insight Mobile Payments: Mobile

Operator Market Opportunities

and Business Models
By Hamilton Sekino, John Kwon and Se Han Bong
Mobile payments have been highly
touted since it became apparent that
the mobile phone would emerge
as a ubiquitous consumer device.
However early market adoption was
stunted by technological challenges,
a lack of standardization, fragmented
commercial efforts, and most impor-
tantly, a lack of sustainable business
models. More recently, however, there
have been signs of renewed interest
in mobile payments. Recent commer-
cial initiatives include NTT DoCoMo
and SK Telecom in Asia as well as
mobile payment trials in the U.S., by PayPal Mobile, Visa and MasterCard.
We believe mobile operators in the U.S. now have a real opportunity
to lead this market development, given their large customer bases, and
control of mobile device features, user interface, and subsidies.
We define mobile payments (m-payments) as any payment transactions,
whether in-store or remote, executed on mobile devices. In this paper,
we first assess the market opportunity for m-payments in comparison
to other traditional payment methods. We then identify and evaluate
potential business models based on past and ongoing initiatives. Finally,
we highlight key strategic questions for mobile operators to assess the
mobile payment opportunity.
 The Mobile Payment Potential Drivers for Market
Market Opportunity Adoption of Mobile Payments
While mobile operators, financial services firms,
and retailers have been evaluating the feasibility
of m-payments since early 2000, recent
developments on both the supply and demand side
are prompting the key players in the m-payments
value chain to get serious about its potential.
On the supply side, mobile operators
are under pressure to continue looking for
new revenue sources to counteract
voice pricing decline and subscriber growth
saturation. While mobile operators in the
U.S. are gaining traction with mobile data
content and applications, which already
represent 13% of total ARPU, the m-payment
market presents them with an opportunity
to further expand non-voice revenues. Mobile
operators in mature wireless markets such
as South Korea and Japan, where mobile
data ARPU already reached 19% and 29% of
ARPU respectively, are aggressively leading
their respective m-payment ecosystems. We
estimate that mobile operators in the US
will need to generate more than $40B in non-
voice revenues by 2010 in order to sustain
overall ARPU, and they will be looking at
m-payments as one potential revenue source.
Furthermore, financial institutions, facing
declining revenue growth from traditional
credit cards, are also looking at cash-
dominated micro-payments (i.e. transactions
less than $5) to generate new revenue
table of contents
streams. In 2004, micro-payments processed
The Mobile Payment Market
through credit and debit cards accounted
Opportunity . . . . . . . . . . . . 2
for only $13.5 billion out of over $1 trillion
Mobile Payment Business Models . . . 5
total spent on micro-payments.
Conclusion: Recommendations for
Mobile Operators . . . . . . . 10 On the demand side, the growing ubiquity of
mobile phones and their increasing multi-
About the Firm . . . . . . . . . . . . 12
functionality make mobile phones a compelling
About the Authors . . . . . . . . . . . 12 candidate for replacing a physical wallet. In
the U.S. mobile penetration has passed 75%,
For more information contact: with 235M mobile phone users, compared
Hamilton Sekino, Partner to 176M people with credit/debit cards.
Hamilton.Sekino@diamondconsultants.com Surveys reveal that U.S. consumers today
2
are more likely to leave home without their
wallets than their mobile phones.
In addition, consumers are increasingly
comfortable in using their mobile phones for
applications other than voice. This is clearly
the case in Japan and South Korea, which are
leading m-payment deployments. It is reasonable
to expect this trend to carry over to the U.S.
market, where mobile data penetration is
projected to grow from 21% to 52% by 2011.
Segmentation and Sizing of the
Mobile Payment Market
To help assess the market potential of mobile
payments, Diamond first looked at the current
payments market and identified and sized
segments that are more predisposed
to adopt mobile payments (Figure 1).
The market is segmented into 4 quadrants:
in-store vs. remote and micro vs. macro
transactions, where a micro transaction is
defined as less than $5. From this perspective, we
focused on in-store transactions, aggregating to
more than $6 trillion in annual transactions, and
on peer-to-peer (P2P) and international fund
transfers, a much smaller market with close to
$60B in annual transactions.
Mobile phones possess key value propositions
that make m-payments ideal for these segments.
For in-store segments—in particular the micro-
payments segment—the value proposition is the
convenience and speed of contactless payments
enabled by mobile phones with embedded NFC
(Near Field Communication) chips. For on-line
P2P and international transfer markets, the value
proposition is the inherent connectivity, ubiquity,
and near real-time verification capability
of mobile devices (via SMS, WAP, or IVR).
Overview of Payment Value Chains
Before evaluating and recommending an
optimal new value chain and business model
for mobile operators, it is useful to first
review existing payment models (Figure 2).
 U.S. Payments Market Segmentation and Sizing

