Reinventing money - ConsumerCurrents Issue 17 | KPMG | BE

Reinventing money

Reinventing money

In a digital age, how consumers pay for goods and services is increasingly becoming a lifestyle choice.


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Consumer payment for goods and services is being transformed by a flurry of mobile technologies offering competing payment methods. By even the most conservative estimates, mobile payments will account for more than US$1 trillion of transactions worldwide by 2017. 

This rich market opportunity is attracting investment in virtual wallets, which store loyalty, credit and bank cards, and digital coupons. Traditional financial players have introduced apps for mobile payment. Retailers, Google, a slew of tech start-ups, telcos, and non-bank-based money transfer services such as Paypal are fighting for shares of the digital payment ecosystem.

A report last year by Allied Market Research predicted the mobile-wallet market would reach US$5,250bn worldwide by 2020 - driven by increased smartphone penetration and acceptance of mobile payments by a growing number of retailers.

"There is so much movement out there and speculation about what will gain traction," says Chris Hadorn, Principal at KPMG in the US. There will be winners and losers, but he is convinced the tipping point for consumer payments isn't far away. "We will see some major shifts in the next few years," he says.

Traditional payments under fire

Debit and credit card use is being transformed by competing payment methods across the globe. Mobile technology has enabled many of these new payment systems, not least the two-way connectivity of near-field communication (NFC) between devices and merchant readers. 

Starbucks has enjoyed much success with its closed-loop payment app. In a typical week, more than four million mobile transactions are made. The coffee chain’s next step could be to license or white-label its mobile payment systems to retailers. 

Looking to wrestle some of the payment process away from banks, and reduce the interchange fees they pay, some of America’s largest mass-market retailers formed a 14-member coalition, the Merchant Customer Exchange (MCEX), to create an integrated mobile commerce platform. 

Mobile payments also provide an opportunity for retailers to reduce the costs and error rates associated with traditional payment cards, and to increase customer loyalty. 

“There is an opportunity for retailers to promote their own brand through the payment process, communicate the benefits of doing so and cultivate a better relationship with the consumer,” Hadorn says. 

James McKeogh, Director at KPMG China, underlines a key point for retailers: as economies embrace electronic payment, the level of information available to understand consumers will grow. 

“It is about bringing the two together and having a unified approach,” McKeogh says. “Merchants who don’t use the technology should realize that somebody else will. Payment processors are already doing the analysis and will soon understand your customers better than you.

Key drivers

  • Transparency: A lack of openness by financial institutions has been a fundamental flaw of traditional payment methods, and regulators in many markets have capped interchange fees and called for greater education about costs. Operators of alternative payment options can change the game by being more transparent. 
  • Ubiquity: Shoppers will not want to worry that their mobile wallet might not be accepted by a particular retailer, as is the case with many current mobile and wallet-based solutions. 
  • Convenience and speed: Offering consumers a choice of payment options can be a selling point, but retailers must ensure a variety of methods doesn’t slow down check-out lines. 
  • Privacy and security: Retailers must be aware of any vulnerabilities and changes that may be required to their operating model, and seize the opportunity to build trust with new, potentially more secure payment methods. 
  • CRM: Systems that securely collect useful customer data while not infringing on their privacy will drive business objectives while improving marketing ROI, understanding of customer behavior, and brand loyalty.

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