Mobile solutions are seemingly everywhere these days, and laptops, tablets, and smartphones are enabling an “anytime, anywhere” approach to business and personal lives. This is starting to include payments. In news reports and ad campaigns, consumers are learning that they can use their mobile devices to buy anything from a Starbucks coffee or a Big Mac to office supplies, lumber, and clothing. The age of mobile payments, it seems, is upon us. For more info: www.nafcu.org/vantiv

1. Payments
go mobile:
The gradual
revolution

2. Part of the Vantiv Insight Series 2012, featuring proprietary research performed by Vantiv LLC and Mercator Advisory Group
© 2012 by Vantiv LLC. All rights reserved.

3. 3
Payments go mobile:
The gradual revolution
Mobile solutions are seemingly everywhere these days, and lap-
about the
tops, tablets, and smartphones are enabling an “anytime, anywhere”
research
approach to business and personal lives. This is starting to include
The Vantiv/Mercator Insight
payments. In news reports and ad campaigns, consumers are learn-
Series research focuses on
ing that they can use their mobile devices to buy anything from a understanding payment
Starbucks coffee or a Big Mac to office supplies, lumber, and cloth- trends and adoption rates
for emerging payments
ing. The age of mobile payments, it seems, is upon us. methods. As part of this
primary research effort,
But things are not that simple. Mobile payments are indeed grow- Vantiv and Mercator Advi-
ing. Yet, in spite of the industry and media buzz, it is likely to be sev- sory Group teamed up in
early 2012 to survey 1,200
eral years before the majority of consumers are using their phones consumers about how they
at points of sale. currently make payments
and how they expect to do
so in the future. In addi-
That’s one of the key findings of recent Vantiv/Mercator research
tion, researchers conducted
exploring consumer and industry-executive views of the evolving in-depth interviews in the
payments landscape (see “Key Points,” page 4). The research found spring of 2012 with execu-
tives from financial institu-
that consumers see a bright future for mobile payments, with 62% tions and merchants to
saying that they expect mobile payments to be widely used within explore their perspectives
on the changing payments
five years. Yet only 38% actually see themselves using mobile pay- landscape.
ments by then.

4. 4
KEY POINTS Why the paradox? The research sug- gart, chief product officer at Vantiv.
gests that although consumers see “The emergence of mobile payments
1 mobile payments becoming common in will enable consumers, merchants, and
Widespread adoption will take the future, they can’t picture it in their financial institutions to do a variety of
several years due to some daily lives. Some may lack a compelling payment activities in new and more ef-
fundamental challenges. reason to change. Others see problems fective ways.”
with security that make them skeptical
2 about using mobile devices to move To take advantage of these opportu-
Consumers are concerned their money around. nities, merchants and financial institu-
about security and don’t see a tions will need to move beyond to-
need for mobile payments. And it’s not just consumers. Merchants day’s wait-and-see attitudes. “There
and financial institutions also have is still reason to move cautiously, and
3 concerns about mobile payments and methods you can use to do so. But
Worried about costs, standards, how they will work and affect their that doesn’t mean inaction,” says
and technologies, many businesses. They see uncertainty in Weingart. “To succeed with mobile
merchants and FIs are taking a evolving standards and technologies, payments, they will have to under-
wait-and-see approach. and are acutely aware of the impact stand these new approaches and
of security problems. And they have technologies, take steps to be part of
4 questions about demand and solution this emerging world, and be ready to
Including mobile payments will “stickiness.” As a result, many are un- deliver the mobile payments that their
be key to the appeal of mobile derstandably cautious, and are taking a customers expect. Financial institu-
banking platforms—and banks wait-and-see attitude. tions that deliver mobile services
may have a leg up there. that consumers value—such as check
But the issues slowing adoption will deposit—will have an advantage in the
5 eventually be worked out—and re- future.”
Widespread adoption will search findings assure us that consum-
depend on a compelling value ers will be ready. The Vantiv research
Understanding the Growth
proposition that offers more assessed consumers’ usage, interest,
than convenience. and awareness of mobile payments, Curve
and an analysis of those factors shows In the Vantiv research, a number of
6 that this method is at a critical tipping findings pointed clearly to significant
Consumers are looking for point, where it is beginning to enter growth of mobile payments in the
platforms that provide more the mainstream—and in five years, it is coming years. True, only a small number
information, location-based likely to be a familiar part of the pay- of consumers are using mobile pay-
applications, and rewards. ments landscape. ments today (1% to 4%, depending on
the form). However, 50% of consum-
7 “Mobile payments may evolve a little ers are aware of mobile payments, and
Merchants and FIs can take more slowly than people expect, but 23% are interested in using mobile
incremental steps today to they will evolve—and it will absolutely payments going forward. Those levels
build knowledge and strategies. be a game changer,” says Bill Wein- of awareness and interest typically

