A land of opportunity
As anyone who has attended any of the large industry events like Mobile World Congress over the last few years will attest, the convergence of several vertical markets with telecommunications is well underway. Finance is one of the verticals most talked about of late, and then there is the mobile payments space, where there is so much opportunity and everything to play for.
Against the background of this convergence, Jim O’Loughlin, VP sales of the Applications Business Unit at NewNet, explains how his company’s customer base is changing with the times as an ecosystem incorporating both the mobile and financial worlds establishes itself. NewNet claims that in the global market, the company’s footprint is about 20 per cent of the entire global transaction flow, meaning that about one in every five transactions are processed with NewNet products.
“Despite the perception that everything is moving to mobile, the bulk of financial payment transaction traffic is still originating on dial up networks globally,” O’Loughlin says. “Growth in IP traffic and mobile traffic is coming up fast, but it is still a much lower base and it’s going to be a while before anything overtakes dialup. It is also true that the growth rate and adoption of mobile payments is faster in certain regions as compared to other regions. So we need to have the experience and knowledge to be able to handle legacy environments as well as the changes happening in mobile space.”
NewNet deploys a portfolio of products originally developed by 3Com/USRobotics. Its Traxcom infrastructure offering incorporates a secure transaction routing gateway, which provides secure access and protocol routing throughout the entire payment process. It is, the firm says, at the heart of any credit card transaction that takes place. Once a payment of any type is taken at a POS terminal it needs to be routed through to the financial institution and the necessary funds need to be secured.
The company’s core traditional market is financial acquirers and processors but has more recently grown to include fixed line connectivity suppliers. Within the financial environment there are banks providing credit card services and card issuing, as well as companies that sit between the banks and the merchants. These companies provide the capability for these merchants to intelligently route financial transactions to the right bank. For this service, the credit card transaction fee that the merchant pays to accept that transaction is shared between the processor and acquirer (which in many cases is the same entity) and the banks, along with the Visa and MasterCard transaction fee.
But transaction flow is just one part of the puzzle. Management capabilities which sit on top of these common platforms, offer users the ability to capture network statistics about the process. This allows financial acquirers, which might be supplying lots of different merchants, to feed their customers relevant data, such as how many transactions are happening per hour and to gauge whether they have the necessary capabilities or if they need to add additional POS or leased lines? The system could also be used for fraud detection.
The biggest question O’Loughlin is addressing right now is the role the mobile operators have to play in this ecosystem. “In a fixed line environment, carriers had a piece of the market and provided incremental services to the enterprise environment. They were more a part of the play. But as IP traffic increased, the fixed carriers were rather slow on the uptake in terms of taking advantage of that opportunity, and as a result, payment processors and acquirers are filling that gap, with expertise to intelligently and securely route financial transactions,” O’Loughlin says. “They stepped into an area fixed line carriers could have had to themselves. So now the question is where do MNOs fit in with regards to the relationship with financial acquirers?”
NewNet’s customer base is split between fixed line carriers and financial institutions, which demonstrates how carriers have an active role in the financial market. But O’Loughlin says there’s no correlation with the mobile space, which he sees as completely different to the fixed line space and an area where things are still very much in flux.
On a global perspective, developed markets are rapidly transitioning from dial-up to broadband and mobile IP routing and large retailers are keeping up with latest technologies. However, small retailers will not want to change something that works and that level of inertia tends to stick around for a long time. At present, only 15 per cent of current transactions processed are on non-dial systems, globally. But O’Loughlin believes that, while traffic will certainly move to IP, it will eventually migrate primarily to a mobile environment and this is where real innovation is happening.
“This is the area where all the excitement is, because it’s still the Wild West of processing. It’s where the turf war is still taking place and growth rates are phenomenal,” he says. The ‘turf war’ O’Loughlin makes reference to, is that being fought out between MNOs and financial institutions. It makes little difference to NewNet how this plays out as the company caters to all comers, yet the debate raises interesting questions about brand perception.
“One thing the operators own is the SIM, so this is where they want to see the secure element embedded. But if it’s on device, it can be more beneficial to the financial institution. With the advances in the mobile operators’ networks and the emergence of smart devices, NFC Technology and mobile wallet applications the potential of “True Mobile Payments” is yet to be realised”, O’Loughlin says.
“Trust and security are very important but easily broken. There are lots of upstarts and new technologies in this space but the key to success here is in maintaining that trust and delivering on a level of security. It’s not perfect, but if you make a payment via a plastic card today you have a certain level of comfort based on the trust and confidence that the Banks and the card networks led by Visa and MasterCard provide. These things will also need to play out in the mobile space,” he says.
O’Loughlin believes there is plenty of opportunity. “Yes the basic capability that merchants focus on is the payment value chain and secure transaction routing and analytics. But really the opportunity here for MNOs is the mobile payments,” he says. “MNOs have a role to play in establishing that trusted service environment. So they have a position and image to uphold. The emergence of tablets and smartphones has allowed operators to move up the value chain and get involved in POS and real time transaction transport, security infrastructure and network management. MNOs can have a key role in the payment ecosystem and participate in the payment value chain by providing secure transaction termination, processing and routing together with customer and transaction level analytics as a value added service to acquirers, processors, banks and card networks.”
On the merchant side, mobile provides an enhanced payment experience. Whereas in the traditional environment you swipe your card and put in a PIN, in the mobile space there are opportunities to have a dialog or exchange via the smart POS device, opening up a range of opportunities.
“One of the unique things is the use of in-band messaging capability while conducting a mobile wallet based payment. Users can provide feedback, responses can be solicited from customers, which can provide tremendous value to advertisers. In wallet services there are lots of marketing opportunities via coupons and vouchers, which can be tied to the products being bought at the time,” O’Loughlin says. “We have to make the transaction acquiring service secure but there are definitely elements we can make open so that merchants and advertisers can take advantage of opportunities there.”
NewNet’s CEO, P.J. Louis believes that mobile payments offers an enormous market opportunity for traditional and non-traditional players to get a foothold in the market, but at present is still very fragmented and in its nascent stages. Louis says: “A number of companies like Google and Apple are inevitably going to make strong plays in this environment too, but banks and the finance industry have this strong trust level to trade on. It’s not just about the user experience though, the rest of the framework is really important. It is unlikely these companies will overshadow the financial institutions.”
Louis says to take note of the mobile operators, though: “In some regions, MNOs have gained mass market acceptance, especially in emerging markets. So there is a real need to co-operate in the ecosystem. Our payment systems bridge the payment industry with the mobile industry and deliver solutions to enable MNOs to move further up the value chain and become transaction acquirers with the ability to provide smart device based enhanced POS network and ability to provide real-time control, management, accounting and analytics on the deployed Smart device POS and offer these service for Processors/Banks and Card networks.”