VisionMobile The Evolving State of Mobile Commerce1. TITLE:
The evolving state of mobile commerce
SUB-TITLE:
What mobile developers are looking for from an ever
changing industry
URL: vmob.me/MobileCommerce
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Contents
About this report
Key Messages
CHAPTER 1: The State of M-Commerce
CHAPTER 2: Friction-free payments remain the overriding objective
CHAPTER 3: The right payment platform for the right target
audience
CHAPTER 4: What matters most to developers?
CHAPTER 5: Who is collecting the money for what?
CHAPTER 6: The evolving state of m-commerce, June 2016
Methodology
Also by VisionMobile
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Segmentation 2016
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Segmentation 2016
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Copyright © VisionMobile 2016 - v.1.0
3. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 2
ABOUT THE AUTHORS
Bill Ray
Senior Analyst
Stijn Schuermans
Senior Business
Analyst
Christina Voskoglou
Director of Research
and Operations
Bill wrote his first mobile app in 1988, and has
been failing to make money out of them ever
since. He architected set-top boxes at Swisscom
and Cable & Wireless, and was Head of Enabling
Technology (responsible for on-device software)
at UK mobile network O2. He then spent eight
years as a journalist at tech publication The
Register, before joining VisionMobile as a senior
analyst.
You can reach Bill at:
bill@visionmobile.com
@bill4000
Stijn has been the lead Internet of Things
researcher in the VisionMobile team since 2012.
He has authored over 20 reports and research
notes on mobile and the Internet of Things. He
focuses on understanding how technology
becomes value-creating innovation, how business
models affect market dynamics, and the
consequences of this for corporate strategy.
Stijn has a Master's degree in engineering and an
MBA. He has over 10 years’ experience as an
engineer, product manager, strategist and business
analyst.
You can reach Stijn at:
stijn@visionmobile.com
@stijnschuermans
Christina leads the analyst team and oversees all
VisionMobile research and data projects (big or
small!), from design to methodology, to analysis
and insights generation. She is also behind
VisionMobile’s outcome-based developer
segmentation model, as well as the Developer
Economics reports and DataBoard subscription
services. While at VisionMobile, Christina has led
data analysis, survey design and methodology for
the ongoing Developer Economics research
program, as well as several other primary research
projects.
You can reach Christina at:
christina@visionmobile.com
@ChristinaVoskog
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About this report .............................................................4
Key Messages ..................................................................5
The State of M-Commerce................................................6
Friction-free payments remain the overriding objective........8
Whatever happened to operator billing?...................................... 9
Cryptocurrencies ahoy?............................................................ 11
The right payment platform for the right target audience
Population .................................................................... 13
How much money is too much? ............................................... 14
A lot of small transactions can make for a big revenue............... 16
What matters most to developers?.................................... 19
Developer segments and payment processors............................ 20
Who is collecting the money for what? .............................. 23
The evolving state of m-commerce, June 2016.................... 25
The demise of CurrentC.......................................................... 25
Uber as a payment platform..................................................... 27
Mobile authentication for every payment.................................. 28
Methodology ................................................................. 30
TABLE OF CONTENTS
5. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 4
This report looks at how developers are embracing the fast-evolving
world of m-commerce, the technologies being used by different
segments within the mobile developer community, and the types of
applications to which they are being applied. Recent developments,
highlighted in the report, demonstrate just how quickly this market is
evolving. Even the dominant players find themselves fighting to keep
up, and every business model is under attack. The world of m-
commerce is changing fast, and it is far from clear when it might
settle down, but in the meantime developers need all the information
they can get, which is what this report sets out to provide.
Stijn, Mark, Christina, Michael, Christos, Sofia, Matos, Chris and
the rest of the VisionMobile team.
ABOUT THIS REPORT
6. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 5
• M-commerce is fast evolving, with new technologies, and
applications for old technologies, arriving in rapid
succession.
• App store billing is the most prevalent form of m-commerce
among developers, used by 53%.
• App store payments are often great for collecting small
amounts of money, but transaction costs become
unsustainable when the payment amounts rise.
• The aim is always frictionless payments; ease of integration is
more important to developers than cost (66% rated
integration as important, 53% cost).
• Operator billing, which should be able to provide simplicity
for users everywhere, is only popular in the Middle East and
Africa (used by 33% of local developers), countries where
credit cards aren’t ubiquitous.
• The majority of all m-commerce is aimed at collecting
money from consumers rather than businesses or
professionals.
• Bitcoin billing for m-commerce is real, but the largest
proportion of developers using it (27%) are in North
America.
KEY MESSAGES
7. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 6
Data gathered by Mary Meeker shows that 10% of all retail in the US
is e-commerce, an increasing proportion of which is mobile. The
same data reports that 55% of Pinterest users have used the mobile
app to browse for purchases, and numerous other services are looking
to cash in on the booming market for peer-recommended shopping.
