Market Trends Mobile Payment 226636

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Market Analysis and Statistics G00226636

Market Trends: Mobile Payment, Worldwide, 2012 Published: 30 May 2012

 Analyst(s): Sandy Shen

Mobile payment services are growing fast in some markets, but still face challenges challenge s in others. Services with value propositions that resonate with local markets have the best chance of success.

Key Findings ■





Communications service provider (CSP)-led mobile payment services will align with existing financial systems and regulations to ensure adequate risk and fraud management mechanisms can be deployed. The only way to make a success of Near Field Communication (NFC) payment systems is to develop an ecosystem to support services ranging from ticketing, couponing and loyalty schemes to campus and city services, for which payment is the enabler. Mobile retail payment using technologies such as card reader attachments is gaining faster traction than NFC payment, and this will remain so between now and 2015, as NFC technologies are still maturing and an NFC ecosystem is still being developed.

Recommendations ■





Mobile payment providers in emerging markets should conduct field studies and pilots to find out the best go-to-market strategies for local conditions. Just because an operating model works in one country does not guarantee that it will work in others. Mobile payment providers in emerging markets should focus on one key value proposition, and design marketing and offerings around that proposition to drive market traction. They should avoid getting into too many offerings at the beginning, as doing so will dilute the value proposition. Governments with ambitions for NFC services should coordinate the efforts of key industry players to encourage them to agree on a common set of specifications and infrastructure, and foster participation of, and interoperability between, various application providers in order to enable a range of use cases.

 





NFC service providers should work with a wide range of business partners to enable a variety of services where payment is the enabler. Payment alone is not enough to spur adoption of NFC. Merchants and brand-name companies should investigate the business case for mobile retail payment using non-NFC technologies. They should run small pilots to see how the solution can enhance capabilities in retail and field services.

 Table of Contents Contents  Trends in the Market...................... Market........................................... .......................................... .......................................... ......................................... ......................................... .....................3 3 Market: The Market Is Moving in All Directions............ Directions........................... ............................... ............................... .............................. .............................. ...............3 3 Regions: Each Market Requires Its Own Development Model........... Model........................... ............................... ............................... .......................5 .......5 North America............... America................................ .................................. ................................... ................................... .................................. ................................... .............................5 ...........5 U.S........................... U.S............ .............................. .............................. ............................. ............................. .............................. .............................. .............................. .........................5 ..........5 Western Europe......... Europe...................... .......................... .......................... ......................... ......................... .......................... .......................... .......................... .......................... ................6 ...6 U.K......................... U.K.......... ............................. ............................. ............................. ............................. ............................. ............................. ............................. ............................. ...............7 7 France........................................... France............................ ............................... ................................ ................................ ................................ ................................ .............................7 .............7 Spain.......................... Spain............ ............................. .............................. ............................. ............................. ............................. ............................. ............................. ........................8 ..........8 Germany.................................. Germany............. ......................................... ........................................ ......................................... ......................................... .....................................9 .................9  Asia/Pacific............................  Asia/Pacific.............. ............................ ........................... ........................... ............................ ........................... ........................... ............................ .........................9 ...........9 Japan and South Korea............ Korea........................... .............................. .............................. .............................. .............................. ............................... .......................9 .......9 China......................... China........... ............................ ............................ ............................ ........................... ........................... ............................ ............................ ............................ ..............10 10 India................................ India.............. .................................... .................................... .................................... .................................... .................................... .................................10 ...............10 Bangladesh................................. Bangladesh.............. ..................................... ..................................... ...................................... ..................................... ..................................... ...................11 11 Pakistan.................................... Pakistan................ ....................................... ....................................... ........................................ ........................................ ....................................12 ................12 Eastern Europe........... Europe........................ ........................... ............................ ........................... ........................... ............................ ........................... ........................... .....................12 .......12 Russia.................................. Russia................ .................................... .................................... ..................................... ..................................... .................................... ...........................12 .........12 Poland........................... Poland............ ............................. ............................. .............................. ............................. ............................. ............................. ............................. ....................13 .....13 Middle East.................... East....................................... ...................................... ....................................... ....................................... ...................................... ...................................13 ................13  Turkey.............................  Turkey........... ................................... ................................... ................................... ................................... .................................... ................................... .................13 13 United Arab Emirates............ Emirates.......................... ............................. .............................. ............................. ............................. .............................. ...........................13 ............13  Africa............................  Africa.............. ............................ ............................ ............................. ............................. ............................ ............................ ............................. ............................. ..............14 14 Nigeria............................. Nigeria.............. .............................. .............................. .............................. .............................. .............................. .............................. .............................. ...............14 14  Tanzania..........................  Tanzania........... ............................. ............................. .............................. ............................. ............................. .............................. .............................. .................15 ..15 Latin America................ America................................... ....................................... ....................................... ...................................... ....................................... ....................................15 ................15 Brazil............................... Brazil.............. ................................... ................................... ................................... ................................... ................................... ................................... .................16 16 Mexico...................................... Mexico.................. ......................................... ......................................... ........................................ ......................................... ..................................16 .............16

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 Technology: Mobile Retail Payment Is Gaining Traction.......................................... Traction.................................................................... ..............................17 ....17 Contrarian View: Large-Scale Adoption of Mobile Retail Payment Technologies Will Further Delay NFC .................................. ................ .................................... .................................... ................................... ................................... .................................... .................................... .................................18 ...............18  Vendors to Watch............................. Watch................................................. ......................................... ......................................... ......................................... ......................................19 .................19 Conclusions................................ Conclusions............. ...................................... ...................................... ....................................... ....................................... ...................................... ............................20 .........20 Recommended Reading............ Reading.......................... ............................ ............................ ............................ ............................ ............................ ............................ .......................20 .........20

Trends in the Market Mobile payment services (see Note 1) have experienced ups and downs in the past year, and overall we expect the market to maintain an average annual growth of 42% through 2016 for both transaction volume and value. Positive aspects of the past year include: ■

Mobile carriers and financial institutions continuing to invest in mobile payment services, with major deployments being announced and rolled out. Examples include Telefonica's panEuropean launch of NFC services and progress with mobile payment deployments in 12 markets in Latin America, and Vodafone's plan to launch NFC payment across its 30 markets.





