Experts take the stand: Exclusive interview with Christian Bamberger, COO & CIO PAY.ON 3 Expert opinion Stefan Jeschonnek, Co-Founder, SumUp 4 The Paypers Specials: Germany s mobile ecosystem at a glance 1 Mobile payments gain ground, are steps away from going mainstream in Germany 5 GERMANY S MOBILE ECOSYSTEM AT A GLANCE roots firmly in the success of the e-commerce and the high degree of mobile phone penetration, and smartphone penetration in particular. Population: 81.7 million Internet penetration: 82% (MasterCard) Mobile phone subscriptions: 108 million (estimated) Market penetration on mobile phones: 130% Number of mobile users: approx. 51 million (Germany is Europe s largest mobile market) Smartphone penetration: 37% of Germany s mobile phone users own a smartphone (comscore, 2012) Telecom revenue attributable to mobile: 43% (MasterCard) QR code popularity: 15.6% of German smartphone owners have scanned at least one QR code in 2012 (comscore 2012) The mobile payments landscape in Germany is far from uniform, with some of its features already fostering the evolution of a functioning, widespread mobile transaction services ecosystem and others still in the development phase and requiring a lot of work. Backed by a solid regulatory environment and extremely high levels of accessibility of financial services in general, the growth of Germany s mobile payments market has its But there are still many challenges to be taken into account. In 2012, MasterCard s Mobile Payments Readiness Index (a data-driven, quantitative survey of the global mobile payments landscape) found Germany s position within the global m-payments ecosystem to be rather ambivalent. On the one hand, the German regulatory environment and the country s host of affordable financial services were found to be a plus on the road to mobile payments adoption; however, Germany was also found to have low levels of investment in telecommunications and very low consumer readiness for mobile payments usage. Germany was thus ranked 20th on the MasterCard Mobile Payments Readiness Index, with a score of 31.6 are an expression of the disparity between some strong market forces and relatively low scores on consumer interest, infrastructure, and partnerships. From their part, German consumers seem to not yet have made up their minds about mobile payments. Another study compiled by Deutsche Bank and published in December 2012 has found that when it comes to mobile payments adoption, decision-making factors for German consumers are convenience (easy to use in both the online and mobile space), reliability of the system, cost of transferring money, trust in the service provider and security issues. 1 8 www.thepaypers.com Copyright The Paypers
GERMANY S MOBILE ECOSYSTEM AT A GLANCE - CONTINUED As mentioned in the previous (introductory) section of this publication, Germany is seeing an increasing amount of experimentation with technologies in the payments segment in general and in the mobile transaction services sector in particular. A great number of m- payments initiatives and partnerships have been announced over the past months, involving diverse players from all areas of the payments ecosystem - banks and MNOs, payment processors and edgy new start-ups already battling for control in certain segments of the market, such as mobile-based card payments processing (mpos). Broad-based use of plastic at the point of sale is a very solid foundation on which to build a mobile strategy in developed economies. Germany s path to payments automation needs to take into account all payment media; as the market matures, a segmentation strategy will emerge from the take-up of each payment type on the part of each segment. Mobile Payments Readiness Index, MasterCard, 2012 Here is a timeline of the most recent relevant developments in the German mobile financial services space over the past three months: March 2013 - Germany-based electronic payment services provider Giesecke & Devrient (G&D) enters a strategic alliance with telecommunication services provider Telefonica to handle the latter s applications security in O2 Wallet. March 2013 - German mpos start-up payleven is authorised by the Financial Services Authority (FSA) as a payment institution. February 2013 - German provider of electronic payment and risk management services Wirecard enters a partnership with Vodafone to launch the Vodafone payment service. February 2013 - German mpos start-up SumUp signs a deal with American Express to allow it to process American Express card payments in all major regions in which it operates. January 2013 - Telecommunication services provider Telefonica O2 Germany teams up with Wirecard for the roll out of mobile person-to-person (P2P) payments as well as an NFC-based mobile wallet service. The increasing use of mobile devices, a rising share of e-commerce via fixed-line or mobile internet and the prevalence of technologies linking the online and offline worlds such as NFC or QR codes have sparked interest in new modes of payments. Mobile payment strategies are being developed by different players but have not yet taken off. Thus, the payments market is still in flux. The future of (mobile) payments Deutsche Bank study published December 2012 2 8 www.thepaypers.com Copyright The Paypers
