An uncertain future
Until recently, operators have been able to play a central role in mobile payments through premium SMS and operator billing for direct and third-party digital services. However, the mobile payments value chain is expanding rapidly, and operator billing is now only one of several payment mechanisms available to merchants and content service providers. Many of the alternatives are proving more sophisticated, flexible, and better able to support a much wider m-commerce spectrum that includes payments for physical goods and services. They can also support mobile advertising.
Operators are responding by looking for new ways to position themselves in mobile payments, and believe that mobile wallet services are the key to their staying centre stage. As shown in a new Ovum report, Mapping Mobile Payments, however, the growing competition in the mobile wallet space and the threat of rival services from powerful OTT players and other parties mean that many operators will not be successful in this field.
Operators pin their hopes on mobile wallet services
Operators have to rethink their traditional role in the mobile payments value chain in order to remain relevant. This challenge is forcing them to broaden the scope of payment support beyond solutions based on telco billing, and they are looking to mobile wallet services based on near-field communications (NFC) as the answer. Their hope is that they will be able to drive new payment revenues from provisioning services, and revenue share from transaction processing.
The growing line up of operators offering mobile wallet services includes Turkcell; the ISIS venture backed by US operators AT&T, Verizon Wireless, and T-Mobile; and Project Oscar, which is being driven by the UK’s largest operators. Operator mobile wallet initiatives have also been launched or announced in Sweden, Germany, the Netherlands, Hungary, Denmark, South Korea, and Singapore. The problem for telcos is that a host of other players are also entering the mobile wallet space. These competitors include major OTT players such as Google, PayPal, and Facebook, as well as experienced financial service powerhouses such as Visa.
Google Wallet poses the most immediate OTT threat to operators
Among the most difficult challenges for operators to counter will come from OTT players that offer mobile payment services free of charge to end users and merchants. This shifts the business model to mobile advertising, where operators have little or no experience, and is exactly what Google is aiming to do with its mobile wallet service. If it gains critical mass then it will have a disruptive impact on operators, and indeed other players in the mobile payments ecosystem, and make the SIM rental model being explored by most operators difficult to sustain. The basic idea behind this model is that operators charge third parties for the payment applications that are carried on the SIMs used in NFC-enabled devices.
Apple has yet to reveal a joined-up, articulated mobile payments strategy, but it has the capability to put together a compelling proposition. Combining NFC-enabled Apple devices with Apple’s existing payment capabilities from iTunes would make it a highly disruptive player in both the web and mobile payments spaces. It seems logical to assume that Apple would impose vertical integration on mobile payments, just as it has with great success in the devices and application store value chains. It could build a vertically integrated payments ecosystem with itself in the centre, and take a cut of the transactions that, due to its position, it will be able to command. This should be a particularly worrying prospect for those operators whose device portfolio is heavily dominated by Apple devices.
Collaboration is best, but cross-operator initiatives will be difficult
For the vast majority of operators, collaborative mobile payment ventures of some kind are the best way forward. Early collaborations largely focused on bilateral partnerships such as that between Orange and Barclaycard. Recently, however, there has been a marked trend for more ambitious collaborations in which a number of operators join forces to offer mobile wallet services. The hope is that their collective resources, assets, and customer base will create mobile payment services with the kind of scale and reach that are needed for success.
It is less widely acknowledged that the operators in question hope such collaborations will enable them to hold their own more effectively against the powerful OTT players entering the mobile payments market. However, the track record of such collaborative ventures shows that they are not always successful, and the danger is that operator mobile payment ventures will not move quickly enough, being hampered by a lack of consensus and slow decision making. There are also fundamental questions about how substantial the revenues from such large-scale collaborative ventures can be when they have to be shared between a number of parties.
A further issue faced by large-scale operator collaborations is regulatory scrutiny. For example, the European Commission is currently conducting an antitrust investigation into the mobile payments and marketing venture between the UK’s largest mobile operators: Vodafone, Everything Everywhere, and O2.
Operators should not neglect the B2B mobile payment opportunity
Operators tend to fixate on how they might compete head-on with OTT players such as Google on the D2C front, when really they should be paying more attention on how to exploit the B2B opportunity. There is an opportunity to create an open platform that third parties can use to offer mobile payment to their own customers, but to be competitive operators will need to provide more than a vanilla payments platform.
One way of adding value is to act as a facilitator for card issuers. This would see operators provisioning cards virtually or via stores, helping with authorization by distributing cards to verified users on their own networks, and leveraging customer data from user accounts and credit checks. Credit card issuers can struggle with obtaining reliable user data and identifying potential owners of cards, and such a service could save them time and money.
Operators could add further value for enterprises, particular SMEs, by linking payment services with online accounting systems and software, meaning that orders made on a mobile device would automatically feed into an online accounting system. This is essentially what Intuit does as a value added service for its mobile credit reader solution, and there is no reason why operators could not do something similar.
Eden Zoller is a principal analyst in Ovum Telecom’s Consumer Practice, covering communications, content, applications, and social media. Her focus is on strategy, marketing, monetization, and player positioning, including the impact of Google, Apple, Facebook and others on the established telecoms value chain.