In-Store TRANSACTION LOCATION Remote

Payments under $5 in physical locations Wireless content & app. download

= $1.2 trillion1 = $2.0 billion
Micro-
Transactions
Incumbent: Cash Incumbent: Direct Wireless Billing

TRANSACTION
SIZE
Online sales2 = $176.4 billion
Payments over $5 in physical locations + Online P2P3 = $16.0 billion
= $5.0 trillion + Int’l fund transfers4 = $43.5 billion
Macro-
Transactions $235.9 billion

Incumbents: Credit/Debit Cards, Incumbents: Credit/Debit Cards,

Cash, Checks P2P Payments

1 Vending, parking, coin-operated machines, quick-service
restaurants, and transit account for $160 billion.
2 Excludes P2P payments, catalog sales, infomercial sales,
telesales or bill payments.
3 About 9% of US online shopping used peer-to-peer service,
such as PayPal, to make payments, and nearly 95% of
online P2P were generated by auction-related payments.
4 Total US remittance outflow (personal transfers from the
US to other countries) in 2005.

Sources: Federal Reserve Bank of Philadelphia, 2006; IDC survey, 2006; eMarketer, 2006; Nilson Report, 2005; IMF, 2005; Diamond analysis.

Figure 1

Overview of Traditional Payment Value Chains

Merchants Acquirers Payment Networks Issuers

Consumers
Cash
• Accept cash • Pay cash

• Accept payments using card
Credit / readers that are connected
Debit Cards to merchant acquirers
• Hold merchant accounts
• Manage transaction info
& merchant payment
• Typically outsource
transaction processing
• Connect and switch
transactions between
merchants & issuing banks
• Expand network and
promote brand awareness
• Manage consumer
accounts and assume
associated credit risk
• Typically outsource back-
office processing
Consumers
• Pay issuers and manage
accounts (via statements
or online access)

• Accept checks and verify
Checks consumers’ identity and
account information
• Selling party must belong to
Online P2P the same payment network
Payments as the paying party to
receive funds
Consumers
• Hold merchant accounts • Hold consumer accounts • Monitor their
• Collect & process checks and issue checks checking accounts
(verification and guarantee) • Not responsible for
• Clear checks & collect funds fraudulent checks
• Outsource check printing
Consumers
• One entity performs acquiring, issuing & processing (network function) • Transfer funds between
• Transaction is identical to transferring funds between two accounts in a same bank other accounts to the
• User accounts are typically linked to member credit cards or bank accounts service provider
• Service provider encourages users to maintain balances on their accounts by giving interest
(via money market accounts)

• Accept payments using
Mobile M-payment readers or
Payments existing POS devices
connected to merchant
acquirers
• Hold merchant accounts
• Manage transaction info
& merchant payment
• Connect and switch
transactions (either through
own network or existing
payment networks)
Consumers
• Authorize payments and • Pay bills and recharge
manage wireless bills/credit M-wallet
card bills/m-payment • Monitor their accounts
accounts & M-wallet via mobile phones

