October 14, 2011
Top Worldwide Innovations in
Payments
Changing the world one step at a time
Andy Schmidt
Research Director
Commercial Banking & Payments
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Agenda
 Innovation Overview
- Why is it important, and why do we need it in financial services?
 Views into Payments innovations by:
- Service
- Product
- Technology
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A framework for analyzing markets and
disruption
Jets & Sharks
Barriers to entry
HIGH Battleships
LOW Meteors
SLOW
Fruit Flies
Pace of technology change
RAPID
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Each segment displays unique dynamics
and innovation potential
Segment
Dynamics
Nature of innovation
Battleships
 Dominated by few large players
 Pace of the business in general is slow
 Incumbents seek to maintain status quo
Unlikely; high probability of
“sustaining” evolution from
incumbents
Jets &
Sharks
 Aggressive competition among sophisticated
Relationships change rapidly;
business models less so; insiderbased which can be disruptive
Meteors
 Slowly evolving, with new entrants entering the
players
 Fast pace of business demands advanced
technology
 Incumbents know each other, and their “moves”
business
 No substantial change beyond price or relationship
 Incumbents can be surprised by a better
mousetrap
Fruit Flies
 Constant experimentation and rapid evolution at
the margins
 Most liable to be influenced by imports from other
industries
 Incumbents can contribute to the experimentation
as well
High potential for disruption in
relationships and business
model; incumbents not positioned
to respond quickly
Innovation from within and
without; constant evolution of
business models and shifting
client relationships; first-mover
advantages are slim
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Why is innovation important in financial
services?
 The basic financial services product set hasn’t changed in
nearly a century
 Customers (and even regulators) are demanding change
 Initiatives like SEPA and Dodd-Frank/Durbin place limits on
bank transaction revenue
 Parties ranging from alternative payment providers to
wireless companies threaten to disintermediate financial
institutions
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Some guiding thoughts on Innovation
 Being first doesn’t mean you’re the smartest
 It’s perfectly okay to take someone else’s idea and build on it
 Meaningful innovation often happens in small steps
 Change is the only constant, so focus is required to sustain
forward momentum
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Service Innovations in Payments
Getting to the segment of one
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Special Needs, Markets, and Hours
 Japan(Citibank)
- Branches are open evenings,
Saturdays, or year-round
 New Zealand (ASB Bank)
- Virtual branch targeted at
Facebook users
 Singapore (DBS)
- Creating a Gen-Y branch
 Sweden (Swedbank)
- “Special Senior Hour” from
10-11 daily
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Cards & Services for Women Only
 Portugal (Caixa Geral de
Depositos)
- Offering includes credit and
debit cards
 South Africa (Standard
Bank)
- Offering includes cash back
on all purchase
 Both cards include access to
expanded medical insurance
- Access to life insurance and
discounted medical visits
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Cards & Services for Women Only
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Card-less ATM Withdrawals
 Brazil (Banco do Brasil)
 South Africa (ABSA)
 US* (PayPal)
 Singapore** (Confidential)
 Offerings have different use
cases ranging from the
mundane (paying the
gardener) to the urgent
(lost/stolen wallet)
 Origination paths are
identical: SMS message from
user
* Announced October 12, 2011 ** In development
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New Ways to Meet Existing Needs
Bumping, wallets, and Bitcoins
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Bumping Phones to Make Payments
 March 2010 – PayPal
announces “bump” feature
- First for Apple, then for
Android
 July 2011 – PayPal
announces NFC support
- Allows any transfer of value –
and information – to and from
any NFC phones
Source: PayPal
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Mobile Wallets – Coming Soon to a Phone
Near You
 Offerings abound:
- US (American Express,
Discover, Google, Isis,
MasterCard, Square, Visa)
- UK (O2, Orange, Vodafone)
- Denmark (TDC, Telenor,
TeliaSonera, 3Denmark)
- Singapore (Infocomm
Development Authority, DBS)
 Goal is simple – to turn your
phone into a “master key”
for any payment need
Source: Square
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But wait – mobile wallets aren’t just for
payments
 CardMobili (Portugal) offers
a mobile wallet for loyalty
and reward cards
 Supports all major mobile
operating systems
 Catalog includes over 2,000
cards from over 30 countries
 Company has won multiple
industry awards
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But wait – mobile wallets aren’t just for
payments
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Virtual Currencies – replacing paper and
coins with bits and bytes
 Transactions are often peer
to peer without the use of a
central authority
 Relies upon “the network” to
self-police
 Concept drives regulators
crazy
- Can’t rely on the network to
stop/filter transactions
- Proponents claim attention is
just a ploy by banks to impede
adoption
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Virtual Currencies – replacing paper and
coins with bits and bytes
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The New Bill Pay: Reverse Remote Deposit
Capture (RDC)
 Allows users to take a picture of
any bill and pay it
 Can add recurring payee
information or be used for
one-time bills
 Uses the same optical character
recognition and image correction
technology as mobile RDC
 Currently in pilot, expected to be
commercially available by year
end
Source: Mitek Systems
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Card.io – RDC for cards
Source: card.io website
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Gift Cards: Another Way to Use Points
 Pilot began in December 2010
 Allows Chase customers to convert
points into closed-loop gift cards
 Follows growing bank interest in
creating “gift malls” for mobile
clients
 Over 20 participating merchants,
including CVS, Gap, The Home
Depot, Uno
Source: Chase Gift Shelf
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Payments You Can Wear
 US Bank MasterCard®
PayPass™ VITAband®
- Contactless payment device
- Emergency contact and
health information
 “Wearable” payments
already in use in Europe
- Transit passes and ski lifts are
leading uses
Source: US Bank, VITAband
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Location-based offers and mobile coupons
– right deal, right place, right time
 Singapore (McDonald’s) –
application identifies nearest
McDonald’s on a map and
send coupon to mobile
phone
 Global (Groupon) –
leverages group-buying to
deliver significant savings to
members
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Sample Groupon offer – Singapore
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Biometrics – authentication based on
something you have
 Poland (BPS) – ATMs let
customers use their fingers
rather than bank cards to
identify themselves and
access ATM services
 US (iCache) – uses
fingerprint to make payment
and loyalty card data
available on a single plastic
card for a short period of
time
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Leveraging the Entire Smartphone
Phones that can both hear and see have no need for NFC
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QR Codes and Sound Leverage Existing
Smartphone Capabilities
 QR (Quick Response) most
often used to drive offers or
provide information
 EasyDo (Japan) adds
payment functionality and is
widely used
 mFoundry (US) markets an
application used at
Starbucks
 eWise payo looking to
expand use at POS
Source: TowerGroup
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QR Codes and Sound Leverage Existing
Smartphone Capabilities (continued)
 Sound is being used in
stores and beyond
- Shopkick (US) is used in
stores to push coupons and
offers
- Zoosh (US) can be used
between devices
- PayFair (Belgium) sends
audio file from phone to POS
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Conclusions
 Financial services institutions need to innovate to attract and
retain customers
 The pace of innovation is fastest in the mobile market where
users, banks, and application developers explore – and
expand – the medium’s capabilities
 Gen Y’s demands for mobile capabilities will influence their
choice in banks
 Even slight improvements in existing offerings can add
significant value to target markets
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Questions
aschmidt@towergroup.com
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