The Prepaid Mobile Wallet Taking Prepaid into Account · the mobile wallet ecosystem. Prepaid is a...

Copyright © 2014 Mobey Forum

A Series of White Papers on Mobile Wallets - Part Six

The Prepaid Mobile Wallet

Taking Prepaid into Account

Mobile Wallet Workgroup - Mobey Forum, June 2014

2 Copyright © 2014 Mobey Forum

A Series of White Papers on Mobile Wallets - Part six

Mobile Wallet Workgroup

Chairs

Amir Tabakovic PostFinance

Kasper Sylvest Olsen Danske Bank

Core team of contributors

Anne K. Shreiner American Express

Thor Ragnar Klevstuen EVRY

Hans S. Ildstad EVRY

Ville Sointu Ericsson

Sirpa Nordlund Mobey Forum

Sarah Kocianski Monitise

Kristian Thure Sørensen Nets

André Zölch PostFinance

Keywords

Mobile wallet, prepaid, stored value, gift cards, financial institutions, merchants, payments, value added

services (VAS), mobile financial services.



Contents

1. Executive summary ......................................................................................................... 5

2. Introduction ................................................................................................................... 5

2.1 Why is Mobey Forum focusing on prepaid? ...................................................................................5

2.2 Work to date ................................................................................................................................7

3. Prepaid and the mobile wallet: The crossing of two evolutionary paths ........................... 8

3.1 Prepaid: Definitions ......................................................................................................................8

3.2 Prepaid: No longer a niche ............................................................................................................9

3.3 Prepaid on steroids: The winning attributes of prepaid and the catalysing effect of mobile .......... 10

3.3.1 Opportunities for prepaid providers .......................................................................................... 10

3.3.2 Consumer benefits ..................................................................................................................... 11

3.3.3 Business benefits ....................................................................................................................... 12

3.3.4 Limitations of prepaid mobile solutions .................................................................................... 14

3.4 The mobile wallet: A difficult birth .............................................................................................. 15

3.5 Vertical focus: A strength for merchants but a handicap for banks ............................................... 16

3.6 Baggage from the ‘old world’ ...................................................................................................... 16

3.7 Financial service innovations in mobile prepaid ........................................................................... 17

3.8 Service elevation and integration with the mobile wallet ............................................................ 18

4. The evidence: Innovative and disruptive prepaid wallet solutions available today ......... 18

4.1 Merchant example: Starbucks ..................................................................................................... 18

4.1.1 How the prepaid solution works ................................................................................................ 19

4.1.2 Usage .......................................................................................................................................... 19

4.1.3 Conclusion .................................................................................................................................. 19

4.2 Merchant example: AtB .............................................................................................................. 19


4.2.2 Usage .......................................................................................................................................... 20

4.2.3 Conclusions ................................................................................................................................ 20

4.3 Merchant example: iTunes Store/App Store (iOS)/Apple Store .................................................... 21


4.3.2 Usage .......................................................................................................................................... 22

4.3.3 Conclusion .................................................................................................................................. 22

4.4 Overall merchant conclusion ...................................................................................................... 22

4.5 Merchant / day-to-day money management hybrid example: Google Play/ Google Wallet........... 23


4.5.2 Conclusion .................................................................................................................................. 23

4.6 Day-to-day money management example: T-Mobile Mobile Money (USA) ................................... 24


4.6.2 Conclusion .................................................................................................................................. 25

4.7 Day-to-day money management example: BlueBird from American Express ................................ 25




4.7.2 Conclusion .................................................................................................................................. 26

4.8 Overall day-to-day money management conclusion .................................................................... 26

5. Bad news for banks? How can they react to the prepaid phenomenon? .......................... 27

5.1 Deploy an invisible prepaid infrastructure in support of a new service ......................................... 27

Example: MobilePay from Danske Bank ............................................................................................. 27


5.1.2 Usage .......................................................................................................................................... 28

5.1.3 Conclusions ................................................................................................................................ 28

5.2 Establish a prepaid agent network and resell the products of high profile merchants ................... 28

Example: PostFinance Fast Service ..................................................................................................... 28

5.2.1: How the prepaid solution works ............................................................................................... 28

5.2.2 Usage .......................................................................................................................................... 29

5.2.3 Conclusions ................................................................................................................................ 29

5.3 Use prepaid openly and actively................................................................................................. 29

5.4 Concede and play a supporting back-end role to new players in prepaid ...................................... 29

Example: CBW Bank’s backing for Moven and Simple ....................................................................... 29

5.4.1 How Moven’s prepaid solution works ....................................................................................... 30

5.4.3 Conclusions ................................................................................................................................ 30

6. Looking to the future .................................................................................................... 31

About the author: ............................................................................................................................ 32

About Mobey Forum: ....................................................................................................................... 32



1. Executive summary

This paper analyses the intersection of prepaid commerce and the mobile wallet, in order to present

strategic options for banks seeking to respond to what Mobey Forum contends is an emerging threat to

their positions in the mobile wallet ecosystem.

It provides an overview of the various market developments and growth sectors in prepaid services,

together with a description of prepaid’s differentiating characteristics, before exploring how their

competitive attributes and advantages over traditional banking services are congruent with the key

drivers of mass market mobile wallet adoption. It contends that new, innovative prepaid service models

and ‘second generation’ mobile wallet solutions are mutually supportive and, when combined, they will

each drive innovation in the other, pushing traditional banks further down the mobile value chain as a

result, and forcing them to yield both market share and visibility with their mobile customers.

The paper acknowledges that, for now, prepaid may be a ‘better fit’ for the mobile wallet than

traditional banking alternatives. In order to explore the prevailing options for banks, the paper cites

examples of how innovative banks have responded to this emerging market for mobile prepaid. These

options include developing a proprietary prepaid infrastructure for active and open use with customers;

utilising a prepaid infrastructure ‘behind the scenes’ in order to support new services such as peer to

peer money transfers; establishing an agent network enabling the bank to resell the prepaid digital

products of popular merchants; providing back-end infrastructure support to the new prepaid service

providers. The paper concludes that banks now need to recognise prepaid as a major driving force in the

future of mobile wallets and accept that influential stakeholders in the mobile wallet development

ecosystem are now utilising prepaid as a means of accelerating mobile wallet development and

deployment.

2. Introduction

2.1 Why is Mobey Forum focusing on prepaid?

Welcome to the sixth instalment of Mobey Forum’s series of papers exploring the mobile wallet

ecosystem.

Prepaid solutions, in various forms, have existed on the fringes of consumer financial services for some

years, but are now growing rapidly in popularity. The physical prepaid card market in the US, for

example, accounted for 4% of purchase volumes in 2012 and has grown at a compound annual rate of

25% for the past five years running, compared to a mere 10% for debit and just 3% for credit cards1. In

Europe, Visa expects prepaid to grow at a rate 12% per year from 2012 to 2020, compared to debit at

1 The Nilson Report May 2013.



4% and credit at just 3%. Central and Eastern Europe is expected to grow even faster, at 27% year on

year.

Mobey Forum sees the continuing advance of mobile payment services creating new opportunities for

prepaid. But more than this, the proliferation of the prepaid model is also opening doors for mobile

payment services, enabling innovative deployments by merchants and other stakeholders and

encouraging wider spread user adoption as a result.