Figure 2

3
 Traditional payments typically involve a also responsible for expanding their merchant transaction that ranges between 1 and 3%.
merchant, acquirer, issuer, and a consumer. networks and user membership to ensure Typical share of interchange fees for
The roles of merchants and consumers wide acceptance and drive revenue growth. players in the value chain, along with the
are obvious. Acquirers are responsible for U.S. market size for each payment types,
In recent years, PayPal spearheaded
acquiring merchants and enabling merchants are illustrated in Figure 3.
the development of a simplified payment
to process payments. Issuers are responsible
value chain to facilitate frictionless These interchange fees are considered
for issuing payment devices to consumers
payment methods for on-line commerce a major cost factor for merchants and
and processing the transfer of funds
between individuals and on-line merchants. have been an extremely contentious issue
from consumer accounts to merchants.
In this online peer-to-peer (P2P) payment between merchants and financial
In the case of credit and debit cards and model, one entity, PayPal, holds the relationship services firms in recent years. Any new
other electronic forms of payment, a payment with both merchants and consumers, thus payment model for mobile payments
network provider, such as Visa or MasterCard, playing the role of both acquirer and issuer. must be cognizant of these interchange
resides between acquirers and issuers fees and attempt to reduce or match
For providing these payment services,
to facilitate the transfer of information and these fees to be successful, especially for
the various players in the value chain
funds. Payment network providers are micro payments.
typically take a percentage of the payment

Breakdown of Processing Fees Across the Value Chains

U.S. Market Merchants Acquirers Payment Networks Issuers

Size

• 2005: 49B trans

Cash ($1.4T)
• 2009: 47B trans • Keep 100% of payment value
($1.7T)

• 2005: 46B trans

($2.6T)
• CC: Keep ~98% • Keep 0.4% (shared w/processors) • Keep 0.1% • Keep 1.5% (shared w/processors)
Credit / • 2009: 63B trans
Debit Cards ($3.7T) • Offline DC: Keep ~99% • Keep 0.25% (shared w/ processors) • Keep 0.1% • Keep 0.77% (shared w/ processors)

• Online DC: Keep >99% • Keep 0.16% (shared w/processors) • Keep 0.05% • Keep 0.25% (shared w/processors)

• 2005: 26B trans

($2.0T)
• Keep ~96% of payment value • $0.25 per transaction • May collect fees from
Checks • 2009: 23B trans (verification) AND 2% + $0.15 consumers
($1.4T) to $0.25 per transaction
(guarantee)

• 2005: ($16B*)
• Keep ~97% of payment value • 1.9% to 2.9% + $0.30 per transaction
Online P2P • 2009: (25B)
Payments
• Keep ~98% of payment value • 2% + $0.20 per transaction

• 2005: Negligible
• Keep ~97% of payment value • Keep 1.3% (1.0% going to • Keep 0.1% • Keep 1.2% (less than half
Mobile • 2009: 0.4B trans subsidizing Moneta phones) their usual 2.5 cut)
Payments ($5B)

*About 9% of US online shopping (i.e. 9% of total $176.4B) used peer-to-peer service, such as PayPal, to make payments. Nearly 95% of online P2P were generated by auction-related payments.
Note: Breakdown of payment value based on an $100 transaction.

Sources: The Nilson Report; eMarketer 2006; UBS; FDC; EFT data book; Card Association Interchange Schedule; SK Telecom.

Figure 3

4
 Assessing Diamond evaluated seven representative
Mobile Payment m-payment initiatives in the market, for both
in-store purchase and P2P remote payments,
Business Models to assess their feasibility in the U.S. market.
In-store Payments
To understand the m-payment options for
in-store purchases, we look at four current
m-payment initiatives (Figure 4): NTT DoCoMo
(DCM) FeliCa in Japan; SK Telecom Moneta in
South Korea; MasterCard m-payment trials in
the U.S.; and the Mobilelime venture in the U.S.
While some of these services offer payment
applications beyond in-store purchases, for
the purpose of this assessment we will focus
on their in-store payment capabilities as
the dominant service offering.
n NTT DoCoMo FeliCa —
Operator-Dominated Model
NTT DoCoMo launched e-wallet mobile
phones using Sony’s FeliCa technology in
July, 2004 with very positive results. By
2006, DoCoMo already had more than 24,000
POS readers throughout Japan and over
18 million e-wallet service subscribers (35%
of the total subscriber base).
Here’s how the DoCoMo FeliCa service
works. Customers get a FeliCa-enabled phone
that comes with a smart chip embedded in
the device. Once customers use their phones
to activate the service, they can choose from
a prepaid account similar to a debit account
or an extended credit account. In addition,
Felica users can apply for multiple third-party