Digi-Capital reckons that mobile commerce will grow over twice as
fast as e-commerce, inflating by $100 billion annually to reach
$600bn in 2018. Some of that will be driven by overall retail growth,
but e-commerce (and m-commerce) will take an increasing share.
For developers, there have never been more ways to collect money
from customers, and the range of options is increasing. Despite the
inherent complexity of the process, collecting credit card details is
still a popular option, used by 34% of developers engaged in m-
commerce. App stores and platform wallets are both enhancing their
offerings, in terms of available APIs and deals on offer, to attract
developers to their platform.
Emerging competitors are proving that payments aren’t just about
transferring money. In China, the Tencent-owned WeChat Pay has
taken advantage of its dominant messaging platform to build a
customer base, requiring that anyone joining a WeChat (messaging)
group bigger than 100 people register a payment card with the
service, preventing WeChat from carrying URLs representing
payments from competitors, and providing support to developers
who want to integrate the service. These initiatives have seen 200
million customers registering with WeChat Pay, resulting in $46m to
Tencent from bank transfer fees alone, and the company has only
just opened the platform up to foreign merchants.
Tencent used its existing portfolio to build a business around mobile
payments, but not every initiative has been so successful. In the last
six months we have seen the decline of CurrentC, the US project
designed to take mobile payments out of the Visa/MasterCard
duopoly, and it won’t be the last standard to fall in the battle for
control of mobile wallets.
1 THE STATE OF M-COMMERCE
M-commerce, the process of using a mobile phone to make payments, is growing very
rapidly. Most of us have noticed we’re paying for more things with a mobile phone than
ever before, and gathered statistics back up that anecdotal evidence.
8. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 7
Central to this battle are the mobile developers, as they make the
decisions on which platform they should support and how it should
be integrated. Platforms that appeal to developers, like WeChat Pay,
will prosper, while those that focus only on the payment mechanism,
like CurrentC, will become footnotes in the evolution of the industry.
At VisionMobile, we believe that understanding what developers
want is vitally important to many businesses, but perhaps none more
so than mobile commerce. In that context, we asked m-commerce
developers to tell us what they value, what they use, and what they
use it for, and the results are presented here.
9. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 8
Introducing a complex process, such as typing in a credit card
number, will put off a certain percentage of customers, and the more
complex the process is, the more potential customers are lost.
This is true of anyone trying to do business over the Internet, but for
mobile developers the situation is particularly acute. The interface of
a mobile phone does not lend itself to entering complex details, and a
user with a phone in one hand will struggle to hold a credit card
while typing in the identifying details. Browsers, such as Google
Chrome, and retailers, such as Amazon, have gone a long way
towards simplifying the credit card process (by storing details locally
or remotely respectively); however, mobile app developers (and
users) still prefer a more-integrated approach.
53% of mobile developers who are using mobile billing are using an
App store to process payments. That may be one option amongst
many, but more than half of the community has embraced it. App
stores offer a familiar user experience and use stored credentials
(generally a credit card number, though sometimes a connection to
the network operator’s billing platform) to provide a
very seamless experience. They aren’t, however, cheap, with the store
generally collecting a 30% processing fee.
Developers are often pushed into using a specific payment system,
such as an app store, by the nature of the content they are selling and
the rules imposed by the platform owner. Apple is most restrictive,
requiring the use of the app store payment system for in-app content.
Google also restricts alternative payment mechanisms, but it can only
control those used by applications distributed through its Play store.
Applications downloaded from other stores, or sideloaded, are
generally a minority -- except in China, where the Play store does not
function, so alternatives have proliferated – so, in many cases, the
platform-owned app store is the only billing mechanism available.
Digital Wallets offer a similar level of simplicity, storing credit card
details locally (or in the cloud, or both) so they can be presented
without the user having to manually type in the details. Some Digital
Wallets (such as Google’s Android Pay) can also be linked to a
handset’s NFC connection to make payments in physical stores by
2 FRICTION-FREE PAYMENTS REMAIN THE OVERRIDING OBJECTIVE
Getting users to pay for things remains the biggest challenge for app developers. More than
half of mobile developers are living in “app poverty” -- making less than $500 a month from
their apps -- so any stumbling block for users on the way towards making a payment means
lost revenue.
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tapping the handset on the NFC terminal; while not important for
developers, this increases the utility of the platform for the end users.
For app developers, the Digital Wallets provide a simple integration
API with a recognisable logo, making for a very simple user
experience without involving the platform app store. It isn’t
surprising to see that 43% of developers are using Digital Wallets.
Whatever happened to operator billing?