Figure 1: The mobile wallet and prepaid worlds are converging, each creating new opportunities for the other

An important driver of the convergence of mobile and prepaid is its potential to dramatically simplify

the mobile wallet ecosystem. Prepaid is a payment model that is already utilised by merchants, mobile

operators and a variety of other influential mobile wallet stakeholders. Indeed much of the pre-mobile

wallet utilisation of prepaid has focused on delivering value added services (VAS), such as coupons, gift

cards or loyalty schemes. The digital equivalents of these have already been widely acknowledged as key

drivers of mobile wallet end user adoption.

As familiar users of the prepaid model, unlike banks and financial institutions, these stakeholders have

no intrinsic commercial allegiance to the traditional banking system and as a result do not naturally

gravitate toward it when developing mobile solutions. Familiarity with prepaid, however, is only part of

the story. Some stakeholders are actively using prepaid as their transactional model of choice in order to

sidestep the traditional banking system entirely, open up new engagement channels with their

customers and, displace banks from their traditional role as 'guardians of commerce' in the mobile

world.

Already, there is strong evidence in the ecosystem to support this suggestion. Some prepaid providers

are developing suites of financial services that seek to compete head to head with the current accounts

of traditional banks. Should these services be rolled into a mobile wallet environment they will be

exposed to customer demographic of predominantly affluent, technically curious, early adopter mobile

wallet end users. Business won here is likely to be at the direct expense of the traditional banking

industry.



These, together with a number of other observations explored in this paper, makes prepaid a strong ‘fit’

for today’s generation of mobile wallet. As a result, prepaid has captured Mobey Forum’s attention, not

least because a mobile wallet future dominated by the prepaid model has the potential to have a

significant and negative impact on banks and financial institutions in the mobile ecosystem.

2.2 Work to date

Mobey Forum recommends that readers review this series of white papers in sequence, in order to gain

a complete understanding of the concepts and definitions they contain. Mobile wallets will not be

introduced in detail in this paper; readers that remain unfamiliar with the term, the various mobile

wallet models and the dynamics of this complex ecosystem are encouraged to review preceding papers

in the series.



3. Prepaid and the mobile wallet: The crossing of two evolutionary

paths

In order to reveal the true potential of the prepaid mobile wallet it is first necessary to take a brief look

at the individual evolutionary paths that have led the mobile wallet and the prepaid model to converge.

3.1 Prepaid: Definitions

There are many different ways that the prepaid model can be defined, not least because it is often used

to describe instruments into which various forms of value are ‘paid’, in addition to conventional

currency. Prepaid is often referred to as 'Pay Before', while debit is described as 'Pay Now' and credit is

'Pay After'. These terms are used in relation to the moment of purchase and when the shopper actually

pays for the goods.

Figure 2: Common conceptions of Prepaid, Debit and Credit

Mobey Forum defines a prepaid instrument as ‘a container into which valuables can be stored and

retrieved using specific methods’.

Acquirers often refer to prepaid products in terms of stored value accounts, cash accounts, gift cards,

closed loop, open loop, private label etc. For issuers, prepaid can refer to form factor - a physical card,

for example, a virtual card, or even a unique number inside an app. The term may also be used to refer

to the ways in which the ‘container’ can be loaded and also to describe the type of good that is

purchased. These, together with a multitude of other terms used to describe prepaid have emerged as a

result of the increase in the number and variety of both prepaid providers and prepaid products.

Most prepaid solutions can be grouped under one of four headings: Open loop, restricted loop, private

label and closed loop. Open loop describes those solutions that can be used at any merchant accepting

the card brand. Typical examples here are Visa, MasterCard or American Express prepaid cards.

Restricted loop refers to solutions that serve specific merchant categories like grocery stores, for

example. These cards are typically branded with payment network marks. Their merchant acceptance

may also be restricted to the country in which the card was issued. Private label refers to solution that

serves a single network or retailer chain but is powered by a payment scheme’s infrastructure. Finally,



closed loop typically refers to proprietary solutions for retailers. A common example of a closed loop

solution is a merchant gift card.

Figure 3: Common categories of prepaid solutions, presented in descending order of merchant acceptance (left to right)

3.2 Prepaid: No longer a niche

Prepaid has historically been used as a means of opening up new possibilities for stakeholders. For

decades the model has been widely utilised by retailers and merchants as a means of increasing the

brand loyalty of customers, initially via the paper and plastic forms of gift vouchers and loyalty cards, but

more recently via their digital equivalents, which have been introduced in line with the explosion in

consumer e-commerce. Merchant accounts have also grown in popularity, into which a customer can

deposit funds in the anticipation of future purchases, usually in exchange for store discounts and other

forms of rewards.

Many transport and ticketing services have adopted prepaid as a core transaction model. Prime

examples here include Hong Kong’s Octopus prepaid travel card which is used on its tramways and MTR

underground rail service. London’s Oyster card serves the same function for city’s tube and bus services.

Mobile network operators (MNOs) are also long time advocates of the prepaid model. In a bid to grow

mobile phone adoption rates in the 1990s, MNOs introduced prepaid ‘pay as you go’ (PAYG) accounts,

which offered fewer contractual obligations to customers than those required by the conventional ‘pay

monthly’ contracts. So successful was this move that today, according to Nielsen Research2, PAYG

accounts have eclipsed their pay monthly counterparts in all but a few markets globally. Prepaid mobile

money initiatives spearheaded in Africa by MNOs have also served to deliver banking facilities to vast

numbers of previously unsupported individuals across the continent.

2 Nielsen Research: Pay As You Phone: How Global Customers Pay for Mobile, 2013.



3.3 Prepaid on steroids: The winning attributes of prepaid and the catalysing effect of

mobile

As prepaid has evolved its popularity has soared. This is due to the wide range of benefits that prepaid is

able to deliver to both consumers and service providers alike. Mobey Forum contends, however, that

prepaid's success to date is just the beginning and that its convergence with the mobile channel will be a

powerful catalyst that will propel both prepaid and the mobile wallet / mobile commerce industry

forward at pace.

3.3.1 Opportunities for prepaid providers

The intersection of mobile and prepaid provides prepaid stakeholders with a variety of strategic

opportunities.

Firstly, an existing prepaid product which traditionally has been reloaded via a physical point of sale

terminal can now be utilized as a new communication channel through which a service provider can

interact with their customer at anytime and from anywhere, thus increasing the convenience and

attractiveness of the product and strengthening their relationship with the customer at the same time.

Not only is the cardholder able to reload their account at any time and from anywhere, free from the

necessity to travel to participating point of sale terminals during their opening hours, but they can also

receive valuable and timely updates that add value to the service, such as transaction confirmation and

real time account balance updates.

Secondly, many physical prepaid cards are now being digitized by their providers, either to replace or to

complement the traditional solution. This is gradually freeing both cardholders and providers from the

constraints of physical products by enabling them to operate in a purely digital environment. The

growing popularity of Apple’s iTunes virtual gift cards are a prominent example here (see 4.3, below).

Mobey Forum expects the digitization of physical cards to accelerate following the introduction of the

Host Card Emulation (HCE) which will enable merchants and other players to issue secure closed loop

mobile prepaid solutions via a NFC payments model that is much simpler than that offered by the

current hardware-based secure element ecosystem, while still benefitting from the merchant’s

contactless acceptance infrastructure. Indeed once HCE technology has matured to a state of full market

readiness, it may be possible for merchants to disintermediate banks, MNOs and payment schemes

from their mobile prepaid products altogether, by offering secure HCE-NFC payments to customers via

their own closed loop solutions.