Major card networks and solution providers entering the market with major initiatives. Examples include MasterCard's mobile money partnership program intended to push into developing markets, and Ericsson's launch of mobile commerce solutions centered around a converged wallet solution for mobile carriers. Major merchants pushing for mobile payment services. Examples include Starbucks rolling out its mobile payment app nationwide in the U.S., and McDonald's launching marketing campaigns in the U.K. to promote contactless payment.

Disappointing aspects of the past year include: ■



Slow adoption of NFC payment services, with early casualties. Google Wallet saw slow adoption due to a lack of NFC phones and limited merchant coverage. Bling Nation, a pioneer in NFC payment, folded for similar reasons. Mobile payment services not being easy propositions, even for big companies. Nokia retreated from a mobile money service less than two years after launch, indicating big challenges in developing the ecosystem and educating the market.

Market: The Market Is Moving in All Directions Emerging Markets Markets Continue to Do Well but Require Localized and Differentiated Models.

Mobile payment services continued to see strong growth in numbers of users and transactions

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during the past year. However, not all services had a smooth ride as service providers are still trying to determine the best go-to-market strategies. The success of M-Pesa in Kenya cannot simply be copied to other markets — each market needs a model that works for its local conditions. In some markets, such as Pakistan, there are a number of innovative models as service providers try to differentiate services, based on their existing user base and businesses. Such differentiation will help maintain a healthy level of competition and sustain growth. Regulations Take Different Paths But Will Align Mobile Payment With Existing Financial Systems. Some regulators take a friendly and flexible approach. Others are more conservative in

their efforts to open the market progressively: ■

Friendly regulations set clear guidelines from early on, setting the boundaries and facilitating

services such as bank agencies and know-your-customer (KYC) processes, and allow for flexibility in operations. For example, they allow proportionate KYC processes, based on different types of accounts, and they allow various service providers to participate, such as banks, telcos and third parties. Friendly regulators also revisits their policies from time to time to act on market feedback. ■

Cautious regulations tend to place banks at the center of the ecosystem and exclude others

from obtaining e-money licenses, the payment network, even payment services at all. They tendconnecting to have littletoflexibility for things suchoras KYCproviding requirements, transaction modes, cash-in/cash-out and security. Some also lack clarity on key issues such as the agency role and tariff caps. Whichever approach regulators takes, we expect most countries to include mobile payment under the existing financial regulations, with some degree of flexibility to cater to the nature of the service. Distribution Network and Agency Management Are Important Success Factors in Emerging Markets. In emerging markets service providers will rely on their distribution networks to reach out

to users, most of whom are in rural areas. Therefore network coverage and availability in remote areas have a direct impact on service uptake. In addition, agencies need to be recruited, trained and managed on an ongoing basis to ensure quality of service. Candidates need to go through a qualification process to ensure they have the financial standing, equipment and technical capabilities to conduct mobile payment business. Agencies need to be trained to help them understand the business implications, such as cash float management, process compliance and user education. Sometimes a tiered agency structure needs to be adopted to ease the management load for service providers, as well as to offer financial and technical support to the retail agency. The smooth operation of the agency network has a direct impact on the user experience and service quality. Free Bank Fund Transfers Can Become an Alternative Payment Method. In February 2012

Barclays launched its peer-to-peer (P2P) money transfer mobile app, which allows any bank user in the U.K. to send money from his or her bank account free of charge. Barclays reported 500,000 downloads in the first three months. Some small businesses and eBay users are using the service for payments. If it catches on in a big way, it could become an alternative payment method to rival PayPal, but with an easier process as users can transact directly from their bank accounts. There was a similar move in the U.S. called clearXchange (CXC), formed by three U.S. banks aiming for a

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commercial launch in mid-2012. But this service has been very quiet since its announcement in 2011, partly due to a lack of clarify about the fee structure and partly to the lack of participation by more banks. NFC Services Require Coordinated Efforts Encompassing Encompassing a Number of Use Cases Where Payment Is the Enabler. Worldwide, NFC still has a very low uptake after many years of

development. We looked at the case of France and identified it as a model for countries that have the ambitions for NFC services. It is necessary to establish an industry alliance early on, one that involves as many players as possible, to agree on a common set of specifications so that interoperability can be achieved. It is also important to support a variety of use cases, from couponing, loyalty schemes and ticketing to personal ID and city services. Only by enabling many services on a single device will users see the value of NFC. Payment can be the enabler for all these services, but on its own will not be enough to spur market development. Mobile Payment Acceptance Using Card Readers Shows Big Potential in Retail and Field Services. These services require minimal investment by the merchant and minimal change in user

behavior, and they address the pain points in the purchasing process. Small and midsize businesses (SMBs) can accept card payments without investing in expensive equipment or being locked into long-term contracts. Retailers can mobilize in-store payment and offer better in-store services. Big companies with a large field force or distribution network can collect payments from the field more conveniently. We have seen significant growth in this sector, with investment by major companies. These services will fill the void until NFC services are widely available.

Regions: Each Market Requires Its Own Development Model There is no one-size-fits-all solution for every market, as the drivers and requirements of each market are different. Below we outline the market trends, key players and technologies for each region and major market.

North America U.S. Mobile commerce remains the biggest contributor to mobile payment transactions in the U.S., driven by shopping via mobile phone and media tablet. eBay expects its mobile sales to reach $5 billion in 2011, up from $2 billion in 2010. We expect at least half of the associated sales to come from the U.S. We expect mobile commerce to continue to drive mobile payment transactions in the U.S. through 2016. In contrast to the hype about NFC payment, actual adoption is growing much more slowly than expected. That is prompting service providers to look for new partners and business models:

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Isis, a joint venture between Verizon, AT&T and T-Mobile, has expanded all major card networks, which include Visa, MasterCard, American Express and Discover, and added new issuers, such as Capital One, Chase and Barclaycard. Google Wallet is now being supported by AT&T and T-Mobile, in additional to its launch partner, Sprint. It is also rumored to be considering sharing service revenue with Isis to speed adoption.

