1. Webinar Why The Digital Wallet Wars Matter
Denée Carrington, Senior Analyst
June 5, Call in at 10:55 a.m. Eastern time

2. Accelerating digital innovation will fundamentally disrupt payments and commerce.

3. Agenda
What is a digital wallet and why all the hype?
What will digital wallets mean for payments and commerce?
Which wallet will be “The One”?

4. Total payments by payment type
Use of debit and alternative payments online will grow while credit declines
Total payments by payment type
% share
% shift
23% +3
36% +3
42% -5
Source: Forrester Research Online Alternative Payments Forecast, 2011 To 2016 (US)
Note: Only includes payments made by consumers for the purchase of goods and services. Includes retail, travel, goods purchased on C2C and B2C auction sites (such as eBay), and online content. Does not include bank transfers or online bill payment. 4

5. “Card on file” payments aren’t new . . . so what has changed?
Forms of payment used for offline or online transactions
Fourth most used payment method
Fifth most used method
Seventh most used payment method
Base: 58,068 US online adults (18+); Source: North American Technographics® Online Benchmark Survey (Part 1), Q (US, Canada)

6. Mobile is the bridge between our physical and digital worlds, enabling unprecedented “anytime, anywhere” access to information, products, and services.

7. Mobile payments enable access to the big prize.
By 2016, eCommerce and mCommerce will still be a fraction of total retail sales
$3.8T 2016
retail sales
eCommerce = 9% of retail sales
mCommerce = 8% of eCommerce e m
$327B
$27B
Mobile payments enable access to the big prize.
Source: Forrester Research Mobile Commerce Forecast, 2012 To 2017 (US)
Note: Includes retail sales and daily deal sales; it excludes travel sales 7

8. US mobile payments will reach $90B in 2017, driven by proximity payments and mobile digital wallets
CAGR
+43%
+137%
Inflection point
+31%
(in millions)
Source: Forrester Research Mobile Payments Forecast, 2012 To 2017 (US) 8

9. Consumer interest in proximity mobile payments is nascent but growing
“How interested are you in paying for merchandise in a physical retailer store using your cell phone?” (Instead of cash or a debit/credit card, e.g., by tapping cell phone at the point of sale)
47% of US consumers are open to in-store mobile payments, a 17% YoY increase.
Base: 3,842 US online adults (18+) (online monthly or more) with mobile phones; Source: North American Technographics® Retail Online Survey, Q (US) 9

10. The paradox of mobile payments
In theory, mobile payments could be used in almost any transaction scenario and displace established retail payment methods (e.g., plastic cards, notes and coins, and checks).
In practice, there are few scenarios in developed markets where a mobile payment is the best alternative yet.

11. The evolving digital payments landscape
Mobile has transformed existing payment categories and created new ones
The evolving digital payments landscape
Fixed POS
Mobile POS
eCommerce
mCommerce
Remittances: Bill Pay, P2P, Money Send
Cash
Cards
Mobile payments
Cash
Web
Mobile web
In-app payments
Carrier billing and SMS
Mobile card acceptance
Digital wallets
Online, mobile, cloud, bar code, NFC
New payment methods, categories, and technologies
© 2013 Forrester Research, Inc. Reproduction Prohibited 11

12. What is a digital wallet?
A digital service — accessed via the Web or a mobile application — that authorizes payment transactions from one or more payment sources and facilitates other commerce-related features such as offers, coupons, loyalty rewards, electronic receipts, and product information. 12

13. Digital wallets will revolutionize the consumer commerce journey.

14. A storm of innovation is transforming the purchase journey and payments
Offers and coupons
Product information
Loyalty and rewards
Mobile payment
© 2013 Forrester Research, Inc. Reproduction Prohibited

15. Value-added services (VAS) enable “smart” commerce and deliver incremental value
VAS WILL EMERGE WITHIN MOBILE DIGITAL WALLETS FOR USE AT POINTS OF SALE
Integrated automatic redemption
Enhanced targeting and relevance
Merchant-funded
Bar code or QR code scans
Product information and inventory availability
Self-checkout via mobile; on-screen receipts
Streamlined support of multiple payment systems and multiple payment product options
Enhanced tracking and rewards
Coupons and offers
Enhanced product info
Open payment
Loyalty rewards

16. The barriers to digital wallet adoption are falling
Using mobile digital wallets in-store is a natural extension of existing behavior.
Smartphone users already use their phones in-store to redeem coupons, look up product information, and compare prices. 16

17. Consumers are already using value-added services outside of the wallet
“Which of the following have you ever used your cell phone/smartphone for?”
Base: 3,842 US online adults (18+) (online monthly or more) who are cell phone owners; Source: North American Technographics® Retail Online Survey, Q (US)

18. Trial of value-added services leads to repeat usage and adoption
Base: 365 US online adults (18+) (online monthly or more) who are cell phone owners and who selected any of the options above; Source: North American Technographics® Retail Online Survey, Q (US)

19. The barriers to digital wallet adoption are falling
Using mobile digital wallets in-store is a natural extension of existing behavior.
Smartphone users already use their phones in-store to redeem coupons, look up product information, and compare prices.
Software/cloud-based solutions present few barriers for consumers or merchants.
Mobile technologies enable customers to pay in new ways via simple, cheap plug-in hardware and smartphone apps.
Vendors are building solutions for faster, easier ways to offer and accept wallets.
As consumer awareness grows, digital wallet adoption will ramp up. 19

