Mobile Payments: The Coming Battle for the Wallet

Global mobile payment revenue could increase nearly $75 billion annually as smartphone penetration increases and physical and digital retail environments converge, according to a new Blue Paper published by Morgan Stanley Research. As competitors enter the payments ecosystem and innovative streams of income are realized, the balance of power among current mobile wallet operators will shift, potentially upending the four-party system that has been in place for nearly 50 years.

According to First Data, there are 1.3 billion active credit and debit accounts globally compared to the 7.3 billion active mobile phone accounts that the International Telecommunications Union forecasts for 2014. This disparity is opening the door for mobile devices to facilitate payments worldwide, particularly in developing countries that lack a traditional payment infrastructure. In fact, Visa expects that mobile point-of-sale solutions could help double the global acceptance locations for card payments over the next five years as unbanked populations in emerging markets adapt.

Because electronic-payment penetration is relatively high in developed countries, the authors expect mobile payments to replace traditional forms of electronic payments like credit and debit card transactions and increase penetration for small-ticket items currently paid for in cash. The Blue Paper reports that the more significant revenue opportunity an additional $30 to $60 billion will come as user data is captured and leveraged to drive targeted offers to on-the-go consumers.

The current electronic payment system that links customers, issuers, merchants and merchant acquirers linked by companies like Visa and Mastercard could be disrupted as new players like telecom operators, mobile wallet providers and even social media providers enter the space. With Juniper Research forecasting that mobile commerce transactions will more than double from $1.5 trillion in 2013 to $3.2 trillion by 2017, the evolution of the space will happen quickly.

The Paper outlines four potential scenarios chip card and EMV authentication controlled by existing payment networks and issuers, chip card and EMV authentication in a fragmented marketplace, cloud-based authentication dominated by a few parties and cloud-based authentication within a fragmented marketplace that are likely as mobile payment expands. How large a percentage of revenue each legacy or new party receives will be influenced by how these scenarios play out.

This report is one of a series of Morgan Stanley Blue Papers, which address long-term, structural business changes that are reshaping the fundamentals of entire economies and industries around the globe. The full version of this article is available on our Matrix website. Please contact your Morgan Stanley representative for access if needed.

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