If these two schemes do collaborate, it will be good for the market as users would have access to a good selection of card brands and issuers, and the potential interoperability might encourage merchants to upgrade their point-of-sale (POS) terminals. Transit operators are in the process of migrating from closed-loop ticketing systems to open-loop systems that support contactless bank card payment. Utah Transit Authority in Salt Lake City is the first to complete the migration. A number of other operators, such as those in Chicago, Philadelphia, New York and Washington D.C., have also begun the process. This will provide contactless infrastructure for NFC payment. Isis plans to launch its NFC services in Salt Lake City in mid-2012, and transit payment will be an important element of that.  At the same time, there is a variety of non-NFC non-NFC mobile retail payment offerings coming to the the market, and merchant adoption of these is quite strong. Square, the pioneer of mobile payment acceptance using card reader services, reported that it was processing transactions at an annualized rate of $5 billion ($13.7 million per day) in April 2012, two years after launch. It also had more than one million merchants on board by the end of 2011. These technologies (see the Technology section below for details) are mostly targeting SMB merchants and individuals, but some big companies with large field forces and distribution systems are also starting to show interest. Mobile retail payment using non-NFC technologies is seeing faster adoption than NFC, and this will remain the case through to 2015 as NFC technologies are still maturing and an NFC ecosystem is still being developed.  At the same time, we expect to see a number of merchant-branded mobile payment schemes coming to market. The early success of the Starbucks Card Mobile app demonstrates the capabilities of mobile apps for delivering a good user experience and engaging customers. More merchants will follow suit with their own mobile payment schemes. Not all of those will be successful, however, since only those that enhance the shopping experience, eliminate the pain points and deliver a good user experience will last.

Western Europe Similar to the U.S., mobile payment in Western Europe is primarily driven by mobile commerce, where people shop from "e-tailers" via phone. There has also been an active market for NFC payment for the past few years, but most NFC services are still in the trial stage, with only a few commercial deployments. There are also a few services offering money transfers and online shopping using mobile phone numbers, but these are sporadic and give no clear indications of growth.

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U.K. The country is becoming a competitive market, with a number of launches. The most noticeable launch is the Quick Tap service from Orange (now part of Everything Everywhere) and Barclaycard. This service enables NFC payment from a prepaid account loaded on the mobile phone, and can be topped up using Barclays' credit and debit cards or a credit card issued by Orange. The service was launched in May 2011, but so far the uptake is very low. One of Gartner's analysts tried the service and reported his findings in "Lessons to Learn From Early NFC-Enabled Mobile Phone Payment Deployments." A key problem is the lack of training of both the bank's and the CSP's staff, which leads to user confusion during service application and usage. The single-device support is also a limitation, though we expect the service to roll out more devices in the future. Probably due to the lack of success of the joint service, Barclaycard has unveiled an NFC tag that its cardholders can stick to the back of their phones in order to spend up to £15 without a PIN. The service will be available to all Barclaycard users by the end of 2012. Transport for London (TfL) is in the process of upgrading its transit card reader system to support contactless payment by credit and debit cards. But has put back the completion date to 2013 or later, from the original plan of end of 2012. Once the project finishes, it will provide fertile ground for NFC payment using mobile phones, if the technology can meet the speed and usability requirements of U.K., the ticketing addition, there are a total ofpayments. 50,000 contactless POS terminals in the which issystem. a good In starting point for contactless We believe the industry still needs to raise user awareness and address a few usability issues to promote contactless payments. On the other hand, we see banks and operators introducing new initiatives to offer alternative payment methods. In February 2012, Barclays introduced a mobile application — Pingit — that enables P2P money transfer between any bank users and is free of charge (see "New Barclays Mobile Payment App May Upset Bank/Telco Status Quo"). The bank reported 500,000 downloads after three months of service, and the app is also used by small businesses and eBay users to accept payments. If the app attracts a larger user base, it could well become an alternative to cash and card payments. On another front, in April 2012 O2 launched a mobile wallet that focuses on a good shopping experience, with payment as the enabler. The wallet enables users not only to transfer money but also to compare prices, receive offers and shop at retail stores with a physical card. The operator already offers a number of commerce-related services under the Priority brand that can fit well into this new initiative. If the wallet offers compelling value by closely integrating payment into the shopping experience, it could become a strong player in this competitive market.

France France is on track for nationwide rollouts of NFC services by major CSPs and banks in the first half of 2012. The country has taken a very systematic approach to NFC services by not just focusing on payment but also trying to establish an ecosystem for NFC services in which payment is one of the enablers. France is a model for countries that want to deploy NFC services on a large scale. Key steps that it has taken include:

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Early establishment of industry associations (Association Européenne Payez Mobile [AEPM] and  Association Francaise du Sans Contact Mobile [AFSCM]), [AFSCM]), which include major stakeholders of financial institutions, CSPs and technology providers. They take the responsibility for setting technical specifications, promoting the specification to members and industry bodies, coordinating trials and helping members launch NFC services.



Work with international bodies ensure the standards are supported by the international community. AEPM develops itstospecification with the support of international standard bodies such as the GSM Association (GSMA), European Payment Council (EPC), European Telecommunications Standards Institute (ETSI) and EMVCo. ■





Early establishment of specifications to ensure all players move in the same direction. AEPM and AFSCM published technical specifications for NFC payments in 2009 and a draft specification for trusted service manager services in 2010, before the large-scale trial was launched. Running a pilot project with a variety of NFC services in a city to test the viability of the technical specifications and identify operational challenges and revenue opportunities. The Cityzi project in Nice was the largest pilot before commercial rollouts. It included services such as payment, transportation, campus services, loyalty schemes, coupons and city services. Provision of government funding to support service deployments and innovation. The French government provided 20 million euros to fund the NFC project in nine cities. This helps establish a nationwide infrastructure for NFC and encourages innovative applications of the technology.

Thanks to these steps, France is on the way to becoming an early-adopter country for NFC. The more coverage the service receives, the more use cases and applications arise, and the higher the interest of businesses and consumers in using NFC services grows. This creates a virtuous circle for the technology.  Aside from NFC deployments, France France has also introduced a service promoting the use of mobile phone numbers for online shopping. Buyster, a joint venture between the country's three major CSPs and a technology provider, aims to enable users to use their mobile phone number and a secure for online so by eliminating theand need to enterit payment details. is unclear as yet howcode the service willshopping, be received the market, whether will benefit onlineItmerchants with increased revenues.

