Mobile Banking in Europe and potentials for MNOs CME Sharing Initiative Authors: Sylvain Chevallier, Olivier Darondel and Christophe Gandillot 29.06.2017
Mobile Payment/Transfer are the most common services, although in mobile banking there are more value-adding financial services Service range Loans Advanced financial services Complementary services Basic M-Banking services Insurance Savings (interest-bearing savings account) International transfer Rewards and loyalty cards Bill/tax Payment P2P Transfer Payment (Proximity or remote) Mobile wallet (basic account) M-Wallet M-Payment Mobile-Banking Mobile Payment and mobile wallet are just parts of the service range which can be offered through mobile banking Different players perspectives : Banks already have all the financial services of the pyramid and see Mobile as a new payment/transfer method Other players (including MNOs) see a way in Basic services, such as payment and transfer, to create a customer relationship which could lead to more value-adding products Confidential. 2017 BearingPoint 2
In 2016, the number of registered and active Mobile accounts shows Europe is late in comparison to the rest of the world Europe and Central Asia 10.4 million registered accounts 1.4 million active accounts South Asia 164.2 million registered accounts 40.4 million active accounts Middle East North Africa 44.1 million registered accounts 13.9 million active accounts Latin America & the Caribbean 23.0 million registered accounts 10.9 million active accounts Sub-Saharan Africa 277.4 million registered accounts 100.1 million active accounts East Asia & Pacific 36.6 million registered accounts 7.1 million active accounts Source : map : GSMA_State-of-the-Industry-Report-on-Mobile-Money_2016 (1) PWC / Mobile Payment report 2017: What customers really want? Confidential. 2017 BearingPoint 3
Although mobile payment penetration varies across countries, the reasons why Europe is late with mobile payment are manifold Regulatory policies Commercial proposition Commercial propositions of mobile payment offerings often prevent long-term adoption, due to Low differentiation vs. existing substitutes Service price (e.g. monthly fee) Funding method (direct debit, prepaid) Low credit limit Additional bank contract required Limited / no cash withdrawal possibility Acceptance Network Accepting mobile payments requires the set up of certain infrastructure. As no wide-area standard is established yet, merchants often refrain from investments into Scanning devices (e.g. for QR code) Payment terminals (NFC / BLE) Software and implementation Onboarding of payment schemes Varying national policies and regulatory bodies in Europe and from Non-European countries, e.g. on Data protection laws Consumer rights Payment security standards Device Manufacturer Strategy Device manufacturers and OS providers prohibit the access for third parties to NFC Antenna Secure Element (hardware- / cloud-based) MNO SIM Strategy (1) MNOs often refrain from necessary investments to realise services via SIM based secure element Provision of NFC SIM cards Enablement of MVNOs and Service Partners (incl. NFC SIM) Set up of TSM infrastructure (1) Only valid for NFC payment realised via the SIM based secure element Confidential. 2017 BearingPoint 4
Receive Pays Payment value chain shows that market for electronic payment is controlled by five key stakeholders today Authorization Settlement Merchant Acquiring Bank Network (*) Issuing bank Consumer (*) Switch and clearing platforms 100 98,6 Consumer payment Merchant Fees 1,4% 0,35 0,49 0,56 25% 35% 40% Illustration of value repartition Percent of the transaction to Acquiring Bank for card acceptance Interchange and network fees to Network 100% of interchange to Issuer Fees to Network Fees and interest (on credit) to issuing Bank Immediate payment for goods (1-3 days) Fees for risk and servicing from Merchant Fees from issuing and Acquiring Banks for operating the network, brand promotion, payment and security standards Fees for risk and servicing from cardholders Interchange from Network Convenient way to pay, rewards for using certain card products Source : Pyment.com / Accenture Research Confidential. 2017 BearingPoint 5
Players types Caption With huge mobile payment potential, new players are trying to target the final consumer relationship taking over activities of traditional bank Acquiring Bank (Merchant side) Issuing bank (Consumer side) Core Business New activity New conflict area Recruit merch. / Manage relationship Traditional acquiring bank activities Equip merchant (EPT) Manage account Manage account Traditional issuing bank activities Equip consumer Recruit cons./ Manage relationship Banks Handset manufacturer 1 Payment card 2 NFC antenna Telecom player OTT OS 3 Sim card (*) Bank Schemes 1 2 Almost all players of the ecosystem are using the M-payment opportunity to create/consolidate the final customer relationship 3 Telecom and OTT players can be tempted to use M-Payment opportunities to become banks (Orange bank example) Lack of standardization and technology proliferation create a need for merchant recruitment as players wants the largest acceptance network (*) Sim secure element NFC capable Sim card is required Confidential. 2017 BearingPoint 6
