Proximity Mobile Payment: 70 million users by 2017 SCHICKLER E-Business analysis: “Smartphones: Tomorrow’s Wallet” Hamburg/Munich, April 5, 2013. Proximity Mobile Payment has the potential to revolutionise the personal payment market. Mobile payment for goods and services at the point-of-sale will substantially replace cash and credit cards to a noticeable extent in the near future – Proximity Mobile Payment will turn smartphones into electronic wallets. By 2017 just under 70 million users will be paying for goods and services for a value of over 40 billion euros, according to a current analysis by SCHICKLER Consulting. At present, the mobile payment market is causing quite a stir. Numerous companies are crowding onto the market with credit card swipe systems. These systems transform a smartphone into a mobile credit card payment terminal. “However, this is only an intermediate step on the road to comprehensive mobile payment as the credit card remains a central component”, says Alexander Kahlmann, partner at Schickler Consulting, “the subsequent step in the mobile payment market is actually more interesting: proximity mobile payment.” Schickler forecasts that the turnover generated by Proximity Mobile Payment will grow over the next five years at a rate of over 50% per year. The number of users who pay with their own smartphone via Proximity Mobile Payment at the point of sale, will rise between 2012 and 2017 to an eightfold. As the barriers for entrance into the Mobile Payment market are comparatively low, the market will still gain in dynamic. But: “Independently of the exact future market structure, it is alrady quite clear: Proximity Mobile Payment will substantially replace cash and credit cards to a noticeable extent in the near future”, says Kahlmann. If you have any queries or requests concerning our work for Media and E-Business companies, please do not hesitate to contact us. More information: http://schickler.com/english/ Media is our DNA. The SCHICKLER group - corporate consulting and executive search - was founded by hands-on practitioners 30 years ago. Its focus on a limited number of industries - Media and E-Business, complemented by IT/TC-Services and Insurance - enables its consultants to achieve a high degree of specialisation. As a result, Schickler offers its clients in Germany and throughout the world strategic foresight and solutions in line with actual practice. Offices are located in Hamburg and Munich.

1. Photo: audioundwerbung | istockphoto.com
SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT
Smartphones:
Tomorrow’s wallet

2. Turnover via
Proximity Mobile Payment grows
by over 50% per year COMPACT
SMARTPHONES – TOMORROW’S WALLET
The mobile payment market is causing quite a stir. Numerous companies are crowding onto the
market with credit card swipe systems. These systems transform a smartphone into a mobile credit
card payment terminal. However, this is only an intermediate step on the road to comprehensive
mobile payment as the credit card remains a central component. In addition, the extension of the
payment chain holds the profit margins down – this business model is unprofitable in the long term.
For this reason the subsequent step in the mobile payment market is really interesting: Proximity
Mobile Payment. It will substitute cash and credit card payments to a noticeable extent and turn
smartphones into digital wallets. SCHICKLER forecasts that the turnover generated by Proximity
Mobile Payment will grow over the next five years at a rate of over 50% per year. The number of
users who pay with their own smartphone via Proximity Mobile Payment at the point of sale, will rise
between 2012 and 2017 to an eightfold. Thus by 2017 just under 70 million users will be paying
for goods and services for a value of over 40 billion euros, from today’s perspective.
STRUCTURE AND DEVELOPMENT OF THE MOBILE PAYMENT MARKET
The mobile payment market can be structured on the basis of the two dimensions “Locality” and
“Participant”. “Locality” differentiates between remote and local payment, i.e. payment from a
distance and locally at the point of sale. In the dimension “Participant” one differentiates between
person-to-person and person-to-business payment systems (Fig. 1).
LOCAL PAYMENT
Mobile payment
Direct money transfer
for goods and services
between persons
at the point-of sale
LOCALITY
REMOTE PAYMENT
Distant money transfer
M-commerce
between persons
PERSON-TO-PERSON PERSON-TO-BUSINESS
PARTICIPANT
Fig. 1: The Mobile Payment market is divided into four segments
Remote payments have particularly succeeded in establishing themselves in Asia and Africa. The
most frequent use cases are text message-based payments and money transfers. Especially in
Africa, text message-based money transfers are often the only way of transferring money to other
people over great distances.
On the other hand, due to the differing technical situations in the grid expansion and the technical
status of smartphones, SCHICKLER estimates the potential of remote payment for the USA and
Europe as being low.
SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT 2