Spain In contrast to the systematic approach of France, Spain has taken a "freewheeling" approach to NFC services. It does not have an industry association to align the pilot efforts — of which there are at least a dozen — although three CSPs are collaborating on interoperability specifications. Spain did conduct a citywide trial in Sitges, but it involved only one CSP, one bank and one card network, and it focused only on payment, with no other services. It is not surprising that no follow-up deployments have taken place since the trial, despite the positive results reported by trial sponsors. We continue to hear a lot of pilot announcements, but no commercial rollouts have yet taken place.

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Germany There is less mobile payment activity in Germany than in other major markets in Western Europe. Cash and direct debits still account for a large portion of Germany's payment market. Changing users' behavior, so that they make payments via mobile phone, presents a huge challenge for all service providers. The CSP-backed mpass mpass is  is an alternative payment service that enables users to shop online using their mobile phone number. The three CSPs behind the service have plans to introduce NFC payment on top of the mpass platform. The service will initially use NFC stickers, before moving to NFC phones when they become widely available. So far, Mpass has very low uptake in Germany, so the prospects for an NFC version do not look very promising. On the bright side, in April 2012 the German Banking Industry Committee started Europe's biggest trial of a contactless payment service, enabling 1.3 million cardholders to spend up to 20 euros without a PIN. The industry hopes this will encourage people to start using contactless technology and wider deployment of contactless payment readers.

 Asia/Pacific Japan and South Korea These two countries have been working closely to promote the use of NFC services within their borders and for cross-border usage. Early in 2011, CSPs from both countries established crossborder alliances to support interoperability among their services. Later the year same, they set up alliances within their own countries with more ecosystem partners. South Korea takes a similar approach to France, where the consortium consists of CSPs, card issuers, technology and service providers and government bodies. It has opened an NFC zone in Seoul to test various NFC services, from couponing, c ouponing, loyalty schemes and advertising to payment, ticketing and ordering. SK Telecom, the largest CSP in South Korea, has also stipulated that all new smartphones should be equipped with NFC technology. Japan has been using Felica-based contactless technology, which is not compatible with the NFC standard. Hence Japan's current focus is to add support for standard NFC technology. Since contactless services have been around in Japan for a number of years, the ecosystem is well established, which means the move to NFC is more of a technical issue than a business-related one. This explains why the alliance in Japan is only between three CSPs and has a narrowly defined goal of moving Felica-based services to NFC-standard-compliant services. Each carrier is responsible for migrating the service with their business and technology partners. For example, a recent launch of NFC services was led by a single CSP, KDDI, supported by a number of card issuers, technology and service providers; applications included couponing, loyalty schemes, ticketing, smart tags, payment and time management.

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China China's formal financial system consists of commercial banks, postal offices and credit unions that can offer banking services. But the distribution of this system is very uneven, with much denser coverage in the coastal region and sparse coverage in the west. In extreme cases, about 14,000 people are covered by a single branch. Given that there are many migrant workers in the coastal region, many of whom have mobile phones, mobile payment should be a promising business in China. However, the financial sector is strongly regulated, and pricing is for the most part mandated by the government, with little competition between the institutions. There is also no guidance as to the agency role of financial institutions. This significantly limits the potential of mobile payment, which has to rely on a network of agencies to reach the rural market. Some commercial banks have offered mobile money transfer services with reduced tariffs, but they are mostly targeting bank users who want to transfer money to other bank users. The lack of a distribution network and the lack of user awareness have resulted in low uptake of these services. On the other hand, mobile commerce has seen fast growth in China. Taobao, the leading ecommerce provider, reported $1.6 billion mobile sales in 2011, up from $286 million in 2010. The majority of Taobao's transactions are conducted via its Alipay payment platform. Mobile commerce will remain the largest driver for mobile payment during the next two years. CSPs and China UnionPay (CUP), a card network, have been working on NFC payment for the past three years, but with little progress. China is an example of a country where standards fragmentation and a lack of coordinated efforts among players have held back market development. China Mobile, the leading CSP, tried to promote its 2.4GHz contactless standard, instead of using the international standard of 13.56MHz, but finally had to retreat due to lack of support from other players and the significant investment required to upgrade the reader infrastructure. A dozen trials took place in various cities, led by various operators and CUP. To date, there is no recognized industry alliance to coordinate efforts. Nor is there cooperation between the regulators of financial services and the telecom industry. On the other hand, NFC ticketing and campus usage look promising, as these services can use existing contactless infrastructure and occur within controlled environments where solutions can be deployed quickly.

India Strict regulations have resulted in slow growth of mobile payment services in India for several years. Regulations require providers of these services to partner with a bank and give banks the most influential role. Banks not only "own" the customers and are authorized to issue e-money, but also have exclusive connectivity to the interbank mobile payment system (IMPS), which is the nationwide platform for mobile transactions. Although the regulator has done several things that favor market development, such as introducing the IMPS platform to ensure interoperability and a national ID project that will make KYC processes easier, there remain several regulatory constraints on the market's development: ■

The regulations allow only a "semi-open" mobile wallet, whereby users can only deposit money into the account — they cannot "cash out." This dramatically undermines the service's value proposition, where many first-time users want to cash out to ensure they get the money.

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The only transaction modes allowed are P2P and consumer to business, not business to consumer or business to business. This eliminates the use case of salary and benefit distribution, which is a large part of the money transfer market. There is no cap on the tariff that the service provider can charge. We hear that some service providers are charging as much as 3% on P2P transfers, which is much higher than what banks charge. comparison, Kenya M-Pesa charges a adoption flat fee forand sending money to registered users. ABy competitive fee in structure would encourage increase transaction volume.

We acknowledge that the regulator is taking a very prudent approach to mobile money and wants to have rigorous risk management and offer the best protection for consumers. We expect the regulations to loosen in areas such as the "semi-open" wallet and transaction mode, and clearer guidance to be offered when policymakers learn more from deployments and market feedback. There are at least half a dozen mobile payment services in India, but uptake of these has been very low. One reason is the lack of a distribution network. Because of the regulatory constraints, service providers are not investing in the network or promoting the service. The lack of user awareness and agency training, along with poor management of the agency network (which has led to cash flow problems), has harmed the service's reputation. Currently many services target banked users, who can be reached through the bank's existing infrastructure and who have the literacy to use such services. However, the value proposition of mobile payment is not appealing enough for these users, as they also have access to online banking and payment services. There is also an attempt to use mobile payment technology for retail purchases. Movida, a joint venture between Monitise and Visa, aims to enable merchants without a POS terminal to accept electronic payments that are backed by debit and credit cards. This is an interesting attempt to increase the volume of electronic transactions, which is still quite low. It remains to be seen whether the service is appealing enough to cardholders.