Finally, with the new possibilities and market penetration that internet enabled devices provide, a

prepaid solution provider also has the possibility to launch a new prepaid solution that is built entirely

for the digital and mobile environment. For most providers, the prospect of issuing prepaid solutions

that have no representation in the physical world remains a future ambition. That said, some powerful

providers are already taking this step. Google Wallet, for example, launched as an entirely digital

solution in the US, before running into acceptance issues which necessitated the issuance of a

supporting payment card (see 4.5, below).



There are a variety of consumer and business benefits that a prepaid infrastructure can provide. In the

remains of this chapter Mobey Forum provides an overview of these winning attributes, together with

its observations on how these are being (or have the potential to be) magnified when combined with

the mobile channel.

3.3.2 Consumer benefits

Low barriers to entry

For demographics that struggle to get access to the traditional financial system, due to factors such as

job security or financial hardship, prepaid cards, which require no credit checks to be issued, can offer

many of the benefits of a traditional bank account.

The introduction of a mobile prepaid solution here provides a level of convenience to this customer

demographic that has not previously been available to them, not least by reducing the amount of Know

Your Customer (KYC) requirements needed to enrol, thus raising the attractiveness of these solutions

and potentially broadening their appeal to other, higher value, customer demographics.

Confidence and security

Some consumers use prepaid solutions because they perceive them to be more secure than other

payment mechanisms such as cash, debit, credit or direct from account payments, especially when

buying online. The use of a prepaid solution limits the amount of money that can potentially be lost

Figure 4: Mobile prepaid offers a wide range of opportunities for new and existing stakeholders



through online fraud, or in the event of the loss of a mobile device. This is particularly pertinent when

discussing the use of prepaid in mobile wallets, as security is often cited by consumers as a reason not to

use mobile payments.3 Prepaid accounts in wallets help to mitigate these fears.

Ease of Use

Mobile prepaid solutions give consumers more control over their spending as the mobile element allows

them to keep an eye on their balance. This appeals to those who have previously had financial

difficulties or who are on a strict budget (see 'Low barriers to entry’, above).

Restricted loop and gift card mobile prepaid solutions can be topped up quickly, easily and remotely at

any time. This enables them to be used to transfer funds securely to third parties and, in certain

circumstances, to define specifically how those funds may be spent.

Given that today's mobile consumers have their mobile devices on their person almost constantly, the

ability to use a mobile prepaid gift card facility is likely to increase the chances of them using the balance

of the card before it expires.

P2P

An invisible prepaid structure can be used to offer a mobile person-to-person (P2P) payments service

which has lower barriers to entry than some other P2P services which require full customer

authentication.

Anonymity

Prepaid solutions provide a simple and untraceable means of transferring cash from one place to

another. In digital world in which the customer's every move is tracked and analysed, the mobile

prepaid model offers a means for consumers to protect their identity from merchants when shopping.

3.3.3 Business benefits

Increased coverage of the value chain

A closed loop prepaid solution increases the issuer’s coverage of the value chain as it allows them to

have proprietary control of the payment system and method, as well as increasing the potential amount

of consumer data which can be captured. It also enables merchants to easily add payments to their

loyalty schemes.

Lower costs

A digital or mobile form factor saves prepaid issuers from having to pay for the production of a physical

form factor (a gift card or paper voucher, for instance) and therefore from having to pass that cost onto

an end consumer. Transactional costs are also reduced as consumers are likely to load their prepaid

solution with a larger amount fewer times. Each transaction the merchant processes from the prepaid

solution will be cheaper than each transaction they process using a debit/credit card payment solution.

3 ”Security concerns are the other top impediment; 53% of those uninterested in using a smartphone to process in-person transactions also say

they don't want to store sensitive information on their phone, while nearly half (47%, up from 40% in 2012) don't want to transmit sensitive information to the merchant's device”, Harris Interactive, November 2013



Earnings

Issuers claim the 'breakage' when prepaid deposits go unclaimed - after a certain amount of time the

prepaid solution can expire and the issuer can claim what’s left.

In addition, issuers can earn interest on deposits stored on prepaid solutions while most of the time they

don’t pay the users any interest on the prepaid balances at all.

Increased usage

A customer's use of any payment instrument is likely to increase if they are given more control over that

instrument. A prepaid solution as part of a mobile offering offers a customer more instant access

options to monitor and control their spending. Examples here include instant balance checks,

transaction confirmations and options to set up alerts and automatic top-ups. Furthermore, in relation

to closed loop prepaid solutions such as value loaded onto a coffee card, consumers often view this

value as money ‘already spent’ and thus encourages greater usage.

New customer base

A mobile prepaid solution is likely to appeal to more users because it provides easier access and higher

control. As a result, a merchant providing a prepaid solution, for example, is likely to attract consumers

that previously would not have bought from them.

Closed loop solutions can also help increase an issuer's customer base through a viral effect – people

sending money to non-users who are then encouraged to adopt the prepaid solution themselves.

Innovation and rapid implementation

A mobile prepaid solution offers the provider more opportunities for further innovation due to the

number of non traditional players that are also participating in the prepaid model. Each stakeholder has

more control over the development of the solution than can be afforded to them via the traditional

banking system. It is therefore easier for prepaid mobile solutions to be launched for specific customer

demographics. Compared to the production and rollout of physical form factor prepaid solutions,

additional functionality can be quickly added to a mobile solution in order to take advantage of the rapid

advances in mobile technology or the changing dynamics of the marketplace.

Data

The use of mobile prepaid solutions with loyalty features, or a mobile gift card solution, allow the issuer

to obtain additional profiling data about their customers’ spending habits which they would previously

not have had access to, as prepaid cards are frequently used less, and for shorter periods of time, than

traditional checking accounts. 4

4 The average lifespan of GPR is 189 days. Kansas City Fed, General Purpose Reloadable Prepaid Cards: Penetration, Use, Fees and Fraud Risks, Feb 2014. The average lifespan of a checking account is five years. Federal Home Loan Bank of New York.



3.3.4 Limitations of prepaid mobile solutions

Despite the clear benefits and advantages presented by mobile and prepaid convergence, the combined

model is not without its drawbacks. These include:

Acceptance

Prepaid solutions without a scheme mark (e.g. Visa, MasterCard or American Express) will be accepted

by a much smaller pool of merchants. That said, the acceptance infrastructure even for scheme marked

mobile payment solutions is not yet ubiquitous, even in markets with high volumes of smart phone and

contactless card penetration.

Regulation

As the prepaid product market grows so does prepaid regulation and with it the risk that that some of

the benefits which currently make prepaid solutions so attractive will be made obsolete.

Restricted funds/ lack of credit

One of the benefits of prepaid can also be considered a limitation. Prepaid solutions rarely offer features

such as overdrafts. Nonetheless, customers still need access to credit, and are motivated to save by the

interest they can earn on their money. These services are rarely available to prepaid account holders,

principally because their provision would require the prepaid issuer to obtain a full banking license,

which would, in turn, require it to conform to the traditional banking regulatory environment, increasing

costs and impeding its agility.

Fees

Whilst many prepaid solutions offer lower fees than those offered by traditional financial institutions,

issuers may also need to introduce fees for loading money, administration or to withdraw cash from

ATMs. These fees may also be set and collected by stakeholders beyond the control of the prepaid

issuer.