Operator billing should be able to provide a competitive experience
to the app store or Digital Wallet. The operator already has a billing
relationship with the customer, and will have real-time credit
checking as part of its billing system, so it should be able to extend
that to support other transactions. For a long time, network operators
assumed that they would be the eventual bankers for mobile
commerce, culminating in a 2007 statement from the then-CEO of
Vodafone Arun Sarin:
"The simple fact that we have the customer and billing
relationship is a hugely powerful thing that nobody can take
away from us… Whoever comes into the marketplace is going
to have to work through us.“
But the network operators repeatedly underestimated their
competitors, and despite several attempts to create cross-network
payment platforms, we can see that only 16% of mobile developers
doing m-commerce are using the billing systems provided by network
operators.
That’s a global average, and there are regional disparities. In highly
developed markets of the US and Europe, the use of operator billing
drops to around 10%, while in the Middle East and Africa it hits
33%.
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Credit card ownership is much lower in those regions; in the Middle
East cash-on-delivery (COD) is still the preferred option for the
majority of consumers. Research from PAYFORT puts the UAE at
the top of credit card use in the region, at 39% of online transactions,
while in Egypt COD accounted for 72% of e-commerce payments.
Developers looking to do business in the region clearly need to think
about alternative options. However, the acceptance of credit card
payments by mobile app developers isn’t unusual, either because
their customer base has credit cards, or they are targeting other
national markets.
28% of m-commerce developers working in the Middle East and
Africa are taking credit card payments, only a little lower than the
34% global average. The real losers in the region seem to be app
stores, which are only used by 33% of local developers, compared to
a global average of 53%, which rises to 66% in Europe.
Platform app stores are widely available in the Middle East, but do
not operate in all African countries. In some countries, such as
Nigeria, Google does operate a store but sets the default currency as
US dollars. For developers, this presents an additional level of
complexity and an additional cost of doing business, which pushes
many of them to use billing platforms provided by local mobile
operators.
However, currency does not seem to be an issue in Eastern Europe
and Russia, where Google Play also defaults to US Dollars. 69% of
m-commerce developers in the region are using the app store billing
platform, obviously considering the cost to be worthwhile or creating
applications for deployment outside their home market.
Cryptocurrencies ahoy?
For developers looking to radically reduce transaction costs there is
Bitcoin, accepted by 4% of developers globally. The cryptocurrency
is highly unstable, varying widely in value from day to day, or even
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hour-by-hour, and while it has generated enormous amounts of press
coverage and field-tested some very interesting cryptographic
techniques, neither of these can explain why 4% of developers choose
to accept Bitcoin payments.
A proportion of Bitcoin users will be developers excited by the idea of
a cryptocurrency and wanting to be part of a possible future. Adding
a Bitcoin button to a payment gateway isn’t difficult, and makes the
app look like it’s at the cutting edge of technology, which might be
motivation enough. Bitcoin also has the advantage of being truly
international, and incurring no mandatory transaction fees at all. The
value of a Bitcoin might fluctuate, but that fluctuation will often be
less than the transaction fee which would have been payable on a
more traditional currency.
If transaction and exchange costs were indeed the driving force
behind Bitcoin adoption, then we would expect to see it used in
developing markets, perhaps where the app stores didn’t operate.
Instead we see a higher percentage of Bitcoin users in North
America, where the high-tech image may be more of a driver.
Bitcoin is still a minority player in the m-commerce space, but the
fact that it appears at all is significant.
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Consumers are the largest target market by a considerable margin --
almost three quarters of developers polled, are primarily targeting
consumers. 15% of developers using m-commerce are aiming at
enterprise customers, while 8% are mostly looking to make money
out of professional users and only 3% want to bill internal customers.
Within those blocks there is some variation in the billing platforms
used, though perhaps not as much as we might expect.
App store billing is most appropriate when the buyers are consumers
(56%) or professionals (53%). For enterprise customers, the number
drops to 46% and for those targeting internal employees to 32%. The
opposite is true for bank service billing: although much less used
overall, this option is more popular among developers primarily
targeting enterprises and employees.
Enterprise-targeting developers are much more likely than others to
use credit cards as a payment mechanism: 45% of them do so,
compared to an average of 31% of developers who target other
audiences. Meanwhile, direct debit is much cheaper, for the
developer, than accepting credit card payments, and the platform is
heavily promoted by banks who prefer to keep their transactions in
house. It is also used more in a professional context than as a way for
consumers to pay, but with three times fewer developers using it, it is
unlikely to replace credit card payments in companies anytime soon.
For developers primarily targeting employees inside companies,
Digital Wallets (47%) are the most popular option, far outstripping
app store billing and credit card processing.
Enterprises have close billing relationships with their mobile
operators, making operating billing a sensible channel for additional
services and a valuable option for developers supplying enterprise
customers. Indeed, it is professional users and employees who are
most likely to be able to pay through the operator as 19% of
developers targeting those markets accept operator payments.