Bangladesh Bangladesh is another market where mobile payment services have strong potential. The country has high level mobile penetration, 45%, while services banking penetration is 2008 only about 10%. The acentral bankofpublished a guidelineat forabout mobile payment as early as in and updates in 2011. The guideline covers all major aspects of mobile payment, including business models, custody accounts, the role and selection of agencies, tariff structure (with maximum and minimum limits), interoperability, security, risk management and consumer protection, while leaving plenty of room for service providers with regard to operational processes and responsibilities. Bangladesh is the seventh-largest recipient of international remittance, which contributed to 9.6% of its GDP in 2010 according to The World Bank. Money transfer, especially international transfer, is a key application for mobile payment services, along with bill payment and the purchasing of train tickets.

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Pakistan Pakistan's regulator has been friendly to mobile payment services in that it has set clear rules and responded to market challenges in order to remedy shortcomings. Although it mandates bank partnership for all service providers, the regulations do allow telcos to take ownership of banks and reduce the KYC requirement for low-value accounts. It has recently removed the requirement to take fingerprints at the time of registration, and replaced it with digital photo, which is easier and less expensive to capture. It also recently introduced a "level 0" account with a very low value and transaction limit. Level 0 accounts can be opened electronically with no physical paperwork. The country will become one of the most competitive markets for mobile payment, and also one with a number of innovative business models. Easypaisa is the best known and largest mobile payment service in Pakistan, with about 1 million users in 2011. The second-largest is United Bank's Omni, which targets both government and nongovernmental organizations to distribute benefits to citizens. Besides these two live services, at least six other branchless banking licenses have been issued to banks and CSPs, which are running pilots; other players are considering applying for a license. In the pilots, we see providers developing innovative business models built on their customer bases and existing businesses. Some examples follow. First MicroFinance Bank has partnered with the Pakistan Post Office to enable it to place loan officers at post offices to distribute and collect loan payments. Dubai Islamic Bank Pakistan targets high-net-wealth individuals, rather than the mass market. TCS, the country's largest logistics and courier company, is considering setting up its own bank and using its motorcycle deliverymen to offer banking services to people's doorsteps. Askari Bank, which is 50% owned by the Army Welfare Trust, will start by offering salary distribution to soldiers and their families. These business models will differentiate services from various providers, and help maintain a healthy level of competition, while fostering innovation.

Eastern Europe Russia Uptake of mobile payment services is very low in Russia, largely due to a lack of trust in electronic payments. The Postal Office is the leader in the domestic remittance market with a 30% to 50% share, and it also has a mobile money transfer service. Commercial banks and money transfer operators such as Western Union are present in the country, with good service coverage. They compete with CSP offerings. All three major CSPs have deployed their own mobile payment services, but it was not until January 2012 that they agreed to make each other's services available to their own users. Interoperability will encourage the adoption of mobile payment services and increase transaction volume. There is also a rush to deploy NFC services, especially for public transportation networks. The good infrastructure in major cities offers an opportunity for NFC. A number of trials have been carried out in Moscow and St. Petersburg, with the aim of launching NFC ticketing in 2012.

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Poland  A number of trials of NFC payment systems have been conducted in Poland, and there was one commercial deployment by a CSP in 2011. Poland has good contactless reader infrastructure, with about 35,000 contactless POS terminals in 2011. There are also several million contactless debit and credit cards in circulation. Despite the favorable conditions, the NFC payment sector has not developed quickly and faces several obstacles: ■

Limited support for mobile devices. Many services support only one mobile phone, and some

services require people to use a NFC attachment for their mobile phone. ■

Lack of nonpaymen nonpaymentt applications. In many services, payment is the only service supported.

There is, however, also one trial by the National Museum that enables people to get more information about exhibits via smart tags. ■

Technology bifurcation. CSPs prefer the SIM-based approach, while banks prefer NFC

accessories such as phone attachments. There is no common specification or interoperability between services. The limited range of mobile devices is a problem for all service providers. But we think Poland should more toservices enable more and encourage interoperability in order to scale up services quickly.do Payment aloneservices are not enough to spur market adoption.

Middle East Turkey Turkey is one of the countries most advanced with NFC deployments. It benefits from good contactless reader infrastructure: 60,000 merchants are equipped with contactless POS terminals. A  number of banks and CSPs have deployed NFC payment services. Turkcell is the most successful in terms of user adoption, although it is the latest provider to enter the NFC service market. Turkcell has not only gained support from four banks, each of which has deployed its own mobile payment service, but also achieved 17% penetration of users equipped with NFC phones after 10 months. Turkey has used various form factors for the secure element of NFC services. We expect the SIMbased approach to become the main one in this country.

United Arab Emirates CSPs and banks have both launched mobile payment services in the United Arab Emirates (UAE), but uptake so far has been lackluster. On the other hand, the UAE government is a key force in promoting electronic payments, for which mobile is an important channel. The Government of Dubai recently established a partnership with CSP Etisalat to upgrade its eDubai portal, which offers online access to government services. The partnership will see the government use Etisalat's electronic and mobile payment solutions for all government payments, which include topping up of toll charges and paying for utility bills and traffic fines. This will make Dubai a test bed for egovernment successfully.services that can be replicated in other UAE cities and even the wider Gulf region, if run

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The federal government is running a project to embed the national ID system into mobile phones using NFC. The Emirates Identity Authority (EIDA) has commissioned Etisalat to assess the feasibility of the project, and will be followed by a pilot before proceeding to commercial deployment. This approach will help build the infrastructure for contactless readers, and encourage users to upgrade their mobile phones. Previously, several NFC trials have been conducted, with one commercial launch in late 2011. But the country's limited NFC infrastructure will be a key hurdle to the service's development. In 2011 there were only 600 outlets supporting NFC in the UAE.