Proactive account management

Prepaid solutions need to be loaded with funds and/or value. This additional step can be a potential

obstacle for some users. In order to reduce this limitation, the top up process needs to be as straight

forward and 'frictionless' as possible.

The cost of doing business

Building up and running a prepaid solution can require significant initial and ongoing investment. A

stakeholder that intends to do so will require a considerable base of recurring users before any return

on investment can be realised.

Consumer guarantees

Prepaid service providers do not participate in a deposit guarantee scheme in order to protect their

customers' funds from insolvency, nor do they operate neutral boards of appeal that can support

conflict resolution. Instead, customers have to rely on the provider’s customer service functions.



These conditions enable banks to provide a level of security and a depth of service that prepaid

providers are unable to match.

3.4 The mobile wallet: A difficult birth

The mobile wallet has had a troubled start. Its development ecosystem is comprised of a wide variety of

powerful stakeholders, each vying to establish a commercially influential position in the value chain5.

The technical complexities experienced when attempting to establish a secure and interoperable

supporting mobile wallet infrastructure have challenged all stakeholders in the ecosystem. Moreover,

trust issues resulting from commercial clashes between stakeholders have further inhibited progress.

These factors have created a development vacuum, which has been seen by some of the most powerful

stakeholders as an opportunity to attempt to dominate the market through their own proprietary

solutions at the expense of the weaker players.

Inevitably, market fragmentation has occurred. The ongoing power plays between mobile wallet

developers, banks, merchants, MNOs, payment schemes, device manufacturers, operating system

providers and a wide range of other stakeholders have reduced the potential for ‘first generation’

mobile wallets to aggregate services from multiple providers and offer the rich, integrated and value-

oriented functionality that will be needed to recruit high volumes of regular users.

As far back as 2011, Mobey Forum publicly stated that simply providing ‘an easy way to pay’ would not

be enough to drive global adoption of mobile wallet solutions6. Since then it has maintained that

consumers must be lured away from their conventional wallets by the promise of unique, additional

value delivered via services like merchant discounts, loyalty schemes or virtual gifts, which complement

the wallet’s available payment instruments. For the past three years, Mobey Forum has been calling for

banks and other traditional payment service providers to foster relationships with third party

stakeholders in order to invite these kinds of services to integrate with their solutions, thus

compensating for their inexperience and unfamiliarity in these fields.

Given the value of controlling the customer relationship (which allows, amongst other benefits, the

controlling stakeholder to collect valuable customer profiling data from the mobile wallet) it is no

surprise that unresolved issues relating to ‘customer ownership’ have also confounded development.

The progress of banks and financial institutions in mobile wallet development and deployment has been

further frustrated by complications relating to mobile contactless payments. Interoperability issues with

MNOs, together with commercial negotiations over the cost of payment authentication via the SIM-

5 Mobey Forum has defined a series of ‘control points’ to help facilitate understanding of the mobile wallet ecosystem and to help stakeholders plot their position relative to other players. See earlier installments in this series of papers, specifically Part 2: Control Points in Mobile Wallets and Part 3: Mobile Wallets - The Hidden Controls. 6 Mobey Forum Launch of ‘Mobile Wallet: Definitions & Vision’ White Paper



based secure element have inhibited banks from deploying their mobile wallet solutions at an optimal

rate.

3.5 Vertical focus: A strength for merchants but a handicap for banks

To date, mobile wallet development has closely followed the commercial interests and specialist market

focus of the stakeholders responsible for each solution. With some exceptions, most banks and

traditional financial institutions have, for example, sought to develop mobile wallet solutions that

enable customers to access their full portfolio of proprietary payment and personal banking services via

their mobile device. In other words, they have focused on their own vertical market sector and

assembled wallet solutions accordingly.

Equally, other stakeholders have done the same. High street retailers and online merchants, for

example, have sought to strengthen the brand loyalties of customers by utilising their own strengths,

extending their delivery of a uniquely pleasurable shopping experience by integrating their own legacy,

value oriented solutions into their own proprietary mobile apps.

With this in mind, if banks continue to focus their mobile wallet development on the provision of their

own financial services, they will limit their potential to capitalise on this new mobile environment. The

world of personal mobile banking and payments is only a small part of the user’s overall mobile activity.

As consumers switch their attentions from money to shopping, for example, the business of conducting

a transaction becomes little more than an inconvenience. Merchants understand this well and are

seeking to minimise this inconvenience, or remove it entirely from their customer’s shopping

experience. As a result prepaid models, which minimise payment disruption and can integrate quickly

and easily with merchants’ legacy loyalty and rewards programmes, are fast taking centre stage in their

mobile wallet development.

Indeed the heightened consumer experience delivered by merchant prepaid mobile wallets may prove

to be sufficiently persuasive for consumers to accept the current extent of mobile wallet fragmentation.

Their express focus on delivering an optimal customer experience is likely to cause many banks to

reassess their approach to market. Are prevailing consumer attitudes more attuned to the individual

merchant mobile shopping experiences, or to the comprehensive collection of all payment instruments

in a single aggregated mobile wallet environment?

3.6 Baggage from the ‘old world’

There are two primary factors that put banks at a disadvantage here. Firstly, unlike high street retailers,

online merchants and MNOs, banks have, until now, enjoyed the long and undivided loyalties of

customers. As a result, their businesses have not demanded a laser-like focus on the delivery of a

captivating customer experience. In a mobile wallet world where mass consumer adoption will be driven

by exactly these elements, the banks have an intrinsic knowledge handicap. More importantly,

however, banks are disadvantaged because merchants, MNOs and other competing mobile wallet

stakeholders already operate systems that have been specifically designed to support such services;



many of which they are underpinned by pre-existing prepaid infrastructures. These systems operate

independently of the traditional banking infrastructures and, crucially, are not subject to many of the

operational, regulatory and technical integration challenges that banks have had to contend with when

developing their solutions.

Prepaid payments platforms are also considerably more flexible and agile than their equivalent systems

at traditional banks.

Through a combination of these factors, prepaid has enabled a variety of powerful mobile wallet

stakeholders to sidestep the embattled banks and employ their specialist knowledge to assemble their

own mobile wallet solutions.

3.7 Financial service innovations in mobile prepaid

Further compounding the difficulties faced by banks, a new wave of prepaid providers are now

emerging, which make even greater use of prepaid as a model for personal mobile banking and, by

doing so, are establishing prepaid as a platform with the potential to encroach on the traditional banks’

market for current account services. New, innovative service models that exploit the flexibility and

versatility of prepaid are now challenging the banks at their own game, offering account holders flexible

digital account facilities which operate via the networks of payment schemes and are capable of

supporting standing orders, international money transfers, foreign exchange currency purchases,

remote mobile payments, multiple card accounts, ATM withdrawals and more. Most pertinently,

however, is the extent to which these services have integrated the cash back, reward and loyalty

schemes of high street and online retailers into their core offerings, thus enabling account holders to

generate new value through the purchase of groceries, clothes and other everyday items. In many

respects these solutions already deliver the ‘mobile wallet model’, just through more conventional

channels.

Some of these solutions, such as American Express’ Bluebird initiative in the US, target the unbanked

market which, bereft as it is of competition from traditional banks, has provided a fruitful test bed for

innovation in prepaid. It also provides strong testimony to the claim that a prepaid infrastructure can be

administered at a significantly lower cost than that of a traditional banking system; this is self evident in

the commercial viability of the prepaid business models serving this market.