Interestingly Bitcoin, is used by 4% of developers across the other
targeted markets, jumps to 8% for developers targeting internal
employees, which suggests that the cryptocurrency is being used for
cross-charging within some companies.
3 THE RIGHT PAYMENT PLATFORM FOR THE RIGHT TARGET AUDIENCE POPULATION
Some platforms lend themselves to specific applications or target audiences, and developers
have to take several factors into account when considering which platform to adopt.
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How much money is too much?
Different platforms are clearly more suited to different transaction
sizes and different markets. While payment processors may charge a
standard percentage, they may also charge a repeating membership
fee or a set charge on every transaction.
That means that 100 transactions of $1 would cost much more than
one transaction of $100, so developers selecting a payment platform
have to consider the kind of business they are in before they can work
out which provider will work best for their business.
If we look at the popular payment platforms we can see a general
pattern: smaller transactions are most common across the board,
though there are some distinct data points worthy of further
examination.
Braintree, for example, is clearly popular with developers processing
transactions between $10 and $50. 23% of developers using
Braintree fall into this category, well above the average. Conversely, it
seems that Braintree is less popular with those accepting payments of
less than $3, as only 18% of the Braintree customer base is dealing
with such small sums.
This likely reflects the charging structure used by Braintree, which
favours transaction sums of this nature.
Android Pay and Apple Pay, on the other hand, are
disproportionately popular with developers dealing with a large
number of low-value transactions. 27% of developers using those
payment platforms are processing transactions of less than $3; when
we look at transactions above $10, we see a clear disparity, with
developers using Android Pay, in particular, considerably less likely
to be involved.
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A lot of small transactions can make for a big revenue
One might expect the low value of each transaction to be offset by
the quantity of transactions, and to some extent that is happening,
but it is more common among users of some platforms than others. If
we look at the daily revenue generated by payments on different
platforms we can see that while only 27% of developers using Apple
Pay raise less than $50 a day, compared to 36% of those using
Android Pay.
So Apple Pay and Android Pay are both used extensively, and
equally, by developers to process small-value transactions, but more
of the developers using Apple Pay are turning that into a decent
income. This has little to do with the utility of Apple Pay, or Android
Pay, and more to do with the user demographic of the related
platforms (iOS and Android). We know that users of Apple devices
are generally richer -- the high price of Apple hardware dictates that
it appeals to a wealthy demographic -- and more willing to pay for
content and services. What we see here is the result of demographic
differences in the users of mobile platforms (iOS and Android) rather
than any endorsement of the payment mechanisms offered by the
platform owners.
Aside from Apple Pay, it seems that transaction size is a reasonable
reflection of daily revenue. 23% of developers using PayPal are
processing transactions between $1 and $3, and, sure enough, 35%
of them are making less than $50 a day. Conversely, Stripe and
Braintree, who have the lowest proportion of developers billing for
small amounts, also have the lowest proportion of developers making
less than $50 a day. Braintree, in particular, seems to appeal to
developers processing a great deal of revenue daily – 18% of those
using Braintree report daily revenue of more than $100K.
Android Pay and Apple Pay both fall off quite markedly as the total
daily revenue increases, which should be a concern for those
companies. Developers who process a lot of revenue will take more
time in selecting their payment processor. Braintree, for example,
offers significant discounts to high-volume customers, and that seems
to be having an impact on the selection process.
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20. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 19
66% of developers working in m-commerce cited ease of integration
as a critical factor, as they clearly don’t want to be bogged down in
the details of transaction processing and the associated security
concerns. Being able to swiftly integrate the payment process into
their own application is clearly an important consideration.
Integration goes beyond the APIs available; the goal is to provide a
smooth experience to the end user. The payment process must be
integrated into the app experience in terms of user interface and
branding, while providing confidence that the process is being
handled by a trusted third party. Maintaining consistency in the
interface will avoid the kind of disruption that can prevent a user
from making a payment.
After ease of integration comes cost. Still an important factor to more
than half of m-commerce developers, cost ranks just above fraud
protection and international payments. Responsibility for fraud is a
key issue, especially as transaction amounts increase, and different
payment mechanisms have different ways of addressing the risk.
PayPal, for example, operates as a merchant aggregator, approving
individual merchants with minimal oversight and permitting them to
use its account with the processing bank. That makes it easy to use as
a merchant, but it also makes PayPal quick to freeze an account if
any suspicious activity is noticed.
International payments are another key driver for developers who
want to be able to collect money from customers across the globe.
Mobile apps are inherently international, with all the platforms
encouraging near-global distribution. As mobile platforms have
coalesced into no more than a handful of global standards (or two, if
we only consider iOS and Android), the potential market for an
application ceases to be regionally limited, so revenue has to be
collected from a wide variety of countries. Even where apps are
deployed within a specific geography, developers want to ensure they
are future proofed against expansion.