5. 5
Mobile payments will be
common
Mobile payments will22%
be 7%
indicate that an emerging payment their even younger counterparts move
Mobile payments will be
common10%
common
method is on the verge of widespread into the consumer mainstream, they 30%
adoption. are going to drive increased usage.” 22% 7%
22% 31%
7%
The research also found that tablet 10%
10% 30%
An important driver of adoption will owners, smartphone users, and con- 30%
undoubtedly be the ongoing prolif- sumers earning more than $100,000 a 31%
31%
eration of mobile devices. Vantiv’s year were more likely to see a positive
research found that smartphone future for mobile payments. “Affluent I will use mobile payments
ownership at the beginning of 2012 consumers are interested,” he says. “So
37%
was 45%, up from 28% in 2011. “This some of the best customers out there
I will use mobile payments 18%
year, smartphone market penetration for both merchants and banks will be I will use mobile payments
is crossing an important line between looking for this.” 18%
37% 19%
being an early-adopter technology to 37%
being in the early stages of mainstream Today, the most common use of mobile 18% 8%
18%
usage, with double-digit growth in the payments is via a mobile phone using 18%
numbers of devices in use,” says Ben the mobile web or a retailer’s phone 18% 19%
8% 19%
Love, vice president, Mobile, at Vantiv. app. However, says Love, “as mobile 8%
■ 1-2 years
payments take hold, they will be used in ■ 2-5 years
A deeper exploration of the findings a growing range of payment scenarios, ■ 5+ years
shows other indicators of growth. For altering the overall share of wallet for ■ 1-2 years ■ No idea
example, consumers ages 18 to 34 various payment methods.” ■ 1-2 years
■ 2-5 years ■ Never
are far more likely to think that mobile ■ 2-5 years
■ 5+ years
payments will be common within five Indeed, the Vantiv/Mercator research ■ 5+ years
■ No idea
years, with 72% of this group believing shows that mobile payments will gain ■ No idea
■ Never
that, compared to 61% for consumers traction in all major spending cat- THE MOBILE
■ Never
overall. Fifty-six percent of respon- egories. For example, about 10% of PAYMENTS PARADOX
dents in that age group said that they consumers said that by 2017, they
personally expect to be using mobile expect to be using mobile payments Consumers like the concept
payments by that time. As one execu- for small in-store and grocery purchas- of mobile payments but also
tive interviewed by Vantiv/Mercator es, displacing primarily cash and debit have doubts about actual
researchers said, “Mobile payments transactions. In addition, 9% expect usage. About two-thirds of
is a multigenerational thing. For older to use them for household expenses, consumers think that mobile
generations, smartphones and iPads displacing mostly debit transactions; payments will be widely used
are a second language, but the young- 8% for large in-store purchases, dis- in five years or less. But only
er generation expects more and more placing mostly credit; and 7% for online about one-third think that
to be digital.” purchases, displacing credit/debit. they personally will be using
These percentages may actually be this method.
“Today’s younger consumers are more low, because consumers tend to under-
comfortable with the idea of mobile estimate future usage of tools that are
payments,” adds Love. “As they and currently unfamiliar to them.

