“In the future, you will only need your mobile phone to do payments”. “Cards will die and soon you can just leave your wallet at home”. We have been listening (and perhaps stopped listening) to these types of statements for many years.
But, we know that in China the number of mobile payment transactions surpassed 25.71 billion transactions in 2016. What does this mean for the statements above, then? Well, the truth behind those assertions all comes down to the definition of mobile payments within the regions they’re being said.
As we touched upon in this blog post, a lot of confusion comes from a vague distinction between a mobile wallet and mobile payments, where both terms are used interchangeably about quite different concepts.
The most common definition
Typically, we think of a mobile wallet as a debit/credit/digital card connected to your phone, allowing you to pay in stores by using near-field communication (NFC) or any other proximity-based technology. This is where we find ApplePay, SamsungPay, AndroidPay, Masterpass as well as many others. All are known for lofty predictions that their wallets will out-compete any other means of payments. But in the meantime, they’re failing (for different reasons) to make their users commit to those services. ApplePay saw its peak usage – 5.9% – in March 2016 (yes, it actually went down after that) and SamsungPay’s highest usage rate was 4.5%.
These “mobile payments” platforms contrast with what we at Auka define as mobile payments – 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.
In Scandinavia, there are multiple bank-owned solutions (like MobilePay in Denmark, Swish in Sweden and Vipps and mCASH/Auka in Norway) that have managed to saturate the market and reach up to 65 – 70% adoption rate across the whole population in the past five years. In China, where over 20% of the population is still unbanked, the market pioneer AliPay and their challenger, WeChat have given access to financial transactions to over 1.5 billion users – hitting $5.5tn last year, which is 50 times the size of the US’s $112bn market.
What distinguishes these successful schemes?
Two main things – both the completeness and flexibility of their solutions for the users.
This is mobile payments
(pictured: mobile wallet mCASH developed and powered by Auka)
Understanding this concept is the key to building success in the mobile payments space. This is what we call the “Scandinavian way” as all bank-owned solutions in the region have executed their models in similar ways. China differs slightly here as their solutions are not bank-owned. But there, the strategy of addressing all payment scenarios (welcome back, QR codes) still underpins their mobile payment success.
However, most European banks we talk to jump on the Apple/Samsung/Android-Pay/Masterpass train. They are attracted by the volumes of the retail business and start with connecting a card to the wallet to address in-store payments. The problem is that this solution does not bring any additional value to the end user. Those who had a contactless card from before can already pay using a terminal in the store. The new way of payment doesn’t really solve any key problem.
What banks should do instead is to look at use cases where merchants and consumers typically interact in traditional ways (cash, cheques, etc). Where there is a high frequency of payments, give them the freedom of paying remotely and with any means of payment they prefer.
So, the way we look at mobile payments is a solution with flexibility on two sides
Payment sources
Bank customers now have a choice of using the payment source they prefer, while the bank might incentivise those most profitable to them. In the markets with national debit schemes (like in Scandinavia) banks connect directly to the accounts (which will basically become the default, in the post-PSD2 world), while in other markets, cards or other types of funding (for example cash top-up) will make more sense.
Payment scenarios
No bank-owned scheme, where users can pay within only one type of store, will ever be sustainable in the long run. Consumers want convenience and consolidation of services. If they like a solution they will want to use it everywhere. The bank’s goal, on the other hand, is to increase the frequency of use of the new service. This is done by creating and growing an ecosystem of users and merchants. These people interact in peer-to-peer, remote and in-app payments, tickets, bills and e-commerce payments.
See a full overview of Auka’s mobile payments products here.