Recurring payments are not a high priority for developers, which is
perhaps surprising given the steady growth in subscription services.
Both Apple and Google have recently modified their app store
payment mechanisms to attract developers planning to charge regular
subscriptions by cutting the processing fee from 30% to 15% (after
the first year in Apple’s case). Apple and Google clearly see a value in
appealing to developers searching for recurring revenue. It seems
likely that support for such functionality will become more important
over time.
4 WHAT MATTERS MOST TO DEVELOPERS?
Cost is clearly an important factor for developers choosing a payment platform, but it is not
the most critical. When developers were asked to identify the three factors most likely to
make them choose a specific payment processor, ease of integration came out on top.
21. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 20
Right at the bottom we have coupons and discounts, which aren’t
important to most developers and don’t necessarily need to be
integrated into the payment processing platform. It is possible that
such functionality will matter more to the marketing side of an
operation, who could be interested in the promotional opportunities
it presents, but that is unlikely to be important to the developer and
the figures reflect that.
Developer segments and payment processors
At VisionMobile, we have found that if we are to understand why
developers make specific choices, it is best to start by looking at what
they are trying to achieve. Only by knowing the intended destination
can we understand how they intend to get there.
By building on years of data gathered in our biannual Developer
Economics surveys, we have extracted profiles covering tens of
thousands of developers’ aspirations, motivations, challenges, and
plans in application development. We produced a unique model of
eight developer segments: the Hobbyists, the Explorers, the Hunters,
the Guns for Hire, the Product Extenders, the Digital Content
Publishers, the Gold Seekers and the Enterprise IT developers.
If we take the popular payment processing platforms and see which
segments are using them, some distinct patterns emerge. Hobbyists,
being largely unconcerned with revenue, are a minority user of all the
platforms; however, it is notable that there are almost as many
Hobbyists on Visa Checkout and Braintree (10%) as there are on
Apple Pay and Android Pay (11%).
At 36%, Braintree has a disproportionate population of Guns for
Hire, though it is worth noting that Stripe is almost as unbalanced
with 29% of its customer base falling into that segment. Guns for
Hire are freelance developers, working on projects for paying
customers who will seek to monetise them later. The Gun for Hire is
unlikely to be making revenue from the transactions processed and
22. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 21
will have to create such functionality for multiple customers and
(quite possibly) across multiple platforms.
In that context, the preference for processors such as Braintree and
Stripe is understandable. The Gun for Hire developer wants to gain
experience that can be applied across their customer base, which will
likely be across application categories as well as countries, so the
developer will recommend the most flexible payment platform
available to their customers. This makes Apple Pay and Android Pay
the least attractive options; indeed, we see that those platforms have
the smallest proportion of Gun for Hire developers.
Gold Seekers, who make up only a small proportion of the developer
community (3%, as we observed in our Mobile Segmentation
report1
), are surprisingly common on WeChat Pay. WeChat Pay is
the transaction system attached to the Chinese messaging platform
WeChat, allowing peer-to-peer and online payments. The platform
only opened to foreign (non-Chinese) merchants in January 2016,
but with 697 million active WeChat users, the potential market is
clearly attractive to Gold Seekers. 9% of developers using WeChat
Pay are Gold Seekers, a third more than are using Alipay, a
competitive platform with similar scale and reach. Alipay has been
established for longer, but lacks messaging integration, which is
considered particularly important for the next generation of mobile
payment platforms.
Both Alipay and WeChat Pay also compete in physical sales,
providing point-of-sale terminals in shops and businesses to enable
pay-by-mobile using on-screen QR Codes. In many cases those
payments will not involve an on-device app – the user just selects the
product they want and payment is completed using the WeChat app
– so this falls outside of our analysis, which is focused on the
developer community. In Asia it seems that the physical and digital
1
http://www.visionmobile.com/product/mobile-developer-segmentation-2016/
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payment platforms have blurred together more successfully than in
the West, perhaps propelled by the early success of FeliCa in Japan.
Even in Europe and America, where handset-based NFC payments
are used with a special application on the phone, payments are linked
to a credit card rather than a generic wallet one could use to pay for
both digital content and physical goods bought in a shop.
This will no doubt change over time, as Western users become more
comfortable with digital payments. In the meantime, m-commerce
payment mechanisms will largely be used to pay for digital goods as
we can see when we look at what developers using each payment
processor are selling.
24. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 23
For example: we can see that developers who are using Android Pay
and Apple Pay are also those most likely to be billing for in-app
transactions. We have already noted that collecting revenue for in-
app transactions is generally done through the associated app store
(this is mandated in the case of iOS apps), so the relationship here is
indirect. Developers who choose to use Apple Pay and Android Pay
are likely to have gained experience doing in-app transactions and
become comfortable working with the platform owners. This is
important as competing payment platforms lack this introductory
process.
