Hype Cycle for Payment Innovations, 2014

The pace of payment innovations is accelerating. A bank's siloed systems and operations, as well as product development approaches, are unfit to respond to new market requirements. This Hype Cycle will assist banks in prioritizing their investments to ensure they capture the new opportunities.

Gartner recommends to CIOs and line of business (LOB) heads that they think in an integrated fashion about their payment strategies. In other words, they need to develop new payment solutions while evaluating their impact on the existing portfolio of solutions. This also demands a review of the underlying payment systems – not just to check whether they can support the new solution – but whether a new solution is an opportunity for systems modernization.

This is becoming more urgent:

• Despite the negative impact of silos (higher risks and costs, poor ROI), too many CIOs and heads of LOBs are validating the creation of new silos. For example, they still think about mobile payments as a specific market or product when considering the impact of mobility on their products and services.
• The fragmentation of the supply chain is accelerating:
  • New delivery models, such as the use of APIs, as well as the reuse of existing platforms (for example, instant messaging, social media and Bitcoin blockchain) provide lower cost of entry and an ability to deliver need-based payment solutions to consumers and merchants/small and midsize businesses (SMBs).
  • Nontraditional financial services providers, such as PayPal, are gaining market share by offering basic cash management services with different integration approaches that are a better fit for the financial supply chain needs of SMBs.

As a result, if banks fail to "connect the dots" between the different payment innovations, they will generate new silos, which, in turn, will lead to new risks, higher costs and poor differentiation.

Gartner research shows that banks are trusted as payment providers. They have built this trust in part via the repeat usage of their services, which, in turn, creates an ability to demonstrate that they can deal with a fraud occurrence and by providing visibility on liquidity through a growing number of channels.

However, with the increased level of fragmentation, CIOs and LOB heads will need to change their mindsets to build on that level of trust, as well as maintain it. They need to move away from a focus on products and transaction volumes to payment value chains and related information flows.

The payment innovations introduced in this Hype Cycle will increase the mobility of monies – the ability for economic agents to transfer value across geographies, networks and different kinds of stores of value. As a result, banks will not be able to control all the new monetary flows.

The primary objective of a payment strategy should, therefore, shift from a focus on the development of a payment product to the development of solutions to follow the flow of payment information and then monetize this flow, for example, to capture new deposits via saving goal management services.

Identifying new cross-selling opportunities is an important objective, but this could also lead to the development of new solutions, notably for commercial customers, such as with integrated treasury information services.

This is why we stress the need for payment strategies that encompass nontransactional services as well as transactional services. For example, delivering digital wallet functionality is as much about gaining visibility on customers' payment patterns as generating payment fee revenue.

However, to succeed in this fragmented payment world, CIOs will have to ensure that their payment architectures are able to orchestrate the payment workflows – whether or not their banking organization is in full control of the payment products or services. This is not just about payment services. Banks will also need to break down fragmentation between payments and the rest of the bank as well. As a result, orchestration of payment workflows should extend beyond payment services as functionality is moved to enterprise-shared service levels.

This will also demand new approaches to authenticate and authorize transactions (including rewards and other types of currencies) via new devices, as well as via new partners. The process of tokenization discussed in the digital wallet profile – however at an early stage – is not just a security issue. It's one of the building blocks to make trusted payment providers less dependent on industry collaborative schemes. This, therefore, will improve ROIs.

CIOs and LOB heads should also prepare for the blurring of the lines between customer segments. New peer-to-peer (P2P) payment services are turning into payment acceptance mechanisms for prosumers (businesses with a maximum of two employees and a limited turnover) and SMBs. Merchants using mobile devices as payment-acquiring terminals are reconstructing the point of sale (POS) according to their specific needs. They now have access to better dashboards and increasingly demanding more-customized cash management services.

CIOs and LOB heads should, therefore, develop integrated payment strategies with the objective of maximizing their influence on the payment value chains. This Hype Cycle explores the pieces of this strategic puzzle.

Gartner's Banking and Investment Industry Advisory Services define a payment system as the method, process and related workflows needed to perform a transfer of value. A payment system encompasses:

• Initiation or origination (that is, by the payment instruments, such as checks and credit/debit cards or via a digital wallet solution) and authentication of the participants/payment messages.
• Processing, which takes into account the payment networks and the applications supporting payment processing (such as authorization, clearing and settlement).
• Payment information, such as how it's collected and used (for instance, to report that the process has been completed, to initiate another response [e.g., to deal with chargebacks or repudiation] or to be integrated with financial data).
• Payment protocols that enable communications among payment instruments/networks/applications.

Each entry in this Hype Cycle refers to one (or more) of the following categories:

• A payment instrument or origination mechanism.
• A payment network and processing capability.
• A bank middleware or back-office application or solution, or an application/solution supporting middleware/back-office systems.
• A payment application or solution delivered to a bank's clients.

Figure 1 positions all the entries of this year's Hype Cycle taking into account two dimensions from a bank's perspective:

• The value chain complexity – How to align and integrate payment instruments, network/processing capabilities, the back office/applications and solutions delivered to clients.
• The portfolio complexity – The breadth of solutions, applications and options provided to clients.

Figure 1. The Dual Challenge of Value Chain and Portfolio Complexity

[click to enlarge]

Source: Gartner (July 2014)

This mapping of innovations is important for banks as they design their payment strategies. Bank customers do not care about bank silos, or the semantics of the payment industry. This is especially the case with regard to the impact of mobility.

It is critical to stress that there is no such thing as a mobile payment industry or a mobile payment. What we are dealing with as an industry is the use of mobility (mobile devices, wireless networks, etc.) to create, augment and replace components of the payment value chain.

The implications are critical. Banks should not attempt to define an isolated mobile payment strategy, but rather define how mobility could assist them in extending the control and influence of their payment value chains (and, therefore, of the underlying payment services and assets). It's about how mobility impacts payment and information process management.

As a result, for this Hype Cycle, we reviewed our treatment of mobile payment systems and solutions to reflect the impact of mobility on the payment value chains. To do so, we replaced these "Mobile Proximity Payment Systems" and "OTA Mobile Phone Payment Systems" in the 2013 edition with:

• Mobile-Originated Proximity Payment Systems
• Remote Commerce Emulation for Proximity Payments
• Mobile Wireless Payment Systems (for Nonmature Payment Markets)
• Mobile-Originated P2P Solutions (for Mature Payment Markets)

Mobility also impacts directly other payment innovations, such as:

• Trusted Service Manager for NFC-Enabled Mobile Payment Systems
• Mobile Devices as Payment-Acquiring Terminals

But, as mentioned, what matters is how mobility impacts payment process and information management, and, as result, mobility is also important to these innovations:

• Wearable-Originated Payments
• Sound-Wave-Based Payment System
• Social Messaging App-Based Payment System
• Social Network Payment System
• Digital Wallet Solutions
• Near-Real-Time Low-Value Payment Systems

This further stresses the need to think beyond a mobile payment when looking at the impact of mobility. It also implies that the real disruption banks need to prepare for is how technology impacts the movement of monies, not merely mobile payments or mobile money.

The mobility of monies implies more options and mechanisms for economic agents to move their money around. For example, we introduce the "Social Messaging App-Based Payment System" profile. This is a good illustration of the instant mobility of monies enabled by the adoption of messaging technology. ("Hype Cycle for the Future of Money, 2014" reviews in detail the impact of technology and innovations on money.)

As part of this Hype Cycle, we consider as the most transformational profiles those that will provide more control (or influence) over, and better access to (and visibility of), money. As a result, digital wallet solutions, payment services hub and transaction banking 2.0 score a high impact. However, the industry must also pay attention to new platforms accelerating the mobility of monies. This is why we introduced Money and Payment Clouds.

Overall, the growing number of payment instruments, origination methods and related processes all contribute to accelerate the mobility of monies.

This also increases the fragmentation of the supply chain – as predicted in "Banking and Investment Services Scenario and Research Positions for Payments, 2012."

On the surface, fragmentation doesn't appear to be good news for banks. This makes it more difficult to invest in the most suited solutions in a given market. From an IT perspective, this increases the cost of integration and systems development.

However, Gartner research shows that banks are trusted by consumers with regard to the delivery of digital wallet solutions. This provides them an opportunity to achieve competitive advantage by supporting digital wallet functionality. To do so, they will need to:

• Resist the temptation to create a new brand for a digital wallet solution, or a new solution.
  • In some markets, it may make sense to launch a new digital wallet brand due to conflicts between current brand perceptions and what the digital wallet solution is intended to do. For example, American Express, with its Serve digital wallet, is targeting the underbanked market. This is something very difficult to achieve with the American Express brand, which is associated with mass affluent customers.
  • In most cases, however, this will waste resources due to the cost of marketing a new brand to consumers and building trust the banks had in the first place.
• Market digital wallet functionalities, not just a digital wallet solution. According to Gartner research, a large proportion of consumers are not aware of what a digital wallet is, whether they use one or not. For example, a digital wallet functionality could be delivered via the bank's mobile banking platform, avoiding the need to create a stand-alone solution.
• Turn your digital wallet solutions (whether or not they are marketed as part of digital banking or stand-alone) into a control center for your customers. With the increasing mobility of monies, providing control features is key to maintaining (and increasing) consumer trust in your payment services.

Most importantly, however, benefiting from fragmentation will demand a change in mindset. Banks have to realize that if they want to remain or become more relevant to their customers, they have to lose some control to gain some influence. This doesn't only apply to payments, as discussed in "Hype Cycle for Open Banking APIs, Apps and App Stores, 2014."

This Hype Cycle should ideally be read taking into account the following research:

• "Hype Cycle for Digital Banking, 2014" – Banks should align their digital wallet strategies to their digital banking strategies. As discussed, banks do not have to launch a separate and distinct digital wallet solution. They could rely on their digital banking platforms to provide digital wallet functionality.
• "Hype Cycle for the Future of Money, 2014" – Complementary currencies will benefit from the development of digital wallet solutions and new payment processes. Conversely, the development of complementary currencies and underlying platforms positively impact the reach of payment systems and the pace of innovations.
• "Hype Cycle for Bank Operations Innovation, 2014" – The ability to deliver on payment system modernization demands new development and integration approaches, while making sure these do not disrupt other banking systems.
• "Hype Cycle for Open Banking APIs, Apps and App Stores, 2014" – Payment innovations by banks also depend on an ability to introduce new application development approaches, such as the use of APIs.

Figure 2. Hype Cycle for Payment Innovations, 2014

[click to enlarge]

Source: Gartner (July 2014)

None of the entries in this year's Hype Cycle for Payment Innovations is expected to mature in less than two years in regard to achieving mainstream adoption demands to navigate customer demand rigidities, modernizing payment systems and building new collaborative models These are not short-term initiatives.

Even if most of the entries in this year's Hype Cycle that are expected to reach mainstream adoption in the next two to five years achieve that prediction, the maximum impact will only be achieved when the following transformational profiles reach maturity:

• Digital Wallet Solutions – For banks, the alignment between their digital wallet and digital banking strategies will strengthen their abilities to capture more deposits and deliver credit to new customers, notably by increasing the relevance of their payment services to retail customers, as well as prosumers, merchants and SMBs. However, we are not recommending that all banks launch a digital wallet. What matters is the launch of digital wallet functionality that could be delivered via existing digital banking channels. As a result, to be more specific, the key focus is on digital wallet functionality, not digital wallet solutions. This approach will deliver a transformation in the way banks engage with their customers and improve the contextualization (and, therefore, impact) of their products and services.
• Money and Payment Clouds – The hype around Bitcoin has led to new thinking regarding how to design decentralized value exchange networks. The objective of money and payment clouds is to create an open-source technology environment that decentralizes the monetary economy, and enables P2P transactions and payments without a central controlling system or proprietary technology. The development of related platforms is, therefore, transformational to not only payments, but also financial services as a whole.
• Transaction Banking 2.0 – The majority of the IT and operations infrastructures of banks has been built in an ad hoc style, and the resulting operational silos limit their ability to deliver the transaction services that their customers demand. Moving to transaction banking 2.0 will enable banks to deliver new services such as cash-flow forecasting, multibank bank consolidation and intraday movements.
• The Payment Services Hub (PSH) – The use of a PSH is transformational, but demands a progressive modernization, not a big-bang approach. Gartner specifically highlights the transformational role of:
  • The business process orchestration and workflow manager to define the right sequence of payment services to support any type of payment order.
  • The payment life cycle manager to ensure full visibility and reporting of payment information across a bank's payment value chain.

Please note that in this year's Hype Cycle, we regrouped two profiles: OTA Mobile Phone Payment Systems (Africa) and OTA Mobile Phone Payment Systems (South East Asia) into a new profile: "Mobile Wireless Payment Systems (for Nonmature Payment Markets). We regard this profile as having a high impact. However, Gartner still considers that the application of this profile to Africa is transformational, since it significantly accelerates financial inclusion and promotes entrepreneurship in Africa.

Figure 3. Priority Matrix for Payment Innovations, 2014

Source: Gartner (July 2014)

Alternative Payment Origination Systems – As mentioned in the 2013 Hype Cycle, this profile was created to explore alternative origination methods used to initiate a retail payment. This included using new form factors and devices for proximity and remote commerce, as well as combinations of multiple form factors, devices, and authentication and authorization processes. As a result, this entry was more of an incubator. Due to the increasing maturity of the alternative payment systems included in this profile, we decided to retire this profile in 2014 and focus on the following entries: Wearable-Originated Payments, Sound-Wave-Based Payment System and Social Messaging App-Based Payment System.

Bump P2P Payment Systems – This change confirmed our position of "obsolete before plateau" in the 2013 Hype Cycle. Google acquired Bump in September 2013, and subsequently retired Bump-related applications in January 2014. The Bump team has been allocated to other projects. While the underlying Bump technology could become a part of a new version of the Google Wallet, so far, no announcement has been made by Google. As a result, we decided to retire this profile.

Retail Payment Portfolio Management Solutions – We retired this entry because what merchants really need to improve their revenue and profitability is not just data, but information that enables them to increase loyalty through higher levels of foot traffic, ticket size, repeat visits and other measures. We include the components of this technology in Acquiring Convergence Solutions and Dashboards.

Decoupled Payment Systems (U.S.) – In 2013, we expected decoupled payment systems in the U.S. to be obsolete before plateau due to the progress of digital wallet solutions. Key providers, such as the National Payment Card Association, have now launched digital wallet solutions. Taking into account the lack of development and announcements (as well as lack of interest from consumers and merchants) during 2013-14, we have decided to retire this entry.

Payment Value Chain Composition – We initially created this profile to stress to banks the importance to think in terms of payment value chain innovation and develop the right architectures to support this objective. As part of this Hype Cycle, several profiles directly support that objective – Payment Services Hub, Application PaaS for Payments, Payment Architectural Frameworks and Money and Payment Clouds. As a result, we decided to retire the rather generic profile and bring the focus to the specific profiles aiming to achieve the objective of payment value chain composition.

SEPA Direct-Debit Mandate Management Solutions and IBAN/BIC Conversion Applications and Services – The deadline for banks to comply with the Single Euro Payments Area direct debit and credit transfer requirements was 1 February 2014 for the euro area (for noneuro area member states the deadline is 31 October 2016). Due to the deadline, banks have made progress with these two profiles, which are now mainstream. We, therefore, withdrew them from this year's Hype Cycle.

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Wearable-originated payments are transactions that are originated or authenticated via the use of wearables (e.g., Google Glass, wristbands or watches) to initiate a payment transaction.

Position and Adoption Speed Justification: These are not stand-alone payment systems. Some of these devices are very likely to be connected to a smartphone, which would deal with the bulk of the origination/authentication requirements and manage/access the related secure credentials. However, some wearables like Google Glass would not need a smartphone association. The focus is on origination, but due to the limitations of the "form factors," it will demand some parameterization. It will be very important for the users to have the ability to set parameters to define origination criteria (value, type of merchant, location) for multiple or single transactions, and to manage a dedicated account (virtual or prepaid) funding wearable-originated payments. As such, its level of maturity also depends on other payment solutions and systems. Notably, among others, the development of digital wallet solutions and remote commerce emulation systems.

User Advice: Beware of the current level of hype in the payment industry with regard to new payment-origination methods. New origination methods have a tendency to have weak business cases and tend to be more disruptive to consumer payment experiences and merchants' cost base than to the industry.

However, do not ignore them completely. Manage them as a portfolio – different solutions for different purposes and customer segments make sense as part of the design and deployment of need-based payment solutions.

When designing digital wallet solutions, make sure you achieve a fine level of parameterization with regard to the authorization process to support wearable-originated payments.

This could demand the development of APIs that enable the origination of payments via wearables that are integrated with your digital wallet functionalities.

Business Impact: Wearable-originated payments are an extension of digital wallet solutions. Gartner doesn't expect wearables to (electronically) store value. They mostly act as a connecting device to contribute to the contextualization of payment systems via location, specific use, etc. We currently position their benefits rating as high, despite current limitations in wearables' availability, and the reluctance by consumers to trust the new interfaces to originate transactions. The rationales are that digital wallet solutions are making good progress – those of trusted providers – and the ongoing progress with the Internet of Things will accelerate development.