6. 6
Great moments The Obstacles because they allow consumers to use
their credit or debit cards or a bank ac-
in Mobile Altogether, these factors indicate that count to make payments, using a single
payments mobile payments will grow very rap- point of access—the phone. Consum-
idly, and very soon. But there are other ers are more interested in mobile wal-
1994 factors at play, as well—and they are let/phone payments at retail points of
Online banking inhibiting that growth. sale than any other mobile phone pay-
ment method. But security issues are
1997 A key obstacle is consumer percep- dampening interest in this approach,
Vending machines take tions of smartphone-based payments. too, with 63% of those not interested
SMS payments The research found that consumers in mobile payments citing security con-
are concerned about problems such as cerns. Smartphone and tablet owners
1997 short smartphone battery life (53%), were especially worried on this front
SMS-based mobile banking losing their phones (77%), and be- (79% and 80%, respectively).
ing hacked (78%). With such issues in
1999 mind, two-thirds said that even if they It’s not just consumer perceptions
Web-based mobile banking used a phone for payments, they would that are an issue. The broad merchant
keep a traditional card as a backup. in-store infrastructure needed for
1997 smartphone payments is not in place
Contactless payment Consumers’ greatest concern with today. Most existing POS terminals
(Mobil Speedpass) smartphone payments is security. More are not equipped for near field com-
than three out of four cited criminal munications (NFC) and therefore do
2004 hacking of phones and the resulting not allow users to tap or wave their
NFC Forum founded compromise of account security as a phone near a device to make payments.
real worry. “This does not seem to be a Some companies are exploring other
2006 matter of consumers being suspicious approaches, such as using closed-loop
First NFC phone (Nokia) of a new, unfamiliar technology,” says prepaid accounts and a 2-D barcode
Patty Walters, senior vice president for transactions at specific retailers.
2007 of Merchant Product and Security at But in many scenarios, adoption of
Release of iPhone Vantiv. “Smartphone users and young smartphone payments will require new
consumers are actually more likely than infrastructure—and merchants see
2009 consumers in general to be concerned that as a significant investment with an
Mobile-phone households about smartphone security.” They are uncertain return, given the unsettled
surpass landline households also more apt to say that even if they nature of the technology and related
were to use smartphone-based pay- standards.
2010 ments, they would continue to carry
Release of iPad cards as a backup. These issues are not insurmountable,
but finding and implementing solu-
2011 The research found similar concerns tions will take time. For example, in the
Google Wallet with mobile wallets. These apps are Vantiv/Mercator research, security was
key to convenient mobile payments less of a concern among consumers if
2012
Isis Wallet

7. 7
the retail store had its own app, such likely to increase interest in both NFC Criminal
as the one offered by Starbucks, that and mobile payments.) hacking to get 78%
payment data
the user could download for smart-
phone payments. And technology Payments and Next-
companies will continue to bring more
sophistication to security, including the Generation Mobile Banking Losing phone 77%
expected rollout of EMV chip-based As interest in mobile payments grows,
security technology. “The increase in many in the industry see mobile bank-
Would still
tokenization and encryption as well as ing apps as a ready platform for build- carry credit/ 67%
the implementation of EMV will really ing out payments functionality. “Of- debit cards
help address some of the immediate fering payment capabilities is a natural
concerns with respect to fraud and se- extension of the mobile banking plat-
curity when we move into new mobile form, and many banks are starting to Battery life 53%
technology,” says Walters. pursue that in the form of wallet-based
payments,” says Love. The inclusion of
The lack of in-store infrastructure may mobile payments and wallets promises 0% 40% 80%
change soon, as well. Current EMV to be key to taking mobile banking to
mandates from MasterCard and Visa the next level.
will shift liability for security breaches
CONSUMER
to merchants over the next few years— But banks are not alone in their inter-
CONCERNS ABOUT
which means security problems could est in mobile wallets. Other players
SMARTPHONES
cost major merchants millions of dol- have been working on wallet offerings, When thinking about mobile
lars a year. Thus, they have a financial from Google and Apple to numerous payments, more than three-
incentive to upgrade their terminal large retailers. “There are more than quarters of consumers have
network to comply with EMV require- 100 wallets in development or in pilot concerns about security, such
ments. Merchants may decide that in the U.S. today, and that number may as hacking or losing their
this upgrade is a good opportunity to be as high as 200 by the end of the phone. That lack of confi-
also bring on NFC capabilities, which year,” says Love. (See sidebar, page dence leads more than two-
are needed to support communication 12.) The result is a confusing array of thirds to say they would still
between phones and terminals. That options being laid in front of consum- carry plastic cards as a back-
way, the merchant can leverage compli- ers—and that confusion is often trans- up to smartphone payments.
ance-driven expenditures to move into lating to a lack of interest and uptake
a payment method that consumers are of mobile wallets.
going to expect in the coming years.
(Of course, standards are evolving, Banks, however, have many strengths
and, while it is still not clear that NFC that they can draw on to differenti-
will be the winning technology, it is an ate themselves in that crowded field.
approach that many see as being the When it comes to payment methods,
most viable. A number of executives security is always foremost in consum-
interviewed noted that the release of ers’ minds. In a churning mix of mobile
more NFC-equipped smartphones is wallet options—many from companies

