The mobile payments ecosystem includes banks, consumers, merchants (e.g., retailers), platform providers (e.g., Google, PayPal) and telcos

There are four popular business models in mobile payments:

Telco operated model

Bank operated model

Peer-to-peer model

Collaboration model

Telco operated

In a telco operated model the mobile operator acts independently to deploy mobile payments applications. The mobile operator loads the mobile payment application on its customer’s NFC mobile devices. The customer may prepay or the operator may add charges to customer’s existing wireless bill.

Here the telco takes the initiative for enabling mobile payments and therefore has control over majority of revenue stream. The telcos also leverages its existing infrastructure to bill its customers and pay the merchants.

The potential risks involved for the telcos are low merchant acceptance of new payment approach and reluctance to adopt new POS mechanism.

Bank operated

In a bank operated model payment networks distributes mobile wallet through bank/issuer partners. This wallet will be made available for all networks and financial institutions and allow cross-channel payments (e-commerce, P2P, social).

Bank is the major beneficiary here, enjoying greater advantages such as reduced cash/check handling, potential to include value added advertising to retailers for a fee, potential to reach the unbanked population, and support customers across channels.

On the flip side, banks faces risks such as security issues with greater potential of hacking the applications/losing mobile phones, paying added cost of installations to multiple operators and OS providers, etc.

Banks are increasingly entering into mobile business and are transforming customer experiences.

P2P

Peer-to-peer model (P2P) is an innovation created by payments industry newcomers. Its a way to use mobile phones to eliminate the existing payment processors and payment networks that route and settle the transactions.

P2P providers access to wide range of customers including that of banks and retailers, however it will have disintermediation if the service provider utilizes another bank as payment processor.

Collaboration

Collaboration model involves collaboration among banks, mobile operators, and other stakeholders in mobile payments value chain. Let’s consider a famous example of Google that partnered with Citibank and Master Card to provide mobile payments to customers — here Google is the collaborator.

In a collaborator model, everyone’s a winner as everyone is almost equally benefited. This model enjoys a wide reach of customers and technology edge to set best standards.

Of all the models discussed, each has its own pros and cons and will only fit to certain type of players. Each player in the ecosystem is evolving with innovative approaches and partnerships primarily using one of these four models. However, collaborative model will enjoy a greater success with many players such as Square, PayPal, Google, and Apple betting on it.