Other providers, such as Moven (see section 5.4, below), have been sufficiently emboldened by the

power of prepaid to target higher value customers in a direct challenge to the day to day money

management services of traditional banks.

With sophisticated and flexible prepaid platforms already developed and deployed, a significant

opportunity now exists for prepaid providers to take their services to mainstream mobile consumers and

compete directly with banks in the market for current accounts and related services. Until now,

however, the banked consumer has lacked a sufficiently motivating incentive to entertain the idea of



abandoning their bank in favour of a ‘new breed’ of prepaid service provider. The attraction of an

integrated, value added prepaid mobile wallet may well provide this incentive.

3.8 Service elevation and integration with the mobile wallet

Prepaid’s advantages over more traditional banking solutions are likely to be amplified when integrated

within a mobile wallet environment (see section 3.2, above). Thanks, in part, to prepaid’s legacy

utilisation in gift and loyalty schemes, many prepaid wallets have already been designed with the

creation of customer value at the centre, together with the delivery of a slick and convenient user

experience and the rapid integration with the systems of third party service providers. Combine these

attributes with the low cost, flexible portfolio of current account-styled prepaid financial services that

are already available and the resultant model is compelling. Mobey Forum contends that this model,

when executed well and positioned and marketed effectively, could trigger a wholesale shift toward

prepaid in the mainstream consumption of mobile financial services.

4. The evidence: Innovative and disruptive prepaid wallet solutions

available today

Prepaid's disruption to the mobile wallet ecosystem is occurring from two different stakeholder types.

Firstly the merchant-oriented community using prepaid to provide frictionless payment and value

oriented financial services in support of a wider goal: to deliver a compelling and convenient mobile

shopping experience. Secondly, other stakeholders have sought to challenge banks more directly, by

focusing their development of prepaid mobile solutions on services that facilitate consumers’ day to day

management of their spending. These aim to capture the attention and behaviour of consumers that

would traditionally be catered for by current account services.

Examples which track the variety of prepaid mobile wallet solutions currently available, from the

traditional loyalty based model to the provision of innovative prepaid banking and account services, are

offered below.

4.1 Merchant example: Starbucks

Since 2001, Starbucks has offered its physical Starbucks Card, a prepaid card for in-store payments. In

2009, Starbucks combined this prepaid card with its new loyalty program, My Starbucks Rewards, in

order to offer personalised rewards that would strengthen relationships with its customers. In January

2011, Starbucks introduced the Starbucks Card Mobile App in the US, which enabled cardholders to use

the Starbucks Card and the loyalty program on their smartphone. Since then, the app has also been

introduced in Canada and the U.K.



4.1.1 How the prepaid solution works

Distribution channels

The Starbucks Card Mobile App is distributed free of charge via Google Play and Apple’s App Store.

Customer acquisition and enrolment

After downloading the app, users must register themselves and open a Starbucks account by entering

personal information. If already available, an existing Starbucks Card can be registered. If not, a new,

virtual Starbucks Card can be generated instantly.

Channels to get value into the solution

During registration, users have to provide payment details that can be used to reload the account with

funds. The account can be reloaded manually or automatically according to the user’s preference. Credit

cards or PayPal are available as payment methods.

Channels to get value out of the solution

After starting the app, the main screen is displayed. The QR code needed to initiate a payment

transaction can be accessed through the top navigation, or by shaking the phone. Once the QR code is

displayed, it can be scanned by the cashier. Thanks to the new version of the app released in March

2014, it is also possible to add tips for each transaction.

4.1.2 Usage

At the beginning of 2014, ten million customers had downloaded the Starbucks Card Mobile App, which

is generating nearly five million mobile payment transactions per week (more than 11% of Starbucks

weekly transactional volume)7 8. In 2013 Starbucks processed more than $1bn in mobile payments9.

4.1.3 Conclusion As the Starbucks prepaid card and loyalty program itself, the Starbucks Card Mobile App aims to

influence customer loyalty and behaviour but it also combines payments and loyalty within one

instrument, which aims to simplify the payment process for Starbucks customers. Questions remain as

to whether the app successfully speeds up the purchasing process at the point of sale, as Starbucks

claim.

4.2 Merchant example: AtB

AtB is a Norwegian wallet app for transportation tickets serving Trondheim and the surrounding area.

The app is distributed by the association of bus and tram companies in central Norway. It has been in

operation for two years and has achieved significant customer penetration. When buying a ticket, the

customer debits a prepaid account, a credit card account or the mobile operator’s subscriber account. A

discount is applied when the prepaid account is selected.

7 http://www.mobilepaymentstoday.com/article/226745/Starbucks-reports-continued-growth-in-mobile-app-usage 8 http://www.mobilepaymentstoday.com/article/229331/Starbucks-upgrading-mobile-app-will-enable-in-app-tipping?rc_id=122 9 http://www.openmobilemedia.com/mobile-payments-europe/pdf/E4PMobilePaymentsPredictionsandTrendsinfographic.jpg

http://www.mobilepaymentstoday.com/article/226745/Starbucks-reports-continued-growth-in-mobile-app-usage

http://www.mobilepaymentstoday.com/article/229331/Starbucks-upgrading-mobile-app-will-enable-in-app-tipping?rc_id=122

http://www.openmobilemedia.com/mobile-payments-europe/pdf/E4PMobilePaymentsPredictionsandTrendsinfographic.jpg



The prepaid account system is a reloadable, closed loop system for buying tickets only. It can be reached

and debited from a mobile wallet app as well as from an SMS message. More than one person can use

the same prepaid account.



The AtB solution is being distributed through the Google Play and the iTunes App Store and is free of

charge.


When the consumer downloads the app and registers, a remote (net centric) prepaid account is opened.

At the same time the customer registers their mobile number together with their credit card credentials.


The customer will immediately be asked to top up their prepaid account from their credit account. If this

does not occur, the customer's telephone bill or their credit card will be debited directly in order to fund

the purchase of a ticket. Using the prepaid account will trigger a 25% discount on every ticket

purchased.

When reloading the prepaid account, the customer must select a fixed amount (NOK 100, 200, 500). This

amount will be debited from the customer’s credit card and the whole amount credited the prepaid

account. The amount is immediately available for the customer to use.


The customer always has options when paying for a ticket. If the whole or a part of the ticket price is not

covered by the balance in the prepaid account, the rest will be debited from their credit account or

telephone bill.

The user can buy one or several tickets at the same time (for friends or family). Since the prepaid

account is net centric, several persons can share one prepaid account. This allows children to use their

parent’s account from another phone without having a credit card registered.

4.2.2 Usage

Due to its convenience, a considerable number of customers in the region have adopted the mobile

ticket solution. The number of users continues to grow as awareness of the product increases. In 2013

3.2milllion mobile tickets were issued via the solution, 40% of these were charged to the user's phone

bill and 57% were settled using the prepaid account.

4.2.3 Conclusions

Using a prepaid account provides the transport company with significant benefits. No interest is given to

the consumer on the available balance on their prepaid account which means interest revenue is

generated from the total capital of the accounts. The cost of executing a transaction on the prepaid



account system is lower than using a public card scheme, like Visa or MasterCard connected through a

Payment Service Provider (PSP). Using a local prepaid system allows shorter authorisation time than

connecting to the international card scheme networks.

4.3 Merchant example: iTunes Store/App Store (iOS)/Apple Store

Apple’ s iTunes Store, iOS App Store an Apple Store collectively represent one of the biggest and most

successful examples of mobile commerce success in the world.