Benefit Rating: High

Market Penetration: Less than 1% of target audience

Market Penetration: Embryonic

Sample Vendors: Google; Samsung

Analysis By: Christophe Uzureau

Definition: A sound-wave-based payment system relies on a sound transmission to initiate a given transaction and communicate the secure credentials required to authorize that transaction.

Position and Adoption Speed Justification: Potential value to users is the ability to make a payment with a digital wallet solution, even if no Internet connection is available. For example, Alipay has launched such a solution in Beijing to enable the users of its digital wallet solution to make purchases at vending machines in the underground. In this case, the digital wallet app generates a sound transmission unique to the transaction (and only valid for five minutes).

Under this scenario, sound-wave-based payment systems are another functionality added to a successful digital wallet solution. It's not transformational, but provides Alipay with a way to capture more day-to-day transactions, as well as good marketing material.

In mature payment markets, such an offering is not likely to replace existing origination methods. The cost of standardization of the related protocols, customer education, security perception (compounded by possible issues with perception of higher hacking risk) etc., hinder any serious development as a dominant payment origination method.

However, such systems are more appropriate in unbanked, underbanked markets with less mature payment infrastructure, since such systems do not imply the ownership of a smartphone and limit the number of partnerships required, therefore improving the business case (no need for contractual agreements with mobile network operators). For example, Tagattitude developed its own protocol – Near Sound Data Transfer (NSDT) technology – which uses the mobile device's microphone as a captor and its audio channel as a transporter to support its TagPay platform, which targets emerging markets. The solution could be integrated into an existing point of sale (POS), but is most likely to deliver value when implemented on the merchant's own mobile device.

Despite some deployments – notably via Tagattitude's TagPay platform in Haiti and Africa, as well as Alipay in China – overall, this is still early stage. Sound wave payment systems haven't yet generated a large volume of transactions. And this accounts for the position of this profile.

User Advice: Banks developing payment solutions (notably digital wallet solutions) for emerging markets should consider sound-wave-based payment systems as an important option to accelerate go-to-market and reach out to new merchants/small businesses.

Banks operating in mature payment markets and launching a digital wallet solution should primarily look at the ability to use such systems for marketing and branding (even taking into account smartphone owners), but not as the dominant feature of their solution.

Business Impact: For banks targeting emerging markets, these systems could accelerate the delivery of payment services and capture new payment information essential to improve the credit profiles of both consumers and merchants. Furthermore, the use of this technology doesn't require a partnership with mobile operators – a preference for most banks.

Benefit Rating: Moderate

Market Penetration: Less than 1% of target audience

Market Penetration: Embryonic

Sample Vendors: Alipay; CopSonic; Tagattitude

Analysis By: David Furlonger; Christophe Uzureau

Definition: Money cloud platform development projects are collaborative initiatives that create technology, exchange and settlement platform and protocol standards to enable multiple, interoperable currencies to exist on the Internet.

Position and Adoption Speed Justification: Most money cloud platforms are cryptocurrency-based value exchange networks that reuse the mechanisms or protocols of cryptocurrencies – such as bitcoin's block chains – to support the design of decentralized value exchange networks. However, some others (such as Ripple) are more versatile and don't have to facilitate only cryptocurrency transactions. The goal is to create an open-source technology environment that decentralizes the monetary economy and enables person-to-person (P2P) transactions and payments without a central controlling system or proprietary technology. The development of a common, open-sourced and decentralized platform to enable any form of monetary transaction (such as traditional/fiat currency, gaming tokens, loyalty points or complementary currency) to occur over the Internet is visionary and will struggle with multiple challenges. Issues include:

• Standard protocols
• Standards, normalization and interoperation for payments
• Messaging, devices and technologies
• Access to accurate and transparent information
• Common valuation
• Risk management mechanisms
• Security

A decentralized platform requires significant behavioral change and acceptance by users. In the past, for example, what were considered evolutionary monetary mechanisms such as mobile banking, networking techniques and Near Field Communication (NFC) have proved difficult to achieve or meaningfully monetize.

The speculative nature of bitcoin has damaged its prospects as money. However, it has led to a greater focus on its continuing role as a P2P network as well as a new debate on its use as a platform to exchange assets:

• In their record of meeting dated Friday, 9 May 2014, the Federal Advisory Council and Federal Reserve Board of Governors in the United States stressed one of the long-term impacts of bitcoin in the following terms: "While existing payment networks have a footprint advantage, it is largely confined to the developed world. Bitcoin enables inexpensive international remittance to the developing world and the developed world's 'unbanked,' expanding financial inclusion."
• The Economist (dated 15 March 2014) stressed the possibility of turning bitcoin into a global registry of ownership in physical assets.

More and more companies are developing platforms that leverage the bitcoin block chain to support this transformation:

• Colored Coins has developed a protocol to use a bitcoin as a token for a given financial instrument, such as a company stock or bond, or a physical asset, such as a car – and therefore use the bitcoin network to trade such assets without having to rely on traditional intermediaries.
• Mastercoin has developed its Master Protocol to leverage the bitcoin block chain to facilitate the creation of user currencies and P2P exchanges.
• Ethereum also has developed a decentralized platform leveraging bitcoin block chains to create a system of contracts – a decentralized platform to support multiusage and a decentralized exchange across multiple currencies. Each contract acts as an autonomous agent, which when a transaction is received will execute the relevant code and perform the transaction.

The evolution of platforms to leverage bitcoin (and other currencies) will lead to a fair amount of experimentation, challenges and disappointments – and platforms are also subject to the fluctuations of their own cryptocurrencies. Furthermore, the new platforms face the same challenges that inhibit bitcoin, such as the increasing cost of mining/updating the block chain. This accounts for the immaturity of this technology profile, while the longer-term benefit rating is transformational.

User Advice: Beyond merely tracking the evolution of such platforms:

• Collaborate with one of the providers to support the localization of your services (for example, Mastercoin enables the design of user currencies).
• Launch an international remittance solution that relies on such platforms when entering a new market where you have limited correspondent banking relationships.
• Develop a more integrated internal payment strategy that uses common standards. Work with industry groups (such as the International Organization for Standardization [ISO] 20022 Payments Standards Evaluation Group) to normalize payment and money standards.
• Continue to investigate and build out open-banking initiatives, especially in the context of API development.
• Develop an IT strategy that facilitates open-banking environments.

Business Impact: The business impact of this technology is gathering speed – along the same development path as the digital economy. As standards mature and APIs and interoperability across platforms and ecosystems become more robust, these environments could promote more fluidity in payment mechanisms and cross-currency transactions as well as the proliferation of digital currencies and value exchanges themselves.

Despite the aforementioned challenges, these platforms provide an interesting link between decentralized currencies and existing payment systems. Fidor Bank in Germany has partnered with Ripple (ripple.com/blog/fidor-bank-ag-the-first-bank-to-use-the-ripple-protocol/) to support currency transfers. As a result, the business impact on banks is not only in competitive terms – via the emergence of new competitors to their financial intermediary role and alternatives to their payment networks – but also as new options that they could integrate into their services. This is especially valid for banks that are developing digital wallet functionalities.

Because these cloud capabilities are at the edge of regulatory compliance, the business impact will be governed (for mainstream financial institutions) by the policy decisions that are made in individual jurisdictions. Consequently, unregulated or nontraditional financial services firms may find lower barriers to entering the digital currency and payment market.

Benefit Rating: Transformational

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: Colored Coins; Creel; Cyclos; Ethereum; Hub Culture; Kraken; Mastercoin Foundation; MetaCurrency Project; OpenMoney.org; OpenTransact; Ripple Labs; The Currency Cloud; Transition Network; Zart.org

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Payment information value-added services (PIVAS) – tracking and negotiation refers to solutions that use payment information to assist consumers in planning and funding a specific objective, and negotiating on their behalf for the product/service under consideration. For banks, this could be delivered via their digital banking platforms, as well as social media sites.

Position and Adoption Speed Justification: Bank delivery of these solutions is increasing, but is still at an early stage. So far, banks are improving the tracking components, but not delivering negotiation services. Such services are not new – see, for example, the Standard Chartered Breeze Wishlist functionality. But the related interfaces are improving. In France, Axa Banque is launching soon, which provides more advanced tracking services.

However, to fully deliver on PIVAS – tracking and negotiation, banks will have to negotiate deals with the product and service providers related to the spending objectives. This could include co-product development and co-branding – for example, if a large number of customers have similar objectives which are recurrent, there could be potential co-branding solutions to design with relevant providers (for example, a travel objective leading to co-branding with an airline or tour operator). Please note that we are not excluding the ability of banks to negotiate on behalf of one customer – depending on the underlying business case.

User Advice:

• Make sure PIVAS – tracking and negotiation is a part of your digital wallet and digital banking strategies.
• Develop negotiation capabilities to maximize the purchasing value of your customers and the relevance of the rewards you provide.
• Plan to launch specific co-branding products (such as co-branded payment apps or cards) to deliver on the negotiation capabilities.

Business Impact: Tracking services provide an opportunity for banks to contextualize their account services. Negotiation services are an opportunity to act on them. Such services are also part of the necessary alignment between banks' digital wallet functionalities and digital banking solutions.

Benefit Rating: High

Market Penetration: Less than 1% of target audience

Market Penetration: Embryonic

Sample Vendors: KBC Belgium; Soon.fr (AXA Banque); Standard Chartered

Analysis By: Christophe Uzureau; Alistair Newton; Kristin R. Moyer

Definition: Acquiring convergence solutions and dashboards (at the point of sale [POS]) aggregates and integrates payment methods as well as loyalty programs into a single platform. These provide merchants with more visibility on the payment methods they accept and the impact of related reward programs. These enable them to prioritize payment methods and improve negotiation capabilities toward other payment stakeholders. This also enables them to be more selective on which acquiring solutions (and added value services) they need based on their own demand.

Position and Adoption Speed Justification: Payment-acquiring convergence solutions at the POS either rely on the existing hardware at the merchant physical location or – as in the case of Merchant Warehouse and GoPago – demand an add-on or hardware replacement:

• Merchant Warehouse, with its Genius solution, adds an extra piece of hardware to the merchant POS to achieve convergence.
• GoPago is positioning its solution as all-in-one alternative to existing POS.
• The Square Register solution also includes a merchant dashboard to customize customer rewards.
• Commonwealth Bank of Australia (CBA) developed a merchant terminal, Albert, integrated with its open platform Pi.
• However, this technology is not only about solutions that require a new piece of hardware. PayPal has developed partnerships that are increasingly turning merchants' POS solutions into payment-acquiring convergence solutions.

An interesting feature of some of the solutions is to enable the merchant to add new payment types of applications (such as loyalty apps) available from a dedicated app store. For example the business app store developed by CBA in Australia. This provides the ability for the merchants to customize their services based on current demand, and accept solutions more aligned with their commercial needs. The development of open platforms, and their adoption by banks such as CBA, will drive interest in merchants since it enables them to reconstruct the POS according to their current business requirements.

By design, these solutions also offer enhanced dashboard for merchants. We therefore retire the rather generic profile "Merchant Dashboard" and include some of its attributes with the profile "Payment-Acquiring Convergence Solutions at the POS" into a new profile in Hype Cycle for Payment Innovations, 2014. The special focus is on how it contributes to improve merchants' customer engagement, notably via loyalty, and we renamed the profile "Acquiring Convergence Solutions and Dashboards" to reflect that change.

It's still early stage for these solutions, and most merchants will be reluctant to add or replace hardware. However, the progress with the use of open platforms and acquiring banks' growing interest in targeting new merchant segments accounts for the progress of this profile.

User Advice: Banks with acquiring operations need to look beyond traditional POS features. They should recognize the need for merchants to have not only more visibility on payment flows for operational requirements, but also to have more visibility on the impact of reward programs. As a result, they should consider introducing acquiring convergence solutions and dashboards to small merchants, and plan for the development of API platforms to accelerate delivery of added-value services, as well as support their specific demand.

Other banks without acquiring operations will need to work with payment processors and solution providers that assist them in aligning their solutions with this convergence model. This is especially valid for banks looking to develop acceptance of their digital wallet solutions for proximity commerce.

Business Impact: The hardware component is not the most important part of this technology, nor is it a necessary component. As specified earlier, most merchants are not going to replace their hardware and are very hesitant to add yet another piece of hardware on their counter. What matters is the convergence of payment flows and the higher visibility and control the merchants will obtain. This will enhance their bargaining power with the payment industry, and payment providers must take notice.

Benefit Rating: High

Market Penetration: Less than 1% of target audience

Market Penetration: Emerging

Sample Vendors: Commonwealth Bank of Australia; GoPago; Merchant Warehouse; PayPal; Square; VeriFone

Analysis By: Kristin R. Moyer; Christophe Uzureau

Definition: Application platform as a service (aPaaS) for banking offers application execution environment tools, and associated development and management tools, as a service for payment-specific applications, such as card management software. It is an application server and composite application platform "in the sky," and is one of many functional types of PaaS. An aPaaS is always integrated or linked with a database system, which may or may not also be offered as a cloud data store service (dbPaaS) in its own right.

Position and Adoption Speed Justification: Although there are more than 35 vendors Gartner tracks that offer industry-agnostic aPaaS (see "Platform as a Service: Definition, Taxonomy and Vendor Landscape, 2013"), aPaaS for payments is less mature, with few vendors providing banking- or payment-specific solutions. Non-industry-specific vendors can enable banks with strong in-house development skills to begin designing or building, through the cloud, some of the services supporting the modernization of their payment applications. However, this includes a significant application development burden.

Payment-specific aPaaS is more attractive to banks, because it includes prebuilt payment service components and template libraries that they can use to aid deployment. In this sense, aPaaS can be used to guide application development – contrasting with a build-only or buy-only approach. Such approaches include software development kits (SDKs), and a definition of components and relationships between them and service components (modules of functionality that can be combined or used in conjunction with service components the bank has built in-house).

One reason for the low adoption to date is a lack of substantial end-user demand. For example, Gartner inquiries on payment software are most often focused on licensed, on-premises applications, and occasionally on SaaS solutions, but rarely on aPaaS for payments. However, this may be changing with the adoption of open banking strategies. For example, aPaaS can be used to build and deploy a public Web API. Barriers to adoption include concerns over data security and the lack of an open, standards-based approach to portability and interoperability (for example, platform interoperability and portability of business processes, code and data). For these reasons, we believe it is five to 10 years away from reaching the Plateau of Productivity.

User Advice:

• Experiment with aPaaS if your bank wishes to deploy public Web APIs, custom-build a payment application or use it to accelerate application development.
• Leverage aPaaS if your bank desires delivery model flexibility – that is, to deploy the application (for example, card processing) on-premises, or to outsource the deployment and management of the application.
• Understand the risk of aPaaS for payments as more solutions become available, which presents an always-present degree of vendor lock-in. Until there is a standard and shared programming model for cloud application development, this risk will remain present.
• For most users, plan for a hybrid IT environment, and ensure that the application integration infrastructure – including the possible use of integration platform as a service (iPaaS) – is prepared to manage on-premises, private PaaS and public aPaaS-based cloud application services.
• Consider private PaaS, including aPaaS, which may be the useful initial step toward the adoption of cloud computing in preparation to expanding to future use of a public cloud aPaaS. This is important for the banking industry, given security, data privacy and regulatory constraints.

Business Impact: Payment-specific aPaaS is a new model for developing business solutions and delivering the business value of IT. It affects the business of enterprise IT, as well as the business of independent software vendors (ISVs), system integrators (SIs) and technology vendors. Payment operations transitioning to the use of PaaS and aPaaS should review the structure of their IT budgets, their policies and practices, the required IT skills and the relationship with technology providers, and the cooperation between their line-of-business and IT organizations.

The models of calculating and managing costs change as well. Along with other forms of PaaS and SaaS, aPaaS for payments brings a new IT model to enterprises and technology vendors across geographies.

Benefit Rating: High

Market Penetration: Less than 1% of target audience

Market Penetration: Embryonic

Sample Vendors: IP Commerce; Ixaris

Analysis By: Fabio Chesini

Definition: A bank payment obligation is an irrevocable conditional obligation given by one bank to another bank, stating that a payment will be made on a given date, after specific conditions are met. This new international trade settlement instrument represents a natural evolution from the traditional letter of credit, and offers buyers and suppliers a new payment method for securing and financing their trade activities.

Position and Adoption Speed Justification: The International Chamber of Commerce (ICC) and Society for Worldwide Interbank Financial Telecommunication (SWIFT) rolled out new industry-owned legal rules and technology standards for supply chain finance in 2Q13. These rules and standards are designed to enable banks to provide risk mitigation and pre-/post-shipment financing. The combination of legally binding rules with electronic messaging and matching provides new benefits in trade services, including:

• Mitigation of international trade risks for buyers and sellers
• Speed, reliability and convenience
• Reduced costs and improved accuracy
• Enhanced risk management
• Payment assurance
• Access to flexible financing
• A more-secure supply chain

Bank payment obligations will be governed by the interbank Uniform Rules for Bank Payment Obligations (URBPO), which will drive standardized market adoption based on ISO 20022 messaging standards. This new settlement instrument offers business benefits equivalent to those previously obtained through the use of a commercial letter of credit, while eliminating the drawbacks of manual processing associated with traditional trade finance.

