Whitepaper: Google Wallet and the New Retail Ecosystem

by David W. Schropfer

The Mobile Payments industry is starting over. When the Google Wallet launched on September 20, 2011, the first test of a remarkable new financial ecosystem began. But despite the apparent success of traditional mobile payments products like M-PESA in Kenya and South Africa, Google and rival Isis have decided to rewrite the business model – and for good reason. Actually, four good reasons:

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  1. Significant revenue is available from the advertising, retention and rewards programs, leaving the usual payments fees to the payments companies.
  2. The payments ecosystem cannot afford new categories. The-existing players are companies with considerable resources and the willingness to use their resources thwarting a new category of entrants.
  3. Regulatory changes are already pressuring known revenue streams, increasing the motivation for existing players in the payments ecosystem to protect position.
  4. Cash is resilient to other tender types in developed worlds, not so in developing countries.

The conclusion is that emerging mobile wallet companies have a significant value proposition to offer to both merchants and consumers with little or no new fees. In fact, the data reported in this analysis suggests that mobile wallets may ultimately reduce the total cost of marketing and sales for merchants.

Mobile wallet services and products are likely to cost merchants less money than traditional advertising campaigns because mobile wallet companies will have revenue from several existing sources that remove the need to pass along new charges to manufactures – a time-tested model for merchants.

For consumers, the cost of these products will likely remain free, depending on the

reload payment type (see Chapter 5), and the convenience could be remarkable because of the auto-link to loyalty programs and easy access to other forms of discounts.

And these mobile products and services will look beyond the traditional payment network for revenue (see Chapter 1). Maintaining the overwhelmingly strong brand value of payment products such as Visa and MasterCard, and the substantial infrastructure of processors and financial institutions does not need to be bypassed or rebuilt to enable these mobile wallet efficiencies.

Finally, most mobile wallet products will be more secure than magnetic stripe credit cards based on new technology and standards such as EMV and TSM (see Chapters 2 and 4).

All of the elements are in place for extreme disruption in the payment, loyalty, and advertising industries. Creative uses of new technology, effective uses of the thinking power of mobile devices, and revenue streams from unlikely sources make the mobile wallet model, and its service providers formidable competitors that will emerge over the next three years.



Google Wallet Logo

Executive Summary

1 The current payments industry
1.1 Payments penetration in the US
1.2 Mobile Network Operator billing
1.3 No room for competition
1.4 Rewards and loyalty systems
1.5 Merchant tolerance
1.6 Conclusion of current system

2 Vulnerability of the current payments system
2.1 Case study

3 Elements of mobile commerce
3.1 Customer acquisition
3.2 Conversion
3.3 Transactions
3.4 Current state of mobile commerce
3.4.1 Japan and Korea
3.4.2 Remittance
3.4.3 Information

4 Market changes enabling mobile commerce
4.1 NFC – Near Field Communications
4.2 JACC – Just Another Connected Computer
4.3 TSM – Trusted Service Management
4.4 EMV – Europay, MasterCard, Visa
4.5 Mobile prepaid
4.6 Data mining

5 Market forecast
5.1 Phases of development: the timeline

6 Conclusion

List of Figures

Figure 1: Quote from Jim Stapleton, Head of Sales and Account Management, Isis.

Figure 2: Payment system diagram

Figure 3: US market penetration of general-purpose cards, 2002 to 2012

Figure 4: The rewards and loyalty accounts in the US

Figure 5: Merchants support ~8% as cost of a sale

Figure 6: The entire payments system – including loyalty and rewards

Figure 7: Case study of long-distance decline in ARPU

Figure 8: The elements of mobile commerce

Figure 9: NFC comparison to EMV and magnetic stripe

Figure 10: Brick-and-mortar sales volume versus Internet retailing

Figure 11: Starbucks reloadable prepaid

Figure 12: Image of the Google prepaid card

Figure 13: Owners Equity Definition

Figure 14: Stored Value Breakage

Figure 15: Mobile Commerce Forecast in the United States by 2015

Publication Date: Oct 03 2011
ISBN/EAN 13: 0615598617 / 9780615598611
Page Count: 42
Binding Type: US Trade Paper
Trim Size: 8.5″ x 11″
Language: English
Color: Full Color
Related Categories: Business & Economics / Industries / Retailing


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