EXCLUSIVE INTERVIEW mpos offers retailers complete flexibility for their payments Christian Bamberger, COO & CIO PAY.ON As an expert for global payment solutions, Christian Bamberger is responsible for product development, technology operation and security within PAY.ON. Previously, he was a manager at one of the leading Austrian ISP and IT service providers responsible for data processing centres and operations. Christian Bamberger studied telecommunications technology at the University of Applied Sciences The Paypers: Until recently, PAY.ON was known as a global processor for payment providers and was involved mainly in the online space. Why have you decided to enter the mobile payments market with a mpos solution? Christian Bamberger: PAY.ON provides a wide variety of solutions for the global processing of online payments, including MOTO and m-commerce solutions, among other things. It is therefore a logical step to further develop our Platform-as-a-Service PaySourcing offering into mobile payments. The result is payment coverage for any field of application, including multichannel processing, the associated comprehensive reporting, sophisticated risk management and profound business intelligence. With PAY.ON, customers have access to all the professional instruments they need to be successful in their own market, as well as to expand their business into other segments seamlessly and from a single source. The Paypers: Your latest chip and PIN solution was developed in partnership with payworks. What exactly is their contribution in terms of technology and how does the solution actually work? Christian Bamberger: mpos and m-commerce are services that unite the strengths of PAY.ON and payworks. The result is a state-of-the-art solution that meets all criteria and requirements absolute reliability, high performance, the highest security and innovative technology. The seamless interaction of the application and subsequent global processing with all desired payment partners worldwide is one of our striking advantages compared to solutions offered by other providers. The Paypers: In your opinion, what are the advantages of a mobile POS solution compared to a traditional POS terminal? Christian Bamberger: mpos offers retailers complete flexibility for their payments it is operational regardless of time and place and available as quickly as a mobile contract. The solution can be deployed on existing hardware smartphones and tablets and is compatible with existing systems such as restaurant software and booking systems. Mobile deployment is also possible at trade fairs and in taxis. In the process, PCI fulfilment via a certified, self-contained workflow is guaranteed. The risk of fraud is therefore reduced to virtually zero. As bills are sent directly via email, the customer email addresses gathered can also be used for marketing campaigns. The Paypers: Security has always been a top concern for consumers, especially when it comes to making payments via mobile devices. How do they authenticate themselves during the payment process? Where is the data stored and how is it protected? Christian Bamberger: mpos uses end-to-end certification. The card data, all sensitive data in fact, is encrypted by the application in the end device, which then transports them via a secure connection to PAY.ON, where they are decrypted in a secure environment for further processing. As such, no data is saved on the mobile end-device. Even concerns about losing customer trust through mobile payments are unfounded, because the payment process takes place before the customer s eyes, something that actually strengthens customer trust. The Paypers: Is there an approval process that merchants need to undergo in order to process payments with your mpos solution and are there any fees that they need to pay for this? New technology ensures increased competition and will therefore also lead to a redistribution of the market share between the new mobile payment providers and traditional POS terminal providers Christian Bamberger, COO & CIO PAY.ON Christian Bamberger: No, there are no additional costs or need for action from our side. 3 8 www.thepaypers.com Copyright The Paypers
Retailer on-boarding is conducted by our PSP customers who offer mobile payment, with the market-established steps and conditions. As for the on-boarding process, PSPs also receive a new service here with PAY.ON, a service that is specially aligned to mobile payment and can link countless retailers in a short time. mpos also impresses in other respects: in contrast to other providers, we operate our own HMSs to encrypt the POS communication. Customers are therefore not restricted to one acquirer, but can select those that guarantee the best connection. The Paypers: Where is your chip and PIN solution currently available and what plans do you have for the future in order to extend its availability? Christian Bamberger: We can t reveal our customers due to the white-label promise. However, there are currently more than 10,000 retailers connected across our platform via mobile payment. In Germany alone, four out of six mpos projects are equipped with PAY.ON/payworks technology. The Paypers: What are some of the main obstacles you have encountered