Gartner believes it will take five to 10 years for bank payment obligations to be widely adopted, because banks will need to:

• Comply with new message standards and rules.
• Define new marketing strategy.
• Establish new pricing points.
• Change a strong "document oriented" culture that exists on both the customer and bank side. They will need to be persuasive internally to communicate the importance and value of this new trading instrument.
• Buyers and sellers may need to adjust their systems to digitalize process flows that are currently supported by physical documentation.
• Assess the legal implications by replacing physical documents by digital data.

User Advice:

• Assess the new infrastructure requirements of support for bank payment obligations.
• Evaluate the business and legal implications of implementing the URBPO and the technical requirements of supporting new processes.
• Work to understand the integration efforts required for the new ISO 20022 standard messaging types that support business payment obligations.

Business Impact: The new business payment obligation trade finance instrument will transform information exchange in the trade finance life cycle, by making the physical exchange of documentation necessary only between the buyer and the seller, and by digitalizing all the processes between the buyer and the buyer's bank, and the seller and the seller's bank. Once a bank has accepted the terms of a bank payment obligation, there is an irrevocable liability to pay once the criteria and term are fulfilled. This not only will allow banks to mitigate the risks involved in transactions, but also will bring more opportunities, such as pre-/post-shipment finance contracts.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Analysis By: Alistair Newton

Definition: A mobile digital payment advisor is a smartphone application that dynamically advises consumers on the most appropriate payment solution to use for any particular transaction. It knows the user's payment and loyalty cards, the balances on each account, and the payment history associated with each. It also understands the physical location of the user (including the retail location in which the user may be standing), such that it can recommend the most advantageous (in terms of finance and loyalty rewards) payment card for the customer to use.

Position and Adoption Speed Justification: The digital advisor remains in early-stage development, and despite a full year of inclusion in the Hype Cycle does not yet exist in a full format. As a consequence this technology has been positioned just prior to the peak of the Hype Cycle. The U.S.-based offering from Wallaby remains the main standout example of progression, but the vendor doesn't have access to all the information (such as balances on each account). However, the base technologies that would need to come together to deliver such a service do exist. Assembling them would be a relatively straightforward task for any bank, mobile network operator or application manager, such as Apple or Google. It is recognized that there may be significant issues concerning trust for consumers who may be amenable to sharing their payment and loyalty data with any institution, especially on a mobile device. It is recognized that there may be significant issues concerning trust for consumers who might be amenable to using this solution. However, this application may be a middle ground for consumers who are willing to share this sort of data with an institution (in return for help and advice), but would not be willing to actually use their mobile devices to initiate payments.

Notwithstanding that consumer reluctance, Gartner believes that developments in the digital wallet space will help drive additional adoption of digital payment advisor technology. For these reasons, Gartner has placed this technology midway between the peak and the trigger – the two- to five-year time to maturity reflects the speed at which this technology could be deployed and used, given the growth in smartphone ownership and usage across the global markets. This also reflects the investments and steps taken by Apple with its Passbook (iOS) and PassWallet (Android) offerings, and the push for its PKPass file format. In addition, competition is increasing, with Samsung and Microsoft launching their wallet solutions to compete against Apple's Passbook.

User Advice: Even if banks do not plan to issue their own digital payment advisor applications, they must plan for the impact of digital advisors on their payment card portfolios. Increasingly, their customers will be subject to directional advice that recommends that they use other payments cards to make large-ticket purchases. Understanding which payment card will be the "best" for a customer to use for a particular transaction will help banks and card issuers adapt to changing market conditions. Increasingly, linking their payment solutions to their loyalty applications will be key to managing this impact going forward.

If banks are to consider issuing their own payment advisor, they must recognize that the revenue models associated with digital advisors are initially poor (see "Future of Money: Digital Payment Advisors Will Transform the Payment Landscape" to fully understand the business case). Deployments must look to the midterm, when digital payment advisor solutions can integrate additional social currency capabilities before they will deliver sustainable revenue.

Business Impact: The advent of a digital advisor will make consumers much better informed and allow them to make better, more efficient decisions. These decisions will counter many of the pricing strategies that banks currently have in place to charge for their payment card products. As a result, banks will need to amend their product pricing policies to reflect dynamic changes in customer usage of these products, which will occur as customers become more comfortable with advice/data-led decisions when choosing which payment solution to use.

Equally, the success of digital advisors will rest on their ease of use. Therefore, institutions such as Apple, which has proved itself an expert in the field of excellent user interfaces, may be perceived as holding a strategic advantage over many banks that do not have the same levels of expertise.

Benefit Rating: High

Market Penetration: Less than 1% of target audience

Market Penetration: Embryonic

Sample Vendors: Wallaby

Analysis By: Ethan Wang; Christophe Uzureau

Definition: A social messaging app-based payment system relies on an instant messaging platform to originate payment transactions. The messaging platform is, therefore, the interface to initiate and monitor payment activity. Gartner regards such solutions as a type of networked digital wallet, because the secure credentials are stored on a server.

Position and Adoption Speed Justification: The success of social messaging WeChat in China, and how it impacted payment services, is the main reason to introduce this profile to Hype Cycle for Payment Innovations, 2014. Tencent launched its WeChat app in 2011, and, according to Tencent, WeChat had 355 million active users at year-end 2013. It is important to stress that Tencent was already quite strongly involved with payment systems. Tencent owns the Tenpay e-commerce payment solution, which has around 20% of the e-commerce payment market in China (if we exclude cash on delivery). The company already has the card and bank account details of a large number of Chinese consumers.

Tencent makes a strong push in 2014 for its WeChat social messaging payment app through:

• Remote commerce and proximity payments through mobile. Given its success and wide adoption, Tencent decided to build its mobile payment system on top of WeChat. The system could be used to support mobile commerce as well as proximity payments (through quick response [QR] codes) to further extend the payment value chain from purely online to offline. It is a new and key battlefield for third-party payment players in China.
• Marketing its money market fund:
  • Alibaba, a key competitor to Tencent, has been very successful with its Yu'e Bao fund – with around RMB500 billion under management as of 12 March 2014.
  • To promote its Licaitong money market fund, Tencent uses WeChat to enable its customers to send the hongbao (red envelopes) as virtual cash to friends and family.
  • According to Tencent, around 8 million people sent RMB400 million in electronic "hongbao" over the Chinese New Year weeklong holiday that ended in mid-February.
  • The receipts were deposited in its funds. It was, therefore, a very successful marketing campaign for its Licaitong fund.
  • In turn, the hongbao marketing push created an ability for Tencent to entice more customers to link their bank accounts to WeChat, and, therefore, promote its mobile commerce and proximity payment solutions.

Tencent is now working to support:

• Payment from other mobile apps. Tencent provides its open APIs for those companies that want to develop their own mobile apps to access WeChat. Examples include Dianping (equivalent of Foursquare in China) and Didi taxi booking app.
• In-app shopping inside WeChat. Since March 2014, WeChat supports setting-up of in-app stores to allow customers to purchase items or services. The in-app stores work with companies and retailers in offering things like loyalty cards, customer service and online selling. Tencent provides its open APIs for those companies that plan to provide a service account inside WeChat to access its payment services.

It's also working on the development of a QR-code-enabled mobile payment system.

However, an unfavorable regulatory regime in China is currently limiting the impact of such systems. Globally, the impact of such systems is likely to be more limited than in China due to the large user base enjoyed by WeChat, as well as the strong payment experience of Tenpay. This accounts for the relatively high level of hype and immaturity of this profile.

User Advice:

• Banks should explore how they could use social messaging platform APIs to improve the contextualization of their digital wallet functionalities and other payment solutions.
• Banks should also consider partnering with social messaging platforms and bring their risk management expertise to the partnerships.

Business Impact: The business impact is high. The development of social messaging ecosystems, such as WeChat in China, drives adoption of digital wallet solutions. Compared to social media payment systems, payment systems based on social messaging provide a more narrow (and controlled) context and are more aligned to the customer experience. They also have the opportunity to impact proximity payments via the use of QR codes and remote commerce emulation.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Adolescent

Sample Vendors: Tencent

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Peer-to-peer (P2P) foreign exchange (FX) marketplaces are based on a network of customers who deposit funds with one provider, providing a pool of multiple currencies. Based on the balances at those accounts, the marketplace defines alternative FX rates and enables FX trading to support international remittances.

Position and Adoption Speed Justification: P2P FX marketplaces are still at an early stage of development; however, more examples have come to the market through 2013. They remain part of the ongoing attempt at delivering new business models to challenge the status quo with regard to international remittances and FX services, while capturing the margins associated with related fees and FX commissions. Azimo and P2P Cash are examples of providers using alternative business models to achieve this end.

The arbitrage performed by the companies operating P2P FX marketplaces depends on the number of customers participating, the total monetary value pooled and the ability to recruit customers across multiple currencies. There will, therefore, be a challenge in extending the role of the solution to less traded currencies, although in these instances, and also for those instances where immediate liquidity is needed for well-traded currencies, the marketplaces tend to rely on a partner bank that will bring liquidity by offering competitive trading rates.

This also requires the users of the service to have good experience with digital financial services interfaces. For example, with CurrencyFair, the user sends a pending deposit notification before transferring the funds via Internet banking to the provider. However, these marketplaces are taking advantage of social networks to grow their user bases and accessing more-experienced Internet users. They are starting to target the small and midsize business sectors, as well as the retail sector. P2P FX marketplaces are not currently viable for the unbanked population that uses international remittance services, because a bank account is required to fund and receive the traded currencies (except in the case of an account opened by a local intermediary, such as a merchant with strong ties with the local community).

We continue to believe this emerging trend is promising. Because it targets a specific customer segment with a well-identified solution, it will continue to move relatively quickly through the Hype Cycle as volumes and values of traded currencies increase, and larger numbers of marketplaces are established.

User Advice: Gartner recommends that banks focus on offering need-based payment solutions, rather than deploying mass-market payment instruments to improve the ROI of their payment investments and better support the specific needs of different customer segments. In this context, the provision of a P2P FX marketplace should be considered by certain categories of banks, especially those with ambitions to leverage social and P2P networks. While any bank-supported marketplace would initially cannibalize some of that bank's existing FX revenue, the potential to expand the service beyond the bank's immediate customer base would likely offer opportunities that outweigh any initial loss of FX income.

Business Impact: Depending on the currency balances, the rates provided via such solutions can be lower than more traditional international remittance providers (Western Union, MoneyGram, banks and so on). As a result, customers can perform lower-cost international remittances by arbitrage across the accounts owned by those customers.

For banks, this is another illustration of need-based financial services and how nonbank providers can leverage social media to develop an alternative payment system.

The business impact is for a specific business segment, but banks must pay attention to how many of those solutions emerge, and begin to challenge their existing payment revenue streams.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: CurrencyFair; Kantox; KlickEx

Analysis By: Christophe Uzureau; Alistair Newton

Definition: The handling and transfer of payment credentials for remote commerce emulation for proximity payments is managed away from the point of sale (POS). It can be initiated by a retailer-generated bar code displayed on the POS (e.g., DigiCash or FLASHiZ solutions in Europe) designed to be scanned by the consumer's mobile device. Or, it relies on a Bluetooth low energy (BLE) device coupled with a POS, such as PayPal Beacon or Apple's iBeacon. Importantly, the actual payment credentials do not pass between the handset and the POS terminal.

Position and Adoption Speed Justification: Payment providers that built adoption of their solutions via e-commerce are using remote commerce emulation to make their solutions relevant to the POS. They also have the ability to deliver supply chain services (such as inventory management) to differentiate from traditional POS payment solution providers.

For example, in 2014, one of PayPal's top priorities is to market PayPal Beacon:

• The solution relies on a BLE device coupled with a POS compatible with PayPal (such as Booker, Erply, Leaf, Leapset, Micros, NCR, PayPal Here, Revel, ShopKeep, TouchBistro and Vend).
• For the PayPal users, they could select whether (and for which stores) to be automatically checked-in (with authentication by the sales assistant via a photo displayed via the POS) or whether they want to confirm the transaction by providing their PayPal passwords.
• PayPal is also working with Samsung to leverage the Galaxy S5 biometric authentication system, notably its Fido (Fast IDentity Online) Alliance software.

The development of Single Euro Payments Area (SEPA) credit transfers in Europe, and the global trend toward real-time low-value payment systems, also has an impact on the ability for banks to develop remote commerce emulation for proximity payments, such as with DigiCash.

DigiCash is a payment institution registered in Luxembourg that currently operates in Europe and is a multibank solution. It provides banks with an infrastructure interface, and banks are in charge of the issuing process and registration of their customers. It can use quick response (QR) codes (it captures data such as merchant ID, amount and invoice number), displayed at the POS to trigger a credit transfer payment to the merchant account.

The opportunities for banks are not just about transactional revenue – especially bearing in mind the potential impact on reduced interchange revenue by using credit transfer systems as compared to card networks. It's primarily an ability to work with new customer segments – "prosumers," small and midsize businesses (SMBs).

Despite their potential, there is currently a lot of hype on the implementation of such systems. The perceived replacement effect of cash and cards is overstated. This is more about reaching new customer segments than changing the nature of payment services at well-established merchants. This is the reason why we position this profile at the peak.

User Advice:

• Reuse existing credit transfer infrastructures to support remote commerce emulation. This is especially valid in markets where real-time low-value payment systems have been or are being implemented.
• Enable your customers to define usage parameters for the use of remote commerce emulation through your digital banking interfaces. This will reassure customers while strengthening the role of your digital banking platforms.
• Plan to launch or develop partnerships to launch supply chain services to augment your remote commerce emulation services.

Business Impact: The business impact does not depend solely on transactional services. What matters to prosumers, SMBs and merchants that could adopt such solutions is how well the solutions fit into their supply chains, as well as their contribution in terms of added value services (inventory management, reconciliation services, loyalty applications, and so on). Under the condition of delivery of such services, Gartner regards the business impact as high.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: Apple; DigiCash; FLASHiZ; PayPal; Pingit (Barclays)

Analysis By: Alistair Newton; Christophe Uzureau

Definition: A trusted service manager (TSM) operates within the Near Field Communication (NFC) payment ecosystem, facilitating the initiation, personalization and ongoing life cycle management of the payment credentials and associated data of consumers within the wallet applications and secure elements (SEs) resident on suitably equipped NFC-enabled mobile devices.

Position and Adoption Speed Justification: A TSM is responsible for the life cycle management of all NFC applications, not just payment-related. This profile focuses on payment and payment-related applications. The skills and capabilities required to offer TSM services may be summarized as follows:

• Technical: The ability to establish secure, real-time connectivity among service providers, to convert communication protocols and, ideally, to support end-to-end connectivity.
• Life cycle management: This may include over-the-air servicing of customer accounts held in wallets, which allows users to enroll and service those accounts, and also to activate/deactivate applications.
• Legal: Contractual agreements, responsibility and liability to ensure the minimum level of knowing your customer and anti-money-laundering by each party, including recourse procedures.

However, the rules of the game have changed:

• The Royal Bank of Canada (RBC) launched its RBC Secure Cloud service, based on host card emulation (HCE), to deliver an NFC-enabled mobile payment system. It stores most of the customer's secure credentials on its servers while using some secure credentials when performing the proximity transaction.
• Spain's Bankinter is planning to launch an app in 2014 to generate a virtual token (launched as a mobile virtual card) to avoid relying on the SE in the mobile handset. The HCE service was developed with Visa Europe, Net1 Universal Electronic Payment System (UEPS) and Seglan.
• The latest version of the Android OS (KitKat 4.4) is supporting HCE, and in February 2014, Visa and MasterCard announced new standards, tools and services for banks to adopt HCE and, therefore, that they are supporting HCE.

The process of tokenization, and especially HCE, is at an early stage, and while it addresses some of the business and security challenges associated with existing NFC payment solutions, it brings with it as many new risks and challenges. Given the scale of these new issues, it will take multiple years before industry discussion and cooperation adequately address and minimize these new risks. However, the survival of TSMs now depends on how rapidly they adapt to move away from managing the secure credentials locally on the SEs to take into account the process of HCE and tokenization. This is why, despite the new TSM announcements of 2013 and 2014, this technology remains at the peak level of hype.

User Advice: Due to the evolution of the management of secure credentials, banks or others choosing a TSM must ensure that they engage with an organization that has a clear and realistic view of the opportunities and the threats in the market. A TSM that recognizes and addresses the hype will be more use to a bank than one who succumbs to the hype. In 2014, Gartner advises TSMs to evaluate how their existing investments can support the hybrid model (see "Digital Wallet's Next Generation Demands Hybrid Model"). Now they don't seem to have a choice.

Banks should experiment with the hybrid model if their objective is to reduce current dependency on cross-industry models for proximity payment solutions – and therefore improve the business case for such deployments.