Potential Business Models for In-store Payment Segment

Payment M-wallet
Merchants Acquirers Issuers
Networks Aggregator

Device: FeliCa-embedded
Operator- phone
dominated
Model POS Requirement: Primary Acquirer: Processing: Issuer: DoCoMo M-wallet: DoCoMo Activation: Via phone
New DoCoMo DoCoMo DoCoMo Billing: DoCoMo Provisioning: menu (OTA)
(DoCoMo
FeliCa) FeliCa reader Interchange OTA by DoCoMo
Collector: DoCoMo Payment: Wave phone (NFC)

Device: Moneta-enabled
Operator/FS phone
Collaboration Activation: Insertion of smart
POS Requirement: Primary Acquirer: Processing: Issuer: Banks M-wallet: SKT Moneta
Model New Moneta SKT Moneta Leverages existing Billing: Banks Provisioning: Smart chip into phone
(SKT Moneta) payment reader VISA & MC networks Interchange chip distributed by
Collector: Banks banks Payment: Wave phone (NFC)

Device: Nokia 3220 w/NFC

(from at&t)
FS-dominated
Model POS Requirement: Primary Acquirer: Processing: Issuer: Banks M-wallet: Issuing Activation: OTA
(MasterCard) New Paypass MasterCard Leverages existing Billing: Banks banks
sensors leverages existing MasterCard network Interchange Provisioning:
acquirers Collector: Banks OTA by issuing bank Payment: Tap & Go (NFC)

Person or Device: No new phones

3rd-party Merchant required
Intermediation
POS Requirement: Primary Acquirer: Processing: Issuer: Mobilelime M-wallet: NA Activation: Online registration
Model Registration only Mobilelime Mobilelime Billing: NA Provisioning: None
(Mobilelime) Collector: NA
Payment: Call IVR

