On your marks… the technology sprint is on and providers are anxious to achieve first mover advantage in the mobile payments arena. Creating the most popular payment method for consumers is the end goal but the road to victory is not always easy.
The value of global m-payment transactions is expected to reach £591 billion by 2015, according to new research from KPMG. The advent and evolution of smartphones and mobile applications has led to more extensive and specific functionalities, thus providing a better user experience. In order to tap into the potential of this market, technology players are continuing to develop innovative solutions like m-wallets (eg Google Wallet and Visa’s V.me).
Following M-PESA in Kenya, similar enterprises that provide basic financial services through low-tech phones have emerged in many other developing markets but, in more developed countries, most of the focus and debate is on near field communication (NFC). This technology offers an efficient way to perform (typically) low value transactions in proximity. Furthermore, it offers the possibility for additional features, such as loyalty programmes, couponing and targeted marketing. Enabling simplicity in payment transactions has been the main driver in NFC’s popularity thus far, according to Dag-Inge Flatraaker, Chair of the EPC M-Channel Working Group.
“The ease of use for the customer has been a key factor [in NFC’s success] and using this contactless technology also for contactless cards or mobile payments seems to be an obvious next step in combination with the other applications,” he says.
As NFC is predicted to flourish (by most providers), numerous new initiatives are being released across the globe.
Who will win the race?
It is the banks that are having to play catch up with this trend as the mobile phone operators are driving the technological demand for payment solutions now, according to Peter Lay, Head of Treasury and Banking at The British Council.
“A key question will be whether traditional banks will retain their roles in handling receivables traffic, or whether the trend of banks passing over their online receivables solutions to other providers is here to stay – with telecoms providers also lining up to become the banks of the future,” he says.
Yet, the bulk of the payment provider industry has tended to consist of smaller enterprises geared towards particular market niches, looking to grow their business proposition from the ground up. The banks, on the other hand, have the sprawling client base but don’t necessarily have the payments proposition. Barclays has attempted to come up with a consolidated solution to this, says Maurice Cleaves, MD and Global Head of Cash Management at Barclays.
“Most of these payments have to be mass market and the smaller companies don’t have the embedded client base that the banks do. If you could tie the two together, you would probably have the best scheme. With Pingit, our hope – as we’ve allowed all banks to use it – is that this could become a market enterprise solution.”
Cash bites the dust?
Does this mean, then, that consumers are ready to abandon their physical wallets and rely primarily on their mobile phone as a method of payment?
The decline of cash is not as rapid as it might appear to be, according to Mike Walters, Head of UK Corporate Payments Product Management at Barclays, as it’s still a very helpful and visible budgeting device.
“For this reason, a lot of mobile providers are working towards providing that visibility on the mobile payments scene. If you can enable customers to see the balances on their account, particularly remotely, the chances are that they will make fewer cash withdrawals because they know whether they have the funds to enable them to make payments,” he says.
There is also a certain amount of fear involved in making the leap to a cashless society. There are the usual security concerns that accompany the advent of any new technology, but also the less concrete anxieties, namely ‘sentimental’ attachments to having coin in your pocket.
“While a consumer might not think twice about having a wallet with £100 in it, they may bewary of having a top end limit of £100 on a mobile device,” comments Cleaves. “Part of what needs to be done [in driving mobile payments] is changing the behaviour of users. Therefore, the younger generation – the card generation – is probably the avenue to take to ensure the most significant impact.”
Providers have more than simply the sensibilities of their consumer base to be concerned about though.
“Project Oscar”, a proposed joint venture between Britain’s biggest mobile phone operators, is under investigation by the European Commisison (EC) following complaints that the project could stunt innovation and hinder competition. At the same time, four of the groups that make up Project Oscar are also involved in a separate EC antitrust investigation into possible unlawful mergers.
So, while the markets are booming and the technology behind m-wallets is becoming ever more advanced and user appropriate, the pace of penetration by banks and mobile providers is being somewhat thwarted by both consumer reticence and regulatory watchdogs.