Business Impact: Operating in the NFC payment space will raise a set of new challenges and skills gaps for most providers of payment services to customers. And the tokenization process will make this even more difficult. Banks will have to review how their security credentials respond to NFC-enabled mobile-payment-system-specific challenges and the transition toward the hybrid model.

When selecting your TSM provider, ensure that it has the range of technical and operational/business skills that this role will require. Also ensure that it has sufficient transparency to allow some degree of skills and knowledge transfer to your organization. It is now also critical to understand how your existing TSM (if any) has the ability to handle the process of tokenization.

Benefit Rating: Moderate

Market Penetration: Less than 1% of target audience

Market Penetration: Emerging

Sample Vendors: Gemalto; Giesecke & Devrient; Morpho; Oberthur Technologies; Watchdata Technologies

Analysis By: Christophe Uzureau; Alistair Newton

Definition: "Payment information value-added services (PIVAS) – synchronization process" is a supporting process to "PIVAS – reward and loyalty." It's the synchronization of the deals provided by a merchant (or card issuer) and aligned to customer preferences (and/or accepted by a consumer) with the payment process (the use of the card by the customer validates the reward for immediate delivery or post-purchase delivery).

Position and Adoption Speed Justification: In the case of American Express (Amex), the PIVAS – synchronization process works as follows:

• As part of American Express's "Link, Live, Love" campaign with Facebook, the card members log into Facebook and link their Facebook profiles to their Amex profiles – a one-time process.
• Amex creates a new ID composed of an account number and social ID – note that the social network site (in this case, Facebook) doesn't have access to the account information.
• Merchant data, including geolocalization data, is stored in dedicated databases and updated when a campaign is approved by American Express.
• The offer portal is in charge of matching the merchant offers to card member preferences, and makes appropriate recommendations.
• When the card members log into Facebook, they see relevant offers, and, if interested, make their selections.

And this doesn't only apply to three-party models, such as American Express. Visa, with its Visa Offer platform and Barclaycard, with its custom-made Offers website, are also aligned to this concept.

However, the maximum impact of PIVAS – synchronization process demands further investments to achieve more flexibility from the user perspective. The payment industry is currently exploring how to link multiple reward programs to a given ID (such as the one created above to support the synchronization process) to enable a customer to redeem offers across a given merchant network, whether or not a card issuer has a specific agreement in place with any of the merchants where the redemption could take place.

This is challenging to achieve, since it demands special arrangements for the related "reward authorization" process – for example, if a customer confirms the intention to use a particular reward to make a payment at a nonaffiliated merchant of a bank, the bank needs to ensure the reward value is allocated and held until the reward is redeemed.

These challenges account for the limited progress of this profile this year.

User Advice: Not all institutions have access to the type of payment data that is available to Amex, which has full access to merchant/consumer data as it manages a global closed-loop network. As a result, it can carry out quite complex campaigns using advanced retail data analytics, which may not be as easy to deploy for other payment providers.

However, you cannot ignore the role of the synchronization process to make your existing payment solutions more relevant to consumers and merchants.

Banks with issuing as well as acquiring operations should contemplate developing their own synchronization processes. However, to use PIVAS – synchronization process, most banks will have to rely on a card network, such as Visa, or a third party, such as a social media site.

Banks should align the synchronization process with their digital wallet solutions, which can be used as platforms to manage and track the rewards, as well as receive alerts when rewards are attributed or to remind the user of a redemption deadline.

Business Impact: The benefit rating is high. Amex has strengthened the breadth, reach and impact of its loyalty programs by working more closely with Facebook, Foursquare and Twitter.

The PIVAS – synchronization process provides an ability to launch more specific campaigns with more merchants at a lower marginal cost. It assists the customization of marketing campaigns. As a result, issuing and acquiring operations can be strengthened.

For banks, the PIVAS – synchronization process also creates an ability to expand the influence of their payment assets, notably by linking to new customer interfaces, such as to their digital wallet solutions and to social media sites.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Adolescent

Sample Vendors: American Express; Barclaycard; Visa

Analysis By: Alistair Newton; Christophe Uzureau

Definition: EMV is the industry standard for chip-enabled payment cards. It has been rolled out in many countries. Here, we track the progress toward its implementation in the U.S.

Position and Adoption Speed Justification: Following much discussion about this technology in the U.S. through 2012 and 2013, progress has been far from stellar. Card scheme mandates have been set and then challenged, while the debate over the rationale of adopting "chip and signature" approach to EMV deployment over the more robust "chip and PIN" deployed across the rest of the globe, has reignited. Some banks (such as Bank of America, Chase and Wells Fargo) continue to issue EMV-compliant cards to customers who are traveling overseas. However, deployment targeted at customer use within the U.S. is still virtually nonexistent, and the business case to support the deployment remains uncertain (which is driving much of the negative reaction from retailers in particular).

Despite these setbacks, instances like the huge data breach at Target mean that the debate has moved forward, and the likelihood that banks will start issuing EMV-compliant cards to their domestic customers, and that retail point of sale (POS) devices and automated teller machines (ATMs), will become compliant is considered highly likely. For these reasons Gartner has progressed this technology to the peak/trough midpoint in this year's Hype Cycle. It is generally accepted that most developed global payment markets outside the U.S. will have deployed EMV within the next handful of years, and this is considered likely to further drive up fraud levels in the U.S. market. As those fraud levels increase, the business case for EMV implementation will improve. The impact of mobile Near Field Communication (NFC)-enabled payments may also help the business case for EMV deployment, because the demand – albeit very limited at the moment – to use NFC payments will drive the adoption of POS terminals that can accept EMV and NFC contactless transactions.

The benefit rating for this technology remains at moderate on the basis that the financial investments required to deploy EMV technology will likely blunt the overall return on those investments.

User Advice: U.S. banks should recognize that fraud will likely increase exponentially, and with little warning. They should develop an EMV-centric contingency plan that involves EMV deployment for their payment card businesses, and EMV enabling their ATM networks and POS terminals. They should also recognize that EMV deployment will not be popular with all stakeholders.

When exploring or implementing EMV-compliant processes, U.S. banks should investigate opportunities to develop hybrid-based digital wallet solutions, as introduced in "Gartner's Digital Wallet Solution Segmentation Model."

Business Impact: On top of enhanced fraud management and fraud reduction, EMV deployment enables banks to remain prominent with regard to retail payments. In addition, any EMV deployment is likely to be aligned with mobile NFC deployments at the POS in the U.S., thereby providing opportunities to strengthen the acquiring relationship with some retailer segments, and improving the relevance of bank payment instruments.

Benefit Rating: Moderate

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: ACI; Atos Worldline; Diebold; Gemalto; NCR

Analysis By: Mary Knox

Definition: Gartner defines a "payment architectural framework" as a payment-domain-specific tool that guides the development of a modern payment architecture, such as the payment services hub (PSH) recommended by Gartner. Tools range from documentation to business process management technologies for modeling and managing process relationships and workflows. Specifications may include functions, process steps and flow, service components relating to the process steps, technical architecture, and supporting data models.

Position and Adoption Speed Justification: Payment architecture frameworks are of particular importance, because they facilitate incremental build-out of the PSH. They help architects and developers conform to the long-term goals of the PSH while focusing on designing and implementing an application on a more tactical basis.

Banks are turning to payment frameworks to guide the design of modernized payment solutions for two primary reasons:

• There are no fully developed vendor applications for supporting a complete PSH. As a result, banks are blending vendor solutions (and sometimes multiple vendor solutions) with custom development.
• Most banks that are developing a PSH are doing so in a phased fashion. Very few banks begin with an overarching payment modernization project that initially addresses all forms of payments across all geographies in which they are active. Instead, most banks start with a specific payment process or payment type. Furthermore, most start with a particular focused driver in mind, such as Single Euro Payments Area (SEPA) compliance in Europe, to accommodate real-time payment systems or to better support their transaction banking operations. In some cases, PSH deployment may be started within a particular geography, or it may begin first with the building out of an underlying messaging layer. In these instances of phased development, architecture frameworks can ensure consistency and reusability of development over time.

However, while many large banks are engaged in a payment modernization initiative, many smaller banks, or banks with a less strategic payment operation, have yet to begin payment modernization. As a result, Gartner estimates that payment framework utilization is slightly over 10% of the target audience. Nevertheless, progress has been made to develop and use payment frameworks. While hype remains, payment architectural frameworks have begun the descent into the Trough of Disillusionment as banks recognize that frameworks alone cannot future-proof phased development of the PSH.

A significant roadblock to the success of frameworks is the lack of standardization at a process and service definition level within the payment arena, a shortcoming a framework cannot overcome. This currently limits the value of frameworks in multivendor environments, although this can be expected to change over time with increased industry standardization, such as that being driven by the Banking Industry Architecture Network (see "BIAN Begins the Transition from Vision to Implementation"). To counter this limitation while retaining some benefits of supporting best-of-breed vendor selection, many banks are using frameworks with a semiopen approach, as opposed to frameworks that are fully open (vendor-neutral) or fully closed (supporting only the framework vendor's solutions).

User Advice:

• To achieve differentiation via payment operations, limit payment modernization risks and achieve time to market over the life span of the PSH, prioritize payment architecture frameworks with a semiopen approach.
• If minimizing initial time to market for a set of new payment applications and operational efficiency is the sole purpose of your payment system modernization, prioritize payment architecture frameworks supporting a closed approach.
• Use the payment architecture framework to influence the transformation of your payment governance model. The ability to better visualize and organize payment assets, as well as better measure the ROI of the transformation, should be used by banks to support the evolution of their governance models for payment operations.
• In evaluating vendor frameworks, place extra weight on those that are complementary to your bank's overall architectural approach beyond payments and those that are based on available industry standards.
• Taking into account the current immaturity of payment frameworks, banks with only a specific operational objective in mind – such as replacing a specific payment functionality to improve critical performance – may decide not to consider the use of payment frameworks. However, we do advise banks to look into payment frameworks to support the long-term payment modernization road map that we think banks should initiate.

Business Impact: Payment architecture frameworks are applicable to PSH initiatives that bring together multiple payment types on a single platform. The framework is of particular importance because it facilitates an incremental build-out of the bank's PSH. A framework helps architects and developers conform to the long-term goals of a bank's PSH strategy, while designing and implementing functionality on an incremental basis.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Adolescent

Sample Vendors: Axway; Clear2Pay; Dell Services; Dovetail; Fundtech; IBM; Microsoft; Misys; Oracle; Polaris Software; Tata; Unisys

Analysis By: Christophe Uzureau; Mary Knox; Kristin R. Moyer

Definition: The payment services hub (PSH) is a solution at the center of payment interactions capable of invoking services, and reacting to events that require other components, such as enterprise/common services, other banking systems and services provided by third parties. In addition to its primary function as an orchestrator, because it owns the rules of integration between payment services and other banking systems, the PSH includes the bank's payment-related services, translation services and life cycle management.

Position and Adoption Speed Justification: Three main core components define a PSH or modern payment architecture:

• A group of translation services to create a payment object from any messaging/payment instructions originating from any channel. The PSH is, therefore, channel-neutral.
• A business process orchestration and workflow manager to define the right sequence of payment services. Its purpose is to ensure end-to-end processing of payment instructions. The orchestration is rule-based to ensure customization of process flows. Its key role is payment process management.
• A payment life cycle manager to ensure full visibility and reporting of end-to-end payment information across a bank's payment value chain. Its key role is payment information management.

Most core PSH components are rule-based. Overall, the PSH is business rule- and configuration-driven. To achieve this, it is built on service-oriented architecture principles to ensure modularity. It makes use of business process management technologies to manage and construct workflows, monitor business activities and optimize processes.

Taking into account the definition of a PSH, a modern payment architecture has many dimensions – it's a total rethink of the bank's payment value chain and how it integrates/impacts/is impacted by other banking systems and client systems. However, this doesn't imply that all the possible changes have to be implemented, and definitely not in a big-bang fashion. Too often the demands from many lines of business (LOBs), combined with an appetite to move quickly away from legacy systems, lead to unrealistic scope and implementation timelines. Governance is, therefore, an important factor of success or point of failure.

While a new governance model is essential to carrying out most modernization initiatives, its design needs to be realistic. It needs to account for the tensions emanating from existing organizational silos. Banks need to strive for compromise.

From a global perspective, as in 2013, we expect to see the PSH reach the Plateau of Productivity during the next five to 10 years. Banks that are moving to a PSH and delivered on initial expectations, have adopted a phased approach to minimize risk (taking into account the complexity of most banks' legacy payment systems), to build stronger intermediary business cases and to deal with the usual budget restrictions.

User Advice: Review the capabilities of your payment assets now, including all payment systems and the overall payment architecture. Banks that include payments as a key component of their business strategies, and do not have modernization plans, must define one immediately. They cannot ignore the agility that their competitors are building into their payment systems. This doesn't necessarily imply a full payment modernization effort. However, banks will have to ensure that they are at least planning for a strong workflow management capability, combined with life cycle management of payment operations, to remain competitive, even if they decide to strategically outsource an increasing portion of their payment operations.

Make the PSH initiative an enterprisewide effort. This isn't just about payments. The design of a PSH will have an impact on the design of common services across your organization, including enterprise IT governance, the project/program portfolio management center of expertise and architecture teams.

As a result, carefully plan the integration with your banking/payment systems and broader enterprise services (for example, risk management) to support broader payment system migrations.

Adopt a progressive approach to building a PSH. This isn't a big-bang initiative. To achieve the complex arbitrage between short-term tactical moves with the long-term strategic intent of the modernization of the payment architecture, the organization needs a map based on its future-state vision. This map must also guide the internal alignment between LOBs and IT operations – it must also act as a common language between business and IT. This is why Gartner recommends the use of a functional model.

The use of a future-state visualization, such as a functional model, will also segment the overall business case into smaller chunks – the bank could measure micro-ROI targets with ongoing net present value (NPV) measurement.

As a result, create key performance indicators (KPIs) for inclusion in the operating model that evaluate project progress and related business benefit.

Business Impact: To support customers, notably by delivering on key innovations introduced in this Hype Cycle, banks must ensure that their payment architectures are flexible enough to accommodate their requirements (including those in the future), while not adding new risks and not increasing cost per transaction. As a result, rule-based engines will be core to the modernization of bank payment systems to achieve, among other things, origination from any channel and any format, add advanced workflow design, and allow intelligent routing. This increasingly includes card applications starting to be integrated into a retail payment services hub.

Banks must also provide clients with the information they need to make quick decisions in a tough environment. This demands full visibility of the end-to-end processing value chain. Integration is also critical. The value of the PSH is based on its integration with customer systems, common services, banking systems and the networks supporting payment flows. This integration will support payment information value-added services that will assist customers in better managing their liquidity and supporting supply chain financing. The design of a PSH will also lead to a reduction in the cost per transaction, better risk management, and faster go-to-market times for new products and services.

Benefit Rating: Transformational

Market Penetration: 5% to 20% of target audience

Market Penetration: Adolescent

Sample Vendors: ACI Worldwide; Clear2Pay; Dovetail Software; Fundtech; Logica; Misys; Sopra

Analysis By: Christophe Uzureau; Alistair Newton

Definition: A digital wallet solution is an electronic vault where a person's credentials related to payment cards, account details and/or IDs, identification cards, loyalty programs and other sensitive data are stored securely and accessed from an interface on an electronic device.

Position and Adoption Speed Justification: A digital wallet solution can store multiple debit and credit card account details, and/or store money in the form of data. It also enables users to set preferences for security, loyalty and financial management purposes. As a result, a digital wallet solution could include these services:

• Presentment services – To track spending activity and provide control to users. These might include the ability to define savings objectives (such as for a specific travel plan) and include comparisons with spending activity from peers (using aggregated data).
• Preference setting – For example, which type of payment instrument to use for which type of transaction, or according to the value of a transaction, and/or for which merchants. This provides more control to users over security and spending activities. This will imply the use of a new interface to support multiple, overlapping options.
• Loyalty and reward program credential management – Mapping of the loyalty programs to each payment instrument registered by the customer. This may include digital payment advisor services.
• Co-financing and payment flexible terms – The ability to convert loyalty points (for example, air miles) to contribute to the funding of a given transaction, or/and to combine multiple payment instruments to fund one given transaction.

As a result, a digital wallet is not a replacement for a consumer's physical wallet – it encompasses a series of digital solutions dealing with financial, payment and loyalty requirements.

During 2013, the industry experienced a shift away from traditional Near Field Communication (NFC)-enabled mobile wallet solutions. This is still early stage, but the development of remote commerce for proximity payments, as well as the use of hybrid digital wallet models relying less on cross-industry collaboration will provide more flexibility for adoption of digital wallet for proximity payments. At the same time, the push of Visa and MasterCard for V.me and MasterPass, as well as the development of retail real-time payment systems, is increasing competition for remote commerce. This supply-side push accounts for the progress of this entry since 2013.

User Advice: Use a hybrid model to reduce the bank's current dependency on cross-industry deployment models for proximity payment solutions.

Adopt a multitier, multipartner strategy when designing digital wallet solutions. Your strategy should not be to only align to Visa and MasterCard product development; it should also include credit transfer systems.

Align the bank's digital wallet strategy with its digital banking strategy.