Wireless Operator Financial Services New Entrant

Figure 4

5
 services such as transit tickets, ID cards, and
electronic keys to be incorporated into their
e-wallet phones.
Unique to the DoCoMo model is its vertical
integration. DoCoMo purchased a bank to
handle account management, credit issuance,
and merchant acquisition processes. In
this model DoCoMo has established an end-
to-end service delivery model: acquisition,
payment network, and issuance.
This model allows the operator great
flexibility in implementing the payment value
chain, particularly in establishing attractive
processing fees. Since there are no other
players in the value chain, the operator is free
to set appropriate device costs and lower
transaction fees to entice new merchants.
In addition, having the full range of
relationships as a wireless provider and
a banker is likely to increase the
stickiness of the consumer relationship,
thus reducing overall churn.
However, there are added risks and
disadvantages to going it alone. In addition
to the initial investment of acquiring a
bank with credit-issuing capability, DoCoMo
also had to invest in acquiring new
merchants and distributing new POS readers
throughout Japan. Given the geographical
size and population of the U.S., this would be
an even greater challenge for operators
here. DoCoMo was able to establish
partnerships and standards very quickly by
leveraging their dominant market share
in the Japanese mobile market. This may be
challenging in the U.S. market where there
is not a single dominating operator.
n SK Telecom Moneta—Operator
and FS Collaboration Model
Originally trialed in South Korea in 2002 using
infra-red readers, SKT Moneta currently
uses a NFC chip inserted into mobile phones
to facilitate payments. Visa and SKT also
6
announced that they will be offering Universal
SIM (USIM) cards, which can be personalized
over-the-air (OTA) starting in April 2007.
The SKT Moneta service has over 500,000
POS readers and 2.6 million subscribers
with Moneta phones.
Customers sign up for the SKT Moneta service
via the web or through their local bank branch.
Customers then receive a personalized
chip that they insert into the phone to activate
the service. Starting in April, 2007 customers
are able to sign up and get their mobile
phones provisioned OTA and no longer need
to wait for a new chip. Once activated, the
mobile device can be used as an e-money
account, credit card, transit ticket, membership
loyalty card, and for mobile online trading.
SKT is the m-wallet owner, meaning that
customers are able to hold multiple accounts
from different issuers under one mobile
device that is serviced by SKT.
The SKT Moneta service exemplifies a
collaboration model between a mobile
operator and financial services firms.
Credit/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 partakes in
a portion of the transaction revenue from
the payments. SKT receives 1.3% of the
transactions, payment networks 0.1% and
issuing banks 1.2%, which is less than
their usual fee of 2.5% in South Korea.
We believe the operator/financial services
collaboration model implemented by SKT
may be a better fit for U.S. operators than
the operator-dominated model. In this model,
the payment service is issued in partnership
with existing bank issuers. Hence, all credit
issuance and account management are
performed by the partnering banks and not
by the mobile operator, which may be
a point of concern for U.S. consumers who
prefer to receive banking services from
financial services firms.
However, while SKT had to invest in the
rollout of new payment readers in South
Korea, U.S. operators should collaborate
with financial services firms to leverage
the existing payment networks and
their contactless payment infrastructure.
Visa, MasterCard, and American Express
already have a big lead in rolling out
contactless payment readers and they are
likely to continue their investments.
Partnering with those firms would reduce
the investment required in rolling out
new readers and help to expand m-payment
adoption by establishing a single standard
across operators and financial services firms.
n MasterCard M-Payments Trial—
FS Firm Dominated Model
MasterCard’s m-payment trials in Dallas
and New York illustrate a financial services-
dominated model. In November, 2006
MasterCard launched its trial of m-payment
service in Dallas, partnering with Mobile
Virtual Network Operator 7-Eleven Inc.’s Speak
Out Wireless and Peoples Bank of Paris
Texas. MasterCard later launched a similar trial
in New York, partnering with Cingular
and Citibank. In both trials, customers received
a NFC-enabled Nokia 3220 phone that
is activated OTA using the carrier network. Once
activated, customers can “tap and go” to
pay for goods in more than 32,000 merchant
locations that accept Paypass, including
7-Eleven stores, McDonald’s, CVS, Duane Reade,
Sheetz, and Regal Entertainment Group.
The m-payment works just like the
MasterCard Paypass cards in that a customer
taps the reader to initiate the payment.
No signature is required for purchases lower
than $25, making it ideal for replacing
cash transactions.
The MasterCard m-payment trial exemplifies
a financial services-dominated model
by leveraging existing payment value chains.
The New York trial works with a customer’s
existing Citibank credit account and payment
is processed using MasterCard’s existing
payment network. While a permanent business
model has yet to be established, currently
the mobile operator’s involvement is limited
to providing the wireless network for
OTA provisioning of the mobile payment
device and participating to provide mobile
banking services.
This model has some advantages in terms of
consumer adoption. Given that the issuer
of the m-wallet is the issuing bank, it works
with existing credit accounts and does
not require customers to apply for new ones.
The trial uses MasterCard’s existing
payment networks and Paypass readers,
avoiding new investments in payment
readers or acquisition of new merchants.
MasterCard and Citibank, the issuing
bank in the New York trial, were able to
leverage their trusted brand names which
should help to mitigate security concerns
around m-payments.
However, outside of the trial, a permanent
business model that would satisfy all