so far? Christian Bamberger: At the beginning, the various needs and requirements of the providers to be involved had to be adapted to the processes and integrated into the solution. This created a typical chicken-and-egg scenario: banks demand a completed system for verification; retailers need the banks to provide mobile payments as a payment service. All these problems have now been resolved. Our strategically important and timely development with all partners, including payworks, has therefore paid off. The Paypers: In your opinion, will mobile POS replace traditional POS terminals in the future or will we see an online-offline convergence in the retail ecosystem? Christian Bamberger: There are parallels that can be drawn, such as smartphones and cameras. Despite substitution, the smartphone will not force the camera in itself out of the market. This situation is also conceivable for mobile payment. New technology ensures increased competition and will therefore also lead to a redistribution of the market share between the new mobile payment providers and traditional POS terminal providers. The Paypers: You have got quite some competition in the mobile payments market. Could you please specify some features that set your mpos solution apart from other similar mobile POS services providers? Christian Bamberger: Competition is necessary for progress, increasing quality and reducing prices, something that can only be a benefit for retailers. In contrast to new developments from other companies, PAY.ON services are always based on an existing, fully developed platform and are therefore fully equipped with global connections to over 250 payment providers from the word go. The only thing our customers have to worry about, therefore, is running their business. Furthermore: due to the white-label nature of the PAY.ON service, it is not possible to provide outsiders with a categorisation of which provider offers are original and which are based on PAY.ON technology. It should be stressed that PAY.ON is significantly involved, both nationally and internationally, in the development of the mobile payment market via its mpos customers. EXPERT OPINION The German market is open to innovation in mobile payments Stefan Jeschonnek, Co-Founder, SumUp Stefan Jeschonnek is Co-Founder SumUp and responsible for Product and Marketing. At the conclusion of his studies at the University of St. Gallen, Stefan Jeschonnek worked on global strategy at the Puma sportswear company and as an advisor at the Boston Consulting Group. He obtained his Master of Business Administration from Stanford Graduate School of Business in California, where he graduated as an Arjay Miller Scholar. He founded a social venture during his time in Silicon Valley, and also conducted seminars at the Stanford Design School. 4 8 www.thepaypers.com Copyright The Paypers
We regard Germany as one of our home countries, although we are currently live in 10 countries all over Europe. We launched SumUp because today, millions of merchants across countries and multiple industry sectors, ranging from taxi drivers to hairdressers, craftsmen, doctors, shop owners, etc., are missing out on customers and with that on higher sales volumes because they cannot accept card payments. Traditional card terminals are expensive, with high monthly fees and long contract durations. On balance, we see an increased level of mobile (and particularly smartphone and tablet) penetration, also in Germany. In this context SumUp was launched out of the growing realization that we can provide a mobile-enabled card acceptance solution that is much simpler, much more transparent and much cheaper (with no monthly rate and a fixed per-transaction charge) than the traditional POS solutions, but equally secure. Germany is a very attractive market it s also one of the leading economies in Europe as well as a very large market in itself. I know that along the years, Germany has acquired a reputation for being slower than other European countries when it comes to technology adoption, but we feel that is not the case. We have seen a lot of traction and very good market response in Germany when it comes to the rapid adoption of its mpos solution. Also, when it comes to putting SumUp in a European context we do not see German consumers lagging behind their European counterparts insofar as adoption of our solution is concerned. What differs is the fact that we do get slightly different questions from German consumers when it comes to the specifics of adopting SumUp but this is natural, given that a solution like ours has certain country-specific attributes and needs to be localized in terms of language, of course, but also (and most importantly perhaps) when it comes to the card schemes with which it works. You cannot offer a mobile card processing service in Germany without having a reliable way of accepting German debit card schemes and we put a lot of effort and worked closely with the card schemes and our merchant customers for developing such a solution. In the end and this is feedback we have received both from merchants and from consumers we feel that payment should be something that just works, a frictionless experience that takes place smoothly and allows the merchant to focus