Use digital banking interfaces to provide customers with an ability to define security preferences and alerts.

Business Impact: Digital wallet solutions are transformational for banks, because they will extend the control and influence of their payment assets and to rethink their account services. However, it doesn't necessarily imply banks have to launch digital wallets to participate in that market. They can deliver digital wallet functionalities via their digital banking platforms, getting more visibility on consumers' day-to-day payment needs, improving the contextualization of their banking products and services.

Benefit Rating: Transformational

Market Penetration: 1% to 5% of target audience

Market Penetration: Adolescent

Sample Vendors: Alipay; Amazon; American Express; Apple; DigiCash; FLASHiZ; MasterCard; PayPal; Visa

Analysis By: Fabio Chesini; Christophe Uzureau

Definition: Transaction banking 2.0 represents the comprehensive, holistic, enterprisewide management and delivery of payment, cash management, trade finance and securities services for banks' institutional customers. This next-generation model extends beyond traditional transaction banking to emphasize business growth through services better aligned with institutional customers' supply chain finance (SCF) cycles.

Position and Adoption Speed Justification: Most banks recognize the importance of integrating all the components of transaction banking in a single global business strategy to better service their customers' SCF needs. This does not mean, however, that they are making much progress in this area. Such integration in support of a customer's financial supply chain is at the heart of the transaction banking 2.0 value proposition.

Many banks use the term "transaction banking" in their marketing communications, but most of their efforts have an internal focus. These banks are primarily working to gain processing scale, reduce cost and increase cross-selling. Few have taken the necessary steps to deliver transaction services holistically. These steps include organizational and technical actions, process and data integration across products, and service enablement, componentization, orchestration and personalization via a modern underlying enterprise architecture. This, together with a payment service hub (PSH), helps facilitate and orchestrate the intersection of payment processes and the sharing of data and functionality (or process components) across bank products, which is necessary to support customer requirements across the financial supply chain.

To respond to more-complex requirements and competitive pressures, banks need to define new value-added services for incoming and outgoing payments, and understand how those services integrates with the different channels for efficient delivery of these services.

In the area of outgoing payments, banks should be prepared for new real-time or near-real-time payments services and the different services associated with them, to speed up the procure-to-pay payment cycle and to improve cash management services, such as liquidity management and cash flow and forecasting tools. When dealing with incoming payments, banks need to continue to focus on reducing the use of paper-based collection instruments and to manage the receivables information their customers need to achieve straight-through reconciliation (STR). Providing the right delivery channels to facilitate banks' integration with their accounts receivable (AR) system and so streamlining customers' order-to-cash processes is key. For both outgoing and incoming payments services, banks should work to eliminate organizational, channel and product silos, to gain the necessary flexibility to start offering services in the different stages of their customers' SCF cycles.

Banks moving toward transaction banking 2.0 will also need to take into account the role of mobility. This does not mean creating mobile payment solutions, but rather "mobilizing" a bank's payment value chain to create services that augment its customers' own value chains. The bank could, for example, enable an authorized corporate customer to reprioritize a payment following a mobile alert.

Banks should also have a clear strategy for managing transaction data holistically, and be prepared to handle data from external sources to provide insightful information that enables their customers to make better decisions. They should embrace the open-banking concept by developing APIs, apps and app stores to gain flexibility to support the increasing dynamic demand from a variety of internal and external customers.

Due to the complexity of the requirements and the organizational challenges facing banks, transaction banking 2.0 is still five to 10 years away from maturity for most banks, and we consider it to be moving slowly toward the trough.

User Advice: Bank heads of lines of business and heads of payments:

• Transition from delivering discrete products to integrating services as part of business processes that support the customer's financial supply chain.
• Implement the componentization and orchestration capabilities needed to create processes and related offerings aligned with customer requirements.

Bank CIOs, heads of payments and payment architects:

• Extend PSH implementations to rationalize the workflow and data elements of the transaction products and services from which payments originate.
• Increase your awareness of the process and data components shared among transaction banking products, and how their integration will support customer business objectives.

Business Impact: Transaction banking, in general, represents a relationship-based stream of revenue with relatively low risk. This contrasts with large, typically exotic one-off, structured finance or investment banking deals that individually and collectively generate large amounts of revenue for banks – and, in many cases, large risks. Banks have rediscovered the value of transaction banking as high-profile deals evaporated during the worldwide financial crisis. In most cases, banks have been delivering transaction banking services as separate products, with few points of integration. Institutional banking customers, however, view them as parts of a process continuum for managing the financial supply chain. Banks should make process transparency and integration of information across bank products, enabling better management of the customer's financial supply chain, a key objective. In the near term, this will be a competitive differentiator for banks, and a source of value-added service revenue that will be greater than the sum of that from separate product-based transaction activities.

Benefit Rating: Transformational

Market Penetration: 5% to 20% of target audience

Market Penetration: Emerging

Analysis By: Christophe Uzureau; Alistair Newton

Definition: With mobile-originated proximity payment systems, the origination of the transaction depends on the mobile device. The secure credentials are transmitted from the mobile device, or the process to do so is initiated via the mobile device.

Position and Adoption Speed Justification: This entry includes the use of Near Field Communication (NFC) and the use of quick response code (QR code) when the systems use the bar codes on the phone screen to enable the device to communicate with a bar code reader at the point of sale (POS) to initiate the payment (such as with Starbucks' mobile application), but not mobile payment systems where the bar code is displayed at the POS and read by the POS (e.g., Digicash).

The most progress toward developing mobile-originated proximity payment systems has been in Japan, with the deployment of an NFC-enabled mobile payment system, by the country's leading Japanese mobile phone operator, NTT Docomo. However, consumers there remain cash-centric, and the impact on the POS has been very limited.

In other countries, complex partnerships and arrangements to manage local credentials on the secure element are impacting the business case for mobile-originated proximity payment systems relying on NFC.

Increasing consumer usage of digital mobile wallet solutions is already a painful process, due to consumer security concerns, technical barriers and the lack of adequate devices in the hands of consumers.

Payment providers are, therefore, changing their models based on local credentials, and initiating a transition toward a hybrid model. Some examples:

• The Royal Bank of Canada (RBC) launched its RBC Secure Cloud service, a hybrid model based on Host Card Emulation (HCE) to deliver an NFC-enabled mobile payment system. It stores most of the customer's secure credentials on its servers while using some secure credentials when performing the proximity transaction.
• Spain's Bankinter is planning to launch an app in 2014 to generate a virtual token (launched as a mobile virtual card) to avoid relying on the SE in the mobile handset. The HCE service was developed with Visa Europe, Net1 UEPS and Seglan.
• The latest version of the Android OS (KitKat 4.4) is supporting HCE, and in February 2014, Visa and MasterCard announced new standards, tools and services for banks to adopt HCE, and, therefore, that they are supporting HCE.

The hybrid model is a step in the right direction, but is not a panacea, and is not sufficient to create a business case for mobile-originated proximity payment systems. Furthermore, new models such as Host Card Emulation (HCE) are currently immature and, rather than accelerating the market, will slow likely adoption as the need for industrywide work on standardization as well as a new approach to risk and security divert industry resources from actual deployments. This is why we position this profile as pre-trough 35%, with two to five years to plateau.

Gartner also recognizes that one catalyst of industry change in the area of mobile NFC payments could be the choices that Apple will make to include or exclude NFC capability from future iPhone models. If Apple makes significant moves in this area with the launch of iPhone6, then expect the hype to increase. However, even if Apple joins the fray, the fundamental issues over business case, security of payment credentials and user experience need to be addressed. Apple's involvement, however, will mean that the time to plateau may accelerate somewhat.

User Advice: Use a hybrid model to reduce the bank's current dependency on cross-industry deployment models for proximity payment solutions.

Use digital banking interfaces to provide customers with an ability to define security preferences and alerts.

Operating in the NFC payment space will raise a set of new challenges and skills gaps for most providers of payment services to customers. The hybrid process will make this even more difficult. Banks will have to review how their security credentials respond to NFC-enabled mobile-payment-system-specific challenges and the transition toward this new model.

Business Impact: The current business impact is moderate. The development of the process of tokenization and HCE and the related payment industry drive for standardization have the potential to increase the benefit rating to high. However, the current models remain immature, and the value proposition to consumers is still not sufficient to grow adoption and usage, and Gartner feels that the huge additional investments needed in standards and security will offset any additional potential benefits that may accrue.

Benefit Rating: Moderate

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: FeliCa Networks (Sony and NTT Docomo); Isis; Starbucks

Analysis By: Christophe Uzureau

Definition: An alternative card network carries payment messaging (or payment instructions) across a communications network (for example, an Internet Protocol [IP]-based network) for authorization, clearing and settlement processes, and has its own scheme for processing (arrangements among participating entities, such as issuers, acquirers, processors and operators of the payment system network).

Position and Adoption Speed Justification: An alternative card network is independent of existing dominant card schemes, such as MasterCard, Visa, American Express, JCB, China UnionPay and the Discover Network. However, as they gain adoption and their issuing/acceptance reach increases, some of these could become mainstream card networks. Political tension in Crimea and the resulting sanctions imposed on Russia – some were implemented via a more restricted use of Visa and MasterCard – have triggered a renewed interest in creating a domestic card scheme in Russia.

However, building a new domestic card scheme faces strong challenges and requires significant investments in building the brand, in time and commercial agreements to set issuing/acquiring connections, in securing the network, in ensuring that stakeholders are not a source of fraud, and in technology to ensure scalability, efficiency and resilience.

Furthermore, outside of rural areas, existing card networks can provide packages to their clients (issuers/acquirers) based on the breadth of their product portfolios, and can make it more difficult for new entrants to compete on pricing.

This is why the development of a domestic card scheme – notably debit cards – to challenge Visa and MasterCard achieves limited replacement, but tends to care for new customer segments. As in 2013, Elo, in Brazil, and RuPay, in India, account for most of the progress of alternative card networks.

RuPay card is now accepted at all 160,000 ATMs, 95% of all POS terminals (totaling more than 945,000) and at more than 10,000 e-commerce merchants in the country. The total number of bank-issued RuPay cards as of April 30 is over 20 million, growing at a rate of about three million new cards per month. However, the cards are mostly targeting unbanked and rural environment – since it is not yet able to build the international acceptance network required to target higher income cardholders (however, some Indian banks are building connectivity via their international networks). This is reflected by RuPay banks issuing cards such as Kisan cards, Milk Procurement Cards, Grain Procurement Cards and Financial Inclusion cards, which are targeting farming communities and the underbanked.

In Brazil, as of September 2013, 30 million Elo-branded cards had been issued. And the card processor Cielo has shifted the AgroCard program to Elo (around 50% of Elo value of transactions is from Agro cards) due to the lower cost (lower royalties) than Visa and MasterCard.

As a result, while not replacing Visa and MasterCard, the case for an alternative card network is stronger in emerging markets such as Brazil and India. As a result, the profile is making progress.

In Europe, regulators would like to see more competition for Visa and MasterCard as part of the creation of the Single Euro Payments Area (SEPA), notably to reduce interchange rates. However, European alternative card schemes, such as Payfair, have failed to dent Visa and MasterCard's market shares. Nevertheless, the European regulators are making important changes to card regulation via the PSD 2.0 (which applies to the European Economic Area [EEA]):

• Plan on a cap on interchange fees for both debit and credit cards (to be fully approved in 2014)
• Improve access to payment systems by nonbanks, to promote innovations
• Unbundle the network brand/membership from the processing infrastructure in order to facilitate access for new entrants to payment processing capability
• Access for certified third parties to customers' payment account information

While, in theory, this would facilitate market entry, these will not be sufficient conditions to create a challenger for Visa and MasterCard. It is more likely to lead to cherry picking for added-value services, which would impact the profitability of established card networks.

User Advice: Monitor the evolution of alternative payment networks. They are not going to fully replace MasterCard or Visa, even in emerging markets. They offer an alternative to reach new customer segments (such as the unbanked), or develop solutions for specific geographies and/or users (such as farming in India), because their terms and conditions may be better aligned with the processing of low-value transactions, notably by featuring lower interchange rates. However, there is no guarantee that the new card networks can survive in the long term (or make a profit), with lower interchange rates than Visa and MasterCard.

Use alternative card networks as an opportunity to negotiate terms and conditions with Visa and MasterCard. Some card issuers and acquirers are increasing the number of card brands they manage to provide more choices to their clients, for negotiation purposes and to protect themselves from future price movements (by preventing Visa and MasterCard from gaining too much market power).

Carefully assess the risk of fraud and ID theft when working via a new card network, which could become a prime target for fraudsters due to a lack of experience in dealing with attempted fraud.

Business Impact: Banks can use alternative networks to develop new card solutions and offer more choices to their clients (consumers and merchants). The impact is more transformational in emerging markets, since this will provide an opportunity to reach unbanked/underbanked and rural environments. In developed markets, the moves by regulators will lead to new entrants, but not full scale challengers to Visa and MasterCard. For banks, this creates an opportunity to work with new sources and improve their negotiation capabilities toward established card networks.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Adolescent

Sample Vendors: Elo; RuPay

Analysis By: Christophe Uzureau; Stessa B Cohen; Juergen Weiss

Definition: Social network payments are any payment systems that enable members of social media sites to initiate a payment for digital content (to pay for applications, such as part of Facebook), as part of social gaming, to purchase products and services via social networks, or to make a peer-to-peer (P2P) payment to another user of the network site (such as via Facebook or Twitter). Gartner includes all payments originated via social network sites, and/or using a social network, as part of the payment process, whatever the value.

Position and Adoption Speed Justification: Social network payment systems take into account some of the solutions in the Internet micropayment system category, since transactions of less than $5 can be originated from a social network site (notably for gaming). In other words, there are overlaps between social network payment systems and Internet micropayment systems for transactions of less than $5.

Application developers continue getting a wider choice of payment solutions to develop relevant payment applications more aligned with their own commercial processes or those of their clients. This also implies that the development of social media payment systems is also correlated to the development of digital currencies and the development of digital payment platforms. Challenges to adoption remain, due to the pricing model, how payment solutions fit with commercial processes and – among other things – reluctance by consumers to adopt solutions from unknown payment brands.

With regard to P2P, some banks are relying on social media for transactional activity. CIMB in Malaysia has integrated its online banking system payment system to Facebook via its OctoPay-branded solution. However, the solution is not limited to P2P solutions, and provides an ability to pool funds via Facebook to finance an event or occasion, as well as to top up mobile phone prepaid balances.

New partnerships are emerging to strengthen the role of social media for transactional activity. MoneyGram has a partnership with PicomoPay, a social payment platform integrated within Facebook.

However, Gartner research shows that consumers do not trust social media sites, such as Facebook, to handle financial transactions. To improve security (and related perceptions), as well as improve the alignment with the customer experience, lighter versions are being implemented first. More banks are launching functionality for their customers to make payments to their social media contacts. For example, banks such as ASB in New Zealand and Commonwealth Bank of Australia enable their customers to initiate transfers via their mobile banking apps to Facebook contacts.

Social media payment systems are making progress in an incremental fashion toward the trough. However, they are being challenged by social-messaging-system-based payment system, such as WeChat in China. These systems provide a more narrow (and controlled) context for payment systems – and, therefore, are more aligned to the customer experience.

User Advice:

• Participate in payment developers' communities to position your payment assets, capture new processing model requirements and bring new skills to your organization.
• Start reusing social media credentials (social media IDs) to facilitate your customers' payment activity – this is especially valid if you're launching digital wallet solutions or marketing a mobile originated P2P solution.

Business Impact: The business impact is beyond payment operations (to generate interchange revenue), extending to the ability to create awareness of bank payment services to an audience (notably a younger audience) that is less likely to trust banks for their overall financial services requirements. As in 2013, the lighter version of peer-to-peer (P2P) transfers – using social media contacts – continues to make progress and will also contribute to the development of digital wallet solutions.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Adolescent

Sample Vendors: Alior Sync; ASB; CIMB Group; Misys; PayPal; PicomoPay

Analysis By: Alistair Newton; Christophe Uzureau

Definition: The technology comprises a card reader that links to (either physically or, for example, via a Bluetooth connection) a mobile phone or tablet and allows the merchant (Tier 2, Tier 3 and prosumers) to accept and process the customer's payment card and initiate a transaction via card networks.

Position and Adoption Speed Justification: Adoption of this technology is anticipated by small or midsize businesses and retailers that would normally rely on bank-owned payment-acquiring terminals, as opposed to large Tier 1 retail chains that generally have payment-acquiring solutions heavily integrated into their point of sale (POS) terminals and incumbent POS applications. The solutions were initially targeted at mobile phones; however, they are becoming more available for tablets. The tablet solution will additionally be positioned as a cash register replacement, enabling retailers to manage inventory and associated details, as well as allowing them to accept payments.

Vendors are targeting businesses that would not previously have been able to cost-justify accepting payment cards, or "mobile" merchants that accept card payments at present, but do not have mobile terminals and must process the payments as "card not present" transactions over the telephone. For example, in the U.S., Square is relatively popular with taxi drivers, especially owners of four to five taxis who benefit from an easier way to deal with receipts and related reconciliation. And in Mexico, there are only an estimated 400,000 out of 5.5 million merchants that accept cards. This is due to excessive paperwork, high fees and the complexity of getting a POS terminal in the first place.