players has yet to be determined. In the
trial, the operator facilitated the OTA
provisioning of the phone via the wireless
network, but all the other aspects of
the payments process are managed and
owned by the financial services firms.
The mobile operator does not partake in
the interchange fees or own the m-wallet.
Given that U.S. operators have a dominant
relationship with device manufacturers
and heavily subsidize mobile devices, we
believe it is unlikely that operators would
be satisfied with such a passive role in the
value chain.
n Mobilelime—3rd Party Targeting Remote &
Intermediation Model Macro Payments
Mobilelime’s third party intermediation To understand m-payment options for remote
model represents another approach. (mainly P2P) payments Diamond looked
Mobilelime works to combine marketing and at three m-payment initiatives in the market:
loyalty programs with m-payment service. SMART Money in the Philippines and two
Initially designed with marketing and loyalty mobile services recently launched in the U.S.,
programs in mind, Mobilelime and partnering Obopay and PayPal Mobile (Figure 5, page 8).
merchants provide discounts and send
While some of these services offer payment
optional promotional information to customers
applications beyond mobile P2P, for the
via SMS.
purpose of this assessment we will focus on
To pay using Mobilelime, customers their mobile P2P capabilities as the dominant
call a 1-800 number and enter a PIN along service offering.
with a specific vendor location number to
n SMART Money—Operator and
initiate a payment. The vendor then inputs
FS collaboration Model
the last 4 digits of the customer’s phone
SMART Money, the world’s first reloadable
number to receive the payment. Once
e-wallet account, was launched in 2000
the payment is verified, Mobilelime transfers
by SMART, a leading mobile operator
the money to the vendor from a pre-
in the Philippines, and Banco de Oro. Each
registered customer credit card similar to
SMART phone is shipped with a SMART
a PayPal online payment. Merchants can
Money application pre-loaded on its SIM
also participate in Mobilelime’s marketing
card. Customers activate the SMART
and loyalty programs to send promotional
Money service OTA using the pre-loaded
information via SMS and track consumer
SMART Money menu on the phone.
behavior via a customer’s phone number.
Once activated, customers can use SMART
Mobilelime banks on consumer desire
Money to send funds to other subscribers,
for discounts and merchant interest in
pay merchants, pay utility bills, and pay for
maintaining effective loyalty programs to
prepaid mobile airtime. Customers can also
motivate m-payments. Additionally, their IVR-
reload or deposit cash into their SMART
based payment method does not require any
Money account in over 700,000 retail locations
new POS readers at the merchant location or
that participate as SMART Money reloading
NFC-enabled handsets, which are adoption
stations. SMART also distributes an optional
barriers for other mobile payment methods
prepaid MasterCard that can be used to
discussed earlier.
access funds in SMART Money.
However, Mobilelime’s payment processes
In the SMART Money payment value chain,
are cumbersome. Furthermore, Mobilelime
all of the account management and payment
currently lacks the brand awareness and
processing (except for MasterCard transactions)
marketing muscle to acquire new users and
is performed by the partnering bank,
the credibility to acquire merchants in
Banco De Oro. SMART handles marketing and
large numbers. We believe that it will be very
acquisition of new merchants and consumers.
difficult for any third party new entrant to
While SMART does not get a portion of the
disintermediate mobile operators and financial
transaction fees, the transactions are performed
services incumbents in the value chain.
7
 using SMS, thus contributing to the carrier’s
overall data revenue. Moreover, SMART reports
that using SMART Money and SMART
reload stations to recharge prepaid airtime
have reduced their prepaid top-up costs.
We believe mobile operators and large
retailer banks under a collaboration model
similar to SMART Money may create a
valuable proposition to consumers with an
on-the-go P2P service. For example, parents
could send money to their kids on family
plans upon receiving a request for more
funds on their accounts; or teenagers could
exchange small amounts through mobile
P2P replacing cash.
However, the major limitation of the model
is the “interoperability” between mobile
operators allowing P2P transfers between
subscribers of different operators. The
importance of “interoperability” is shown
by the adoption curve of SMS in the US
that only took off after SMS exchanges
across operators became available and more
reliable. Mobile operators should collaborate
on P2P as well to ensure cross-network
transfers.
n PayPal Mobile—Third-Party
Intermediation Model
PayPal, a leading online P2P payment
provider with more than 100 million users
worldwide, launched a SMS-based
mobile payment service in 2006 that allows
U.S. and Canadian members to send money
using their mobile phones on-the-go. Existing
PayPal members can activate their service
online by registering their Mobile number along
with a PIN. PayPal Mobile works with
any mobile phone, either via SMS or IVR.
Once registered, customers can send money
by texting the amount to be paid along
with the payee’s phone number to PayPal
or by calling a 1-800 number and using
the IVR system. For SMS requests, PayPal
authenticates the transaction by calling
back the payer and verifying their PIN. For
IVR requests, the PIN is verified on the initial
call. Once the payment is confirmed, PayPal
notifies the payee with instructions on how
to claim the payment. PayPal is also working
with merchants and charity organizations to
offer “text to buy” and “text to donate” codes.
For participating merchants and charities,
customers can buy items on ads or donate to
a charity simply by texting the “text to buy”
or “text to donate” codes to PayPal.
PayPal Mobile’s value chain is identical
to PayPal online. In fact, PayPal provides
one account for both online and mobile
payment services; the only difference is the
mode of communication when requesting
and acknowledging payments.

