Oliver Wyman survey finds mobile payments in emerging markets set for strong growth

25 March 2008

A survey conducted by Oliver Wyman, the leading management consultancy firm, shows a significant increase in activity across the advanced payments sector in Europe. Advanced payments enable consumers to transact through a variety of non traditional devices, such as their mobile phone, contactless cards and the internet. The survey encompassed 30 of the leading European new players and ventures in this fast growing industry, companies with an expertise and specific focus on advanced payments including Monitise, LUUP, paybox and Margento.

The survey found that 57% of companies in this sector expect to see strong growth over the next 12 months. Respondents were very confident that the advanced payments industry will make significant progress in 2008/09. This could be attributed to the increasing sophistication and cost effectiveness of the technology involved. This is particularly true of mobile phones, which the survey highlighted as the next big development in payments technology.

A key battleground for the industry will be in the emerging markets. The majority of respondents ranked the Middle East, Asia and Central/Eastern Europe as most critical for their growth, with Asia being cited by 64% of respondents as a key market for the future. These findings are supported by the fact that emerging markets generally have less developed traditional payments infrastructures in place (i.e. bank branches), and therefore are more likely to adopt new technology. One particular area that is attracting the attention of industry players in emerging markets is cross border remittances: the market for transferring money across state borders. Mobile phones can be an extremely useful device to increase reach and reduce costs.

In developed countries, the industry in the near term will focus on competing for the most compelling contactless card payments solutions as well as mobile banking solutions. In contrast, contactless mobile payments will take a much longer time to evolve as they will require collaboration between banks and telecom operators.

Other findings from the Oliver Wyman survey uncovered that the challenges that lie ahead for the industry include stimulating customer demand, with a strong majority of respondents (64%) stating this as one of their primary challenges. Another difficulty is finding a workable business model for many parties typically involved in taking the solution to market.

Paul Mee, Partner at Oliver Wyman said: “The global advanced payments market is evolving fast and undergoing strong growth. However, we expect that many of these new species will have to be especially fit and strong to survive. Right now, it is unclear who the most profitable players in the industry will be, which makes this an exciting sector to watch. We expect significant consolidation in due course, with major players buying up firms who have distinctive operating assets, customer traction and capabilities that can adapt rapidly.”

Frequent announcements of new propositions and new trials, often launched by new non-traditional players, make this a confusing market to assess at present. The diversity of new players in this industry is highlighted in the report. Examples include Margento, a Slovenian company, offering a mobile payment system which requires no software or hardware change to the handset, and LUUP, a Norwegian company launched in 2002 enabling customers to pay, send and receive money via their mobile phones including international and domestic money transfers.

Zilvinas Bareisis, Senior Manager at Oliver Wyman added: “Europe’s fragmentation means a lot of ‘pretenders’ are pursuing a niche strategy at present focusing on a particular geography, proposition or customer segment, and to a certain extent it’s land grab time. However, lack of common standards implies that future profits are limited. In order to be successful, the players in the industry will need a sophisticated strategic marketing capability, a workable business model and clear approaches to interoperability. The winners will be those who can break out of their segments and constraints.”

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