The propositions for merchants with these devices have improved. Providers are not treating those solutions purely as acceptance devices, but are also providing inventory and loyalty management services, as well as providing more control to merchants via better information/dashboards. The innovations they bring to merchant dashboards cannot be ignored by the rest of the payment industry. As a result, the business model is evolving from transactional fees to generating credit finance and added value service fee revenue (such as providing new analytical capabilities). This is an interesting illustration of the agility of new providers on the acquiring side.

For example, Square is now providing cash advances to its Square register customers (depending on their payment history). It has also introduced new services to Square Market sellers via its Square Dashboard, such as a pickup option to enable customers to preorder items.

However, the profitability of such providers is in doubt. This also explains why Square is keen to enter the short-term lending market. The Wall Street Journal reported that Square recorded a loss of $100 million in 2013 (revenue of $550 million; see A. Barr, D. MacMillan and E.M. Rusli, "Mobile-Payments Startup Square Discusses Possible Sale: Company Faces Wider Loss, Less Cash; Google Considered Potential Acquisition"). Most of the 2.75% fee it charges merchants is used to fund the fees paid to issuers and card networks. And its target segment does not generate a large volume of recurrent transactions.

Security remains a major challenge. And the risk debate is heightened when factoring in the need for EMV chip cards, and the need to protect PIN entry on these devices, resulting in requirements from the mainstream card companies that separate keypads be used to capture the customer PIN (rather than entering the PIN directly onto the screen of the mobile device). Some merchants have also reported that the use of tablet PCs as alternative POSs is leading to some hardware resistance issues in higher-volume environments. Furthermore, the cost of adding a receipt printer significantly increases the outlay for this alternative.

Positioning on the Hype Cycle, at the trough, recognizes that there is still a significant way to go before the technology can be considered anywhere near mainstream. There is also limited evidence of the profitability of providers, especially those that entered the payment market with a mobile-device-as-payment-acquiring-terminal solution.

However, progress has been made, notably with banks showing interest in developing and marketing such solutions, and the potential for these devices remains strong in the particular market segments at which they are aimed. Competition among the providers of these solutions will also pave the way for the development acquiring convergence solutions and dashboards, which would drive adoption and accelerate their maturity.

User Advice: The deployment of these devices within the retailer environment will pose a challenge to existing bank-acquiring relationships. They may also raise the risks associated with certain payment transactions. Banks should track the deployment of these devices and challenge the vendors to maintain security standards.

Banks and acquiring processors should also invest in acquiring solutions (or value-added services) peripheral to POS devices. This will strengthen the role of banks as primary payment providers to merchants and make it more difficult for new entrants to build momentum with merchants.

However, banks and acquiring processors – combined with those value-added services – should also consider mobile devices as payment-acquiring terminals as a way to reach prosumers (businesses with a maximum of one employee and a limited turnover) that cannot justify the cost of renting a traditional POS terminal. Banks such as National Australia Bank, Commonwealth Bank of Australia, Santander, Banamex and Bank of America have entered this market. This is especially valid, taking into account that Square has started offering a short-term credit facility (cash advances) to existing users of its card acceptance solution (Square Register) based on their payment history.

Overall, what matters for banks is to think beyond the traditional payment model and position, and focus on the overall financial value chain, including cash management and loyalty applications.

Business Impact: The benefit rating remains at "high." On top of loyalty and cash management services, these acquiring devices will grow in influence as they are more able to accept EMV-based chip cards and are positioned as part of other acquiring solutions (such as merchant dashboards) that could reuse devices' visual interfaces (notably via tablet PCs)

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: Banamex; Clip; Commonwealth Bank of Australia; iZettle; Intuit; National Australia Bank Group; PayPal; Santander; Square; VeriFone

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Online bank-enabled payment (OBEP) systems are payment solutions that rely on the online banking authorization process, following origination via a merchant website.

Position and Adoption Speed Justification: In an OBEP system, transactions are authenticated and authorized via banks' online banking services, based on a prefilled, nonchangeable payment. The payments are generated by a secure redirect from a merchant website, resulting in a guaranteed and irrevocable payment (a credit transfer). The credit transfer comes directly from the account of the consumer into the account of the merchant. The merchant is notified in real time.

Such systems tend to be managed as schemes, with a dedicated governance model guiding the organization and pricing model for a network of financial institutions and merchants/billers. OBEP systems are not new. They are distinct from electronic bill presentment and payment (EBPP) services, which (by definition) involve the presentment of a bill to request a payment; OBEP systems are integrated into the merchant's website.

iDEAL (a Netherlands-based company launched in 2005) has been the dominant payment method for e-commerce in this market for years, and continues to experience healthy growth rates. In March 2014, it processed more than 13.5 million transactions (growth of around 24% vs. March 2013).

However, outside the successful Dutch model – thanks to the Netherlands' high adoption of Internet banking in the first place, and an industry effort led by the Dutch Central Bank – adoption of OBEP systems is likely to be lower.

In most markets, the deployment of OBEP systems will face several challenges, including displacing established e-commerce methods (notably PayPal); agreeing on a pricing model for issuers/acquirers and merchants; building merchant acceptance; and convincing consumers to move to the new method (if adoption of an OBEP system implies the development of a new brand, the marketing costs are considerable).

Replicating the Dutch model in other countries will be more difficult. EBA Clearing has launched MyBank to take advantage of the move toward Single Euro Payments Area (SEPA) credit transfer to create a bank-driven solution for e-commerce payments. Italian banks were the first adopters of this solution, and Italian companies such as tour operator Alpitour and shipping company Tirrenia CIN are some of the companies now accepting MyBank.

OBEP systems are important entry points into digital wallet solutions. For example, some payment institutions, such as Digicash in Luxembourg, are also taking into account the bank online authorization process.

As a result, this technology continues to make progress. However, we position it at the trough, since it will take time for the industry to maximize the use of OBEP systems, which are strongly related to the following payment system innovations:

• Near-real-time low-value payment systems: Banks can leverage the infrastructure to design new payment services to small or midsize businesses or prosumers, while leveraging the banks' existing online authorization platform.
• Digital wallet solutions: OBEP could be an entry point to provide a digital wallet solution, or part of the payment options supported by the digital wallet.
• Remote commerce emulation for proximity payments: OBEP originated via a mobile banking interface could also become an alternative solution for some proximity transactions, as well as for home delivery.
• User Advice: The development of OBEP systems tends to be infrastructure-centric – linking stakeholders and defining integration requirements as well as scheme rules. This approach sometimes leads to complex settings for customers to register and start using these solutions. As a result, banks using OBEP as part of their digital wallet strategies must pay special attention to these components of the overall customer experience.
• Plan to deliver OBEP systems across channels, notably to achieve a consistent experience for customers accessing such solutions via a PC, tablet or mobile device.
• Strengthen (and market) your personal financial management services to your customers when launching OBEP systems. This will contribute to adoption and use, while providing consumers with a payment solution that assists them in controlling their spending activities, which remains an important requirement because of current economic uncertainties.

Business Impact: Banks are looking for new solutions to:

• Achieve greater control over e-commerce transactional activity
• Respond to consumer privacy concerns about shopping online
• Compete against alternative payment providers' solutions, which challenge bank revenue and customer relationships

Banks can leverage their existing banking infrastructures and, most importantly, provide visibility into their customers' monetary flows while preventing third parties from gaining a foothold into their customers' finances.

For merchants, the benefits of OBEP systems are real-time guaranteed payments, automated with no chargebacks and reversals, and with the burden of securing the transactions shifted to the bank. With the development of near-real-time payment systems, this will also improve the availability of the funds.

For consumers, OBEP systems improve control over their spending activities (Internet banking spending monitoring) without them having to share their card details.

OBEP systems are valid e-commerce alternatives to credit cards, PayPal and other nonbank payment solutions. OBEP systems are unlikely to become dominant e-commerce payment solutions in markets with established payment methods for e-commerce, due to entrenched consumer habits and the challenges of creating the right governance model for aligning the requirements of issuing, as well as acquiring, operations.

However, the use of credit transfer systems to develop OBEP systems, and the development of near-real-time retail payment systems, pave the way for more bank-centric digital wallet models. This is why we set the benefit rating of this technology as high.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Adolescent

Sample Vendors: Currence; DigiCash; EBA Clearing

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Mobile-originated peer to peer (P2P) solutions rely on mobile devices to initiate transfers from the accounts of payers to payees. The authorization process relies on existing payment or communication networks. It could be performed via a proprietary network (e.g., from a card association), an interbank network (e.g., Faster Payments in the U.K.), or from a wireless network operated by a mobile operator.

Position and Adoption Speed Justification: This profile focuses on mature payment markets, which is not simply about the country dimension, since one given country could have mature as well as nonmature payment markets (for example, Thailand).

The origination can be achieved in multiple ways via a dedicated interface, and can make use of the preregistered account details of the payee, make use of a third-party contact database (e.g., Facebook friends contacts) or initiate a transfer to a payee's email address or mobile phone number. As suggested by the definition, there are many different types of technologies that can support mobile-originated P2P solutions. The development of retail real-time payment systems is one such technology foundations supporting the growing interest and competition in developing mobile-originated P2P solutions.

Banks also don't need to design a solution from scratch. Some banks are working with PayPal to develop P2P solutions – for example, Mercantile Bank of Michigan's MercMobile P2P system. La Caixa customers in Spain can open a PayPal account via an Internet banking site.

The U.K. market has seen a rapid development of mobile-originated P2P solutions. Barclays Pingit is now facing competition from the adoption by other banks of the Paym scheme, which was launched in April 2014 and enables U.K. bank accountholders to send or receive money to any other accountholder using just a mobile number. However, as with any new payment solution, user experience will be key, and Paym has its issues in terms of deployment, notably with regard to the registration process, which could slow down adoption.

As a result, we expect this profile to reach the plateau in two to five years.

User Advice:

• Change consumer perception of the security of mobile phone payment systems by making the mobile device a part of your bank's fraud and security precautions.
• Position the development of mobile P2P solutions as part of your consumer and commercial banking operations. Moreover, develop multiple use cases to accompany the rollout of those solutions.
• As a result, define payment needs based on customer location and context first. Then establish which technology environment needs to be developed.
• Adopt new analytic tools to simulate potential revenue cannibalization, and continuously measure customers' evolving use of mobile payment solutions. The creation of mobile payment solutions will need to account for the changing landscape of ecosystem partners and evolving customer habits. This will demand an ongoing analysis of customer usage and pricing sensitivity (by product and at the level of the relationship).

Business Impact: The lessons from Barclays Pingit are important here. Pingit provided Barclays with a new tool to serve "prosumers" and the small to midsize business (SMB) market, and to start positioning other banking products and services to these customer segments.

For banks, the business case and impact of mobile P2P-originated payment systems is not limited to P2P. What matters is how such solutions are used, not only to target consumers, but also prosumers and SMBs, as well as larger commercial clients looking for another payment facility. For example, Cega Group, which provides claims management services, announced in November 2013 the use of Pingit to support claims reimbursements.

This also impacts card networks and their ability to capture new payment flows from emerging commercial activities, and also reduces their negotiation capabilities toward other payment industry stakeholders.

Benefit Rating: High

Market Penetration: 1% to 5% of target audience

Market Penetration: Adolescent

Sample Vendors: Fiserv; PayPal

Analysis By: Stessa B Cohen; Christophe Uzureau; Alistair Newton

Definition: Enterprise mobile financial services solutions support or enable the development of mobile-based sales and marketing, account services, security services, transactional services and business intelligence (BI) capabilities across multiple customer segments (retail customers, merchants/small and midsize businesses [SMBs], and underbanked commercial clients) for bank staff to service a bank's customers.

Position and Adoption Speed Justification: Most point mobile banking and payment solutions available in the marketplace typically support only a basic set of self-service and payment transactions, and are limited in their ability to allow the bank to create new applications, or they cannot be extended to the rest of the bank enterprise. Additionally, these mobile banking and payment solutions limit a bank's ability to differentiate itself (notably by preventing the reuse of existing account services, such as financial personal management, as part of the mobile delivery).

• Enterprise mobile financial services solutions enable banks to develop over-the-air (OTA) mobile payment systems and Near Field Communication (NFC)-enabled mobile payment systems via the same platform and support services common to mobile banking and mobile payment systems, such as authentication and authorization services. Enterprise mobile financial services solutions enable a bank to extend these services to create applications that are deployed to mobile devices, and to develop applications that enable customers to use mobile devices in support of activities performed at other customer touchpoints or channels. These solutions enable a bank to coordinate its mobile banking and payment initiatives across the organization, and leverage other applications and multichannel integration technologies, while reducing the creation or perpetuation of siloed applications and technologies. They are very important for banks to use mobility when developing digital wallet solutions.
• An enterprise mobile financial services solution includes a rule-based engine to let the bank define and customize applications and emerging functionality, according to local demand; administration and reporting services; integration with a bank's existing multichannel integration strategy for integration with the back office and management of customer preferences, fully integrating with existing banking and payment systems and services; and support for multiple interfaces and mobile devices. This includes the ability to support multiple languages and character sets.

From the supply side, mergers and acquisitions have continued. During the past few years, Visa has acquired Fundamo; Fiserv acquired M-Com; ACI Worldwide acquired S1, and Monitise acquired Clairmail. These acquisitions enable vendors to better support an enterprise mobile financial services strategy. Further, these activities indicate the growing importance of enterprise mobile financial services solutions for banks. Enterprise mobile financial services solutions deliver different menus of transactions, services and applications to different customer segments – retail consumers, SMBs and corporate customers, and bank staff – while defining different interfaces according to their experience with mobile services. They also enable a bank to coordinate its mobile banking and payment initiatives across the organization, and to leverage other applications and multichannel integration technologies, while reducing the creation or perpetuation of siloed applications and technologies. Increased bank adoption of enterprise mobile financial services solutions is further evidenced by the entrance of enterprise mobile consumer solution providers such as Kony Solutions, Sevenval and Movidilo, which have entered the mobile financial services market, leading to more competition for enterprise mobile financial services solutions.

On the demand side, banks have stalled in adopting enterprise mobile financial services solutions. While banks have made deployments of one or more point solutions that deliver a specific mobile-based banking application and support an array of mobile apps, banks are starting to realize the need for enterprise solutions with capabilities for managing multiple applications and a variety of mobile devices and technologies. In addition, banks are paying more attention to location-based services and the context of consumer usage. Doing so requires banks to think beyond single apps and point solutions, and drives them toward enterprise mobile financial services solutions.

User Advice: To create a clear, holistic enterprise strategy for mobile financial services:

• Build a matrix of mobile financial services to define, per customer group, which applications fall into these categories: sales and marketing, account services, security services, transactional services and BI.
• Develop a road map of services for each component of that matrix (banking services by customer segment), taking into account existing customer preferences and habits, with a view to progressively increase the reliance of mobile financial services among those customers.
• Launch a first round of mobile financial services applications that are in tune with your customers' habits and the capability of the mobile devices, which may vary among countries.
• Use BI to track adoption and/or lack of adoption, and revise the road map of mobile banking and payment services.
• Align your mobile financial services fit into the current channel usage mix and portfolio of payment instruments and solutions. Your clients are not going to use mobile financial services in isolation of their existing channel interaction and payment preferences.
• Create applications that enable customers to use the mobile device to do things they would not otherwise be able to do as easily with other channels. This includes supporting existing channels, for example, as a second-factor authentication or to authorize a payment by an SMB's owner (via multitier authorization).
• Select a provider that can support all the requirements of an enterprise mobile financial services strategy. Failing to do so will damage the ROI and prevent your organization from capturing value from mobile banking and payment applications. As a result, evaluate vendors not only on the basis of existing applications, but also on a vendor's ability to support consumer migration to more-advanced applications (in other words, a provider that can support a progressive road map approach).

Business Impact:

• Enterprise mobile financial services solutions have the potential to maximize a bank's use of the mobile-based services that is more than a subset of online banking processes to the consumer. These solutions are evolving into an enterprise multichannel integration platform that supports not only mobile Web, native and hybrid apps, but also tablets, traditional Web browsers, and widgets; and other business processes throughout the bank. This means the enterprise mobile financial services solution will become part of a bank's technology toolset for digital banking.
• Instead of selecting and deploying separate mobile banking and payment solutions for each line of business, consumer and commercial banking, a bank can leverage services and technology in the enterprise mobile financial services solution to deploy services and applications rapidly to targeted customers.
• By selecting an enterprise solution that can deliver mobile financial services, a bank creates the foundation for applications that respond to its consumer and business customers' real interests for new products and services. Some of these applications will focus just on mobile-specific services (such as peer-to-peer payments or location services); other applications will support bank services at other customer touchpoints as well, such as automated teller machines (ATMs), branches and online banking. Enterprise mobile financial services are tools for the personalization of bank products and services.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Early mainstream

Sample Vendors: ACI Worldwide; Backbase; Collections Marketing Center; Comviva; Crealogix Group; Finantix; Fiserv; FIS Global; Fundamo (part of Visa); Intelligent Environments; L&T Infotech; Monitise; Movidilo; SAP; Sevenval; TagIT; VeriTran; Vipera

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Near-real-time low-value payment systems refer to payment systems that enable (at their slowest one- day) transfers of funds from one customer banking account to another customer banking account. This profile does not include interbank settlements using real-time gross settlement systems.