The iTunes Store and App Store are digital media and software market places. The iTunes Store opened

in 2003 and the App Store in 2008. In 2010, Apple released its Apple Store app which, among other

functions, allows users to buy physical products in the physical Apple Stores with the EasyPay

functionality. In 2012, Apple introduced Passbook, an application that allows users to store valuable

such as coupons, boarding passes and tickets. This combination of different apps running exclusively on

Apples iOS devices can collectively be viewed as a retailer wallet from the mobile commerce

perspective. Although payment methods differ from one geographic market to another, credit cards

that are registered in a user's personal Apple ID are widely accepted. The iTunes Store and App Store

also accept iTunes gift cards, Apple’s own closed loop prepaid product. This product shouldn’t be

confused with Apple Store gift cards which can be used in the physical Apple Stores but are not accepted

as a payment method in the Apple Store app, nor for the purchase of digital goods.



All the mobile applications mentioned above are pre-installed on the iOS devices (iPads and iPhones).

Further mobile applications which extend the functionalities of Apple's retailer wallet are exclusively

distributed through iTunes App Store and are predominantly free of charge.


There is a standard Apple ID account registration for the entire Apple ecosystem which provide access to

different mobile apps. In this way, this paper characterises these as a retailer mobile wallet. The user

can create an Apple ID on their computer, in iTunes or on an iOS device.


Although the selection of a payment method is an essential part of the Apple ID creation, it is not

mandatory in order for completion of the Apple ID registration process. As an alternative to registering

credit, debit and open loop prepaid cards, Apple offers to Apple ID users the possibility to instead

redeem a gift card code. The gift cards can be purchased in the physical world (plastic gift cards) or in

certain markets as a virtualised digital code in an online shop (US), in a mobile banking app (Switzerland)

or via an ATM (Italy). Furthermore, digitised gift cards can be sent to anyone with the iTunes account as

a one-time transaction or as a monthly iTunes store credit.10

10 http://support.apple.com/kb/HT2105

http://support.apple.com/kb/HT2105




A valid credit card must be registered to a user's Apple ID, or a the user's prepaid account must be

sufficiently funded, before a payment can be executed. iTunes Credit gift cards are accepted in the

iTunes Store and App Store. In this sense, iTunes Credit represents dedicated prepaid value for digital

goods. At this moment there is no information that Apple Store gift card is accepted within the wider

collection of Apple financial instruments that, in this white paper, are collectively referred to as Apple’s

retail wallet.

4.3.2 Usage

By June 2013, 575 million Apple IDs had been established worldwide, a figure now estimated to exceed

650 million. There are now more than 315 million Apple mobile devices in consumer circulation11

and 2013 sales exceeding $10billion and $16billion from the App Store and the iTunes store respectively.

4.3.3 Conclusion

Apple cannot be considered to be anything other than a global powerhouse in mobile commerce and

mobile wallet technology. Apple is both a merchant and an operating system manufacturer with two

separate prepaid products: one for the digital goods sold through iTunes and the App Store and other

one for their physical Apple Store. Both prepaid products are closed loop products and do not combine

with any kind of loyalty program or additional functionality. The main driver behind Apple's inclusion of

prepaid solutions is to make content consumption from its own platform as easy as possible.

The prepaid aspect of its offering enables Apple to reach non Apple customers and/or those who

consume content but don’t have payment cards (the youth market, for example).

4.4 Overall merchant conclusion

All three of the given examples illustrate how merchants can increase customer satisfaction by

enhancing their customers' experience using prepaid mobile services. As a result, customer loyalty

increases together with sales.

For merchants, prepaid solutions are also a useful vehicle for reducing costs; they can decrease

transaction fees and reduce the burden of cash management at the POS. They also represent a new

channel through which to generate revenues.

Even though a mobile prepaid solution fits for Starbucks, AtB and Apple iTunes, it will not be universally

appealing to every retailer. In order to capitalise on such an investment, merchants must generate a

sufficiently large and active customer base to purchase recurrently through the solution in order to

establish commercial viability.

11 http://en.wikipedia.org/wiki/ITunes_Store

http://en.wikipedia.org/wiki/ITunes_Store



4.5 Merchant / day-to-day money management hybrid example: Google Play/ Google

Wallet

The Google Wallet App was introduced in 2011 as a mobile application for proximity payments via NFC

but has evolved to the payment system for Google's own ecosystem. It is linked to the user's Google

account and offers remote and proximity payments as well as additional functionalities like P2P money

transfer, integration of loyalty and couponing functionalities. It is the official payment instrument for

Google Play, Google’s digital media and software market place. In November 2013 Google introduced

Google Wallet Card, a prepaid plastic card as a physical extension of its mobile wallet.



Google Wallet is distributed as a part of Google Play Store and is directly linked to Google Account or it

can be downloaded as a mobile app in US in Google Play Store and in Apple’s App Store.


There is a standard Google account registration for the entire Google ecosystem. Based on this there are

essentially two ways to register for Google Wallet. Every Google account holder in the world can expand

his Google account by adding their payment information to Google Wallet. US customers can, as an

alternative to the standard process, register from within the Google Wallet App.


Different payment methods can be added to Google Wallet: credit, debit and open loop prepaid cards;

in some markets direct carrier billing; Google Play gift cards and the user's traditional bank account. It is

important to mention that some of these payment methods can only be used for specific purposes (see

'channels to get value out of the wallet', below). From the stored value account perspective, Google

Wallet manages two variants: the Google Play account and the Google Wallet account. The Google Play

account can be topped up only with Google Play gift cards. the Google Wallet account can be topped up

with a variety of different payment methods, including credit, debit and open loop prepaid cards as well

as directly from the user's bank account.


The Google Play account can be used only for purchases within Google Play Store. It is not redeemable

for cash and cannot be combined with other non-Google Play balances in the Google Wallet account.

The Google Wallet account, on the other hand, offers remote and proximity payments at the merchants

accepting MasterCard as well as additional functionalities like P2P money transfers and cash

withdrawals at ATMs through the Google Wallet prepaid plastic card.

4.5.2 Conclusion

Similarly to Apple, Google can in this example be considered as a merchant and an operating system

manufacturer. Google’s interest in transactional data could be considered one of the main drivers



behind its provision of an open loop prepaid product. The structure of the wallet with two different

prepaid products is cumbersome and will require overhauling and simplifying if Google is to take full

advantage of its consumer mobile financial services potential.

4.6 Day-to-day money management example: T-Mobile Mobile Money (USA)

MNO, T-Mobile US, launched its Mobile Money product in January 2014. Following its 2013 initiated

‘uncarrier’ campaign, the new Mobile Money product primarily targets the underbanked segment of

mobile users in the United States.

The core of the product is a T-Mobile branded Visa prepaid open loop card, which is issued by Bancorp

Bank. T-Mobile co-operates with Blackhawk Networks for card processing, servicing and distribution.

The Mobile Money product is available to anyone living in the US, however T-Mobile customers are

granted access to the product without the fees that otherwise apply.

The current solution is not linked to the Isis mobile wallet at the time of writing this paper.



The Mobile Money companion app for the prepaid Visa card is available in Google Play and Apple App

Store.


T-Mobile uses its marketing channels to drive people to three enrolment destinations: Online, T-Mobile

stores and Safeway supermarkets.

