Mobile payments’ time may have arrived, after years of anticipation. Start-ups as well as major technology and finance companies are investing hard in new options. Not only that, consumers appear more than willing to use mobile payments. Competition is becoming fierce for what is seen as a rapidly growing global market.
What is changing?
Mobile payments are ready for lift off. One forecast for the UK suggests that 20 million British consumers will be using mobile payments by 2020, spending approximately $23 billion in the process. Another estimates global offline mobile transactions at $1.5 trillion by 2017, with $244 billion of that in the USA. However, credit and debit cards continue to dwarf mobile payments – $6.2 trillion global spend versus about $240 billion in 2010 – but they indicate the potential market size.
A host of companies are entering the field ranging from mainstream financial providers to start-ups to tech companies. As a result, competition is intensifying between the various technologies and providers in the different elements of the mobile payments market, which includes:
- Mobile POS – turns a mobile device or tablet into a payment terminal
- Loyalty programmes – generates purchasing patterns and offers
- Technology connections – links mobiles and payments
- Mobile wallets – uses a mobile as a store for ‘cash’
- Contactless payments/ NFC – enables tap and pay sales
- Mobile transfers – supports peer to peer as well as person to company transfers
- Mobile banking – enables transactions and money management
- In app payment – allows direct in-app payments.
Mobile online shopping will be a major driver in demand for mobile payments, which will become a natural extension to the process of browsing. Pre-Christmas and holiday season shopping would indicate that we are reaching a tipping point – mobile online shopping surged. According to IBM, mobile access accounted for 48% of total online traffic in the USA, with mobile sales reaching 29% – 40% growth on last year. In the UK, similar growth was seen especially to one particularly successful retailer, John Lewis a department store, where 50% of Christmas Day traffic was on mobiles. And consumers are not just making small purchases via mobile: its most expensive sale via mobile was a £7000 TV.
Payment in store is also hotting up. Critical mass for NFC is arriving. An estimated one third of new smart phones will be NFC payment enabled in 2014, and terminal installation is rising. Zapp, to be launched in 2014, works for in-store, online and even paper bills via a QR code. It has recently signed up 5 UK banks to participate – giving consumers a trusted and existing provider to work through. It has also signed a deal with Worldpay, which administers card machines at tills in shops, giving it access to major retail chains. Square, another mobile wallet could be the technology IPO of 2014 in the way that Twitter and Facebook were in recent years. Meanwhile, Google is expected to streamline its mobile payments offering, and Apple is entering the fray with iBeacons and its iWallet offering, which will integrate marketing and payments and much more.
In non-western markets the success of systems such as M-Pesa and the lack of existing financial infrastructures make mobile payment options all the more attractive. China Telecom has now joined the two main mobile carriers by announcing a major deal with leading banks to roll out a mobile wallet to pay for transport, shopping and dining out. The company aims to issue 30 million NFC enabled UIM cards (similar to SIM cards) in 2014.
Although cash still dominates globally, 85% of all retail payments by volume are cash and 60% by value, many countries are increasingly ‘cashless’, courtesy of card payments. Belgium leads the nearly cashless group, with an estimated 93% share for non-cash payments, with 6 more nations each having over an 85% share. The USA tops the 5 in transition group with 80% cashless-ness. Mobile payments could become a natural progression for the near cashless, and a logical first step for those who are yet to start the journey.
For consumers speed, convenience, being able to shop anywhere at any time – a large proportion of mobile browsing in the UK was during commutes- and ease of use are the major benefits. And, a growing number of systems are linked directly to consumers’ bank account enabling them to review their finances before making a purchase, thus providing greater transparency and possibly more effective money management.
For retailers, mobile payments could provide significant opportunities for customer loyalty programmes and personalised special offers, with the ability to recognise regular customers. Instant settlement may improve cash flow and mobile payments could also be cheaper to administer. The challenge will be to provide a seamless experience and genuine omni-channel inter-changeability and consistency as consumers shift from store to mobile to tablet and desktop.
For traditional financial institutions major changes to branch networks may be ahead, if consumers stay away in droves. Fraud may reduce – mobile payments are seen as more secure, and UK card fraud was estimated at $634 million in 2012. Either way, competition from new technology and more flexible competitors is rising fast.
The number of competing options and providers could create confusion for consumers and retailers alike. Inter-operability will be critical to success. Companies will need to review mobile payments strategies within their overall digital strategies for operations and marketing, not as a bolt on option.
If you would like us to help you review what mobile payments might mean for your organisation, please contact us.