We surveyed bankers in more than 20 locations across Europe about what they think of when they hear the term ‘mobile payments’. On average, 56 per cent responded: contactless payment using a mobile device (typically through a third-party wallet such as Apple Pay, Samsung Pay, etc.)
To us, the kind of payment they’re describing isn’t the same as our definition of mobile payments. It is payment facilitated through a mobile, but what it is, primarily, is just your card added inside your phone which is then used for contactless payment using near-field communication (NFC) technology – the same as the kind your card already facilitates.
A while ago, we posted about what we mean when we say “mobile payments”. You can read the full piece here. But, given that our definition is very different from the common perceptions, we thought it might be useful to answer some of the common questions we regularly receive about mobile payments. Please chime in with your own questions and thoughts in the comments field.
You can read a more thorough explanation here, but simply, what we at Auka define mobile payments as a service that allows users to pay with their preferred source of funding, in any payment scenario, via a mobile phone that is agnostic to either its brand or telco. This kind of platform has been proven to be the most successful mobile payment proposition. The two regions nailing it with this platform model are Scandinavia and China. Google is now also seeing great success with this same kind of offering in India with their product, Tez.
Mobile wallets, as we know them today, are generally a card connected to a mobile device which can be used to make e-comm and point of sale (POS) payments. This is the model currently being used by Apple, Samsung and Google.
But what it can also be is a feature rich software product which doesn’t rely solely on the duplication of card functionality or on enabling you to bank “on the go”. Sure, you can still check your account balance or pay using the wallet, whether that be using contactless technology, or a QR code system. But, the real benefits to the scheme owners of the wallet go far beyond simple on-premise payment or account access.
Auka’s mobile wallet technology, for example, can be used and white labelled by banks to facilitate the following processes and functionality, for example. Note that the below is not a finite list of features and functionality.
For consumers (that’s the population in general) the primary benefits revolve around increased convenience. In China, for example, cash is pretty much dead. People in China don’t panic if they leave their wallet at home but leaving their mobile at home leaves them without the predominant method of payment for everything they need during the day – transport tickets, lunch, food, etc.
You can use the one app on your mobile to split bills with friends, instantly transfer cash to family members (handy for parents sending their kids lunch money, as an example), pre-order a coffee or your lunch while at your desk or in class, purchase a product straight from the page of a magazine by scanning the accompanying QR code and of course, pay quickly and smoothly in stores.
It also reduces your risk of bank fraud, losing cash and negates having to be very careful about entering in complicated account numbers when transferring money.
There’s also the big benefit of being in a position to take advantage of real rewards and customised offers just for you, that a wallet full of coffee stamp cards can’t deliver in the same way.
With a successful mobile payment offering, merchants can actively use the merchant console to manage their business and accept payments. The console features sales and settlement reporting, sales and customer analytics, insights and marketing tools – all enabling new ways for merchants to engage with their customers and sell more. For larger merchants (retail) with existing loyalty schemes, a mobile payment offering needs to provide data sharing capabilities.
This enables the merchant to ask for data (loyalty ID, name, address, etc) through the system, making it the preferred payment option, even in retail situations which are today dominated by card payments. Such data sharing services can be used as a tactical instrument to drive retail interest and increase revenue opportunities.
For small and medium (and large alike!) business owners, the capability to chat with customers, collect customer information and build their own, easy-to-use loyalty solutions (such as stamp cards, coupons and personal offers) are all business enablers which translates to increased custom and better control – over inventory and finances.
You can read about the largest benefits for banks in our free report: mobile payments for bankers. The overarching benefit is that banks who launch their own mobile payments following the same model followed in Scandinavia and China, for example, is that they get to own the overarching payments channel – i.e. the interface to the customer.
This allows banks to cash in on all the benefits below and more importantly, when executed properly, ensures they keep control of this channel when third-parties such as Facebook, Google, fintechs and other banks can legally gain API access to their customers accounts.
Some of the aforementioned benefits include:
Read more about these benefits here.
As mentioned above, the risks of using card payments outweigh those of using mobile payments when it comes to fraud.
Right now, Apple Pay and Samsung Pay, for example, rely on near-field communication (NFC) or radio-frequency identification (RFID) payments. They essentially turn a person’s mobile phone into a contactless debit card. I.e. a person can use their mobile phone to pay in exactly the same way that they would use a debit card, currently.
As described above, the mobile payments schemes following the same formula for success (like those in Scandinavia, China, the USA, to name a few) go much further than simple replication of card functionality.
From our experience and from analysis of other markets, there is usually one one mobile payments winner per region. For example, when Vipps launched in Norway it was competing against mCASH (the wallet Auka launched which was then acquired in Norway by Sparebank 1). Fuelled by a large budget and a commitment to come out on top, Vipps gained traction and eventually absorbed the mCASH technology into its Vipps brand, along with a host of smaller competitors.
In the much larger market of China, there are two dominant rivals – Alipay and WeChat Pay. Despite lagging behind Alipay in terms of current market share, experts say that WeChat Pay is steadily chipping away at the incumbent’s share by incorporating new functionality and cashing in on their massive popularity with users.
When the second payments services directive (PSD2) cracks open bank account access, global players will gain access to regional markets across Europe. If no local defence is in place, it’ll be that much easier for them to use their mammoth marketing power to swoop in and claim the market. The more markets that this hypothetical tech behemoth (for example) has, the closer they get to global dominance when it comes to payments.
In the spirit of competition and innovation, having one dominant global payments provider isn’t great. That said, the core reason for PSD2 was to create better options for consumers and spark innovation because bank innovations had grown stagnant. There is really only one option for banks who want to maintain and grow their customer base and relevance. That is to put in place measures which help prevent or make it harder for others to take over their payment channels.
Luckily for banks, there is a distinct chunk of time for them to start creating and launching new digital solutions. And then the question remains – will one solution win in the end? In certain regions, we think that there’ll definitely be regional winners… but globally? Who knows. If enough markets remain stagnant in the payments space, it is certainly much easier for companies with global users and marketing power to enter these regions and amass more and more users.
Good question! This is something we’re working on, together with our bank partners. New research estimates that there’ll be 2.1 billion mobile payments users by 2019. In many cash-dominated markets (like much of central and eastern Europe, for example) we predict that mobile payments will leapfrog card payments within the next couple of years. In fact, this is pretty certain…
Certain because PSD2 complies banks to open their APIs to third parties. Smartphone penetration and access to the internet is ever growing. Mobile payments solve so many common payment problems for the everyday person as well as businesses and small merchants. This combination of factors and regulatory timing guarantees that relatively soon, mobile payments will become the norm across all scenarios in which payments are made.
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