manipulate Juniper s data (Interactive XL). Publications Details Publication date: September 2015 Author: Windsor Holden Contact Jon King, Sales & Marketing Manager, for more information: Jon.King@juniperresearch.com Juniper Research Ltd, Church Cottage House, Church Square, Basingstoke, Hampshire RG21 7QW UK Tel: UK: +44 (0)1256 830001/475656 USA: +1 408 716 5483 (International answering service) Fax: +44(0)1256 830093 http://www.juniperresearch.com Mobile wallet evolution assessment and core use cases in developed and developing markets. Contactless wallet ecosystem analysis and opportunity assessment for stakeholders. 5 year benchmark forecasts for key metrics, including mobile wallet user and by 8 key regions for Mobile Wallets with Contactless Capabilities; Average Usage Levels; Total Transaction Volumes; Total Transaction Values.