Mobile payments have reached a tipping point. Increasing smartphone ownership, the proliferation of mobile wallets and increased consumer awareness means that 2013 will be the year mobile payments lose their novelty status and begin to be widely adopted by consumers. But who will profit from mobile payments – and how – will remain unclear for all involved says Gareth Ellis, ACI Worldwide.
It’s been 15 years since the first mobile payment was made in Finland when a consumer sent an SMS message from their phone to a vending machine to pay for a soft drink . Yet for a decade and a half, mobile payments have struggled to make an impact among consumers with some estimates showing just 8 per cent are currently using a mobile wallet or NFC on their smartphone .
But now more than ever we seem to be at a tipping point with everything working in the favour of mobile payments. For example, in the UK smartphones are now owned by 57.6 per cent of the population and according to research from Aite Group, globally 24 per cent of people can be categorised as ‘Smartphonatics’ – consumers who change their shopping, financial, and payment behaviour as a result of owning a smartphone . These people aggressively change how they shop for products and services, how they interact with their banks and bank accounts, and how they pay for goods and services. As more payment-capable handsets emerge and people upgrade throughout 2013, the numbers of Smartphonatics is only going to grow and it opens the door to more mobile payment initiatives from a more diverse range of suppliers.
In addition – and perhaps most importantly – we have seen the launch of new mobile wallets. It is this which above all else might be the point at which consumers start to ‘get’ mobile and go with it. Just like a real wallet, consumers can add their payment instruments, save receipts, track loyalty points and vouchers, and carry it all in their phone. Whereas once mobile payments resided across numerous different apps and schemes, it looks like the consumer experience is becoming smoother and more consistent with the introduction of wallets. For example, Apple’s Passbook is an emerging mobile payment model that brings disparate apps together for a better user experience.
A good example of a successful mobile wallet is the direction in which Starbucks is moving – one of the most recognised global retail brands with one of the most successful mobile payment apps to date. Starbucks saw fit to invest £16m in Square in 2012 and now offers its customers a new mobile wallet in partnership with the company. The president and CEO, Howard Schultz said in November 2012 that two million mobile payment transactions are made by consumers buying coffee every week . But what’s perhaps more important here is that a group of already mobile-savvy Starbucks consumers, are being trained how to use the features and benefits of a mobile wallet and they’re being taught to demand more from their mobile payment interaction. At the same time, Starbucks and other retailers investing in mobile wallet technology may be able to drive down transaction processing fees.
In contrast to the success of Starbucks, the Google Wallet has lacked the traction you might expect; it is comparatively complex and relies on retailers having MasterCard PayPass point-of-sale terminals, and consumers having NFC-enabled phones and access to the Sprint network in the US. In addition, until recently, users could only add the payment instruments that coincided with the issuers that Google had forged relationships with. These factors have cut out a huge potential user-base. However, Google has recently unveiled a cloud-based version of its wallet that opens it up to cards from all major US payment brands.
Meanwhile, another wallet (that will initially focus on m-commerce) V.me from Visa, is gaining pace. It is openly available to about 55 million cardholders for online shopping, with RBS and Natwest onboard in the UK. Then there are the retailers, such as Sainsbury’s in the UK, which are providing scanning and payment wallets for customers that also incorporate loyalty schemes.
In summary, the ease of use wallets offer, combined with the growth in smartphones, the consumer education fostered by Starbucks, and the ability for mobile payments technologies to be consolidated into one system really do make 2013 the year that mobile payments must start to take off. If not, it will be a huge missed opportunity.
Talking of missed opportunities, Apple’s decision to not NFC-enable the iPhone 5 was obviously a blow to NFC-based mobile payments, but not particularly surprising. Whether this will change is purely a question of economics. If Apple feels it is losing customers to Samsung or others because of NFC support, then that decision will be reversed. In the meantime, Apple’s Passbook does offer an alternative.
What will mobile look like in 2013?
Based on all these factors, it’s safe to say that 2013 will not only be the year mobile payments gain traction among consumers, but that we will see huge consolidation in the market as more apps and services link to one of the major mobile wallets. Similar to how consumers are starting to access their bank accounts from mobile devices, in 2013 we will see more consumers making payments from their mobile wallet apps instead of on the Internet.
As a result, we may see more bricks and mortar retailers creating their own mobile wallets to keep a one-to-one marketing channel to their customers, rather than allowing third-party mobile wallets to own the relationship with consumers – and sending them coupons and offers from competing brands.
In turn, this will spur those banks that have taken a ‘wait-and-see’ approach to launch their own rival wallets, and to include NFC payments applications in those wallets rather than just m-commerce style mobile payments. Banks are starting to realise that one of the advantages for NFC payments to them is that it uses traditional payment rails, in which they’ve invested heavily. Should NFC not be the winner of the mobile payments battle, and some other form of mobile payments win out, then it’s likely that banks will not be best placed. Ultimately, this can only further drive consumer awareness and choice as competing schemes fight for their business.
However, there is one area that remains difficult to tie down in the next twelve months: how anyone is going to make any money from mobile payments. With a mobile wallet, there is a complex group of players fighting for revenue: banks, mobile network operators, handset manufacturers, retailers, trusted service managers (TSMs), mobile wallet vendors and more.
The banks may feel insulated from the fight, but it seems mobile network operators are well placed to make a killing. For example, in some countries, they are starting to make hefty charges to banks to allow the use of the SIM to store their NFC mobile payment application. This takes a considerable cut of interchange fees that might be expected from the NFC payments.
Perhaps one solution for the banks will be to emulate an NFC card payment from the cloud and deliver the commands over a secure channel to the mobile device, hence cutting out the mobile network operators. This could even be made to work in offline scenarios without necessarily having to have access to the cloud at the time of payment. There’s a lot of excitement in this area right now, and this could certainly help spur on the banks’ business case for NFC by solving the problem of having to pass over some of their prized interchange fees to third parties.
Equally, there is no agreement over who will own the data that mobile payments can capture and aggregate. This ‘big data’ is vitally important with buying preferences and location information among many other data sets offering huge insight into payment and retail strategies. But with so many players all piggybacking on each other, who owns it? And how can they garner information from it while also protecting it?
Whatever the developments, when it comes to monetisation and management of data, one thing remains: mobile payments will gain traction in 2013. There is now enough momentum for consumers to start using them as part of their day-to-day shopping routines.
Let’s hope that in December 2013 we don’t look back at another year of missed opportunities, further fragmentation and ‘wait and see’ approaches. If we do, we’ll only have ourselves to blame when so many consumers are likely to be chomping at the bit for mobile payments.