Mobile Payment Magazine

Worldwide Mobile Payment Volume Up 76% to Reach $86 Billion in 2011

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Worldwide mobile payment users will surpass 141.1 million in 2011, a 38.2 percent increase from 2010, when mobile payment users reached 102.1 million, according to Gartner, Inc. Worldwide mobile payment volume is forecast to total $86.1 billion, up 75.9 percent from 2010 volume of $48.9 billion.

Despite these strong growth projections, Gartner analysts said the mobile payment market is growing slower than expected.

“In developing markets, despite favorable conditions for mobile payment, growth is not as strong as was anticipated. Many service providers are yet to adapt their strategies to local requirements, and success models from Kenya and the Philippines are unlikely to be translated to other markets,” said Sandy Shen, research director at Gartner. While developing markets have favorable conditions for mobile payments, such as high penetration of mobile devices and low banking penetration, this is no guarantee of success, unless service providers adapt their strategies to local market requirements.”

“In developed markets, companies are trumpeting the prospects of Near Field Communication (NFC) without realizing the complexity of the service model. We believe mass market adoption of NFC payments is at least four years away,” Ms. Shen said. “The biggest hurdle is the need to change user behavior by convincing consumers to pay with mobile phones instead of cash and cards.”

Gartner expects Short Message Service (SMS) and Unstructured Supplementary Service Data (USSD) to remain the dominant access technologies in developing markets due to the constraints of mobile phones. Wireless Application Protocol (WAP) will remain the preferred mobile access technology in developed markets, where the mobile Internet is commonly available and activated on the phone. Mobile app downloads and mobile commerce are the main drivers of WAP payments, and WAP will account for almost 90 percent of all mobile transactions in North America and about 70 percent in Western Europe in 2011.

Money transfers and prepaid top-ups will drive transaction volumes in developing markets. These are seen as the “killer apps” in developing markets, where people value the convenience of sending money to relatives and topping up mobile accounts. This is most obvious in Eastern Europe, the Middle East and Africa, where these two services will account for 54 percent and 32 percent of all transactions in 2011.

“Thanks to the success of mobile application stores, such as Apple’s App Store, and the efforts in driving mobile sales by major retailers, such as Amazon and eBay, merchandise purchases far outweigh other use cases in developed markets, which include North America and Western Europe,” Ms. Shen said. “We predict that in 2011, merchandise purchases will account for 90 percent and 77 percent of all transactions in North America and Western Europe, respectively.”

Additional information is available in the Gartner report “Market Trends: Mobile Payments Worldwide, 2011.”

SMS, USSD Based Mobile Payments

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The consumer sends a payment request via an SMS text message or an USSD to a short code and a premium charge is applied to their phone bill or their mobile wallet. The merchant involved is informed of the payment success and can then release the paid for goods.

Since a trusted delivery address has typically not been given these goods are most frequently digital with the merchant replying using a Multimedia Messaging Service to deliver the purchased music, ringtones, wallpapers etc.

A Multimedia Messaging Service can also deliver barcodes which can then be scanned for confirmation of payment by a merchant. This is used as an electronic ticket for access to cinemas and events or to collect hard goods.

Transactional payments have been popular in Asia and Europe but are now being overtaken by other mobile payment methods such as mobile web payments (WAP), mobile payment client (Java ME, Android…) and Direct Mobile Billing for a number of reasons:

  1. Poor reliability – transactional payments can easily fail as messages get lost.
  2. Slow speed – sending messages can be slow and it can take hours for a merchant to get receipt of payment. Consumers do not want to be kept waiting more than a few seconds.
  3. Security – The SMS/USSD encryption ends in the radio interface, then the message is a plaintext.
  4. High cost – There are many high costs associated with this method of payment. The cost of setting up short codes and paying for the delivery of media via a Multimedia Messaging Service and the resulting customer support costs to account for the number of messages that get lost or are delayed.
  5. Low payout rates – operators also see high costs in running and supporting transactional payments which results in payout rates to the merchant being as low as 30%. Usually around 50%
  6. Low follow-on sales – once the payment message has been sent and the goods received there is little else the consumer can do. It is difficult for them to remember where something was purchased or how to buy it again. This also makes it difficult to tell a friend and friend.

Source: Wikipedia