Position and Adoption Speed Justification: This year and last year have seen good progress with the planning and deployment of real-time payment systems:

• In the U.K., the Faster Payments Service initiative is generating a new wave of payment systems innovations:
• Barclays continues to develop new services based on its Pingit payment system. It introduced quick response (QR) code recognition for Pingit to enable payment origination through print (such as magazines), TV or outdoor media (such as posters) advertisements, as well as store windows and unmanned concessions (Barclays Buy It). It also supports business-to-consumer payments (Barclays Send a Payment). For example, CEGA Group, which provides claims management services, announced it was using Pingit to support claim reimbursements.
• Paym was launched in April 2014 and enables U.K. account holders to send or receive money using just a mobile phone number. However, payees have to register with their banks prior to being able to receive a payment, which could slow down adoption. For Barclays, customers can register via Barclays Pingit.
• Singapore's Fast And Secure Transfers (FAST) service went live in March 2014. Currently offered by 14 participating banks in Singapore for payments of up to SGD10,000, with the beneficiary account credited within five minutes. Singapore banks have been fast to make use of the new payment system:
  • DBS Bank promotes the use of Fast to its commercial banking customers for domestic remittances.
  • OCBC Bank customers can use their Facebook contact lists to select a payee and initiate a Fast payment.
• Note that this doesn't only apply to mature payment markets; SPEI in Mexico launched in 2004. These systems can be used for high-value as well as low-value payments, but since the majority of payments processed are low-value – we still can consider SPEI as a real-time low-value payment system.

Deployment of real-time payment systems is not straightforward, and most of existing systems did face some delays at some point. However, there is now even stronger interest by regulators across multiple geographies in deploying real-time payment systems. In the U.S., the Federal Reserve issued in September 2013 a consultation paper stressing the need to deal with the gaps in current payment systems, notably with regard to the clearing cycle. Some real-time payment systems are already operating in the U.S. (for example, FIS PayNet, Fiserv's Popmoney), but the Fed is looking to avoid a fragmentation of payment systems. Tier 1 banks, however, are currently reluctant to modernize the existing automated clearinghouse (ACH) batch system, and modernizing the U.S. payment infrastructure is a much more difficult task than launching a new payment system in Singapore.

As a result, real-time payment systems are making progress in 2014, but launching them in new markets, like Australia and the U.S., will be a more challenging affair.

User Advice: To demonstrate value to their retail customers, and to strengthen the business case, banks could market person-to-person (P2P) payment solutions (such as Barclays Pingit), and use the new systems to develop digital wallet functionalities to improve their negotiation power toward card networks (by controlling the payment flow).

On the corporate side, real-time payment systems need to be fully integrated with cash management services, and this will demand some important changes for bank commercial payment systems, and how they integrate with other banking systems and common services.

Banks in countries that are planning to offer faster payment services with shorter clearance time frames will have to start deploying stronger customer authentication for their Web, mobile and telephone banking applications. They also will need to deploy enhanced fraud detection applications and payment interdiction processes in the back-office payment environment. They also need to consider whether they have the necessary resources and processes to support a 24/7 service proposition.

Business Impact: The impact on banks will vary by geography because current clearing cycles diverge. Because near-real-time payment systems reduce the float – and the time that can be used to check for fraudulent activities and laundered funds, as well as to investigate prohibiting the transaction – at the onset, they will strongly impact banks operating in geographies with currently longer clearing time frames. However, the impact depends on the road map for the modernization approach. In other words, the timing of development of the new infrastructure in parallel with the old one, and the timing of the decommissioning.

However, near-real-time payment systems may create an opportunity for banks to offer new services to their clients, such as developing P2P payment solutions and supporting digital wallet solutions.

These will also be important to market solutions to "prosumers" (that is, businesses of up to one employee, and generating up to $80,000 in business turnover a year) and small and midsize businesses (SMBs) that are not prepared to obtain or rent a point of sale (POS) system – by positioning the new solution as a way to reduce cost of acceptance versus cards while promoting the bank's account services (notably reconciliation and cash management services).

With regard to commercial banking, by reusing payment information, banks can improve cash management services – for example, by improving notification of available liquidity/cash flows and by improving related forecasting services.

Bank internal processes will have to be more transparent and faster, because banks may end up having too many idle funds or not enough funds, and then face significant fluctuations in liquidity.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Early mainstream

Sample Vendors: ACI; CGI (Logica); Clear2Pay; Fiserv; FIS; Fundtech; VocaLink

Analysis By: Christophe Uzureau

Definition: Payment information value-added services (PIVAS) – reward and loyalty refers to data-rich services that can combine individual payment data, as well as aggregated transactional and customer data, to deliver specific offers or rewards to customers.

Position and Adoption Speed Justification: This profile takes into account the hybrid model, combining individual and aggregated data.

• Individual: Payment data is captured at an individual level at a point of sale (POS) terminal, or at the check-out screen for Web purchases, or via mobile devices, ATMs or new origination methods such as wearables. The data can be collected over a period of time (for instance, to take into account the number of purchases made by the customer in a given shop during the past month).
• Aggregated: Data from individual payment transactions is combined with data from all other transactions from other consumers to ensure anonymity. Combined data is reused to create a wider view of specific customer segments. This can include data from multiple sources (such as card issuers, processors, merchants and card networks).
• The payment data can be combined with other types of data, at both the individual and aggregated level. Aggregated data will influence the selection of participating merchants and the types of offers, while providing key indicators to merchants on the impact of retail PIVAS for promotional activity on their competitors in their catchment areas.

The combination of the aggregated data (notably the creation of consumer segments by reward preferences) and the individual data will assist the bank in anticipating changes in individual preferences. Analysis of the individual data would reveal a change in payment habits, which would reflect attitudes from a different customer segment, and, therefore, reflect those changes in the rewards being delivered (corresponding to a new customer segment).

The objective is to use the resulting data to understand the context of the customer and a given promotion, and to deliver that promotion in real time. Offers, whether past, present or future, would take into account recency, frequency, the monetary value of purchases in a given time period by a cardholder at a specific location (individual data), and the segment or customer profile to which the customer belongs (aggregated data).

The value of payment information is becoming more visible to the payment industry. As in 2013, PIVAS – reward and loyalty providers are refining their solutions, which accounts for the progress of this service.

For example:

• Providers are improving how they take into account location-based data. Welcome Real-time launched the Welcome-OmniConnect solution, which aggregates location input – such as from BLE beacons, QR code check-ins, payment transactions or social media interactions – to improve the redemption of existing offers or target new customers. This is aligned to the PIVAS – reward and loyalty concept when combined with Welcome XLS, its main loyalty platform.
• Visa continues the development of its Visa Offer platform, as well as Barclaycard, with its custom-made Offers website. Thus, the maturation of PIVAS synchronization also supports the progress of PIVAS – reward and loyalty.

Gartner continues to recommend that banks leverage PIVAS to better understand customers and to help them build stronger relationships with the retailer and merchant communities. However, to start with, banks must ensure that they control the security, access and use of the payment data they are collecting for retail PIVAS. Privacy and regulatory issues, which can emerge with the use of customer data, remain strong. This is especially valid when taking into account how location-based services could contribute to a PIVAS.

The checks and controls outlined by Gartner to ensure the privacy and integrity of customer data need to be emphasized. Consumers must opt in, while banks must ensure that merchants do not use personal customer data for other purposes, such as developing independent promotional offers. One of the main inhibitors for banks to delivering that vision remains the lack of alignment between the issuing and the acquiring operations. Payment systems, data and process redundancy are also major barriers. Additionally, solution providers to the banks (such as third-party payment providers and licensed transaction processing solutions) have a limited track record with these new promotional platforms.

User Advice:

• To deal with privacy concerns and potential reputation risk, clearly explain to your customers how you will protect their privacy, and ensure they opt in.
• Create a dedicated role in your organization to launch and manage payment information analytics, and to explore how to persuade consumers to use an individual PIVAS without generating privacy concerns.
• Ensure that you measure local consumers' attitudes toward the reuse of their payment information. Some markets will not be ready for such solutions because of strong initial reticence by consumers.
• Progressively introduce PIVAS – reward and loyalty as part of your digital wallet solutions to support the delivery, management and redemption of rewards.
• Transform acquiring services into payment advisory services for merchants. The acquiring relationships are mainly based on pricing. Banks must change this perception. Support of promotional and marketing activity for merchants will move merchant services to an advisory role.
• Ensure that the bank has the ability to leverage data for value-added purposes when in a third-party processing relationship. Issuing and acquiring banks should expect their third-party payment processors to deliver PIVAS as part of the outsourced relationship.
• Banks involved in working with external developers to create APIs should consider sharing aggregated payment information with them. Developers regard the information as highly valuable; this will drive the development of new services, including improvements in the design of reward and loyalty solutions.

Business Impact: By using PIVAS – reward and loyalty, banks can use the payment infrastructure to support customer acquisition, revenue generation and retention activity of merchants, which is a strong demonstration of the value of bank payment services. This would support the adoption of emerging payment schemes by merchants looking to deliver more-meaningful promotional materials. And in turn, this would also improve the business case for a bank when rolling out emerging payment solutions by helping the bank to differentiate its offerings compared with other banks.

The value delivered by PIVAS – reward and loyalty will depend on consumer privacy concerns, the structure of the retail industry (larger merchants may already have a data mining capability and loyalty schemes), and how well acquiring and issuing operations are aligned.

This implies a new interaction model between the merchant and the bank (for example, to define how the promotions are offered, such as according to the number of payments to trigger a promotional offer). This changes the nature of the acquiring relationship. This is not any more limited to technical and pricing discussions than it is to tailoring marketing offers to improve retention and customer acquisition. The merchant services relationship moves to the realm of advisory services. Acquiring operations have a strong opportunity to change their business models.

Adoption of PIVAS – reward and loyalty will also drive redemption and, therefore, assist issuers in clearing their books (dealing with the liability of the stock of redeemable reward points).

The rating is high because PIVAS – reward and loyalty is an important tool for demonstrating value to merchants and accelerating the adoption of emerging payment instruments.

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Adolescent

Sample Vendors: American Express; Billeo; Cardlytics; Kobie Marketing; Visa; Welcome Real-time

Analysis By: Christophe Uzureau; Alistair Newton; David Furlonger

Definition: Biometric payments are payment transactions that are authorized following a biometric ID authentication (such as a fingerprint, the palm vein or voice recognition). The authentication can be performed via any device, such as a dedicated reader at a point of sale (POS) or a bank branch, an ATM (for cash withdrawal) or a smartphone (e.g., Samsung Galaxy S5 or iPhone 5s).

Position and Adoption Speed Justification: The increased use of biometrics in airports for passenger entrance through customs and immigration is making individuals more aware of the potential efficiency of such systems. However, the role of biometrics in developed markets is mostly to support existing payment systems. And increasingly, this is related to the development of digital wallet solutions. For example:

• PayPal is working with Samsung to leverage the Galaxy S5 biometric authentication system, notably its FIDO (Fast IDentity Online) Alliance software. The Samsung Galaxy S5 fingerprint sensor transmits a unique encrypted key to PayPal, which allows PayPal to verify the identity of the customer without having to store any biometric information on its servers.
• The equipment of biometric readers on the iPhone 5s is a first step in supporting better authentication for Passbook.
• In France, Natural Security, a provider of biometric solutions, is working with banks to develop commercial solutions for the POS. It created the National Security Alliance to promote the solutions across industries. One of the key objectives is how to better secure digital wallets.

All these announcements could support the development of remote commerce emulation for proximity payments.

Consumers have privacy concerns, and few merchants are interested in upgrading their point of sale (POS) equipment just to accept biometrics. Therefore, a strong payment brand, such as PayPal, reusing a biometric-enabled smartphone is more acceptable for both consumers and merchants.

However, significant challenges are associated with the development of this technology, including the speed of data analysis, which may be resolved as cloud technologies mature. Moreover, there will need to be a centralization of biometric information, which may cause problems of privacy and may negatively impact customer adoption, depending on the type and nature of the centralizing agency. This raises the broader issue of the value of customer identity, and whether this biometric information is more appropriately stored on a device owned or operated by the customer, or with a bank.

We position this profile at post-trough 25% to acknowledge the ongoing adoption of biometrics at ATMs (notably palm vein reading) and equipment of smartphones with biometrics. However, the use of smartphone biometrics to support the authentication of a transaction is relatively immature, which accounts for the 1% to 5% market penetration.

User Advice: Banks in developed markets should primarily look at biometric solutions as an extra authentication layer. But pay special attention to the use of biometrics to support digital wallet solutions used for remote commerce emulation. Digital wallet solution providers, such as PayPal and Apple, intend to leverage their own biometric capabilities (Apple) or third parties (Samsung via FIDO Alliance for PayPal) to improve the perception of security for the use of their solutions at the POS, or for home delivery.

In developing economies, the main opportunity for biometric payments remains improving the reach and security of payment and banking services by dealing with illiteracy and fraudulent intermediaries. But even in those markets, biometric payment systems will require biometric authentication to be combined with existing or alternative payment instruments, such as Net1 Universal Electronic Payment System (UEPS) smart card technology in Africa.

Business Impact: The impact of this technology on businesses will be muted until customers become more comfortable with the use of biometric information in commercial transactions. This technology will not, for the near future, be the only authentication method customers use to complete transactions. The impact is also highly dependent on the development of digital wallet solutions and their implementation for proximity payments.

Benefit Rating: Moderate

Market Penetration: 1% to 5% of target audience

Market Penetration: Emerging

Sample Vendors: Apple; Diebold; DigitalPersona; Fujitsu; it-werke; Natural Security; NCR; Voice Commerce; Wincor Nixdorf

Analysis By: Christophe Uzureau; Kristin R. Moyer

Definition: A multipayment application (MPA) instrument has multiple payment applications embedded that can be linked to different underlying accounts. MPA instruments are usually co-branded cards. The most common payment application on these cards is transit, combined with a credit card or a debit card. Typically, an MPA starts with a transit application, usually supported by the local transit authority. Often, a bank then partners with the transit authority to include multiple payment applications on the card.

Position and Adoption Speed Justification: This Hype Cycle entry excludes contactless transit retail payment systems on their own. They are related to MPA instruments, however, because the contactless transit retail payment application can come first, and then be used as part of an MPA instrument. We also exclude digital wallet solutions (notably those delivered via a mobile device to fund a payment via multiple card accounts). MPA instruments represent a limited convergence of payment instruments. For example in Thailand, Bangkok Bank and Bangkok Smartcard System (BSS; part of Bangkok Mass Transit System [BTS]) launched in 1Q13 the Be1st Smart Rabbit debit card and the Bangkok Bank Rabbit credit card, which integrates the BSS transport payment application.

This convergence of retail payments and transit applications on one card is an important model to serve a regional customer base that relies on public transport. However, it won't work across all geographies, and developing and benefiting from MPA instruments are challenging:

• Reliance on transit may not generate enough momentum for an MPA card that involves a transit application.
• Defining adequate commercial agreements between banks and transport operators will be difficult in some markets. Banks have to ensure the protection and privacy of their cardholders' data, while working on an agreement with transit operators to share some of their payment data and improve their offerings.
• Without proper marketing, a bank risks driving the number of transactions on its partner's payment application without any real benefits for its own payment operations. A bank must ensure that it investigates the impact of the use of its partner's application on its own revenue from float and interchange.
• Regarding the technology, the challenge is on the acquiring side to work with merchants to support acceptance at existing point of sale (POS) terminals or to support upgrades at a minimum cost.

It also is important to stress a shift in the MPA model reducing the exclusivity (and impact) of how banks deal with transport operators:

• In the UK, since Transport for London has started accepting Open-Loop contactless cards, Barclays is retiring its Barclaycard OnePulse card.
• In Hong Kong and Singapore, banks can respectively issue an Octopus-branded card or an EZ-Link co-branded card. The system is, therefore, becoming more open.

Furthermore, the development of digital wallet solutions will make MPAs less relevant by enabling a new distribution model for transport operations. For example, Octopus is experimenting with a Near Field Communication (NFC)-enabled mobile wallet. However, this is early stage, and the device and mobile operators' restrictions are currently limiting the appeal of the solution.

Despite these challenges, MPA instruments respond to specific and local requirements, and Gartner regards them as need-based payment solutions. Banks realize they need catalyst applications to change consumer payment habits when promoting emerging payment solutions. Some banks see the combination of contactless transit and payment applications as a steppingstone to NFC-enabled mobile phone payment systems. However, they should also realize that MPA instruments may be good enough for their customers.

User Advice: Think local first. When available (usually in large metropolitan areas with mass transit systems), build partnerships with contactless ticketing solution providers. The most successful contactless schemes remain local, and are based on transit applications.

