Market Analysis Aditya Sood Harsh Bhardwaj Kriti Arora Lokesh Raisinghani Shantanu Shiwangi Vishwesh Prabhu Dessai Section - A TRANSACTION CLEARING SYSTEM Process of settling of payments between card issuing bank and the bank of merchants 32.90% 19.40% 47.70% Visa Mastercard Others Types Closed Loop Payment Network Open Loop Payment Network Market share in card payments Issue cards themselves and facilitate the settlement Do not issue cards, only facilitate settlement of transaction Visa and MasterCard belong to the Open Loop Payment Network Visa and MasterCard Payment Values TRANSACTION CLEARING PROCESS 1 Cardholder presents the card to the merchant for payment 2 Payment request is forwarded to the acquirer 3 Acquirer contacts the issuer through the VISA network 4 Issuer shares information about balance in cardholders network 5 The information is routed to the merchant 6 In case of sufficient balance the payment is accepted 7 At the end of month cardholder pays the bills to the issuer One who uses the card to make payment Cardholder Entity to whom the payment is made Merchant Bank in which the customer has an account and which has issued the card to the cardholder Issuer The merchants bank Acquirer Sequential Steps BUSINESS MODEL Business Model - Financial Institutions (Issuers and Acquirers) - Cardholders - Merchants - Personnel - Network and Communications - Brand Promotion - Legal Provisions - Creates value for all stakeholders - Cardholders get convenience, security and loyalty rewards - Merchants benefit from improved sales by offering payment method options - Banks get new revenue streams like card fees, late payment interest - Multiple revenue streams - Service revenues from bank for their participation in card programs - Data processing revenues for transaction processing - International revenue when cardholder issuer country is different from the merchants country. COMPETITOR ANALYSIS TECHNOLOGIES DISRUPTIONS IN THE PAYMENT LANDSCAPE SmartPhones Tablets QR codes New Business Models Cloud computing Bluetooth technology The payments industry is in the early stages of unprecedented innovation and transformation. In addition, payment preferences have evolved rapidly, as many consumers have switched to electronic payments in lieu of cheques and now are saying goodbye to cash in favor of plastic cards. This fast-changing card landscape has provided the opportunity for alternative payment providers to find a point of entry. Technology has leveled the playing field for non-traditional payment providers and led to their starring role as a payment disruptor
NFC Driven Mobile Payments Near Field Communications, works by establishing a radio communication between the two devices once they are within a few inches of one another. NFC builds upon the RFID system by allowing two-way communication between two NFC-enabled devices QR code based payment applications In a QR code driven system, a mobile application generates a QR code, which the merchant can scan via a mobile device to process the payment The unique code displayed within the app then links the credit/debit card account the consumer has on file within the app Example : Starbucks Plug-in devices to POS terminals Plug-in payment devices turn mobile devices into card accepting terminals. The small device, dongle plugs into the headphone jack allowing merchants to accept payments. The alternative payment provider charges the merchant a fee for the service CARD OPERATORS Apart from the traditional clearing systems, card operators are also making advances in online payments providing NFC driven mobile payments, open source platforms and mobile wallets . Example: Visa VALUE ADDED SERVICE PROVIDERS Disruptive players in online and mobile payments provide wide ranging product offering ranging from plug-in devices to in- store payment. Example : PayPal MOBILE PHONE NETWORKS Direct connection to the operator billing platform, which in turn provides an alternative checkout system where a consumer provides a phone number to make a purchase. Example : T-MobileIsis RETAILERS UK-based supermarkets have entered the consumer finance space with commercial banking and payment offerings. Example: Wal- Mart MOBILE APP PLATFORMS The rise of innovative mobile apps have forced the introduction of mobile payment apps. Example: Android Google BANKS/CARD ISSUERS In lieu of the advent of technology, banks are developing in-house app stores to create mobile applications for open platforms for further innovating the payments landscape Example : Deutsche Bank SEVERAL PLAYERS ARE TRYING TO GAIN A SEAT AT THE PAYMENTS TABLE MasterCard PayPass MasterPass MasterPass API and SDK : Developer Zone Visa PayWave V.Me Visa API and SDK : Visa Ready Partner Program THE RACE TO CAPTURE ONLINE PAYMENTS Initially both networks developed the contactless technology to accept their cards with Visas PayWave and MasterCards PayPass. This was a foundation setting technology Next digital wallets were released to cature digital payments with Visas V.Me and MasterCards MasterPass The most recent move by the networks was to facilitate their platform adoption through developer tools with Visa Ready Partner Program and MasterCards API MasterCard Ready This allows merchants and mobile payment developers tools to increase the ease of acceptance Through these platforms, financial institutions are also able to develop their own mobile wallets with networks technology This approach has a much greater likelihood of success given it facilitates collaboration and communication of all stakeholders involved in the process. THREAT OF MOBILE PAYMENT SYSTEMS
AT&T, Verizon Wireless and T-Mobile are reportedly partnering with Discover Financial Services and Barclays PLC, a global retail banking company, to challenge the status quo.