 Africa  Africa is the most active market for mobile payment services. The best known and most successful service is M-Pesa in Kenya. This service had about 14 million users at the end of 2011, while the whole region had 45.5 million users. The fast growth of mobile payment services in the region can be partly attributed to the lack of a regulatory environment for mobile financial services, which means service providers can scale services at the expense of proper risk control and fraud management. This situation is slowly changing, though, as more regulators are becoming aware of this issue and putting in place regulations to ensure sustainable growth and align mobile payment systems with existing financial systems.

Nigeria Nigeria is the largest mobile market by number of users. There is a big difference in the penetration levels of mobile services and bank services: 54% for mobile services and only 24% for bank services. According to Gartner's research, this gap points to considerable potential for mobile payment services in Nigeria. The Nigerian government wants to promote a cashless economy to reduce the use of cash and increase electronic transactions, and to reduce the financial exclusion rate from its current level of 46.3% to 20% by 2020. These are all favorable conditions for mobile payment services. The Central Bank of Nigeria (CBN) published a regulatory framework for mobile payment services as early as in 2009, which had both good and bad points. On the upside, the regulations promote the interoperability of services. CBN requires all mobile payment services to be connected to the interbanking settlement platform, which can provide realtime settlement, and the telecom operators to open their networks to any other service provider to ensure quality of service. This will create an open and transparent environment for mobile payment services and encourage adoption. On the downside, the regulations identify banks as a key service provider for mobile payments, along with corporations, but excluding telecom operators. This is very striking as telecom operators has been a driving force behind many mobile payment deployments in emerging markets. CBN says that the reason for excluding telecom operators is to ensure a level-playing field for all competitors, so that the market is not dominated by a few big companies that have access to a larger portion of the population and the infrastructure. CBN also believes the decision will promote interoperability, so that a few companies cannot maintain a competitive advantage by limiting the service to their own users. While we acknowledge that it is important for regulators to ensure an open and secure system where players can compete on a fair basis, it is not necessary to explicitly exclude telecom Page 14 of 22

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operators, since they could bring the investment, marketing and distribution network that these services really need. More importantly, they could bring their experience learned from deployments in other markets to help ensure a smooth launch in Nigeria. CBN issued 11 commercial licenses in August 2011, mostly to banks. As of April 2012, there was limited promotion of mobile payment services in Nigeria, and most services have only a few thousand agents in the field. For a market like Nigeria, it requires at least 10,000 agents to cover the whole country effectively. As a result, uptake has been low, and the leading providers only have a few hundred thousand customers. The lack of active participation by telecom operators means Nigeria is on the slow track to widespread adoption.

Tanzania Tanzania is one of the world's fastest-growing mobile money markets. The country's mobile phone penetration is about 50%, whereas its banking service penetration is about 13%. This makes Tanzania a highly promising market for mobile payments. The country has a highly competitive mobile payment market with four live services, and CSPs are the driving force behind their deployment. Tanzania has seen fast growth since April 2008 when the first two services went live. It now has more than 11 million mobile payment users. Tanzania's market growth had been unregulated, and operators have not been required to partner with banks for mobile payment services. This is soon to change, however, as the country's central bank drafted mobile payment regulations in February 2012. We expect bank partnership to be required for all mobile payment services, so that proper risk and fraud mitigation mechanisms are in place. In addition, telecom regulations require all mobile phone users to register using their real names. This is a positive move for mobile payment services as it will ease the KYC process, requirements for which are similar to those for mobile user registration.  Although Tanzania is similar to Kenya in terms of of its stage of economic development, its strategy strategy for mobile payment services is very different due to differences in culture, demographics and market characteristics. For example, many heads of households in Kenya migrate to urban cities to earn higher wages, and send money back to their rural families on a regular basis. So, in Kenya, there is clear demand for services to transfer money from urban to rural areas. In Tanzania, however, population density is much lower and there is no clear pattern of migration to urban areas. Hence there is less demand for money transfer services in Tanzania, and there is no clear pattern of transference. Tanzania also has a generally lower level of financial literacy, with many people never having heard of a debit card or ATM (according to the GSMA). Vodacom, which operates M-Pesa, took about a year to realize that the Kenyan model did not work in Tanzania. It then made changes to its pricing structure, marketing campaigns and agent model, and added new services to support bill payment, airtime purchases and microfinance loan repayments. The service reported 9 million users by 2011, up from 280,000 in June 2009.

Latin America  Although this region is generally a developing market, there are only limited activities in the field of mobile payments. There are some carrier-led deployments that cover multiple markets, such as

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Telefonica's joint venture with MasterCard and Tigo Cash. But the former's service is only just being rolled out, starting with Brazil. Tigo Cash is live in four countries, but only the one in Paraguay seems to have captured a meaningful number of users (15% of Tigo's user base in 1Q12). There are also bank-led efforts to offer mobile banking services to their existing customers. The unbanked sector remains underserved by most providers. There are specialized services targeting immigrants to the U.S., to enable them send money home, but these are also yet to reach critical mass.

Brazil  Although Brazil has a low penetration rate for banking services, with estimates ranging from 30% to 40%, the country has an efficient banking sector and well-established informal financial channels that make the prospect of mobile payments less attractive. The banking sector is highly competitive, with more than 150 banks and over 19,000 branches. It also has a well-developed network of agents who work as business correspondents for banks. The central bank estimates there were 150,000 registered agents by January 2010. The combination of bank branches and agents gives better geographic coverage than CSPs, including presence in very remote areas that CSPs cannot reach. There also appears to be a lack of demand for mobile payments. Banks, ATMs and correspondent banks can all be used for money transfers and bill payments, and mobile top-ups can be made at correspondent banks. Eighty-four percent of the population is in urban areas, so the need for domestic transfers is relatively low, and most transfers happen within cities. International remittance is also small: it contributed only 0.3% of Brazil's GDP in 2009 according to the International Finance Corporation. In addition, bank cards have a high penetration rate, with more than one card per deposit account for both debit cards and credit cards. Penetration rates for ATMs and POS terminals are also high — on a par with some developed markets such as Germany and France. This situation leaves mobile payments with only niche opportunities, such as collection of government benefits, obtaining microloans, P2P transfers for convenience, B2B payments in the field, and enabling small merchants to accept electronic payments. Oi Paggo, the country's leading mobile payment provider, is deploying services to enable consumers to pay for retail purchases, and small merchants such as street vendors to accept payments via mobile phone. Given the technically advanced status of the banking sector, mobile-enabled retail payment may present opportunities if it offers a good user experience, the right incentives and a competitive fee structure.