on the truly important part of the equation the interaction with the consumer. In mpos transactions, the mobile phone becomes the main point of interaction between buyer and seller, and this is something that we feel has tremendous value and great potential something that we definitely plan to put to good use now and in the future. MOBILE PAYMENTS GAIN GROUND, MOVE TOWARDS MAINSTREAM IN GERMANY Two years ago, mobile payments in Germany were still in their early stages of development due to consumer attachment to cash as well as financial institutions passivity in terms of mobile and contactless payments. However, over the past year financial institutions, mobile operators and mobile payment service providers have launched a large number of initiatives to meet specific market needs. Here are a few examples. In January 2013, Telecommunication services provider Telefonica O2 Germany teamed up with German provider of electronic payment and risk management services Wirecard to roll out mobile person-to-person (P2P) payments as well as an NFC-based mobile wallet service. Another partnership involves German mobile payments services provider payleven who has entered an agreement with Telefonica O2 Germany in December 2012 to start a pilot initiative at selected O2 stores across Germany through which suppliers and sellers that use the operator s network will receive a payleven card reader for free. Also in December 2012, UK-based micro-payment specialist GlobalCharge has selected MACH, a Luxembourg-based provider of hub-based mobile communication services, to launch its direct operator billing service in Germany. In October 2012, Swedish social payments start-up izettle partnered Germany-based telecommunication services provider Deutsche Telekom and financial institution DZ Bank to launch its services in Germany. According to a Life Report on Smart Payments (2012) issued by TNS Infratest on behalf of Deutsche Telekom, more and more consumers in Germany are using mobile devices for online shopping. 20 percent of German consumers have used a smartphone for internet shopping while 8 percent of consumers use a smartphone for shopping several times a week. The study has also found that in Germany, two out of three consumers surveyed (66%) believe that it is highly probable that mobile payment via smartphone will become an established practice in addition to cash and card payment methods. The percentage is 5 8 www.thepaypers.com Copyright The Paypers
even higher when surveying consumers who already use a smartphone reaching 74 percent. In fact, one in three Germans (31%) expects that mobile payment will be common practice as early as 2014. Only a small minority believes that mobile payments will not be significant in the future approximately every tenth person surveyed representing 12 percent. In what concerns the security issue, nearly all of the consumers surveyed said that trust in the security of the payment system is especially important. Almost equally important (96%) is the consumer demand for a mobile payment system that is very easy to use and has a wide range of acceptance. 96 percent of German consumers demand that the payment system must function nearly everywhere and not just in a few isolated stores. Additionally, nearly all those surveyed (96%) believe that the ability to keep track of one s own expenses and accounts when using the smartphone as a payment device in a very important factor. Moreover, the study has revealed a number of things that German consumers would buy using their smartphones. 70 percent would use the device for purchasing small items such as bus or subway tickets, 45 percent could imagine using it to pay for furniture and electronic devices, 57 percent would use the device in supermarkets and also in bookstores and drugstores while 56 percent could imagine using their smartphones to redeem discount cards. we will soon be paying for typical purchases like groceries, books or a new pair of pants with our mobile phones. According to another report titled The future of Mobile Payments (December, 2012) and issued by Deutsche Bank Research, most banks are not first movers in m-payments or other web-based technologies, particularly in Germany. This might be due to the uncertainty regarding the future technological development and the emerging business models. Also, the comparatively low usage of credit cards in Germany results in a rather uncertain outlook for those payment solutions that rest on credit cards. In Germany, NFC technology is currently promoted by telcos and public-sector banks (Sparkassen) as they include the tech-ology on traditional banking cards. The study has also found that when it comes to mobile payments, decision-making factors are convenience (easy to use in both the online and mobile space), reliability of the system, cost of transferring money, trust in the service provider and security issues. In Germany, 73 percent of the customers pay very high attention to security aspects. Another important factor might also be whether the payment system could be used internationally. Furthermore, the study has found that every fifth smartphone user (22%) has already used their smartphone to redeem discount cards and about 9 percent of those surveyed have already purchased movie tickets digitally using their smartphone display. Only 12 percent have used their smartphones for travel tickets or boarding passes (12% and 11% respectively). Finally, the study has found that two in three Germans (63%) believe that in ten years time we will pay for travel tickets via smartphone. The survey ranks payment by cell phone even above cash, bank cards and credit cards. Every second consumer (49%) believes that 6 8 www.thepaypers.com Copyright The Paypers