Virtual currencies and feature upgrades are popular amongst those
developers as they are likely processing low-value transactions, which
we have already noted are disproportionately popular on those
platforms.
Over a quarter of developers using Android Pay (26%) are in the
business of selling subscriptions, which is important given the
importance subscription revenue is likely to assume over the next few
years. The contrast with Apple Pay is significant. Apple Pay is ill-
suited to the collection of subscription revenue, as Apple would
prefer such transactions to go through its App Store process. 20% of
developers using Apple Pay are selling subscriptions, which could be
part of the reasoning behind Apple’s decision to cut the transaction
charge for subscriptions bought through the Apple App Store.
Stripe has the highest proportion of developers selling subscriptions,
at 32%, though Braintree isn’t far behind at 29%, showing that
subscriptions are a good market for these card-processing companies.
Subscriptions are often relatively high value transactions, especially
when repeated, so the lower rates available through these partners are
clearly attractive.
Having said that, Braintree is probably the most consistent payment
platform, with developers selling services of all types through the
service, in fairly even proportions. The flexibility of the platform may
be pertinent here, along with the international reach.
We have seen that different payment platforms are being used for all
kinds of different applications, and while some platforms may prove
more attractive to certain kinds of developer, and for certain kinds of
applications, the fact is that almost all the payment processors are
processing payments for almost all kinds of transaction. Developers
looking to incorporate mobile commerce into their applications have
a plethora of options available to them, and the industry is
continuously evolving options, both in terms of functionality and
business model, to suit every developer.
5 WHO IS COLLECTING THE MONEY FOR WHAT?
Developers were asked which of the popular payment processing companies they used, and
this data can be correlated against the type of application they are creating.
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26. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 25
Assuming the number corresponded to a Paybox account, the
company would phone the payee to request authorisation, the
transaction being confirmed by SMS once it had been completed.
The system worked, but was cumbersome and never widely adopted,
claiming 10,000 retailers Europe-wide, but only half a dozen
restaurants, a cinema, and a taxi company in the UK.
One problem has always been the question of responsibility, or, more
accurately, ownership. The Mobile Operators always felt that they
were natural owners of any m-commerce projects, but were
surprisingly reluctant to take any steps in claiming the throne. Banks
didn’t really want to get involved, and third parties (such as Paybox)
lacked the scale to achieve the market presence necessary for any
degree of success. Phone manufacturers would have liked to be
involved, but, despite a few very tentative steps from Nokia, they
were too concerned about upsetting the mobile operators (who were,
after all, their biggest customers).
In recent years, this has changed quite radically. The mobile
operators have all but given up any claim to the payment sphere, and
the owners of the big mobile platforms (notably Apple and Google)
aren’t worried about offending the operators any more. Banks have
noticed that faster-moving competitors, such as PayPal, are eating
away at their profits, and even MasterCard & Visa feel the need to
get directly involved.
In the six months since our last look at the m-commerce industry
(“The Commerce Of Things”2
), a number of important shifts have
taken place in the industry, some of which will have a significant
impact on the options available to developers in implementing m-
commerce functionality.
The demise of CurrentC
In 2012, a consortium of US retailers, including Walmart, 7-Eleven,
and Best Buy, announced the Merchant Customer Exchange, or
MCX, a new entity which would develop a mobile payment system
2
http://www.visionmobile.com/product/commerce-of-things-2015/
6 THE EVOLVING STATE OF M-COMMERCE, JUNE 2016
In 1999, the first pay-by-mobile service was launched in the UK, under the Paybox brand.
This innovative service allowed restaurant customers to pay with a phone number, which the
retailer would pass on to Paybox.
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bypassing the duopoly of Visa and MasterCard and cutting out
mobile platform owners, too. Despite the companies involved having
a combined turnover of more than a trillion dollars a year, the project
floundered badly, and, in 2016, MCX announced that it was
postponing the (US) national deployment of CurrentC indefinitely.
The consortium started out as technology-neutral, but quickly settled
on QR Codes as being more universal than the burgeoning NFC
technology. In Europe, the ubiquity of NFC credit cards has pushed
retailers to upgrade terminals, making it easy to add the functionality
to a mobile device. In Asia, however, both WeChat Pay and Alipay
have proved that QR Codes can create a workable user experience.
MCX felt that there was a significant advantage in avoiding the need
for NFC hardware and the control it would cede.
NFC itself is a near-field radio technology, but when the standard is
used for processing payments, it relies on a secure element (SE) for
cryptographic authentication. While some network operators have
put the SE in a SIM, and phone manufacturers have embedded an
SE into their hardware, neither is under the control of the retailers as
CurrentC was intended to be.
QR Codes can be used to provide a smooth mobile payment
experience, but it requires careful design of the user experience, and
trials of CurrentC have not provided the positive feedback that
member companies were hoping for. MCX also put pressure on
member companies to drop support for alternative payment
platforms such as Apple Pay and Android Pay, hoping that stalling
the competitors would give CurrentC time to get established.
