Consulting Firm Report Advocates Collaboration with Financial Institutions
CHICAGO, Sept. 18 /PRNewswire/ -- U.S. mobile operators are at a crossroads: Mobile phones have become necessary items for most Americans, and non-voice services make up a growing share of operators' average revenue per user (ARPU).
But while the growing multi-functionality of mobile phones could present an opportunity to substitute the ubiquitous wallet with a digital alternative, wireless operators face real challenges in deciding how they will generate new revenue in a mobile payments ecosystem that could be dominated by financial services firms, according to telecom experts at Diamond Management & Technology Consultants, Inc. (NASDAQ:DTPI). Diamond's new white paper, "Mobile Payments: Mobile Operator Market Opportunities and Business Models," addresses key strategic areas of consideration before an operator commits resources to pursue m-payment opportunities.
Mobile payments -- or m-payments -- refer to any payment made through a mobile phone, whether in-store or remote. For example, a consumer can use a mobile phone to make purchases at retail stores in place of cash, credit or debit cards, and checks. In the case of remote transactions, consumers use mobile phones to purchase mobile content and applications and complete peer-to-peer (P2P) and international fund transfers.
"The total payments market in the U.S. is estimated to be over $7 trillion, so even if m-payments capture a small share of that, the potential opportunity is enormous. U.S. mobile operators will need to play an active role in developing an m-payments ecosystem that ensures they capture a fair share of revenue from this opportunity," said Hamilton Sekino, a Partner in Diamond's Telecom and High Tech practice.
"These operators will have to work collaboratively with financial institutions and other ecosystem players to build a compelling value proposition around m-payments in order to accelerate consumer behavior shift from traditional payment methods to mobile payments. M-payments' associated fees to mobile operators will help them fill the gap in $40 billion non-voice revenues they need to generate by 2010 to sustain overall ARPU." To obtain a complete copy of Diamond's white paper, send an email to .
Identifying Potential Payment Segments and Business Models Sekino explained that Diamond first identified and sized segments within the current payments market that are more apt to adopt m-payment solutions. Based on the findings, the report identifies four market quadrants across two dimensions: in-store vs. remote payments and micro vs. macro payments, with micro-payments representing transactions of less than $5.
"We believe the largest potential for adoption of m-payments is in in-store micro-payments and remote macro-transactions (i.e., P2P and international fund transfers) and micro-transactions (i.e., purchase of on-deck and off-deck mobile content). In-store macro-payments will take longer to develop due to lower consumer acceptance and financial institutions' resistance to cannibalize credit/debit card revenues." Also, in order to assess the feasibility of different mobile payment business models in the U.S. market that mobile operators and financial institutions can pursue, Diamond evaluated seven representative mobile payment initiatives from around the globe. The report examines four current m-payment initiatives for in-store purchases and three initiatives based on P2P remote payments.
"A model through which mobile operators collaborate with financial institutions will have the greatest likelihood of success for implementing an m-payments strategy in the U.S. market," Sekino said.
For instance, SK Telecom and leading banks in South Korea teamed up to introduce the Moneta m-payment service, using Near Field Communication (NFC) chips inserted into mobile phones. Once activated, the mobile phone can be used as an e-money account, credit card, transit card, or membership and loyalty card. Moneta subscribers are able to hold multiple accounts from different issuers on a single mobile device (i.e., mobile wallet) powered by SKT.
The SKT Moneta service exemplifies a collaboration model between a mobile operator and financial services firms. Credit and account issuance is performed by the partnering banks, and payments are processed through the existing Visa and MasterCard networks. SKT develops new payment applications and is responsible for rolling out new POS readers to merchants. For those investments, SKT earns a portion of the transaction revenue from the payments.
Achieving Strategic Alignment with Financial Institutions and Retailers In order to plot out a successful m-payments initiative, a mobile operator will need to understand critical adoption drivers and barriers, and develop compelling value propositions to both consumers and retailers. At the same time, an operator must evaluate the potential contribution of m-payments to its core business (e.g., revenue, retention, data plan uptake, and casual data usage) against incremental costs required (e.g., handset subsidies, IT, and customer care), as well as understand the potential contribution to financial institutions and retailers. Finally, a mobile operator will need to negotiate a business model or revenue-sharing agreement with financial institutions and retailers that is profitable for all sides and rewards them fairly.
"We do not believe that mobile operators can take these steps in isolation," said Sekino. "The best approach is for mobile operators to start working very closely with leading financial institutions and retailers to design an m-payments strategy that is aligned with the interests of the required partners to deliver a compelling value proposition and experience to m-payments users." About Diamond Diamond (NASDAQ:DTPI) is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond's small teams of experts work across functional and organizational boundaries to improve growth and profitability. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. To learn more visit http://www.diamondconsultants.com/.
Contacts:
Nicholas Braude
Media Relations
+1.312.255.5802
Margaret Boyce
Investor Relations
+1.312.255.5784
DATASOURCE: Diamond CONTACT: media relations, Nicholas Braude, +1-312-255-5802, , or investor relations, Margaret Boyce, +1-312-255-5784, , both of Diamond Web site: http://www.diamondconsultants.com/
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