In a report titled The Global Rise of Smartphonatics: Driving Mobile Payment and Banking Adoption in the Americas, EMEA, and Asia-Pacific (May 2012), Aite Group identified a segment of consumers dubbed smartphonatics and defined them as consumers who change their shopping, financial and payment behaviour as a result of owning a smartphone. reason, 19 percent stated that their mobile phone was not set up to do so while 37 percent explained that they did not know how to. According to the report, 40 percent of German smartphone users use their phone s web browser for mobile banking, 35 percent use an application provided by the bank, 20 percent use SMS/ Text while 21 percent telephone the bank to conduct transactions. Mobile payments are ready to take off in Germany and have the potential to provide a differentiation channel to financial institutions, new revenue streams to network operators, an enhanced experience to consumers and loyal customers to merchants. Regarding the methods used by German smartphone users to make mobile payments, 48 percent use PayPal or other apps, 34 percent use their phone s web browser, the same amount use Text/SMS while only 8 percent use contactless methods. Finally, the study has revealed that, when asked why they hadn t made mobile payments in the past six months, 31 percent of consumers cited lack of trust as being the main However, all the players are facing a challenge in developing an m-payment ecosystem and this challenge comes from the conservative outlook of German financial institutions. While banks take time to analyse the situation, other non-traditional players are set to enter the German mobile payment market. In any case, once it has started, the mobile payments revolution cannot be stopped and this is only the beginning for the German market. 7 8 www.thepaypers.com Copyright The Paypers
FEATURED EVENT YOUR OPINION IS IMPORTANT TO US In the next editions of the Mobile Paypers, we will focus on delivering in-depth overviews of services providers, business and revenue models in specific areas of the mobile financial services market, such as mobile banking and the mobile wallet ecosystem. Cards & Payments Australasia 2013 We hear you...which is why we ve changed, innovated, improved and expanded, so that Cards & Payments Conference and Exhibition remains the first point of call for 100 s of senior managers and executives looking to sharpen their skills, gather intelligence and meet new partners. Key issues to be discussed include: What is the future of payments? - Are we really embracing innovation in Australasia and progressing our own future in payments? How will consumers pay in the future and how will they manage their money? Managing multiple partners and their interests in a real time payment system Fraud and sanction checking how can it work when you have 10 seconds to complete the transaction? Mobile payments and Trusted Services Manager (TSM) models good news or bad news? How to collaborate and compete in the new world order of payments Profitable relationships payment strategies and technologies for financial institutions Key trends in retail banking do they support the case for loyalty? The true impact of mobile, online and emerging technology payments on security and fraud For more information please visit the conference website. Other areas of interest to be explored in the coming issues of this newsletter are the rise of the omni-channel business model, the challenge of converting mobile bankers into mobile payers, along with providing in-depth overviews of specific m-payments markets such as Germany, Brazil and the Netherlands. As The Paypers was present at the Mobile World Congress in Barcelona in February 2013, we will dedicate an issue of our mobile newsletter to this very important event. If you would like to contribute with an expert opinion on any of the topics above, do not hesitate to contact us at monica@thepaypers.com. About: Mobile Paypers is a bi-weekly update on developments in mobile payments by The Paypers, the portal for payment professionals. Editors: Adriana Screpnic, Monica Gaza, Sabina Dobrean and Mélisande Mual. Website: For more information, please visit our websites: www.thepaypers.com Contact: For more information, you can contact us at: info@thepaypers.com Subscription info: Mobile Paypers is a product of The Paypers and is published 24 times per year. Year subscription price: 495 Copyright: 2012 The Paypers. All rights reserved. Reproduction or redistribution in any form without explicit prior written permission of The Paypers is prohibited. Disclaimer: The Paypers sees to the utmost reliability of all its news products. Nevertheless we do not accept any responsibility for any possible inaccuracies. 8 8 www.thepaypers.com Copyright The Paypers