8. 8
Tablets:
At Home on the Sales Floor
Tablets such as Apple’s iPad, have found er wants and have the item brought to
their way into a variety of retail settings, the floor, without having to leave the
Aware 51% where they are used by salespeople to customer. The customer can then fill
help customers—and, in a number of out his or her payment information on
cases, to accept payments throughout the tablet and complete the sale via
the store. secure, encrypted card acceptance.
Interested 28%
“There are still relatively few mer- Beyond support for sales and pay-
chants actually using tablets for mobile ments, merchant tablets can contribute
payments at this point, but many are to a satisfying customer experience
evaluating this approach,” says Dean in a number of ways. They can, for ex-
Seifert, senior vice president, Product ample, be used to deliver product and
Used 17%
Strategy, at Vantiv. And a number of availability information out to the floor,
those merchants have deep concerns either to salespeople or to customers
about having to change in-store pro- themselves. Tablets can also be linked
0% 20% 40% 60% cesses and handle the complexity of to CRM systems so that salespeople
multiple mobile POS checkout points. can capture customer information for
the merchant’s marketing efforts, and
TABLETS TAKE OFF Nevertheless, payments handled retrieve customer preferences and his-
through merchant-owned tablets are tories—including a customer’s interac-
Merchant tablets may have likely to grow rapidly over the next tions in other channels—as they help
already hit the tipping point, two years, according to recent Vantiv/ customers. One retail executive whose
with more than half of all Mercator research. Already, 17% of company is planning to implement
respondents aware of this surveyed consumers have used them tablet payments told the research-
payment method and 17% for in-store payments. What’s more, ers: “We think mobile technology will
saying they’ve already 51% are aware of this payment op- help us better engage our customers
used it. This percentage is tion, and 28% are interested in using and we can help them in the aisles. We
slightly higher among it. These levels are quite high—higher, also expect to have a profile within our
smartphone users. in fact, than those of any of the other application to guide them around our
emerging payments covered in the stores while they are shopping. We’ll
research, including smartphone pay- have associates there to assist them
ments, mobile wallets, and retailer and let them pay right there.”
app-based payments. “Merchant POS
tablets are clearly at the tipping point As they find their way into more retail
of wide adoption—if not already past environments, the tablets themselves
that point,” says Seifert. will evolve in various ways to fit the
specific situation. Some might be
The use of merchant tablets for in- “hardened” for home-improvement
store payments can be highly cost- stores, others made waterproof for
effective. They use the existing in- restaurant use, and yet others be highly
stalled base of card-acceptance pro- specialized with limited functions to
cesses, and the devices themselves are discourage theft. “We believe that
one-tenth the price of traditional cash merchant tablets will be used by many
registers. They enable salespeople to types of merchants,” says Seifert. “And
sell and handle payments more effi- ultimately, they will change the way
ciently and help shorten checkout lines stores operate.”
during peak periods. Using the tablet,
salespeople can quickly check invento-
ry for a given product that the custom-

9. 9
that are new to the payments space— play an important role in expanding the
those consumers may see their banks use of mobile payments. But the most
Convenient 27%
as a safe and simple wallet option. critical factor will be consumer behav-
Banks already maintain consumers’ ior—whether consumers find mobile
personal and financial information, payments appealing enough to change
so there is no need for consumers to their current habits.
share that with other organizations.
Convenience, too, is a factor: if a con- Today, many consumers simply don’t Reliable 23%
sumer already uses a mobile banking see a reason to shift their payment be-
application, it is easy to add payments havior. Just 1 in 4 survey respondents
to that and rely on that one device for said that they regard mobile wallets as
a broad range of financial activity. convenient, and just 1 in 8 would prefer
to use smartphone payments rather Secure 17%
Overall, mobile banking is clearly an area than a card. “We are looking at mobile
of focus for banks. In a Vantiv survey wallet apps, but our customers aren’t
of financial institutions, nearly half clamoring for it,” one regional bank ex- 0% 15% 30%
said that they expect to invest in this ecutive told researchers. “Why is wav-
platform in the coming year. Already, ing something in front of a tablet faster
NOT CONVINCED:
banks are rolling out mobile check than swiping a card? When will there
PERCEPTIONS OF
deposit, which enables consumers to be a mobile wallet app where custom-
MOBILE PAYMENTS
use their smartphones to photograph ers will really ditch everything else and
and deposit a check, and thus avoid a start to use it?” Consumers don’t seem to
trip to the bank branch. “This makes it think that today’s mobile
very easy for the consumer,” says Love. “People have been using cards for de- payment methods of-
“And banks like it because it helps them cades,” agrees Donald Boeding, presi- fer much more than credit
reduce over-the-counter physical trans- dent of Merchant Services at Vantiv. cards. Only one-fourth or
actions.” With continued investment, “It won’t work to say, ‘Now you can do less see mobile payments
financial institutions are expected to of- that on your phone —problem solved.’ as convenient, reliable, or
fer additional innovations in the near fu- There wasn’t really a problem to begin secure.
ture. These will enable them to build on with. Merchants and banks have to pro-
existing consumer relationships—and vide a compelling consumer experience
consumer trust—to take advantage of and a clear value proposition for mobile
the growing consumer interest in both payments—one that offers more than
mobile banking and mobile payments. just convenience.”
Connecting with Consumers One way to appeal to consumers is to
offer them rewards, which can have
The actions of banks and merchants— a real impact. In the Vantiv research,
as well as technology providers—will 32% of consumers said that they