Mexico Regulations in Mexico have moved in a direction that favors mobile payments. The role of bank agent is allowed, and agents can be owned by banks and non-banks. E-money can also be issued by non-bank providers. The regulations have enabled proportionate KYC requirements that recognize accounts at five levels, ranging from anonymous accounts that can be opened without any user ID but are capped in usability and transaction value, to fully fledged bank accounts with unlimited transaction value and functions. Mexico has more 40 banks with over Many major banksactivities have used agentstoto extend their reach,than mostly via retailers and 10,000 telecombranches. operators. There are some ongoing establish a shared agent network between retail chains and telecom operators, and banks seem to Page 16 of 22

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be comfortable with the idea of working with such a shared network. Some retailers, such as Azteca and Walmart, have obtained banking licenses, and offer financial services targeted at the lowerincome segments. Telcel, the country's largest CSP with over 70% market share, has partnered with banks to offer mobile banking services. However, there is uncertainty among many industry players, including banks and CSPs, regarding the business case for mobile payments. The distribution network of the CSPs overlaps somewhat with that of the banks, making it difficult to reach the rural and unbanked population. The government mandate to offer free services from ATMs also makes money transfers (which usually come with a fee) less competitive. That leaves retail purchase and credit offerings as two potential opportunities. However, the interest rate for credit products and the service fees charged by bank agents are still relatively high, and affordable products for the unbanked sector are yet to be developed. All of these factors mean that mobile payment offerings are limited so far. International remittance came to $22 billion in 2010, accounting for about 2.1% of the country's GDP (according to The World Bank), and the majority of the remittance came from the U.S. This creates opportunities to target immigrants to the U.S. who want to send money back to Mexico. m Via, a mobile money provider, offers immigrants to the U.S. a mobile wallet that can be used to send money to Mexico. The service charges a $25 annual fee, but users can send money for free. The recipient can make purchases from 25,000 agents in Mexico, or cash out from the agent or an  ATM. This model attracts more frequent and smaller remittances, and means lower costs for the user. Agents can make money from service charges such as cash-in, and increased footfall in stores. It will take major players such as banks and telecom operators to make aggressive investments in designing and marketing mobile payment services before the market will move forward. We think retail purchases and credit offerings are two potential areas to focus on, but there is a need to design the right user experience and fee structure to appeal to users and agents.

Technology: Mobile Retail Payment Is Gaining Traction  Although mobile payment acceptance transactions are excluded from our mobile payment forecast, mobile retail payment technology is gaining traction with some merchants and presents opportunities for service providers and equipment vendors. There are two types of mobile retail payment service: 1.

Ones that do not require any technical changes on the part of payers, who can continue to pay with physical cards, checks and cash, and without using mobile devices. There are two approaches: ■

Card readers attached to mobile devices to accept payment. These services allow

merchants to accept card payments by using a card reader that is usually inserted in the audio jack of the mobile device. The service requires merchants to download a mobile app and register using their bank accounts. Some services require merchants to sign up for a merchant account. These services target individuals and SMBs who do not want to invest in

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POS terminals and get locked into expensive long-term contracts, and whose transaction volumes are relatively low. They usually charge a flat fee for each transaction, and have no other associated costs. Companies such as Square, Intuit (GoPayment), PayPal (Here),  VeriFone (Sail) iZettle and PayAnywhere fall into this category. ■

POS terminals upgraded to support new payment instruments. PayPal is rolling out its POS

payment solution with Tier 1 merchants. Users can pay by giving their mobile phone number and a PIN, or using a physical card linked to a PayPal account. The service requires a software upgrade of the POS terminal and some changes to the merchant's back-end systems. 2.

Ones that require payers to use a mobile app that is supported by the POS terminal. Users need to link their card or bank account information to the app, and open tabs for a certain merchant to pay for the charge. Alternatively, they can let the merchant scan the bar code generated by the app that is associated with their card. Merchants will need either a mobile app that can communicate with the user's app, or to upgrade their POS system to accept payments from the mobile app. Examples include Square's Pay With Square app, LevelUp's bar code mobile payment app, the Starbucks Card Mobile app, and Tabbedout for hospitality businesses.

Square, the pioneer of mobile payment using card readers, reported $13.7 million transactions processed on a daily basis in April 2012, and had 1 million merchants by the end of 2011. The fast penetration of mobile payment via card readers into merchants indicates that services that require minimal investment in and change to merchants' systems and to user behavior stand a better chance of acceptance. It is not only SMB merchants and individuals who can benefit from the technology. Big companies with a large field force or distribution system can also benefit from such technology. They can collect card payments from customers, suppliers and distributors by using the technology without having to carry bulky wireless POS terminals. Retailers can also use the service to mobilize in-store payment to increase customer satisfaction by cutting queues.

Contrarian View: Large-Scale Adoption of Mobile Retail Payment Technologies Will Further Delay NFC Mobile retail payment technology addresses pain points in the purchasing process with minimal investment required from the merchant and minimal changes needed in user behavior. It has considerable potential to eclipse NFC payment for retail purchases. Square acquired 1 million merchants after two years of launch. PayPal Here signed up 200,000 merchants within its first month. There are already a good number of players in the space, with more to come, and investments by major players (such as Visa, Intuit and Ingenico) in those technology and service providers. In addition, we expect to see a large number of merchants introduce their own mobile payment schemes, many of which will not use NFC. This will encourage consumers to maintain their existing payment habits — that is, to stick with cash and cards — or use mobile apps that offer a compelling shopping and paying experience. If this phenomenon proves large in scale, NFC's value

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proposition for fast and convenient payments would be further weakened and its widespread adoption further delayed.

