Brett King

Posts Tagged ‘Suica’

Mobile Payments have been Mainstream for a while now…

In Mobile Banking, Mobile Payments, Technology Innovation on May 18, 2012 at 01:31

If you believe the pundits, mobile payments are years away from being mainstream. But that’s not at all an accurate assessment of the state of the industry.

Firstly, a mobile payment can be many things. There are seven primary models for mobile-enabled payments:

  1. SMS based transactional payments
  2. In-App Payments
  3. Direct Mobile Billing
  4. Mobile commerce and/or web payments
  5. Peer-to-Peer payments
  6. Virtual currency payments
  7. Contactless payments

As of today, it appears that around half of the developed world has made a mobile payment of some sort in the last 12 months according to this criteria – at a minimum an in-App purchase made from a mobile or iPad would qualify. Put that in perspective, more people made a mobile payment in 2011 than wrote a cheque in developed economies like the US, UK and Australia!

Would you call cheques mainstream? Of course. So how can we not call mobile payments mainstream already?

A recent study from ACI Worldwide and Aite Group – where smartphone usage in 14 countries was put under a microscope – identified a group of consumers where mobile payments behavior is definitely the norm. This group was classified as “Smartphonatics”.

According to this research, 80 percent of Smartphonatics have used their smartphones for mobile banking, just one-third of non-Smartphonatics report doing so. 70 percent of Smartphonatics have used their smartphones for mobile payments; under 25 percent of non-Smartphonatics have. Smartphonatics are generally younger consumers also: 36 percent of Gen Yers (between the ages of 20 and 31) are Smartphonatics as are nearly one-third of Gen Xers (ages 32-46). The number drops significantly among both Baby Boomers (ages 47-65) at 18 percent and Seniors (66+) at six percent

“Smartphonatics enthusiastically use their smartphones when they shop for products and services as well as when they interact with their banks. It is quite clear they are an emerging consumer force. Smartphonatics are driving the adoption of mobile banking and payments and will be an agent for change. Financial and retail institutions will need to adapt or risk being left behind.”
Ron Shevlin, Senior Analyst, Aite Group

The ACI/Aite research indicated that globally around 1 in 4 consumers (25 percent) count as Smartphonatics, with higher numbers found in India and China than in the United States and Europe. This makes sense, because in markets like India and China, mobile payments are competiting head to head in the growth of payments alternatives like cards, which are still quite new for most of the population.

In Asia, however, mobile payments have been mainstream for the best part of a decade. Japan sets the benchmark for m-payments with 47 million Japanese adopting tap-and-go phones. In China alone, there will be 169 million users of tap-and-go payments in 2013. Between 500 million and 1 billion people will access financial services by mobile by 2015, depending on various estimates. The mobile financial services market will be dominated by Asia, driven by mobile operator-led initiatives in developing nations to bank the unbanked. Remittance and transfers by mobile is growing three times faster than m-banking. Mobile remittances are a form of mobile payments, essentially mobile-led P2P.

A study released in May, 2012 from MasterCard found that although the United States is ready for mobile payments, 9 of the 10 countries most prepared for the technology are in Africa, the Middle East and Asia. Ironic isn’t it that in Kenya 50 percent of the population sends money by SMS regularly, but in the US most consumers still write cheques!

Asia leading the way

In South Korea, there are more than 60 million contactless phones in use. Most use the Felica standard, but already more than 5 million NFC-enabled phones have been purchased in South Korea by eager consumers.

In 2012 almost 1/3rd of 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, regularly evert month. This amounts to total mobile transaction revenues of 1.7 trillion won, or approximately US$1.4 billion, in 2008 alone. In 2012, there will be 21 Million Koreans watching TV via Mobile Digital Multimedia Broadcasting (or T-DMB as it is known). 40% of cellphones sold in South Korea have the capability for watching free-to-air TV in this manner.

T-Money™, electronic cash stored and refilled in SIM cards and phone chips, can be used to ride the subway and bus or buy snacks from a 7-Eleven store, vending machines or cafeterias at school. Instead of giving their children cash, Korean parents now transfer money to their kids’ T-money account.

“If I leave my wallet at home, I may not notice it for the whole day. But if I lose my cellphone, my life will start stumbling right there in the subway.”-21 year-old Kim Hee-young, Sookmyung Women’s University
NYTimes Article May 2009[1]

e-Money and mobile payments started in Japan in 1999 and usage is growing exponentially. e-Money and mobile payments already today are an important and big part of Japan’s economy. Japan leads the way in mobile commerce today with 75 percent of the population on a ‘smartphone’ and more than 40 percent of Internet users having made a purchase on their phone.

In 2003 SONY’s FeLiCa IC semiconductor chips were combined with mobile phones to introduce the first “wallet phones” (“Osaifu keitai” – おサイフケータイ). Today the majority of mobile phones in Japan are wallet phones.

Mobile Payments are not an emerging technology

The two parallel systems in Japan today are Edy and MobileSUICA. Edy stands for Euro, Dollar, Yen, expressing the hope for global success ― Intel Capital believes in this success and has invested in the company that runs Edy: BitWallet (backed by SONY). MobileSuica (also known as Felica) is a service for Osaifu Keitai mobile phones, first launched on 28 January 2006 by NTTDoCoMo and also offered by SoftBankMobile and Willcom. Initially used for commuters travelling on Japanese rail networks, today mobile ticketing payments are used by more than 90 percent of Japanese commuters.

Electronic money became popularised around 2007 in Japan, when two major retailers, Aeon and Seven & I, started their own versions of electronic money. The transactions by Aeon and Seven & I account for roughly 50% of all transactions in Japan still today.