Potential Business Models for the Remote P2P Segment

Payment M-wallet
Merchants Acquirers Issuers
Networks Aggregator

Device: SMART-enabled
Person or Merchant phones
Operator/FS
Collaboration Activation: Via phone
POS Requirement: Primary Acquirer: Processing: P2P Issuer: BDO M-wallet: SMART
Model Registration only SMART processed by BDO; Billing: None (prepaid) Provisioning: menu (OTA)
(SMART Money) optional prepaid MC Interchange SMART (OTA)
processed via MC Collector: BDO Payment: SMS via phone
menu

Person or Merchant Device: No new device

3rd-party
Intermediation Activation: Download Java
POS Requirement: Primary Acquirer: Processing: Obopay Issuer: Obopay M-wallet: NA
Model Registration only Obopay transfers funds Billing: Obopay Provisioning: OTA software
(Obopay) between two Interchange (participating
Obopay accounts Collector: Obopay operators) Payment: SMS via Obopay
menu of IVR

Device: No new phones

Person or Merchant required
3rd-party
Intermediation
POS Requirement: Primary Acquirer: Processing: PalPal Issuer: PayPal M-wallet: NA
Model Activation: Online registration
Registration only PayPal transfers funds Billing: PayPal Provisioning: None
(PayPal Mobile) between two Interchange
PayPal accounts Collector: PayPal
(free for now) Payment: Send text or call IVR

Wireless Operator Financial Services New Entrant

Figure 5

8
n Obopay—Third-Party
Intermediation Model
Launched in March, 2006, Obopay offers on-
the-go P2P mobile payment service. Similar
to PayPal, both payee and payer must belong
to Obopay to send and receive funds. Also
similar to PayPal, Obopay links to a user-
provided bank or credit account to replenish
account balances when payment is made.
Customers can send money using an Obopay
application (which can be downloaded OTA for
subscribers of select operators), SMS, or
via a 1-800 number (IVR). The receiving party can
acknowledge payments and request payment
via the same Obopay application. Obopay
also provides an optional prepaid MasterCard
that can be used with the Obopay account
to make purchases at MasterCard locations
and to get cash at ATMs.
Obopay’s business model is based on
a simplified value chain, much like PayPal,
where Obopay holds accounts for both the
payee and payer and manages the transfer of
funds between the two customers. Just like
PayPal, Obopay customers rely on existing
payment networks (credit or debit accounts)
to reload their virtual accounts.
The third-party intermediation model being
pursued by PayPal Mobile and Obopay offers
an inherent value proposition by enabling
customers across multiple mobile operators
to request and send money on-the-go at
anytime. Additionally, in PayPal’s case, they
already have a substantial user base and
the payment infrastructure established from
their online P2P payments.
However, compared to the collaboration model
there are significant limitations. Because
the third-party intermediation model does not
involve the mobile operators directly, the
user experience may not be ideal. In PayPal’s
case, the payment is initiated by texting
to PayPal’s number or by calling PayPal.
Obopay does offer a downloadable
application for select operator subscribers
but relies on SMS or IVR via a 1-800 number
for other operator subscribers. Even if
the provider has an SMS-based application,
some mobile operators may block messages
to the providers’ short codes, and even if the
provider has a Java-based downloadable
application, it is an issue to ensure that the
application will work across all handsets.
Involving the operators may help to develop
an on-deck application that is conducive to
a better customer experience.
Moreover, without partnerships with mobile
operators or well known financial services
partners, the provider may also lack the brand
awareness to drive adoption of the service,
a particular challenge for new players such
as Obopay.