3. Technical development
is gradually accelerating COMPACT
Instead, numerous start-ups and cooperations are active in these regions in the segment Local
Payment – especially for person-to-business payment transactions, i.e. for paying at the point of
sale. SCHICKLER forecasts the greatest potential for this segment over the next few years. Due to the
large number and diversity of the business models in this emergent sector, SCHICKLER distinguishes
the sub-segments Credit Card Swipe, the Acceptance of Credit Card Payments by Smartphone, and
Proximity Mobile Payment, i.e. paying via smartphone at the point of sale (Fig. 2).
CREDIT CARD SWIPE PROXIMITY MOBILE PAYMENT
Fig. 2: The multi-facetted Local Payment segment can be sub-divided yet again (Source: SCHICKLER)
The trends in Mobile Payment follow a logical development. This began with the introduction of
money as a means of payment, continued with card-based payment and is now moving on to the
*NFC: Near Field Communication NFC*- and cloud-based method of payment. The business models for credit card swipe systems,
Transfer standard for the contact-free which were already developed in 2010 and are being extensively implemented today, only represent
exchange of data over short distances. one evolutionary step on the way to Proximity Mobile Payment (Fig. 3).
The technical development of the payment systems has accelerated increasingly over the past
few years. For this reason, one can reckon with further innovations over the coming years. As the
barriers for entrance into the Mobile Payment market are comparatively low, the market will still
gain in dynamic. Numerous new players will enter the market over the next 3 to 5 years, followed
by a consolidation phase of 2 to 3 years. During this time many players will leave the market again.
Only then will the future structure of the Mobile Payment market be established.
Cloud-based
DEVELOPMENT
payment via
Physical abstraction Contract-free
smartphones
of several credit payment via
Contact-free cards smartphones
Mobile acceptance of payment by card
Completely cash-free
credit card payments
transactions via POS
Abstraction of terminals
Abstraction of coins/bank notes
concrete goods/
services
Money as means First Credit card Smartphone-based Cards with All-in-one card NFC-/barcode- Cloud-based
of payment credit cards terminals credit card terminals NFC chip with smartphone based payment payment
7th century B.C. 1950 1972 2010 Current trends TIME
Fig. 3: Payment systems are becoming more and more sophisticated (Source: SCHICKLER)
SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT 3

4. More and more
solutions are developed
within cooperations COMPACT
STRATEGIC POSITIONING OF MOBILE PAYMENT PROVIDERS
Whereas early mobile payment solutions were mainly turnover-oriented, current developments place
their emphasis on strategic positioning. Major players are now bringing integrated solutions such
as “Google Wallet”, “Apple Passbook” or “Microsoft Wallet” onto the market. These products do not
involve direct turnover drivers, but are concerned with the strategic positioning as a central point
of contact for the payment and administration of finances - for example also for the management
of tickets and reward programs. These efforts clearly show the long-term strategic significance of
Mobile Payment (Fig. 4).
Besides the strategic positioning of providers, it is recognisable that Mobile Payment solutions are
increasingly being developed in cooperations and brought onto the market. In particular the coope-
ration with mobile communications providers and credit card institutes is being encouraged in this
connection. Mobile communications providers on the one hand operate an existing infrastructure for
communication and on the other hand have existing contact with and confidence of the customer.
Credit card institutes have the necessary processes, licences and contracts for the transfer of money.
STRATEGICALLY
ORIENTED
TURNOVER-
ORIENTED
2010 2011 2012 Current development TIME
Fig. 4: Strategically oriented providers are gradually appearing on the market (Source: SCHICKLER)
WHY PROXIMITY MOBILE PAYMENT IS SO IMPORTANT
More than 1 billion people possess a smartphone. Proximity Mobile Payment enables the use of
these smartphones for cash-free payment at the point of sale. SCHICKLER estimates that by 2017 70
million users throughout the world will be applying Proximity Mobile Payment with their smartphone
to pay for goods and services at the point of sale. The value of goods and services paid for world-
wide via Proximity Mobile Payment will rise by 2017 to more than 40 billion euros per year. (Fig. 5).
50 billion euros
40 billion euros
30 billion euros
20 billion euros
10 billion euros
0 billion euros
2012 2013 2014 2015 2016 2017
Fig. 5: The use of Proximity Mobile Payment will increase rapidly (Source: SCHICKLER)
SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT 4