Just to highlight how huge the e-money market is in Japan: Transaction volumes at Edy, the country’s biggest prepaid e-money issuer, nearly doubled in 2010 to 1.4 trillion yen (US $15 billion). To put that in perspective, PayPal did $4Bn in Mobile Payments in 2011, well behind just this one mobile payments scheme in Japan alone.

Between Edy and Suica, more than 84 million mobile contactless payments transactions take place every month[2], through around 450,000 merchants or outlets. Between retailers AEON, PASMO and NANACO (Seven & I) another 120 million mobile contactless payments are made every month, at another 300,000 merchants.

Yep, Mobile Payments are not an emerging trend or something to worry about in the future – they are mainstream and they are now.


[1] “In South Korea, All of Life is Mobile”, NYTimes May 2009, http://www.nytimes.com/2009/05/25/technology/25iht-mobile.html?pagewanted=all

[2] Source: http://www.epiport.com/blog/2012/02/01/e-money-in-japan-its-everywhere-and-more/

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The end to hard cash is nigh!

In Economics, Mobile Banking on November 11, 2010 at 10:47

I’ve been at the E-Money, Cards and Payments conference in Moscow today. Coming off the back of SIBOS it is quite interesting to have a discussion not just about payments, but around modality and the emergence of strong mobile payments methodologies and practices. We already know that checks/cheques are in terminal decline, but when you bring up the ‘end of cash’ this gets a great deal of emotive responses or general disbelief that this is possible or probable. It is becoming quite clear, however, that regardless of the emotion and habitual systemic behavior that there is an number of issues that are combining to create a critical decision point for governments, regulators and the banking community to get actively behind the removal of cash from the system. Here are some highlights:

Net Social Cost

Cash costs society comparatively significantly more than alternative payments methods such as debit cards. At the conference Leo van Hove, Associate Professor of Economics at the Free University of Brussels, presented data showing that in Belgium 10.24 Euro is the threshold where cash starts to lose it’s efficiency due to marginal costs, and in Netherlands this is about 11 Euro. In a discussions from the floor between Leo and Dave Birch (@dgwbirch), however, the two experts identified additional social costs beyond distribution, including money laundering, gambling, crime, etc that make physical money a net negative in the social impact picture under most scenarios.

Base Materials and Production

An average US 1 Penny coin costs 1.67 cents to manufacture, and the Dime (5 cent piece) costs 7.7 cents to manufacture. So it is clear that coins in general are becoming untenable as raw materials costs for copper, silver, gold, etc climb yet further. A great quote from SIBOS of a few weeks ago from Carol Realini (@carolrealini) was that projecting the future need for physical cash into the Indian economy would take more paper than can be produced from all the trees in the world if based on real physical currency. With an increasing focus on carbon cost of production, then surely cash itself is a massively expensive proposition for society and is no longer an efficient mechanism for governments. Banks may be holding on to cash because their retail businesses are still largely based on physical cash distribution, but the reality is this is a false economy for society as a whole and is certainly not responsible as we move towards a greener future.

Not mathematically efficient

Ok, so this one I can’t put claim to. This was the discussion going on virtually between Leo van Hove and Dave Birch today via Twitter, etc. Dave points to a recent Blog Post from the Freakonomics gang that suggests the correct denominations for coins should be 3-cents, 11-cents and 37-cents based on correlations between pricing, spend, coin production, distribution, etc. Alan Burdick puts this combination slightly differently when he supposes that we need 5-cent, 18-cent and half-dollar combination.

By one estimate, $10.5 billion in coins just sits around in people’s homes gathering dust…
Alan Burdick, Discover – The Physics of Pocket Change

Mobile Payments and contactless Debit Cards

There’s been a lot of chatter about mobile payments, the NFC integrated iPhone, M-PESA, G-Cash, PayPal and so forth in the blogosphere of late. It is clear there is a lot of anticipation of this potential, but there remains some challenges. Ubiquity is going to be challenging because just like with physical cash and currency, competing standards may actual work against adoption. Interoperability between payments networks, between e-Cash and physical cash, etc will be a challenge too.

Nobuhiko Sugiura, a Special Research Fellow of Japan’s Financial Services Authority, and the Associate Dean of Chuo University Business School also presented at the e-Money conference in Moscow. He highlighted the fact that one the regulators got behind e-Money that it’s success was rapid. Just in the last 3 years use of e-Money has increased 300% now to be one of the most frequented personal payment mechanisms in Japan. In fact, one third of Japanese, according to Sugiura-san are already e-Money users. He cited some other great drivers behind e-Money’s success in Japan, which translate as equally well to countries outside of Japan, namely:

    1. Japanese banks have no interest in micro-payments because of the relatively cost base
    2. Convenience stores favor e-Money so that they can reduce their cash float
    3. The unwritten law in Japan is that refunds are “prohibited in principle”, because the Japanese governments want to replace Physical cash with e-Money as quickly as possible

      In the UK, 43 per cent of retail payments are done by debit card and 23 per cent by credit card. Cash still makes up 32 per cent of these payments, but as a percentage of the whole, it continues to reduce. This is a trend throughout the EU and much of the Western world.

      There are compelling reasons why physical cash should disappear, quickly...

      Conclusion

      Given all of the above, it must just be pure momentum in the system as to why we are still using cash. In terms of cries from industry that “cash is back” it would appear that this sentiment should be discouraged at all costs. If you want to encourage savings then promote debit card and e-Money usage, but physical cash is bad for the system all round.

      I say – Bring on the iPhone 5!