In the mature markets of Europe and North America, mobile payments have exploded onto the stage as a critical imperative for banks, mobile operators and merchants. Mobile is seen as a valuable opportunity to protect existing revenues, add more ‘value’ to the customer, and create new revenue generating opportunities.
For the banks, mobile payments provide a unique opportunity to build customer loyalty, unlock cross-selling propositions and create a more efficient and effective interface for processing transactions. For the telecoms companies, mobile payments offers a viable path for moving further up the mobile value chain by providing payment and data services (as opposed to simply becoming the ‘dumb pipe’ that payments flow through). For merchants, mobile payment solutions increase average transaction revenues, increases customer throughput and provides a more information- rich experience for loyalty and targeting propositions than other instrument.
Likely the biggest opportunity for each sector, however, lies in the data that is generated through mobile payments. Indeed, those that are able to most effectively ‘mine’ customer data will be able to offer their customers more attractive and more relevant services at the time that they wish to buy them: customer analytics will deliver more management information to merchants, purchasing patterns will better inform the loyalty card businesses, spending trends will help consumers better manage their finances.
This intrinsic value of payments data has not been lost on the new entrants now rushing to join in the market. Google wallet, for example, provides value to the online behemoth not by delivering a cut of the payments revenues, but rather by allowing the company to overlay their own data on top of the payments data in order to create deep and rich market insight. Apple – should they enter the market as many anticipate – would similarly benefit from the reams of payment accounts, active customers and data that its current offering and mobile payments would provide.
However, it must be said that the mobile payments market in the developed world has been somewhat slow to move into the mainstream. Few standards exist on a national level, let alone on a regional or global level; technology is still a massive question mark as different forms of mobile payments vie for dominance; interoperability is still a distant possibility; and merchant adoption has been sedate at best.
The mobile market potential is changing as a number of leading markets are now investing in industry-wide mobile payment solutions, often connected to an immediate payments clearing and settlement backbone. Also the stock of NFC enabled payment cards and acceptance of devices is rapidly making the market ready for a collaborative transformation. The mobile payments market is finally inflecting, even if an additional push is needed to ‘get it over the line’.
Yesterday’s world, where mobile payment options in the Western markets tend to revolve around tie-ups between a single bank and a single mobile operator is being outmoded. Accepted wisdom has been that cross-industry collaboration is a critical stepping stone to the success of mobile payments, but this could take many forms. For example a proxy approach may be used to leverage assets (UK Mobile Payments), whereas an integrated approach may be used to align operating models (Near Field Communications). Solutions are being found and barriers are being torn down or avoided. Regulation and financial constraints have also played a role in slowing adoption of mobile payments. Many banks are distracted from innovation because they are focused on meeting the torrent of regulatory requirements that have been placed on them since the financial crisis. This has sometimes meant that there is little appetite for new channels that may result in further compliance complexity. And with capital ratios putting pressure on the investment capacity of most banks, few seem willing to outlay capital on building out a new system that – currently – is only being demanded by a small section of customers however significant the potential.
That is not to say that there have not been bright sparks of success in the market. A multitude of Near Field Communication (NFC) pilots have been successfully concluded and most have demonstrated that the technology will be accepted and effective once the market commitment on the acquiring side and the issuing side are brought together into a clear market transformation. Without this, new pilots simply repeat the steps of their predecessors at best and at worst risk sending a message to consumers that NFC is not fit for purpose.
That being said, the market is still driving forward, driven by a clutch of global and national banks and telecoms companies who see ‘innovation’ as a core brand value. Whilst most of the smaller regional institutions seem to be taking a ‘wait and see’ approach, before committing themselves to a particular mobile strategy, the national market investments we see around the world will demand commitment sooner rather than later.
Over the next two years, we believe that we will start to see many of the major barriers start to fall away as banks and telecoms start working together to create standards and protocols that drive interoperability. But those that are early into the market will find that they can not only build valuable experience for both their customers and IT leaders, they will also be able to help shape the direction that mobile payments will take in the future.
By Mark Hale, Head of Payments, KPMG in the UK