10. 10
AGE regarded rewards as a potentially ef- more features and functions to con-
18-34 57% fective way to encourage the use of sumers. The Vantiv research points to
35-64 33% mobile payments. That was especially some of the things that consumers
65+ 14%
true of smartphone users (42%) and hope to find with mobile payments.
those earning more than $100,000 Consumers select their payment
a year (39%). “Once consumers try methods based on no- or low-cost
GENDER a new payment approach and get (87%), their being fast (85%), and their
Men 41% comfortable with it, they’ll move to it security (72%). Nearly three-quarters
Women 33% more and more over time,” says Dean of that group (71%) said they are inter-
Seifert, senior vice president, Product ested in tracking account balances to
Strategy, at Vantiv. “But you have to control spending.
INCOME get them to do that initial trial. So we
Less than $50K 34% expect to see more rewards associ- In general, consumers expect mobile
$50K-75K 33%
ated with mobile payments to help solutions to put more knowledge at
consumers overcome their reluctance their fingertips, to help them make
$75K-100K 42%
and skepticism.” better decisions about purchases and
More than $100K 43% payments, and ultimately to combine
Doing so may not be that difficult. The increased control over financial activi-
0% 20% 40% 60% research found that for many consum- ties with their increased mobility. “We
ers a 1% rebate at the point of sale think our customers are interested in
would be an effective incentive for mobile payments and remote deposit
Cutting-Edge adopting a new payment method—a capture now; they have been very
Consumers more modest figure than many would vocal about this interest, and we will
Who’ll be using expect. “Many financial institutions be implementing both within the next
smartphones to make and merchants feel that it takes a 5% 12 months,” one credit union execu-
payments in five years? to 10% reward to incent customer be- tive told researchers. “It’s particularly
According to the Vantiv/ havior and get people to select a cer- important for small businesses. If the
Mercator research: more tain type of payment method. But the boss is on the road with an iPhone or
men than women, more research shows that it can be far less,” iPad and forgot to authorize payroll or
Millennials than Boomers, says Seifert. “So banks and merchants forgot to pay a bill, all they do is open
and more people earning may be overestimating what it takes.” up their application, click a few icons,
more than $75,000 a year. and authorize release of payment.”
Building the Compelling Value
To offer more than just basic pay-
Proposition ments via mobile device, merchants
Rewards are good as far as they go, and financial institutions can take full
but to truly build and sustain success advantage of that device’s mobility,
with mobile payments, merchants using geo-location capabilities and
and financial institutions will need to apps that predict consumer needs to
provide a value proposition that brings provide a good experience to custom-