The T-Mobile website offers online enrolment which allows users to order the Visa prepaid card for

delivery to their home address. Once the customer receives the physical card, online activation needs to

be completed separately via the T-Mobile website or by calling customer service. Walk-in customers can

enrol to the service at T-Mobile stores. Here customers can finalise their enrolment, initial (non-cash)

deposit and card activation all at the same time. According to T-Mobile communication, a co-operation

agreement with participating Safeway supermarkets also enables customer enrolment. Customers are

able to sign up to the service and obtain their prepaid T-Mobile Visa card at select Safeway locations in

the same way as in T-Mobile shops.


The current solution supports a variety of value top-up channels including direct deposit (including social

benefit and salary payments); remote check capture with the companion mobile app; the Blackhawk

agent network (Reloadit) for purchasing reload packs with cash; Visa ReadyLink at participating

merchants for cash-in and Moneygram for receiving funds only. Direct cash-in at T-Mobile stores is not

allowed under the constraints of the current partner setup and related regulation in the United States.




The Visa prepaid card can be used at any merchant location in the United States that accepts Visa debit

cards and for online purchases anywhere. In addition to basic Visa acceptance, the user can also use

their stored value to Pay T-Mobile bills and top-up their airtime; withdraw cash from ATMs (no fees for

40,000 on-net ATMs in US, standard fees for others) and make bill payments for registered payee

companies in US$.

4.6.2 Conclusion

In a highly competitive MNO market like the US, the T-Mobile Mobile Money solution is an attempt to

create a value added service that increases customer stickiness to the T-Mobile core business of selling

network services. By building on the churn reduction business case, the financial products offered can

be offered at a relatively low price point, making the prepaid card proposition particularly attractive to

the underbanked immigrant worker segment, which commonly deals with cash only and use prepaid

subscriptions for mobile services.

Competition within the US telecom segment is a stronger driver than trying to encroach on the financial

institutions’ territory - MNOs are mostly seeking to reduce churn. Any additional revenue streams from

financial services are an added bonus but not critical to the business case.

As a secondary motive MNOs are seeking new revenue sources and in so doing are moving into what has

traditionally been banks’ territory. Significance of this new revenue might grow in the future as it

gathers more data about is users and further develop the partnership.

4.7 Day-to-day money management example: BlueBird from American Express

In 2012, American Express launched BlueBird, a prepaid account that provides consumers with many of

the aspects of a traditional current account from a bank combined with the convenience of additional

digital capabilities.



Some of the digital features of BlueBird include sub-accounts for family members or other additional

individuals, and a feature that enables funds to be ring-fenced and put towards the achievement of a

financial goal defined by the user, such as saving for a vacation. The advantage of BlueBird over a

traditional bank account is that there are no minimum transfer or balance requirements and almost no

fees.

Channel to get value into solution

Bluebird accounts can be funded via payroll/government direct deposit, mobile check deposit, ACH

transfers from existing US bank accounts, or via cash loading at Wal-Mart store locations.



Channel to get value out of the solution

The BlueBird online solution and mobile app can be used to check balances, pay bills and transfer money

to friends and family. The Bluebird account comes with both a companion card and paper checks, to

make physical payments. In addition, the physical card can access funds via ATMs.

BlueBird funds are FDIC insured so the solution offers equivalent security to those of US bank accounts.

In addition, the solution also offers additional security features such as purchase protection and fraud

protection which are not often provided as standard with a traditional current account from a bank.

4.7.2 Conclusion

BlueBird is a product that has strategic value in its ability to compete with traditional banking

institutions by offering a bank account replacement solution, together with additional features often

enjoyed by credit card holders or digital wallet-using consumers.

4.8 Overall day-to-day money management conclusion

The above examples illustrate that stakeholders need no longer hail from the traditional banking world

in order to launch compelling money management solutions via the mobile channel. It is interesting to

note that the strategic commercial motivations of these stakeholders are not in the least aligned. Google

is seeking to further its mission to collect customer profiling data, while American Express is attempting

to grow its market by reaching out to a previously untapped customer demographic. T-Mobile is

responding to an opportunity to position itself as more than an MNO, deepening its customer

relationships and generating new revenue streams as a result. These observations clarify that the

mobile financial services market is seen by mobile stakeholders as fertile ground upon which they can

further develop their core businesses.



5. Bad news for banks? How can they react to the prepaid

phenomenon?

The news that the mobile wallet ecosystem is adopting prepaid as a model of choice will not be

welcomed by banks and financial institutions, least of all because it narrows their strategic options

considerably and will make it harder than ever for them to establish a firm footing anywhere other than

at the low end of the mobile wallet value chain. Nonetheless Mobey Forum contends that banks must

accept that, at least for now, the prepaid model, despite its limitations may be a 'better fit' for mobile

wallet solutions than the current account alternatives supported by the traditional banking system.

In order to address the growing threat from prepaid mobile solutions, some banks have already

accepted this premise, and have taken steps to engage with, and capitalise upon, the prepaid model.

Four different strategic options for banks and financial institutions are offered below. Where possible

these options have been discussed in the context of a real world implementation.

5.1 Deploy an invisible prepaid infrastructure in support of a new service

Example: MobilePay from Danske Bank

MobilePay and MobilePay Business are open peer to peer payment solutions where users can send and

request funds to each other and to businesses. These solutions were launched by Danske Bank in

Denmark in May 2013 and subsequently in Finland in December 2013.


The solution uses an invisible wallet infrastructure where each user is assigned a prepaid ‘wallet

account’ through which all MobilePay transactions are passed.


MobilePay is distributed via the official app stores of Apple, Google and Microsoft.


In the MobilePay app, users must register a payment card, a bank account and a mobile phone number.

No further KYC is needed as the service operates under the e-money directive of the EU.


The payment card that is registered during enrolment is automatically debited whenever a transaction is

initiated. Thereafter the ‘wallet account’ is credited and the funds are sent to the receiver’s bank

account.


For both peer to peer and consumer to business payments, any funds received are automatically sent to

the bank account of the user, using the existing infrastructure. The prepaid account operates in the

background and is not exposed to the end user. Whenever the account is credited it is automatically

debited, ensuring a zero balance is constantly maintained.



5.1.2 Usage

MobilePay has been downloaded over 1.3m times and boasts 1.1m registered users.

5.1.3 Conclusions

The approach Danske Bank has adopted reflects the bank’s belief that the traditional current account is

held in higher consumer regard than an equivalent prepaid account; a belief that appears to be shared

by its customers. Utilising an invisible prepaid infrastructure has also allowed the bank to deliver the

service at a lower cost and under the terms of the EU e-money directive, enabling it to lower its barriers

to enrolment, which would otherwise have required full Know Your Customer verification.

5.2 Establish a prepaid agent network and resell the products of high profile

merchants

Example: PostFinance Fast Service

In 2007, PostFinance introduced an SMS based mobile payment solution called PostFinance Fast Service.

Since then, users have been able to link their mobile phone number with their PostFinance bank account

in order to debit their account each time they make a payment via their mobile phone. Some of the first

participating merchants were MNOs, who enabled their airtime prepaid accounts to be reloaded via

SMS. Today, the service enables users to buy digital goods, like a prepaid Paysafecard voucher, in real-

time. In 2010, PostFinance introduced an iOS and Android App from which users can now top up their

prepaid balances from many different prepaid solution providers, including Apple’s iTunes store,

Paysafecard, MNOs, Nintendo, Microsoft or Sony.