5. 1.1 billion euros
turnover in
Germany in 2017 COMPACT
Of this amount just under 10 billion euros will be allocated to turnover in Europe and more than
10.5 billion euros to turnover in the USA (Fig. 6).
12 billion euros
10 billion euros USA
6 billion euros EUROPE
4 billion euros
2 billion euros
0 billion euros
2012 2013 2014 2015 2016 2017
Fig. 6: USA and Europe are important markets for Proximity Mobile Payment (Source: SCHICKLER)
In Europe the DACH countries (Germany, Austria, Switzerland) will be responsible for 15% of the
turnover generated via Proximity Mobile Payment. Within the DACH countries 77% of the turnover will
take place in Germany. According to estimations this turnover of 1.1 billion euros, will be generated
in Germany in 2017 through more than 87 million Mobile Payment transactions. In Switzerland and
Austria the turnover in 2017 will amount to 225 million euros and 118 million euros respectively.
This will be created with 11 million Mobile Payment transactions in Switzerland and just under 9
million transactions in Austria (Fig. 7).
D: 1.1 BILLION EUROS
EUROPE
WITHOUT DACH:
8.3 BILLION EUROS
DACH:
1.4 BILLION
EUROS
A: 118 BILLION EUROS
CH: 225 BILLION EUROS
Fig. 7: Around 1.4 billion euros of the European turnover figures are allocated to the DACH countries (Source: SCHICKLER)
OPPORTUNITIES AND RISKS
Mobile Payment offers considerably more opportunities than risks:
Opportunities
+ New turnover generators and increase in customer spending
+ Cost reduction in retail thanks to simplified processing of payments and handling of cash
+ New aspects for customer retention, marketing and targeted advertising
+ Added value for customers thanks to integrated management of finances
Risks
- Splitting of the market into isolated solutions and lack of customer acceptance
- Security problems and lack of customer confidence
SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT 5

6. Opportunities for
media and other businesses COMPACT
WINNERS AND LOSERS
WINNER TIED LOSER Print – extremely recommendable
+ New possibilities for the on-the-spot sale of print items.
WINNER TIED LOSER Digital publishing – extremely recommendable
+ Increase in confidence in digital payment and therefore increase in acceptance for digital
contents at a charge.
WINNER TIED LOSER Brands – extremely recommendable
+ Possibilities for brand positioning and marketing.
WINNER TIED LOSER Retail – extremely recommendable
+ Sales drivers through use of Proximity Mobile Payment.
+ Reduction of costs involved in the payment procedure.
+ Brand positioning with a target group affine to technology.
Radio – conditionally recommendable
+/- Low on-the-spot contact to consumers, therefore little possibility of
using Mobile Payment.
WINNER TIED LOSER E-commerce companies – conditionally recommendable
+/- Unclear as to whether increased purchases are effected in the physical world and therefore
substitute e-commerce turnover.
TV – not recommendable
- Low on-the-spot contact to consumers, therefore little opportunity of using Mobile Payment.
Conclusion
Proximity Mobile Payment has the potential to revolutionise the personal payment market.
Cooperations between hardware/software producers, mobile communication providers, credit card
institutes and banks are vital for success. Up to now no player has asserted himself in this expanding
market. However, in particular the larger players are strategically positioning themselves at present.
But, independently of the exact market structure, it is already quite clear: Proximity Mobile Payment
will substantially replace cash and credit cards to a noticeable extent in the near future.
We look forward to receiving your queries and feedback.
Contact: Alexander Kahlmann
SCHICKLER Consulting Group
Tel. +49 40 376650-0
a.kahlmann@schickler.de
COPYRIGHT SCHICKLER 2013 SCHICKLER COMPACT: PROXIMITY MOBILE PAYMENT 6