Caption This new positioning on the value chain means new revenue potentials for Telecom players Acquiring Bank (merchant side) Issuing bank (Consumer side) Core Business New activity New conflict area Recruit merch. / Manage relationship Traditional acquiring bank activities Equip merchant (EPT) Manage account Manage account Traditional issuing bank activities Equip consumer Recruit cons./ Manage relationship Telecom player Sim Card 1 MERCHANT PAYMENT FEES Mobile Payment generates new opportunities for MNOs 2 INTERESTS ON THE FLOAT 3 PROVIDE VALUE-ADDED FINANCIAL SERVICES 4 SIM CARD RENTAL 5 PAYEMENT DATA MONETIZATION (*) Switch and clearing platforms Confidential. 2017 BearingPoint 7
3) Provide financial services: Orange became a Bank buying out Groupama Bank 2016 2017 Conception phase Jan 2016 Oct 2016 Orange start negotiation to buy out Groupama Bank Orange hold 65% of Groupama shares Launching phase Mai 2017 Service available in France for Orange employees July 2017 Service available in France for general public 2018-2020 Future strategy / Ambition?? Future launch in Spain and Belgium Favorable French/Orange context : Booming mobile use (85% of bank interactions in 2016 through smartphone) Increasing customer adoption of online banking Changes in the regulatory environment making bank switching easier (Macron law) Orange already had : 1) Experience in mobile money (Orange Cash, Orange Money in Africa, Orange Finanse) 2) A strong brand in France 3) A strong knowledge in price wars (with Free 2009) Why Groupama? Robust banking processes saving time for launching an offer. A distribution network with 3,700 Groupama and Gan agencies and their 13 million customers An exportable model to Belgium and Spain Source : Link 1 / Link 2 / Link 3 Services at launch Complementary services Basic M-money services contactless mobile payments sending money by SMS bank account debit card overdraft protection interest-bearing savings account instant bank balances temporary freezing of the debit card 24/7 access to a bank advisory service A Phygital model Financial services designed for mobile 24/7 virtual advisor which can also put customers in touch with a banking expert 140 stores + 800 certified advisors Confidential. 2017 BearingPoint 8 Strategy : Advanced financial services Orange Bank already announced they will launch additional value-added services in the future such as Credit and insurance Ambition : 400m turnover in 2018 2m customers in France by 2020 Future international launch in Spain and Belgium (Groupama & Orange Telecom footprints)
4) SIM Rental model: Renting secure space on the SIM card to service partners Revenue Streams for MNOs from SIM Rental business 1 Activation Fee (1-time) Activation fee per new application (e.g. Payment card) successfully installed on a customer UICC storage slot No further integration costs, if SP-TSM (Hub) is already connected to MNO-TSM SIM serves as a hosting- platform for third-party services 2 Hosting Fee (Annual) Hosting fee for each application installed on a given UICC Annual Fee charged according to Volume tiers reached (<50k, <100k to >100k Units) Services are encrypted and stored in a trusted secure domain of the SIM card Keys to the secure services are saved in the secure element of the SIM and are provided by a TSM (Trusted service manager). The key is not known / visible to the MNO Services and keys are provisioned, and can be configured, over-the-air (OTA) 3 Lifecycle Fee (per Event) Fee for OTA (SMS) actions, e.g. personalization, blocking, updating or deleting a given UICC-Application Third-Party service provider pay a SIM-Rental fee to the MNO for providing hosting-space on the SIM card (UICC) Confidential. 2017 BearingPoint 9
5) Data monetization : M-payment data is a valuable asset and MNOs are trusted companies when coming to Payment data privacy and security Payment data can be monetized in four ways MNOs are trusted companies to get and manage Payment data 1. Internal usage Leverage data to optimize internal processes 2. Raw data feed Provide third party with anonymized and aggregated data Which of the following M- Payment service provider do you trust? (1) Which player do you trust for the record of your activity to remain private and secure? (2) 1 Banks and savings banks Credit card companies 2 Online payment providers Government agencies 3 Credit card organizations Your landline telephone company 4. Merchant services Reports : Provide merchants with customer behaviour. Deplay targeted offers based on customer card usage analysis 3. Card holder services PFM Enable user to optimize and manage their financials 4 Smartphone manufacturers Your celular telephone company 5 Telecommunication provider Your email provider(s) 6 Internet companies Your cable TV company 7 Specialized mobile payment providers Company our retailers you do business with Compared with other payment methods, Mobile Payment is considered a high volume, low margin product Over the past years, banks have considered Payment Data as a way to compensate decreasing payment margins Source : link Confidential. 2017 BearingPoint 10 8 None of this providers Your research engine provider(s) N = 1015 / Germany / S4 2016 - S1 2017 N = 498 / September 2014 Source : 1) PWC / Mobile Payment report : What customers really want? / 2017 / (Germany) 2) Digitworld Research / Data Monetization / Opportunities beyond OTT / 2014