Transit operators are looking for new revenue opportunities, while sharing the risk with experienced payment card issuers. To work with transit authorities and develop MPA instruments, banks must plan for specific project management skills, and local lines of business could be supported by a dedicated structure.

Banks need to be careful about how they market MPA instruments. The objectives are to drive the use of their payment services and strengthen their retail banking brands, not to increase the number of transactions processed via their MPA instrument partners. Banks must clearly identify that there is a risk of losing transaction revenue to their partners. As a result, banks must closely monitor the impact of MPA instruments on their overall card portfolios. As a result, they must introduce payment instrument portfolio management tools to:

• Closely monitor the impact of the partnerships on their overall payment solution portfolios. The objective is to drive the use of payment services and strengthen retail banking brands, not just to increase the number of transactions processed via partners.
• Segment collaborative payment schemes. Different geographies and different customer segments (consumers and merchants alike) will demand different collaborative schemes.

As part of those partnerships, banks must ensure that opt-ins are in place to guarantee to consumers that the information will not be shared for purposes other than, for example, delivering relevant rewards to those consumers.

The new arrangements we describe here also show a higher level of maturity for existing multipayment application instruments (especially in Hong Kong and Singapore). This accounts for the progress of this profile to post-trough 35%.

Business Impact: Due to the increasing opening up of MPA instruments to multiple banks, we revised the rating to "moderate," since the differentiation potential is now more limited. Taking into account the development of digital wallet solutions, we now consider that this profile will be obsolete before reaching the plateau.

However, banks operating in a geography with a high reliance on public transport should get involved early in the deployment to maximize the impact of these types of co-branded agreements. The development of MPA instruments also impacts the differentiation via rewards – for example, the Octopus balance on the card can be automatically topped up by the credit card application of the card issuers generating recurrent interchange revenue.

Benefit Rating: Moderate

Market Penetration: 5% to 20% of target audience

Market Penetration: Early mainstream

Sample Vendors: Bangkok Bank; Citibank; Standard Bank

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Mobile wireless payment systems are payment transactions initiated via mobile handsets and transmitted and authorized via wireless networks operated by mobile operators (or mobile virtual network operators). Debits can be to mobile phone bills, prepaid accounts, bank accounts, cards or any other type of account holding value.

Position and Adoption Speed Justification: In this profile we regroup two profiles from the 2013 Hype Cycle:

• OTA Mobile Phone Payment Systems (Africa)
• OTA Mobile Phone Payment Systems (Southeast Asia and India)

This profile focuses on nonmature payment markets, which is not simply about the country dimension; one given country could have both mature as well as nonmature payment markets (such as Thailand).

While not every country will deploy such mobile payment technology, and indeed in many that have, the penetration rates will take time to build, the transformational benefits of such payment capabilities in markets that are highly underbanked mean that this technology can deliver huge productivity impacts, even if it does not necessarily meet every traditional criteria for measuring success.

Existing over the air (OTA) payment schemes are not problem-free. Fraud remains an ever-present threat, and current fee charges may prove unsustainable longer term as regulators look at the real cost of these services to users. Equally, the measurement of profitability may prove challenging for many institutions. Longer-term payment revenue may need to be continually cross-subsidized (for example, by data or network revenue on the telco side) to ensure sustainable prospects.

Contrary to developed markets, the mobile phone has a more important role in the payment value chains of emerging and unbanked markets. For example, financial regulators in South Africa, Kenya and India are driving plans for financial inclusion, which involve the development of mobile payment systems. As a result, banks are working on how to deliver mobile financial services, and mobile payment systems will be an important entry point to bank the unbanked.

Despite challenges, these solutions are making progress and are increasingly turning into alternative schemes for banks.

• Development and performance of underlying platforms:
  • M-Pesa launched a new platform to improve clearing cycles, notably to better support salary payments and receivables.
  • As of the end of April 2014, 60 banks (up from 56 in April 2013) had issued nearly 60 million (up from 50 million last year) mobile money identifications (MMIDs) to registered customers (see). National Payments Corporation of India (NPCI) reported more than 3.2 million transactions, compared to 275,000 transactions for April 2013. The average number of transactions per MMID is growing, but remain very low (0.66 per MMID on an annual basis using April 2014 data).
  • Global expansion – M-Pesa also launched in one region of India in December 2014 (in collaboration with ICICI Bank) with a plan to go nationwide during 2014.
  • Integration to financial systems – GCash is launching cashKOin the Philippines to support rural banks and augment its network.

This is why we regard the benefit of this profile as high, but with still two to five years to reach the plateau, due to some of the inhibitors we have presented.

User Advice:

• Introduce multipayment instrument solutions combining mobile wireless payment systems with prepaid cards to extend the reach of the payment infrastructure.
• Where potential bank customers cannot access bank payment infrastructures, use mobile wireless payment systems to give them access. Such payment systems enable banks to capture new sources of information about the unbanked and the underbanked, and accelerate go-to-market with a stronger business case than developing a dedicated infrastructure.
• Prepare to partner with local merchants and solution providers to acquire customers, because consumer perceptions of banks are often negative in emerging markets.
• Market your (or partner's) mobile wireless payment systems to government agencies, especially to support the distribution of welfare benefits.
• Banks operating in emerging markets or with a large population of migrant workers in their domestic markets, will find it valuable to use mobile wireless payment systems to support remittances.

Business Impact: Mobile wireless payment systems have a strong role to play in accelerating financial inclusion (notably by reaching the rural population) and also in fostering entrepreneurship. Therefore, their effect can be transformational for banks serving developing markets, and for entrepreneurs and small to midsize businesses.

However, this doesn't imply that mobile wireless payment systems are operated independently from the established payment infrastructures. The key objective is to use such payment systems to deal with the limitations of the existing payment infrastructure. It's not about "reinventing the wheel."

Benefit Rating: High

Market Penetration: 5% to 20% of target audience

Market Penetration: Early mainstream

Sample Vendors: Celcom; Fundamo; Globe (GCash); M-Pesa (Safaricom); Mahindra Comviva; MTN Group; National Payments Corporation of India (NPCI); Smart Communications; Utiba

Analysis By: Alistair Newton; Christophe Uzureau

Definition: Contactless retail payments are payment transactions for retail goods and services at the POS that are initiated by waving a contactless-enabled payment instrument (using RFID) over an appropriate card reader. Normally, this would be in the form of a payment card, tag, key fob or mobile phone. However, on the latter, it would be on a mobile phone case only, without integration to the mobile phone OS, excluding a Near Field Communication (NFC)-enabled mobile payment system, which is considered a mobile-originated proximity payment system.

Position and Adoption Speed Justification: Contactless retail payment devices contain an embedded antenna that enables them to communicate, using radio frequency protocols, with contactless POS readers. This can initiate a payment via a bank card/account or via a stored-value or prepaid account.

The payments are processed by a payment network, such as MasterCard with its PayPass offering, or Visa with its payWave offering. Contactless retail payment systems exclude:

• NFC-enabled mobile payment systems in which the management of the application (and secure credentials) resides on the phone. In other words, for contactless retail payments, the handset is passive toward the contactless retail transaction.
• Closed-loop transit and ticketing applications, which are offered by a growing number of transit companies. These applications generally offer limited usage, they are restricted to travel, and they cannot be used to purchase other goods or services.
• Contactless transit retail payment systems in which the payment is processed via a closed-loop network managed by a transit company (such as the Octopus card in Hong Kong).

Since contactless retail payment systems rely mostly on existing card networks and processing arrangements, the technology is relatively mature, although the customer proposition is not entirely positive. On the supply side, the push by card schemes, issuers and acquirers to equip cardholders and merchants is ongoing.

Markets such as Australia have made good progress with the rollout, notably in terms of equipped POS. And that has driven consumer adoption. However, the Australian market also shows the challenges facing large rollouts. The Australian police force mentioned that contactless cards that do not require a PIN or signature for purchases of less than AU$100, like Visa payWave and MasterCard PayPass, are contributing to an increase in opportunistic burglaries. To increase adoption and usage, consumers need to be reassured that issuers will deal with such occurrences (such as the ability to block a card and the length of time to get a refund) and what their liability is in case of fraud. Gartner research shows that consumers are also concerned about losing control over their spending, since it becomes too easy to make a payment. This will also demand better presentment services to reassure them and make sure they feel in control of their expenses. Those attitudinal factors imply that it's not just a matter of equipping POS and rolling out contactless cards – this demands some accompanying account services that are often poorly marketed to consumers. The positioning, therefore, not only reflects recent gains in the market with the rollout of more contactless cards, but also the concerns from the demand perspective.

User Advice: Changing consumer payment habits and creating need are highly challenging. If the rollout of contactless payment technology is to have any chance of success, then banks will need to take customer security concerns seriously and offer guarantees for funds held and funds spent on contactless cards.

Pay special attention to merchant services. Most merchants are not convinced of the value delivered by contactless payments and the need to upgrade their POSs. They will need strong acquiring services around the contactless proposition, such as marketing intelligence, to be convinced to adopt such solutions.

For this reason, you should introduce payment information value-added service (PIVAS) to demonstrate to merchants how the extra payment information collected via contactless payment systems can strengthen customer retention and acquisition.

Contactless payment is a functionality, not a payment instrument. Integrate contactless payment instruments as a subportfolio of your retail payment instruments. As a result, banks must segment their contactless offerings across solution types (contactless transit, multipayment applications, contactless retail or NFC-enabled mobile payment systems), payment instruments (such as debit cards, credit cards and prepaid cards), locations and types of partnerships (for example, Octopus Card in Hong Kong). This would provide a sound basis to define ROI for contactless investments, and set the right expectations.

Business Impact: Cash replacement is positive for some banks, but not for all. The business impact of contactless payments depends on peripheral services, such as PIVASs, which will contribute to strengthening differentiation for issuers by working more closely with merchants to assist them with acquisition and retention objectives.

However, if customers start to adopt contactless payments in significant numbers, the impact on bank business will be beyond payment fee revenue. Higher levels of adoption will link banks to a range of payment transactions previously undertaken with cash, and from which they would previously have been detached. With additional marketing support, banks will be able to convert this additional contact and insight into at least a deeper understanding of their customers and, ideally, into additional revenue streams.

However, despite this potential, the business impact remains moderate, since the impact on consumers' cash replacement and merchants' acceptance will be more limited than anticipated if the payment industry doesn't change its approach to the deployment of contactless schemes via better account services, the delivery of PIVASs, and better alignment between the issuing and acquiring operations.

Benefit Rating: Moderate

Market Penetration: 5% to 20% of target audience

Market Penetration: Early mainstream

Sample Vendors: American Express; MasterCard; Visa

Analysis By: Christophe Uzureau; Alistair Newton

Definition: Internet micropayment solutions are used to purchase Internet content, goods and services that have a value of less than $5.

Position and Adoption Speed Justification: Most Internet micropayment solutions are not stand-alone. For instance, PayPal, Skrill (Moneybookers), ClickandBuy and Amazon Flexible Payments Service (FPS) support micropayments as part of a portfolio of payment services (for example, co-branded cards, person-to-person payment systems and payment gateways), and their solutions can also be used for transactions of greater than $5.

The full potential of Internet micropayment solutions will only be realized when these and related systems make further progress:

• Control and security – Digital wallet solutions will provide users with more control over security credentials and account management. They will also achieve higher portability across content and goods/services providers. This will facilitate the development of payment mechanisms for digital content across e-commerce, m-commerce and social commerce.
• Digital payment platforms:
  • In terms of product development, PayPal and Amazon Payments are leaders in building communities of users and developers to support innovation in their payment systems.
  • Visa acquired PlaySpan in 2011, and has been working to use its UltimatePay platform-as-a-service platform for apps, games (notably F2P in-game purchases), videos, and digital goods.
  • American Express acquired Sometrics – a virtual currency platform – the same year, and has been working to integrate the solution to its set of digital wallet services.
• Development of digital complementary currencies:
  • Amazon introduced Amazon coins to buy digital goods from the Amazon Appstore and in-app items (Kindle Fire tablets).
  • As a result, Internet micropayment solution product development is also driven by digital complementary currencies (see "Hype Cycle for the Future of Money, 2014").
• New distribution models – App stores are also facilitating the adoption of Internet micropayment solutions. The contribution of app stores is beyond the design of payment solutions, because they enable the creation of value-added services, such as financial management.

Competition remains intense to deliver Internet micropayment solutions. The fight, meanwhile, is shifting toward the design of digital payment platforms, notably by incumbents such as card networks, to maximize existing networks, but, most importantly, to capture payment process and information flows from other payment systems connected to their platforms.

User Advice: Taking into account the growth in usage of online communities, use Internet micropayment solutions to capture new banking relationships with "prosumers" (that is, businesses of up to one employee, and generating up to $80,000 in business turnover a year), and with small and midsize businesses operating online:

• The distribution of digital content requires new payment solutions to respond to the payment requirements of entrepreneurs looking to monetize their digital content as part of online communities.
• This will provide the right foundations to distribute banking products and services to this newly acquired customer base.

Align the development of a digital wallet strategy to the demand for Internet micropayment solutions:

• Based on customer risk profiles and payment patterns, provide options to your customers to preauthorize funds for Internet micropayments.
• Do not reinvent the wheel – Consider offering merchant solutions and services from third-party providers.
• In turn, this will support your ability to provide credit and cash management services to the faster-growing providers.

The market push for more-transparent acquiring services and the realities of microcommerce require a change in the approaches of banks to acquiring services – one not isolated from the rest of banking products and services.

In other words, you may have to open up your payment value chain to capture new information flows and banking opportunities.

Business Impact: Internet micropayment solutions facilitate the distribution of new Internet content, and they create new revenue opportunities or threats for payment solution providers. However, as mentioned, they are not stand-alone solutions, and tend to use existing payment systems to operate. Their benefit can be high only if banks can manage them as part of a portfolio of payment services (notably coordinated via their digital wallet solutions), and if banks are able to work with third-party providers to grow this portfolio and reach new content providers.

If banks don't get involved, then they risk providing space for nonbank payment providers that are growing their portfolios of payment products and services. This doesn't just imply a loss of payment fee revenue, but also, most importantly, a loss of connection with customers, making it more difficult to sell other products and services.

Benefit Rating: High

Market Penetration: 20% to 50% of target audience

Market Penetration: Early mainstream

Sample Vendors: Amazon; BitPay; Boku; ClickandBuy; PayPal; PlaySpan (Visa); Skrill (Moneybookers); Sometrics (American Express)

Figure 4. Hype Cycle for Financial Services Payment Systems, 2013

[click to enlarge]

Source: Gartner (July 2013)

 

Table 1. Hype Cycle Phases

Phase	Definition
Innovation Trigger	A breakthrough, public demonstration, product launch or other event generates significant press and industry interest.
Peak of Inflated Expectations	During this phase of overenthusiasm and unrealistic projections, a flurry of well-publicized activity by technology leaders results in some successes, but more failures, as the technology is pushed to its limits. The only enterprises making money are conference organizers and magazine publishers.
Trough of Disillusionment	Because the technology does not live up to its overinflated expectations, it rapidly becomes unfashionable. Media interest wanes, except for a few cautionary tales.
Slope of Enlightenment	Focused experimentation and solid hard work by an increasingly diverse range of organizations lead to a true understanding of the technology's applicability, risks and benefits. Commercial off-the-shelf methodologies and tools ease the development process.
Plateau of Productivity	The real-world benefits of the technology are demonstrated and accepted. Tools and methodologies are increasingly stable as they enter their second and third generations. Growing numbers of organizations feel comfortable with the reduced level of risk; the rapid growth phase of adoption begins. Approximately 20% of the technology's target audience has adopted or is adopting the technology as it enters this phase.
Years to Mainstream Adoption	The time required for the technology to reach the Plateau of Productivity.

 

Source: Gartner (July 2014)

Table 2. Benefit Ratings

Benefit Rating	Definition
Transformational	Enables new ways of doing business across industries that will result in major shifts in industry dynamics
High	Enables new ways of performing horizontal or vertical processes that will result in significantly increased revenue or cost savings for an enterprise
Moderate	Provides incremental improvements to established processes that will result in increased revenue or cost savings for an enterprise
Low	Slightly improves processes (for example, improved user experience) that will be difficult to translate into increased revenue or cost savings

Source: Gartner (July 2014)

Table 3. Maturity Levels

Maturity Level	Status	Products/Vendors
Embryonic	In labs	None
Emerging	Commercialization by vendors Pilots and deployments by industry leaders	First generation High price Much customization
Adolescent	Maturing technology capabilities and process understanding Uptake beyond early adopters	Second generation Less customization
Early mainstream	Proven technology Vendors, technology and adoption rapidly evolving	Third generation More out of box Methodologies
Mature mainstream	Robust technology Not much evolution in vendors or technology	Several dominant vendors
Legacy	Not appropriate for new developments Cost of migration constrains replacement	Maintenance revenue focus
Obsolete	Rarely used	Used/resale market only

Source: Gartner (July 2014)

Source: Gartner Research Note G00263505, C. Uzureau, 30 July 2014