 Vendors to Watch Comviva has its roots in telecommunications. It provides a wide range of value-added services to

mobile carriers, which are its main customers for mobile payment solutions. Comviva also counts Barclays and Wing (a subsidiary in Australia and New Zealand) among its clients. It recently teamed up with MasterCard to participate in a mobile money partnership program to help the card network increase its penetration of emerging markets. The company focuses primarily on emerging markets, such as Africa and Southeast Asia. Ericsson relaunched its mobile payment solution in February 2012 by leveraging its carrier billing

platform. It targets CSPs as primary clients. It offers them a converged wallet with which operators can upsell and cross-sell between telecom and financial products. Ericsson also has a mobile commerce interconnect solution that can link mobile wallets to service providers, which include operators, financial institutions, money transfer agencies and merchants. Ericsson's strong brand with CSPs and the 1.6 billion users it already serves with its billing platform will make it a strong competitor in the mobile payment space. Fundamo was acquired by Visa in June 2011 as a vehicle with which to penetrate emerging

markets. Fundamo had a very strong presence in Africa through a partnership with MTN, but has recently been replaced by Ericsson. The company has extensive experience in emerging markets such as Africa, the Middle East and Southeast Asia, and its many deployments will remain a key asset. Gemalto provides smart card and personalization services to mobile carriers and financial

institutions. It has played the role of trusted service manager in many NFC trials and deployments, and has strong presence in Western Europe. Its acquisition of Trivnet gave it a range of mobile financial service capabilities, which include banking, payment and wallet capabilities for both banks and CSPs. Monitise provides hosted and on-premises services for mobile banking and payments. It relies on

 joint ventures and strategic partnerships to enter new markets, and connects mobile carriers, banks and merchants to its hosting platform in order to build an ecosystem for mobile payments. Its main operations are in the U.K. and the U.S., and also has live services in India and Africa. In addition, it has a strategic partnership with Visa, the company's majority shareholder, to connect Visa cardholders to the Visa network. Oberthur Technologies provides smart card and personalization services to CSPs and financial

institutions. It is an active player in the NFC space, working as the trusted service manager for CSPs and financial institutions. It is in the process of acquiring MoreMagic, a mobile payment solution provider that offers a comprehensive suite of payment, commerce and marketing products, and has presence in bothwhich developed and developing markets. worldwide. MoreMagic also has a hub service for international recharging, now connects 150 businesses

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PayPal powers mobile commerce for a large number of merchants. It also enables P2P transfers,

though uptake of this service is relatively low. In early 2012, PayPal undertook a high-profile launch of two mobile retail payment services, one targeting Tier 1 merchants and the other SMBs. PayPal is betting on cloud-based payment for retail purchases as the most immediate opportunity; it expects NFC to take off much later. Sybase's  mobile commerce solution provides mobile banking, payment and remittance functions,

and targets both CSPs and financial institutions. Sybase has been selected by Telefonica to deploy its mobile payment service in Latin America.

Conclusions The market calls for innovative offerings that cater to local needs and conditions.  This report

has looked at 19 key markets, and there is no single model that will work in all of them. Nor is there a "one size fits all" model that can work across all developed countries or all developing countries. The countries that are successful at driving mobile payment services are those with innovative models that leverage the resources and user base of the service provider, and cater to the most urgent needs of users. There is also a need for differentiated models that focus on different value propositions, user segments and products. NFC services call for an all-encompassin all-encompassing g approach in which payment is the enabler. This

relates not only to collaboration among stakeholders and a common set of specifications but also to the inclusion of various uses cases to deliver an appealing value proposition. Payment alone is not enough to stimulate user interest on a massive scale.

Recommended Reading Some documents may not be available as part of your current Gartner subscription.

"Forecast: Mobile Payment, Worldwide, 2009-2016" "Lessons to Learn From Early NFC-Enabled Mobile Phone Payment Deployments" "New Barclays Mobile Payment App May Upset Bank/Telco Status Quo" "Starbucks' Mobile Payment Application Challenges NFC Mobile Payments" "Hype Cycle for Consumer Services and Mobile Applications, 2012" (forthcoming) Evidence This research is based on interviews with service and technology providers, field trips to India and China, studies by other institutions, media and company reports that are publicly available, and the author's years of experience in the mobile payment sector. In addition, the author referred to the following studies:

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"Mobile Money Study 2011" (IFC) 2011"  (IFC)



"Regulatory Framework for Mobile Payments Services in Nigeria" (Central Nigeria" (Central Bank of Nigeria)



"Bangladesh Mobile Payment Guidelines, 2008 (Draft)" (Bangladesh (Draft)"  (Bangladesh Bank)











 Andrew B. Morris, "Yes, NFC, That Speeding Train is Headed Your Way" "Branchless Banking in Pakistan: A Laboratory for Innovation" (  Innovation" ( Consultative Consultative Group to Assist the Poor )  ) Greg Chen, "Branchless Banking Gains Momentum in India" "What Makes a Successful Mobile Money Implementation? Learnings from M-Pesa in Kenya and Tanzania" (GSMA) Tanzania" (GSMA) "CGAP Technology Program Country Note — Mexico" (  Mexico"  ( Consultative Consultative Group to Assist the Poor )  )

Note 1 Definition of Mobile Payment Gartner defines mobile payments as transactions conducted by payers using a mobile device and payment instruments that include: ■

Bank instruments, such as cash, bank accounts and debit and credit cards.



Prepaid accounts, such as transport cards, gift cards, PayPal accounts and mobile wallets.

Our definition excludes transactions that use: ■





Carrier billing using a telco's billing system and existing prepaid or postpaid mobile phone accounts. Telebanking using a mobile phone to call a service center via an interactive voice response (IVR) system. The exception is IVR technology used in combination with other mobile channels such as SMS and Unstructured Supplementary Service Data (USSD) for enhanced security. Mobile point of sale (POS) payment acceptance by merchants that attach card readers to mobile devices or use the device camera to scan cards and checks

We have included mobile payment acceptance transactions in this report in order to cover overall trends in mobile payment, on both the paying side and the acceptance side. But mobile retail transactions using physical cards are excluded from our mobile payment forecast, which focuses on mobile-initiated mobile-initiated payments.

This document is published in the following Market Insights: Consumer Services Worldwide Mobile Communications Worldwide

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© 2012 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner’s prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions o pinions of Gartner’s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website, http://www.gartner.com/technology/about/  ombudsman/omb_guide2.jsp.. ombudsman/omb_guide2.jsp

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