5.2.1: How the prepaid solution works


The PostFinance app is distributed through the Google Play and the iTunes App Store and is free of

charge. The SMS alternative can be used with any SMS capable mobile phone with a Swiss SIM card.


As a pre-requisite, all users must have a PostFinance bank account, including the associated debit card

as well as a Swiss mobile phone number. Users must download the PostFinance app and register once

for the Fast Service. Users that would like to use the SMS based option need also to register once via

SMS.


A sufficiently funded PostFinance account is needed for each purchase. As with any other bank account,

users can fund their account in a variety of different ways (depositing wages, pay in a the counter or via

bank wire transfer).




When a purchase is being made, the amount is debited from the user’s PostFinance bank account and

credited to the PostFinance account of the prepaid solution provider. As a purchase can only be made

when the users account has sufficient funds, the payment is guaranteed to the prepaid solution

provider. Therefore the user’s prepaid account can be topped up in real-time.

5.2.2 Usage

In 2013, more than half a million purchases of third party prepaid credits were made using PostFinance’s

Fast Service.

5.2.3 Conclusions

Through its agent network, PostFinance provides merchants with access to its 2.9m customers. In this

role, PostFinance is providing an invisible payment method and infrastructure, whilst visibly adding

value to its customers. By establishing an independent agent network, PostFinance has elevated itself in

the value chain and therefore generates higher revenues than it would be able to when performing the

role of a payment infrastructure provider only. As PostFinance is using digital channels only, the costs

associated with physical point of sale, together with the secure storage of physical merchant cards are

eliminated, thus making this approach very cost-effective.

5.3 Use prepaid openly and actively

An additional option for banks is to embrace the prepaid model entirely, either by developing its own

prepaid infrastructure and operating under the more flexible and accommodating terms of the EU e-

Money Directive (as Danske Bank has), or by outsourcing the provision of a prepaid infrastructure to a

prepaid processor or e-money institution, presenting customers with a ‘white label’ system carrying its

own brand identity.

This option could enable the bank to accelerate development of a proprietary mobile wallet solution

and simplify the integration of the value added services from merchants and other stakeholders that will

help drive consumer adoption.

How could this be achieved? One possibility could be for banks to offer its existing current account

holders an accompanying prepaid account ‘lite’, for use specifically in m-commerce. Additionally, banks

may also be able to benefit from revisiting and streamlining their existing current account infrastructure

in order to make efficiencies that would elevate its flexibility, making its offering more ‘prepaid-like’ and

thus more competitive.

5.4 Concede and play a supporting back-end role to new players in prepaid

Example: CBW Bank’s backing for Moven and Simple

Kansas based CBW Bank provides the back end processing infrastructure for prepaid mobile banking

services Moven and Simple.



5.4.1 How Moven’s prepaid solution works

Moven’s users utilise a prepaid debit account that provides instant mobile updates via a mobile app

every time a purchase is made, facilitating better money management and tracking of spending.


The Moven mobile app is distributed through the Google Play and Apple App Store.


Moven users must download the mobile app and apply via the app to open a Moven prepaid account.

Channels to getting value into the solution

Moven users can transfer money from associated debit and credit accounts, once these accounts have

been linked to their Moven account. The Moven account can also receive credits from other users via

mobile peer to peer money transfers, and via payments sent from social networks, such as Facebook.

Channels to getting value out of the solution

Moven’s prepaid account is supported by MasterCard and MasterCard’s PayPass so payments via the

solution’s NFC sticker are possible everywhere that this scheme’s mark is accepted. Cash withdrawals

are also supported at MasterCard supported ATMs. Moven is also capable of initiating peer to peer

money transfers via email, Facebook and mobile numbers.

5.4.2 Usage

Moven has grown to 5,000 registered users and over 100,000 individuals have signed up for invites to

the service.

5.4.3 Conclusions

Both Moven and Simple focus on customer’s mobile banking experience. Within their mobile app, users

can access to real-time updates and spending alerts, analyse their spending habits across all of their

bank and credit cards, and send money to friends from within the app via Facebook, email or their

mobile number.

By providing back end transaction processing and providing an ‘anchor’ infrastructure for a disruptive

new prepaid provider, CBW Bank has accepted a role at the lowest end of the value chain and is

seemingly content to only generate revenues from each transaction that it manages. It is true that by

assuming this role CBW Bank has sidestepped the conventional costs associated with recruiting new

customers, but nonetheless, for most banks this position is far from favourable; it surrenders the bank’s

interface with its customers entirely, and along with it, all chance of generating additional revenues

through the provision of additional financial services and of gathering valuable customer profiling data.



6. Looking to the future

The rapidity with which prepaid mobile wallets are evolving, together with the potential for future

prepaid current account services to be offered to mobile wallet users, makes the future for traditional

banks in this space unclear. What is certain, is that banks must now recognize prepaid as a major driving

force in the future of mobile wallets and also in wider mobile financial services. Banks must also

recognize that if they are to successfully establish anything more than a back end processing position in

the mobile wallet value chain, they must accept that the wider development ecosystem has neither the

need, nor the appetite to wait while they find solutions to their problems with regulations, operating

procedures and legacy systems integration. This is especially so when prepaid represents such a familiar

and widely deployed model already.

Regardless of whether they intend to engage with prepaid as a model for mobile wallets, banks would

be well advised to refocus attentions on, and engagement with, the merchant sector. Growth here is

considerable and this vertical has a sophisticated understanding of the consumer mobile shopping

experience; something that will be of crucial importance as consumer adoption of mobile wallets

continues to increase. Fostering stronger ties here will do banks no harm at all.

Finally, banks and financial institutions would be wise to pay particularly close attention to the

development of prepaid current account facilities in the e-money sector; already these services are

elevating out of the unbanked market and it won’t be long before they begin to integrate with the

mobile wallet solutions of competing stakeholder groups to create a complete portfolio of prepaid

personal banking and value added services.

Given the growing popularity of prepaid solutions, together with the increasing sophistication of the

services being offered on prepaid infrastructures, it is possible that the prepaid industry may soon

attract greater attention from regulators. If this occurs and tighter regulation is imposed on prepaid

solutions, much of the agility and flexibility that differentiates prepaid from conventional banking

systems may well be nullified. Until this happens, however, Mobey Forum expects to see a continued

surge in prepaid mobile solutions coming to market.

Given this set of circumstances, banks now need to urgently assess their appetite to engage with, and

put their trust in, supporting partners. The combination of their unfamiliarity with the wider context in

which their customers use their payment services via the mobile channel and their unwillingness to

broaden their horizons and innovate beyond their own vertical sector threatens to disintermediate

them from the ecosystem, at which point the most banks should expect to achieve is a back end

payment processing role.



About the author:

Mr. Tabakovic currently serves as Head of Market Development at PostFinance, the fourth largest retail

bank in Switzerland. In his current role he is responsible for digital channel strategies as well as

initiation, development and market introduction of digital innovations. A former start-up entrepreneur

in the field of web applications, Mr. Tabakovic likes to be at the centre of merging business and

communication technologies and bringing new solutions to market. Mr. Tabakovic has participated in

Mobey Forum since 2010 and been a member of the Board since 2011.

About Mobey Forum:

Mobey Forum is the global industry association empowering banks and other financial institutions to

lead in the future of mobile financial services.

Mobey Forum connects industry thought leaders to identify commercial drivers for the development of

better mobile commerce. Mobey Forum’s members collaborate to analyse business strategies and

technologies to create innovative, interoperable and competitive financial services.

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