These new partners want to allow consumers to complete purchases with a simple wave of their smartphones. Technology observers are calling this one of the most significant challenges to credit card companies to date.
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The RFID would act as a radio version of the magnetic strip on your credit card. S w i p e
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The Phone's screen acts as a super-secure numeric pad for accessing your PIN R e t a i l e r
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Retailers can send data back to your phone, in the form of adverts or loyalty card-like reward points. THREATS AND OPPORTUNITIES THREAT OF BITCOIN Bitcoin, introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto, has no central issuing authority and uses a public ledger to verify transactions that are authenticated by cryptographic signatures. Authorities in Russia, China and Israel have sought to restrict bitcoin, while the U.S. seeks ways to prevent money- laundering and illicit sales without killing the digital currency. The threat of regulation and disruptions, including hacker attacks on online exchanges, have caused bitcoin value to plummet. Therefore, Visa and MasterCard are not to worried about bitcoin emerging as a major competitor. EMERGING MARKETS OPPORTUNITY Globally, 85% of payments are still made with cash. Consumer spending will drive growth for Visa in the developed world, but the potential for much greater growth exists in the developing world as people switch from cash to card and mobile payments. To move into this new field, Visa has acquired a South African company, Fundamo, for $110 million. Fundamo specializes in providing financial service offerings to mobile phone operators in developing countries, and with its base in Africa, it understands regional means of business PREPAID CARDS OPPORTUNITY The use of prepaid cards is increasing rapidly as consumers fear using debt following the recession. Annually, the amount of money put onto prepaid cards is increasing by 42%, and Visa is a strong player in the market Visa is using Fundamos technology to introduce prepaid cards to developing markets where Visas product may be seen as more safe and reliable than cash Prepaid cards are not purely issued through banks, so Visa can avoid some of the increasingly aggressive negotiating process and keep fees higher FUTURE OF TRANSACTION CLEARING SYSTEM Near field communication: A cloud payment system where a user can do transactions using a smartphone. NFC mobile contactless payments can be made at both attended POS locations (such as stores) and unattended locations (such as vending machines) that use the existing merchant payments infrastructure. To pay, the consumer simply brings the phone to within a few inches of a contactless payment-capable POS system and the transaction occurs
Bit coin: Transaction is done through virtual currency. Payments work peer-to-peer without a central repository and transfers value between Bit coin wallets. It can be installed in a PC or mobile to perform transactions
E-wallet: E-Wallet provides the ability to store multiple credit cards, debit cards and back account information in a secure environment for making faster payments. You can create up to ten separate profiles for both credit and debit cards, and up to ten separate profiles for checking and savings accounts. You can edit and delete these profiles as needed. Using E-wallet, a user can send/receive money anytime to his e-wallet using phone numbers
RuPay: A payment gateway launched in India, which will work on ATMs/merchant outlets and help in reducing cash transactions. A variant of pre-paid RuPay card would shortly be launched by IRCTC, which will help in booking railway tickets
References http://www.portal.euromonitor.com/Portal/Handlers/accessPDF.ashx/Alternative_Payment_Provi ders_Starring_as_Payment_Disruptors.pdf http://www.euromonitor.com/mastercard-international-inc-in-consumer-finance/report http://www.livemint.com/Money/tz1Pjm3WnRJvcfrisif66L/Indias-own-payment-gateway-RuPay- launched.html http://www.pcadvisor.co.uk/how-to/mobile-phone/3472879/what-is-nfc-how-nfc-works-what-it- does/ Thank You