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The Rise of Mobile Payments – Impact on M&A Activity in 2013

What’s involved?

A recent study by Juniper Research predicted that the total value of mobile payments for digital and physical goods, money transfers and near field communications transactions – short-range wireless technology that enables communication between devices over a distance of less than 10 cm. – will reach $670 billion by 2015 and $1.3 trillion annually by 2017[1].

The term “mobile payment” is generally used to refer to payment services performed from or via a mobile device. Instead of paying with cash or card, mobile payments allow consumers to pay for a wide range of goods and services using their mobile phone or other electronic device.

Mobile payments are an increasingly popular method of payment, in part because of the rise in mobile devices generally. Gartner’s, a leading IT research and advisory company, predicted as part of its top 10 tech trends for 2013, that mobile phones will overtake PCs as the most common web access device worldwide[2].

In December 2012 ICM Group, a research firm, surveyed more than 2000 adults to gauge their attitudes to “contactless payment” technology. 80% of respondents said they were aware of contactless payment, just 8% said they currently transact in such a way.

Key deals of 2012

With the expectation that consumers will adopt mobile payments moving forward, M&A activity has already begun in the mobile payments space. An Ernst & Young report on M&A activity in the mobile/epayment sector showed a surge in value during the third quarter of 2012. Significant deals in 2012 include Inuit’s acquisition of AisleBuyer, a virtual shopping assistant app which allows customers to avoid checkout lines by paying with their credit card directly on their mobile phone. This technology was acquired to support Inuit’s GoPayment mobile commerce platform. In June 2012, Braintree acquired mobile payment start-up Venmo, a social payments platform which allows customers to make and share payments with friends, for $26.2 million. In July 2012, PayPal announced that it had acquired card.io, a start-up company that allows developers to capture credit card information by using a smartphone’s built-in camera. This followed PayPal’s acquisition of another smartphone-based payment service, Zong, in 2011.

Use in developing countries

In developing countries, mobile payments are being used to extend financial services to the “unbanked” – a term used to describe those without an account at a bank or other financial institution. According to a 2009 report by the Financial Access Initiative, around 2.5 billion adults, just over half of the world’s adult population, do not use formal financial services to save or borrow[3].

The use of mobile payments in developing countries has the potential to be a key source of M&A activity in 2013 and beyond. Africa and India are two of the world’s fastest growing mobile phone markets. One deal in 2011 which demonstrates the opportunities for M&A work in developing countries was Visa’s acquisition of Fundamo for $110 million. Fundamo is a South African company that helps mobile companies and banks allow their customers to instantly transfer money between phones. Through its technology, which it sells to mobile carriers and financial institutions, Fundamo makes possible mobile payment services for people without access to banks in developing economies. Visa was represented by a team of Morrison & Foerster lawyers led by San Francisco partner Robert Townsend.

“Visa’s trying to position itself for the next generation of people who’ll need access to financial services,” Townsend said.

And it’s not just Visa that’s looking for opportunities in Africa, India and other continents. Townsend said he’s seeing more of MoFo’s large Bay Area clients going abroad to acquire technology and customers and predicts the trend will continue as the developing markets grow.

The future

With the expansion of the mobile phone market and the development of new and improved mobile devices, mobile payments look set to continue to grow in popularity throughout 2013. Speaking at a Westminster event on the future of digital payments, Marc O’Brien, Visa’s UK and Ireland managing director said that in 2013 Visa will roll out “much more” contactless cards and terminals adding that mobile is its “immediate priority.”

It appears to be a seller’s market for any company which has identified and developed technology relating to mobile payment or security and M&A activity in the mobile payment sphere is likely to heat up during 2013 and beyond.

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