The purpose of MCX, and CurrentC, was to wrest control of the
payment system from the duopoly of Visa and MasterCard, who take
a percentage of app transactions processed through their systems.
These percentages are typically less than it would cost to handle the
equivalent amount of cash, but still represent a cost centre that the
retailers would like to reduce. Card processing companies also gather
a great deal of customer data on spending habits and disposable
income, and as the value of this data is increasingly realised, retailers
are further motivated to try and launch alternatives.
Despite extensive trials, and several years of development, CurrentC
has stalled as a payment system. In May 2016 MCX announced that
the national rollout (originally scheduled for 2015) would be delayed
and that the organisation was refocusing on building relationships
with existing banks.
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MCX CEO Brian Mooney explained at the time:
“Utilizing unique feedback from the marketplace and our
Columbus pilot, MCX has made a decision to concentrate
more heavily in the immediate term on other aspects of our
business including working with financial institutions, like our
partnership with Chase, to enable and scale mobile payment
solutions. As part of this transition, MCX will postpone a
nationwide rollout of its CurrentC application."
It is possible that CurrentC will re-emerge, in some form or another,
but what the failure of the initial plan tells us is that even a trillion
dollars of annual revenue wasn't enough to shift users away from
their existing payment relationships. While users do want to pay with
their mobile devices, they want to do so with their existing credit
and/or banking cards. Anyone hoping to transition users away from
those services will have to provide a very gentle migration path,
rather than the "big bang" approach tried by MCX.
Uber as a payment platform
One of the most interesting trends in m-commerce is when, by
integrating payment into the transaction process, mobile devices
become mechanisms for payment without the end users being
particularly aware of the change. There are an increasing number of
mobile applications whose primary function is to facilitate a service
provided by a third party, and many of them collect the revenue as
part of that facilitation. For example, Uber is known as a car service,
competing with private taxis, but has become a more generic service
with the 2014 launch of Uber Eats.
Uber has become the poster child for mobile disruption. As a taxi
service, Uber puts drivers willing to carry passengers in touch with
passengers looking for a lift, while also setting the price that the
passenger will pay and collecting the revenue using stored credit card
details. Users are more comfortable dealing with a fixed price set by a
third party (Uber), even if tips have become a feature in some
markets, and the automated collection of payment makes for a
seamless experience where drivers and passengers aren't required to
manually handle the transaction.
The lack of contact between driver and passenger is the primary
reason for Uber's success in Saudi Arabia, which has (in part)
prompted the $3.5bn investment in Uber from the Saudi
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government. Women aren't permitted to drive in Saudi Arabia, nor
are they allowed to communicate with unmarried men, so booking
(and paying for) a taxi has been all but impossible. Using the Uber
app a Saudi woman can book, and pay for, a taxi ride without
interacting with anyone. Only pre-existing limousine services are
allowed to use Uber in Saudi Arabia, so rather than creating a new
wave of owner-drivers (as Uber has in other markets) the advantage
is the lack of physical interaction between service provider and
service user.
That is obviously a very extreme market, but there is a significant
demand for similar services covering all kinds of transactions.
With the launch of Uber Eats, the company became more than a car
service, offering to arrange the delivery of food and, critically,
collecting the revenue from the delivery. By doing so, Uber competes
with JustEat and Deliveroo; both specialist services fill a similar role,
but Uber brings a very strong brand and the ability to offer an
alternative source of revenue for Uber drivers when work is slack.
Uber Eats operates in the same way as Uber, setting (and collecting)
the delivery price while matching people wanting food with drivers
willing to deliver it.
In this way, Uber becomes a facilitation platform that just happens to
handle payments.
Mobile authentication for every payment
By removing potential blocks to payment, mobile commerce has
created a simplified process flow that has increased e-commerce in
general. Users of mobile apps are used to being able to make
payments seamlessly with only a couple of clicks, which makes web
commerce look decidedly dated. Most web commerce is still
completed by typing credit card details into a web form, a process
that abounds with security risks and puts off potential customers. In
June 2016 Apple announced that its mobile payment platform –
Apple Pay – would be extended to authorise web-based transactions.
There is an urgent need to improve the web shopping experience; the
Baynard Institute estimates that 69% of web-based shopping carts
are abandoned before payment, while the adoption of Chip & PIN
has made stolen credit card details all but unusable in many regions,
forcing criminals to look to online transactions.
The concept of using a mobile handset to authenticate web payments
is far from new. Mobile handsets are less vulnerable to attack, and
their ubiquity makes them an obvious choice as an authentication
token.