11. 11
ers wherever they are. For example,
merchants can offer coupons, credits, Micropayments: Empowering the Individual
and discounts based on the individual
consumer and his or her location. A
Micropayment tools let individuals make payments directly to one another,
consumer in a store, for example, could
electronically. But while ACH-based P2P payments are used regularly in
be offered a discount on something
much of the world, that’s not the case in the U.S. In the Vantiv/Mercator
he or she buys frequently, or someone
research, only 3% of consumers said they are using mobile P2P services.
passing by a retail facility could be sent
Most small payments in the U.S. are still paper-based and handled via
a coupon for a sale item to encourage
checks or cash.
him or her to stop in. Mobile platforms
could also include polling features that Why? For one thing, consumers don’t seem to be especially interested in
allow consumers to quickly solicit the P2P. Forty-seven percent said that they don’t see a need for it, and 38.5%
opinions of friends about a given prod- have security concerns. These responses may reflect a lack of familiarity
uct. And as consumers make a mobile- with mobile P2P, with just 24% saying they had even heard of it.
based payment, “frequent shopper”
points can be added to their account Another issue is the time it takes to make a payment. With P2P payment
and an update sent to their phone. services that rely on the ACH network, it can take a several days for pay-
ments to clear.
“The days when you had to walk
around with a paper coupon or loyalty The industry is working to address these issues. “It’s possible that finan-
or rewards card are going away. That cial institutions, for example, could use their existing debit payment ‘rails’
will all be in the cloud and tied to the in reverse to enable real-time P2P—and benefit by charging a fee,” says
phone,” says Seifert. “Merchants are Vantiv’s Dean Seifert . In addition, “P2P has seen use among individuals
going to recognize when you are in a making payments to tradespeople and other small businesses.”
certain location and send you special-
ized marketing within the store or as Several trends may increase consumers’ familiarity with P2P in the near
you are walking through the mall.” Or, future. There is a growing number of banks, as well as providers such as
on the other end of the spectrum, Amazon, moving into the P2P space. And the rapid spread of devices such
scanning attachments and apps can as Square, which let small businesses and individuals accept credit card
enable smaller providers, from plumb- payments with a smartphone, are increasing awareness of micropayments.
ers to mechanics and musicians, to
accept secure credit card payments on
the spot, via their smartphone. tage of that to better reach consumers
and deliver information and offers that
“The fact that we have a computer in are specific to them. A retailer might
our pocket that knows who we are, send a discount that entices them to
where we are, and what we are doing buy a good or service at a store that
creates a powerful opportunity for lots is nearby, and then they can actually
of different players,” says Seifert. “So complete that purchase with their
merchants and banks can take advan- phone.”

12. 12
The eWallet Question
A key enabler for mobile payments is flects the evolution of banking over the
the mobile wallet, which provides a past couple of decades, from branches
single access point to an individual’s to ATMs to online and mobile banking,”
cards and accounts for payments. But says Love. “Providing a wallet on the
there are no wallet standards in place. mobile device is the next logical step
In this environment, “everyone from the for banks.”
biggest names in payments and the
Internet to small startup companies is E-commerce wallets. Organizations
getting involved,” says Ben Love, vice such as Amazon, Apple iTunes, and
president, Mobile, at Vantiv. PayPal are interested in using wallets
In $ billions
to get into the physical, bricks-and-
$300 mortar world and the offline purchase
of goods and services.
$250
TOTAL TRANSACTION VALUE
There are other types of wallets in the
$200 mix as well; aggregator wallets, for ex-
ample, let consumers consolidate their
$150 various credit, gift, prepaid, and loyalty
cards into one wallet. And single-
$100 feature wallets have a narrow focus on
doing one thing well, such as keeping
$50 transaction fees low.
$0 Many find this growing lineup confus-
2009 2010 2011 2012 2013 2014 2015
ing and a source of uncertainty. For
Source: IE Market Research Corp. The result is a burgeoning number of example, a number of merchants have
mobile wallets—a number that cur- taken a wait-and-see approach to in-
OPPORTUNITY rently tops 100, and continues to grow. stalling terminals with NFC—in part be-
KNOCKS It can be difficult to keep track of it cause of the battle among gatekeeper
all, says Love, but an understanding of wallet providers. “One side wants the
Mobile wallets are being who is offering what—and the motiva- NFC chip to be part of the mobile
pursued by a range tions of those providers—can help. The device, while the other side wants it to
of providers that are list of wallet contenders includes: be part of the device’s SIM card, which
interested in capturing gives control to the wireless service
part of the growing mobile Gatekeeper wallets. These are the provider,” says Love. Both groups, he
payments market, which is “giants,” including Visa, MasterCard, says, are ultimately looking for control
projected to rise to Google, and Isis, that are “jockeying for of valuable customer purchase data for
$260 billion by 2015. dominance in the way NFC is used,” marketing purposes.
says Love. NFC technology can enable
easy smartphone wallet payments. At this point, it’s difficult to determine
which mobile wallets will survive and
Retailer wallets. These give merchants thrive. But, Love says, there’s an upside
a way to leverage coupons and dis- to this fluid situation. “From a retail
counts, and move from a broad mass- and banking standpoint, the fact that
marketing strategy to a more individu- few players are taking sides is a good
alized strategy to strengthen customer thing,” he explains. “Without any domi-
relationships. nant player emerging, the field is wide
open to those who want to be involved
Banking wallets. “This approach re- in providing mobile wallets.”