20. Mobile digital wallet awareness is low and mainly just with established brands
“Are you aware of any of the following mobile payment solutions that allow you to pay for products and services via your cell phone/smartphone?”
Base: 3,951 US online adults (18+) (online monthly or more) who are mobile owners; Source: North American Technographics® Consumer Deep Dive: Investigating The Customer Life Cycle (Discover Phase) Survey, Q (US) 20

21. Mobile digital wallet usage significantly lags awareness
“Which of these mobile payment solutions do you currently use to pay for products and services via your cell phone/smartphone?”
Base: 2,716 US online adults (18+) (online monthly or more) who were aware of the options listed; Source: North American Technographics® Consumer Deep Dive: Investigating The Customer Life Cycle (Discover Phase) Survey, Q (US) 21

22. But as usage occurs, consumers seek additional locations to use their wallet
“Have you ever searched (either through the solution itself or in other ways) for new stores, retailers, or services that use or offer the same payment solution?” (For each mobile payment solution that you currently use)
Base: US online adults (18+) (online monthly or more) who used the mentioned mobile payment solution; Source: North American Technographics® Consumer Deep Dive: Investigating The Customer Life Cycle (Discover Phase) Survey, Q (US) 22

23. Agenda
What is a digital wallet and why all the hype?
What will digital wallets mean for payments and commerce?
Which wallet will be “The One”?

24. What it means . . .
The payments landscape will become more crowded and complex.
Banks and merchants will battle to retain control and influence of their customers’ spend.
Digital wallets will cause merchants to reframe their cost/value expectations.
Robust platforms will emerge and deliver greater value and convenience. 24

25. What it means
The payments landscape will become more crowded and complex.
More new entrants and fragmentation before consolidation 25

26. Old silos are irrelevant
Old silos are irrelevant. New competitors entering with new models of engagement
Digital payments landscape
Marketplace players
In-store
m-POS
mCommerce
eCommerce
P2P
Remittances
New entrant innovators
Digital payment platforms
Mobile operators
Innovators have first-mover advantage, but not the best or biggest.
Competition and cooperation
Promiscuous partnering; many placing multiple bets
Integration of mobile, cloud, context, customer insights, and big data to deliver greater value and convenience
Payment networks
Financial institutions
Merchants

27. What it means
Banks and merchants will battle to retain control and influence of their customers’ spend. 27

28. Mobile wallet operator
Mobile digital wallet operators threaten to disintermediate banks and retailers
Payment network
Issuing bank
Acquiring bank
Mobile wallet operator
Consumer
Merchant

29. Banks and merchants will leverage their market power, unique assets, distinct customer data, and relationships
Sample: Bank mobile digital wallet menu
The “for us, by us” merchant digital wallet.
Goal: Create a better approach to payments that protects merchants, their customer data and delivers a better commerce experience.

30. What it means
Digital wallets will cause merchants to reframe their cost/value expectations.
Mobile payments and digital wallets will deliver greater value at the same or lower total cost.
Payments, offers/coupons, and loyalty/rewards will converge with digital wallets benefiting banks and merchants.
Wallet pricing models are still evolving and could disrupt traditional interchange fees (e.g., LevelUp).
Wallet providers will seek new ways to deliver tangible value to merchants.
Some merchants will shift to closed-loop mobile payments (e.g., Starbucks’ model). 30

31. “Clip to Isis” — tap, scan, click offers, or follow merchants

32. THE OFFERWISE SOLUTIONTM
Card-linked offers are on the rise, will feed digital wallets, and will deliver more cost-effective marketing
Targeting based on customer profile and spend history
Automatic redemption
Pricing: pay on redemption
THE OFFERWISE SOLUTIONTM

33. “Order ahead” features let merchants preview their future flow of traffic and provide a better in-store experience
GoPago (Chase Paymentech)
PayPal and Jamba Juice

34. What it means
Robust payment platforms will emerge and deliver greater value and convenience.
Service providers will make creating and accepting digital wallets faster and easier.
The digital convergence of channels and devices will make “online versus offline” irrelevant. 34

35. “Every connected device will be a commerce device.”
— Ed McLaughlin, chief emerging payments officer, MasterCard

36. Platforms that enable seamless, ubiquitous experiences across channels have the greatest market opportunity
2016
Total Retail Sales
In-person commerce (proximity)
Remote commerce (e/mCommerce)
Mobile POS
Remittances (P2P)
In-person remote commerce (emerging) e m
Digital wallet platforms
Over time, more virtual “cards,” fewer physical cards
Source: Forrester Research Online Retail Forecast, 2011 To 2016 (US) 36

37. The nascent digital wallet landscape
NFC
mobile-only
Software
Omnichannel
wallet
Online- only
In market
Announced
 Bank/card issuer trials 
 MCX — Merchant Customer Exchange  37

38. Agenda
What is a digital wallet and why all the hype?
What will digital wallets mean for payments and commerce?
Which wallet will be “The One”?

39. Which digital wallet will be “The One”?
Source: Photobucket (
Which digital wallet will be “The One”?

40. Source: iDownloadBlog (http://media.idownloadblog.com/)
There won’t be just one. 40

41. What will the future of wallets look like?
Consumers won’t choose just one.
Context, convenience, confidence, and a compelling experience will drive when, where, and how often each wallet is used.
There won’t be a single technology winner either.
The cloud, bar codes, NFC oh my! Many wallets have an “all of the above” design strategy.
How can you spot a winning wallet? It will:
Create a better, more convenient alternative.
Attract consumer and merchant adoption at scale.
Create a viable business model.

42. Act now. The worst possible thing to do is nothing.
Revisit your value proposition or others will reframe it for you.
Map out a strategy for the near and longer term.

43. Denée Carrington
@deneecarrington