 Conclusion: After years of hype surrounding mobile payments, recent developments in NFC technology
Recommendations for and standardization efforts by Visa and MasterCard have finally paved the way for U.S.
mobile operators to think realistically about their role in a world of contactless payments.
Mobile Operators While the appropriate business model has yet to be developed in the U.S., operators in other
markets have achieved success, thus demonstrating the viability of the m-payment concept.

U.S. operators will need to play an active role in developing an m-payments value chain to
ensure that they capture a fair share of revenue from a payments market sized at $8 trillion in
2009 thereby further monetizing their investments in customer acquisition and retention, and
justifying the cost of higher handset subsidies.

Diamond’s analysis suggests that an Operator/Financial Services collaboration model has the
highest likelihood of success for implementing an m-payment strategy in the U.S. market.
However, mobile operators and their financial services partners have to address key strategic
questions on the demand and supply sides before committing organizational and capital
resources to pursue the m-payment opportunity:

Key Questions—Demand: Key Questions—Supply:

End-users:
• What is the value proposition of
the m-payment offer as compared to
competing payment methods?
• Would consumers adopt m-payment?
• What are the early adoption segments?
• Would they accept costs for the
service in the form of financial fees or
mobile data charges?
Retailers:
•W
 hat is the value proposition
of m-payment as compared to
competing payment methods?
Financial services firms:
•W
 hat incremental revenues can
m-payment generate?
• What is the upside to the core
business in terms of retention
and acquisition of new customer
segments?
• Is the collaboration model a profitable
proposition considering incremental
acquisition, IT, and care costs?
Mobile operators:
• What is the incremental ARPU that
m-payment can generate?

• What is the expected speed of • What is the upside to the core

upgrade to POS terminals that are business in terms of retention, data
NFC reader enabled? plan uptake, and casual data usage?

• How can the upgrade cycle be • Is the collaboration model a

accelerated? profitable proposition considering
incremental handset subsidies,
• Would they accept any additional fees
IT and care costs?
for the service?

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 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: www.diamondconsultants.com.

About the Authors Hamilton Sekino is a Partner in Diamond’s Telecom and High Tech practice. Hamilton
has experience across North America, Latin America, Europe, and Asia in launching mobile
operators and helping them grow through new technologies, new products, channels,
and MVNO programs. He also has experience in generating growth for wireless handset
OEMs, infrastructure vendors, and media & entertainment companies through the
introduction of new technologies, services, business models, and strategic partnerships
with mobile operators.

John Kwon is a Manager in Diamond’s Telecom and High Tech practice with experience
across North America, Europe, and Asia in developing mobile operators’ market entry
strategies and launching new products and services. His experience also comprises 3G
network strategy, operations improvement, customer value management, and MVNO
strategy for leading mobile operators as well as market opportunity analysis for a major
wireless handset and infrastructure vendor.

Se Han Bong is a Manager in Diamond’s Telecom and High Tech practice. Se Han has
deep experience across the telecom, high tech, and financial service industries, helping
clients identify and develop new revenue opportunities ranging from demand stimulation
to new product and new market entries. His experience includes mobile commerce,
enterprise mobile data applications, new wireless launch strategy, and go-to-market sales
plans for telecom service providers, as well as technology portfolio management and
global product strategy for financial services firms and payments processors.

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