13. 13
Mobile banking, too, can be enhanced ogy, uncertain standards, and growing 51%
Mobile phone
to provide a more compelling value consumer interest—present a complex payment 23%
proposition—again, by taking fuller ad- picture. For merchants and financial 1%
vantage of mobility. This represents a institutions, it can be difficult to know
logical progression of mobile banking, how to move forward. One approach,
Buying online 40%
says Peter Kulik, vice president, Prod- notes Love, is to “understand what with
uct Management, at Vantiv. Mobile your customers want, and use those smartphone 21%
with app
Banking 1.0 essentially involved ac- needs to build stronger relationships 4%
tions such as sending a text message with them.”
to the bank and getting account bal- eWallet 32%
ances back in real time—“Cool, but not The Vantiv research suggests that payment with
20%
credit or
something that is going really catch merchants and financial institutions debit cards
1%
consumers’ attention and change their may not be fully aware of the growing
habits,” he says. Mobile Banking 2.0 consumer interest in mobile payments.
moved PC-based Internet banking In general, interviews with industry 28%
Pay in store
onto the phone, allowing consumers executives showed that most mer- with app on 20%
smartphone
to check balances and transfer funds chants feel that they already offer a 2%
in a more convenient format—but not wide enough array of payment op-
really do any more than they could with tions to satisfy current needs, and 0% 20% 40% 60%
their desktop computers. few merchants or financial institutions
think that their customers are ready ■ Aware ■ Interest ■ Use
“We are starting to see Mobile Bank- for mobile payments at this point. It
ing 3.0 starting to emerge” Kulik says. was clear that both groups foresee a
“Mobile Banking 3.0 is all about imple- fairly long timeline for the adoption USE AND PERCEPTION
menting new use cases that are inher- of mobile payments, with merchants OF EMERGING PAYMENTS
ently tied to the mobility and location expecting it to occur somewhat later
Consumers are very aware of
sensitivities of mobile phones.” With and financial institutions expecting it
and interested in various mobile
Mobile Banking 3.0, he says, consum- somewhat sooner.
payment methods. But actual
ers will have features such as mobile
usage is still relatively low, due
check deposit and payments, alerts, But those perspectives are out of
in large part to concerns about
and personal financial management sync with the consumer view. As the
security, the lack of infrastruc-
functions such as budgeting tools, research shows, growing awareness
ture, and a small installed base.
alerts about overspending, and offers and interest indicate that consumers
from third parties—all on one device. expect mobile payments to become
commonplace in five years—and
What’s Next? many expect that they themselves
will be using them before long.
The rapid changes taking place in mo- Merchants and financial institutions
bile payments—the evolving technol- appear to be lagging behind consum-

