Life begins at 4T

Sweden is not a typical market when it comes to commerce. Cash transactions account for only three per cent of the economy, compared to nine per cent across the Eurozone and six per cent in the US. Meanwhile, credit card penetration is 98 per cent and mobile payment through premium SMS is thriving, particularly on the public transport network. A wider mobile wallet offering is the next evolutionary step in this advanced payment market, and 4T is the company that is tasked with making it happen.

The company was formed in November 2011 by Telenor, Telia, Tele2 and Hutchison’s 3, after each had spent several years looking at individual and selectively collaborative approaches to the mobile payment space, says 4T MD Johan Ragnevad. They realised, he says, that “if this was going to fly, then everyone needed to be in on it.”

Collaboration seems to be philosophically fundamental to 4T, which will operate under the WyWallet brand, in a way that is not reflected in other mobile wallet JVs. In the UK 3 is not part of the proposal for the Oscar project and, in the US, Sprint is absent from Isis. The Swedish joint venture exists to exploit the potential for mobile wallet but is not intended—as some others are—to create a platform on which the operators will seek to differentiate themselves with competing service layers. “That is not an issue,” Ragnevad says. “Maybe that is a Swedish thing.”

Despite the different size of the four operators—3 had 1.4 million subscribers at the end of 2011 according to Informa’s WCIS Plus, compared to 6.3 million for TeliaSonera—equal voting rights are essential. “That’s the recipe for the success and speed of the company right now,” he says. “Since the company was formed we’ve had a simple structure where all members have equal votes, and it’s majority votes for everything going forward.”

Like other markets, Sweden has had a mobile payment business based on premium SMS (PSMS) for content and ringtones for a decade or more. But it was the adoption of the same mechanism by consumers to pay for public transit tickets that really spurred the operators to the creation of a specialist player.

“Premium SMS for bus and train tickets has just exploded over the last three years,” Ragnevad says. “It is getting stronger and stronger as a trend, and the usage is getting more frequent. That led to a situation where operators’ invoices really changed character.” Linked to this, concerns over greater regulatory restrictions increased their motivation: “The EU payment services directive, as well as new regulatory measures on e-money, got the operators thinking that they didn’t want this kind of regulatory regime superimposed on their communications businesses. It was better to put it into a separate entity.”

Mobile operators’ ability to create such an entity with relative ease is an illustration of their suitability to lead in the mobile payment space, according to Ragnevad. Financial services companies like banks would find it far more difficult to make such a move, he says.

“It is much easier for four operators to agree on how to lift out a mobile payment business that is not core than it is for seven or eight banks to take part of their core business and put it into a separate entity. For all the banks to agree on a definition of the part to be removed would mean the identification of the lowest common denominator, and they’d risk ending up with a very small service. They are not there yet, they are a lot slower than the mobile operators.”

Since the creation of 4T, the JV has been staffed by people on secondment from the parent companies. It is now in the process of recruiting permanent staff, and Ragnevad says that the target headcount is around 25. As he speaks to MCI in mid-March the decision as to whether customer care will be managed in-house or outsourced has yet to be made, so the figure of 25 does not include this function. It is also subject to another unresolved issue; how 4T plans to engage with merchants—particularly the process of signing them up to an ecosystem that will allow for in-store payments.

“Today we are solely focused on the payment provisioning business,” Ragnevad says. “We’re not doing the end-to-end technical solution, the systems integration or application development for third parties. We’re really only focused on the transaction handling, and the whole setup is built on us outsourcing the transaction machine.”

Unresolved issues do not appear to be viewed as obstacles, though. The WyWallet brand will launch in the summer of this year without a solution for in-store purchases, for example; something that is seen as core to most mobile wallet projects. The reason for this is that NFC—the solution of choice for most mobile operators—is not sufficiently advanced in terms of handset and point of sale (PoS) penetration to be deployed at service launch.

Not that 4T is opposed to NFC.  “We understand the urgency,” Ragnevad says “and we strongly believe in NFC—and in NFC using the SIM card. But this will take two to three years.” In the meantime, he says, 4T will have a PoS solution in place within the next 12 months, with the firm considering NFC stickers, QR codes and optical readers that could be used to authenticate PSMS payments. This would be particularly suitable for smaller merchants, he says, because of the lower investment costs involved and because of the limits on how much can be spent in a single PSMS transaction.

Users who download the WyWallet smartphone app—and smartphone penetration in Sweden is upwards of 50 per cent and rising—will be able to make purchases in “the multiple hundreds of Euros,” Ragnevad says. But for PSMS, because the system is less secure, the maximum allowable amounts are significantly lower.

4T will have two principle revenue streams. It will take a commission from merchants on relevant retail revenues and it will take fees from users who sign up to its credit facility. The monthly spending limit on that facility has yet to be set and at the time of the interview, Ragnevad says, “we are in the credit analysis phase for the level of risk we’ll be taking with the credit instrument.”

A third revenue stream will see the firm charging users a single Swedish Krona—around €0.11—for every peer to peer payment that they make.

Users will also be free to use the mobile wallet as a simple extension of their existing debit card. Ragnevad says the banks have been “eager to do business” in enabling this functionality as it has saved them having to develop smartphone applications of their own.

But clearly 4T is also going after some of the banks’ business. “The retailers have really welcomed us a challenger to the dominance of the card and bank industry,” he says. “I don’t want to exaggerate that, because we give the customers a choice, but there is a substitution or conflict situation coming up. I’m really positive about our ability to affect that ecosystem and make payments more cost-efficient for the retailers because that ecosystem is rather stagnant.”

Executives at mobile payment joint ventures like 4T are talking to their opposite numbers a great deal, behind the scenes. There are similar joint ventures in a number of European markets and there is much discussion and advice-swapping around the challenges involved in setting them up and keeping them running. But it is not necessarily going to be easy for international operators to deploy like-for-like services across their footprint, as they do with mobile telephony. Mobile financial services will necessarily have to be defined on a market-by-market basis.

So could 4T be transplanted into new markets, offering a presence to its owners in territories where they lack a communications footprint? “Theoretically it is possible,” says Ragnevad. “We have been asked this question by other European carriers and, as we view the concept right now, there is really nothing that stops us. But it is really too early to say if we would do that.” Operators in other markets would have to make cooperation central to their strategy, he adds: “If we were to enter another market, it would really require the operators in that country to have the same sensibility, to be prepared to cooperate and separate the business from their communications activities.”

The four owners of 4T are planning to replicate the joint venture in other markets where they are already present, though; namely Norway and Denmark. TeliaSonera and Telenor are both present in Denmark and Norway, while Tele2 is in Norway alone. Hutchison’s 3 has a Danish operation and holds a licence to operate in Norway but has yet to launch. Though not as advanced as the Swedish operation, these initiatives are close on its heels, says Ragnevad, adding that he hopes to see the same WyWallet brand rolled out in these markets.

The Swedish implementation will be the primary indicator of this new partnership model, though. It will be measured not only against existing payment paradigms but also against comparable initiatives in other markets. It is refreshing to hear the leader of such a venture conceding that several key elements of the business have yet to be defined, when it is so close to launching—after all, this a is a first for Sweden and one of a wave of firsts for the mobile industry.

“It will be a challenge for us to make this grow, and to make it viable for larger purchases, both on the web and at the point of sale,” Ragnevad says. “But one of the drivers is the belief; sure there is hype in the market, but there is also real belief in the business development potential for mobile payments, and the things we can do with a growing user base of smartphones.”