Around the turn of the century it was routine for web sites selling
valuable information, such as sporting tips or region-unlocking codes
for DVD players, to use premium-rate text messaging (SMS) to
collect payment. The user visiting the web site would be required to
send an SMS to a specific number and receive an unlocking
password which could be entered (providing proof of purchase)
before the valuable data was released. The passwords were single use,
or frequently changed, providing an effective micro-transaction
platform in markets where SMS had already become ubiquitous.
The use of smartphone-based two-factor authentication, for which a
password and a physical device are both needed before access is
granted, is predicated on the idea that mobile devices are as or more
secure than their desktop compatriots. Using a mobile device as an
authentication system benefits from having two channels of
communication, providing additional protection against man-in-the-
middle attacks (as two men-in-the-middle are required) and making
it harder for an attacker to intercept communications (as two
interception points would be needed).
That's not to say that such attacks are unknown. Attacks on banking
customers have managed to intercept both the web client and the
SMS-based authentication, but such sophisticated attacks are rare; a
mobile-based payment system can be extremely secure when
combined with traditional security techniques.
30. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 29
In June 2016 Apple announced that it would extend Apple Pay to
support any website (though initially limited to customers using
Apple's Safari browser). A Safari user, on desktop or mobile, can
click on a "Pay with Apple Pay" logo to have their iPhone display an
authorisation request. This can be confirmed with a fingerprint or
PIN, providing two-factor authentication and integrating with the
familiar Apple Pay experience.
Apple Pay is already used as an NFC wallet, capable of hosting credit
card details and using them to complete contactless payments in
physical stores, as well as transactions within mobile apps, though
apps can also take payments through the iTunes App Store.
Extending the service into websites will facilitate larger transactions
and increase use, though as the service will only be available to users
of the Safari browser, adoption will be limited. This limitation is a
deliberate decision by Apple, and Apple retains the option to broaden
the user base later.
Google's equivalent to Apple Pay, Android Pay, offers the same
contactless and in-app functionality as Apple Pay; however, at the
time of writing Google has not announced anything comparable to
Apple's web transaction service. That being said, there is no technical
or legislative reason why Google could not quickly launch a
competitive service, and it would be a surprise if it did not.
Having both dominant mobile platforms promoting themselves as the
answer to web-based transactions will increase confidence in the
idea, and we expect to see rapid adoption once any initial wrinkles
have been ironed out. Websites that currently require customers to
type in their credit card details will prefer a mobile-authenticated
service for simplicity; the enhanced security of two factor
authentication should lead to lower levels of fraud and, thus, lower
rates of commission.
31. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 30
For the purpose of this report, VisionMobile has done market
research around e-commerce, m-commerce and retail banking
systems, as well as analysed data from Developer Economics 11th
edition, which reached more than 16,500 developers. We have also
scanned the market for the most relevant use cases, talked to key
players active in the field of m-commerce, and analysed secondary
macroeconomic data on the researched markets.
Respondents to the online survey came from over 150 countries,
including major app and IoT development hotspots such as the US,
China, India, Israel, UK and Russia and stretching all the way to
Kenya, Brazil and Jordan. The geographic reach of this survey is truly
reflective of the global scale of the developer economy. The online
survey was translated into 11 languages (Russian, Vietnamese,
Spanish, Chinese (simplified and traditional), Korean, Portuguese,
Japanese, French, Indonesian, Italian) and promoted by leading
community and media partners within the app development and IoT
industry.
Respondents were asked to self-identify as mobile, desktop, IoT or
cloud developers, or a combination of those. 84% of the developers
polled in the survey are involved in creating mobile applications,
1,986 of whom are using m-commerce platforms. This group is the
basis of our analysis throughout this report. We consider everyone
who is involved in the production cycle of a mobile project to be a
mobile developer, whether or not they are writing code. This includes
team leaders and other decision makers.
To eliminate the effect of regional sampling biases, we weighted the
regional distribution across 8 regions by a factor that was determined
by the regional distribution and growth trends identified in our App
Economy research. Each of the separate branches: mobile, desktop,
IoT, and cloud, were weighted independently and then combined.
To minimise the sampling bias for platform distribution across our
outreach channels, we weighted the responses to derive a
representative platform distribution. We compared the distribution
across a number of different developer outreach channels and
identified statistically significant channels that exhibited the lowest
variability from the platform medians across our whole sample base.
From these channels we excluded the channels of our research
partners to eliminate sampling bias due to respondents recruited via
these channels. We derived a representative platform distribution
based on independent, statistically significant channels to derive a
weighted platform distribution. Again, this was performed separately
for each of mobile, IoT, desktop, and cloud, using targeted vertical
markets rather than platforms for IoT or cloud hosting providers.
METHODOLOGY
32. The Evolving State of Mobile Commerce | © Copyright VisionMobile - Presented by Braintree | All rights reserved | http://vmob.me/MobileCommerce 31
distilling market noise into market sense