14. 14
ers when it comes to their outlook on providers that make more effective
adoption. use of the mobile platform. Merchants
also worry about third-party wallets
Merchants and financial institutions do from organizations such as Google
have a number of real concerns about and losing control in customer rela-
mobile payments. Like consumers, they tionships because of the need to work
see security as a challenge. But over- through intermediaries.
all, executives interviewed from both
types of organizations expressed opti- Such concerns are significant, but so
mism about the ability of the industry too are the potential opportunities. By
to provide sound security for mobile building mobile payment capabilities,
payments—and even exceed cards in merchants and financial institutions
that area, through the use of multifac- will be able to give customers what
tor authentication processes. they want in payments—convenience,
flexibility, and more information and
Beyond that, banks worry about losing control. But these companies may also
control of their payment networks to benefit from a better understanding
third-party competitors, as so many of customers. With more payments
players are now involved and technol- being handled through mobile devices,
ogies and standards are in a state of more data will be available for analysis.
flux. “The most challenging obstacle Merchants and banks can use this data
is to figure out which payment types to assess consumer preferences and
a bank with limited resources should behavior, thereby improving their ability
mobile products’ offer,” said one regional bank execu- to reach customers.
maturity status tive. “It’s a balancing act, picking and
choosing which approach to take with A merchant, for example, might de-
The speed of adoption of a limited budget. We can’t offer every velop an Amazon.com-like capability
mobile devices continues type of solution that comes along.” to constantly track purchase behavior
to be rapid, while the use For their part, merchants fear that and use the resulting insights to hone
of financial apps on those mobile payment systems will be costly the offers and discounts it gives to
devices follows a to implement and could steer con- consumers. “The relationships with
traditional path. sumers to competitive products from customers are already there—people
come into stores all the time,” says
100% Love. “But now, the mobile data allow
you to know them better—to under-
90% stand what they buy, where. With that,
JANUARY 2012 CONSUMER USAGE LEVEL
80% you start moving from mass marketing
to individual marketing. You no longer
70% have to give people generic coupons or
have a broad loyalty scheme that may
60%
50% ✦ Smartphones (iPhone intro)
40%
30%
20% ✦ Mobile banking* (initially SMS-based)
✦ Tablets (iPad intro)
10%
✦ Mobile P2P services
✦ Open and single-merchant e-wallets
0%
0 years 5 years 10 years 15 years 20 years
YEARS IN U.S. MARKET
Source: Vantiv/Mercator Insight Series Research, February 2012. * Data from Mercator Advisory Group Survey, October 2011

15. 15
or may not be meaningful. Instead, can then be used to develop a larger 63%
eWallet
you can give each consumer target- strategy. payment with
credit or 4%
ed, relevant offers.”
debit cards
As they explore, merchants and 27%
Overall, financial institutions and mer- financial institutions should make
chants have an opportunity to take sure that they are looking beyond the 54%
Mobile phone
advantage of the growing consumer obvious and conventional to con- payment at 6%
excitement around mobile pay- sider the broader possibilities of this POS
31%
ments—or run the risk of being left emerging payment method. “When
behind as others do so. “These com- the Apple iPad was introduced to
46%
panies can lead the way for value- the market, it was perceived as a Buying online
added mobile payments by getting small personal computer—because with app on 6%
smartphone
involved in early steps to engage that’s what everybody knew,” says 35%
their customers, steer the technology Weingart. “Now, tablets are used
to their advantage, and encourage as vital work tools by airline pilots, 45%
mobile payment adoption,” physicians, and a host of others who Pay in store
with app on 6%
says Love. would never have used a ‘small PC’ in iPhone
their work, so it really created a new, 37%
In such a fluid environment, mer- unforeseen model.
chants and financial institutions will 0% 20% 40% 60% 80%
benefit most by taking small, incre- “The rise of mobile commerce prom- ■ Security ■ Reliability
mental “early steps” that are not too ises an even greater paradigm shift, ■ No need for service
large. In these initial stages of mobile Weingart continues. “The tendency
payment adoption, “it is very hard to today is to look at the mobile device
WHAT’S HOLDING
know what is going to happen next in certain ways—as a self-service
THEM BACK
in the coming years,” says Wein- tool, an ATM without the cash with-
gart. “But holding still is not a good drawal, a device-based version of the When asked what limits their
option.” With that in mind, he says, traditional debit or credit card. But interest in mobile payments,
companies might seek the guidance it’s much more than that. It is a new consumers cited security
of a partner in the payments industry. kind of key intersection between the issues, especially with
consumer and the bank or merchant, mobile wallet and in-store
Such partners could help them and it is changing the face of busi- mobile phone payments.
conduct pilot programs in a limited ness for merchants and banking Across payment scenarios,
region, which doesn’t require a large forever.” a sizable number also said
bet on a given technology. This can that they simply don’t see a
help them build knowledge and ex- need for mobile payments.
perience and better understand the
evolving landscape and how consum-
ers are behaving as mobile payments
evolve. Those accumulated insights

16. About Vantiv
Vantiv LLC is one of the
leading integrated payment
processors in the United
States. Known as Fifth
Third Processing Solutions
since 1971, the company,
headquartered in Cincinnati,
Ohio, changed its name to
Vantiv in 2011, and be-
came a public company in
2012. Vantiv’s credit, debit,
prepaid, and data security
solutions help businesses
and financial institutions of
all sizes get the most out of
payment activities.
Vantiv Corporate Headquarters
8500 Governors Hill Drive, Cincinnati, OH 45249
866-622-2880 | www.vantiv.com
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