There seems to be a new announcement every day about the impact of mobile technology on payment systems, about a new development in that technology, or about the strategies of the major players. These include financial organisations (banks, new generation payment organisations, credit and charge card operators, acquiring organisations, money transfer operators), mobile players (mobile network operators – MNOs, handset manufacturers, suppliers of their components or software) and systems providers.
There is global chaos, with few standards, regulators unsure of their positions and consumers confused over different approaches. Potential providers are concerned about being left out but uncertain how much to invest in entering or staying in. On each continent, companies are looking at other continents and wondering what can be learnt from them. The world is looking to Africa to see what lessons can be learned from the success of simple text-based mobile money transfer operations in one country (Kenya – it’s a slower start in other African countries), from the reactions of financial and telecommunications regulators and from the developing relationships between MNOs and financial organisations, particularly banks. It is looking to Asia, to where early hopes about rapid take off of NFC – Near Field Communication-based retail payments were not fulfilled, but where some smaller countries have been successful, both in taking NFC-mobile payment forward and in achieving the critical mass of contactless card readers required for the NFC approach to succeed. It is looking to the US, where take up of innovations in merchant acceptance and the success of new generation payment organisations (PayPal and Square) have not been matched by take-up of NFC-based approaches, despite Google’s efforts, and where the relatively slow take-up of approaches to card security (chip and pin) indicates a fundamental conservatism in approach to payments innovation on the part of financial organisations and retailers. And it is looking towards Europe, where the drive to contactless payment systems and the rapid increase in diffusion of NFC enabled smartphones are now understood to be the two critical enablers for growth in NFC-mobile payments, and where African-style person-to-person payment systems are beginning to appear.
For NFC mobile payments, the most important factors are the commitment by retailers of all kinds to accept NFC contactless payments, not necessarily by mobile phone, but just by contactless card. There still remains the critical issue of consistent standards but, after a long period of fencing, MNOs and banks are now committing to move forward. However, from agreeing on standards and ways of working together to delivering a secure, cost-effective and user friendly proposition to consumers and retailers takes some time. The slowness of the move towards contactless payments has not helped, but here there is a gentle acceleration.
During 2011, those involved in mobile banking and payments were distracted by analyst reports indicating a massive global swing to NFC payments by 2013. This ignored the evidence that this would take a lot more than the widespread availability of NFC handsets, which in any case was not happening. By early 2012, realism was dawning, and those involved in the industry were sceptical of such rapid progress, with 2014-17 being a more realistic timing for such a swing in behaviour. Security and the need for co-ordination among key mobile commerce stakeholders and for mobile payment standards are now seen as the main barriers.
In the US, Square and Paypal are challenging both MNOs and banks, but in different ways. Google’s challenge is primarily evolutionary, using an approach broadly based on existing ideas – mobile phones and contactless technology. The challenge may be successful, not just because of Google’s power, but also because it may fund development in a situation where NFC by itself provides questionable value for consumers or merchants in mature payment markets. Google has payments ambitions like PayPal, and this is why it wants consumers to use its payment services. Google’s involvement will increase legitimacy for this market for all other players, as well as for consumers. However, MNOs and banks have identified this as a serious challenge. Early problems with Google wallet in 2011 and 2012 included not just lack of availability of handsets and contactless payment points but a wait and see attitude of most merchants, who in order to fully exploit the capabilities of Google Wallet need to make adjustments to their Point of Sale environment to allow One Tap payment. In addition, a weak and imperfect proposition focused on a few credit cards, lack of true partnering with credit card providers and limited coupon and loyalty points redemption functionality. These can be expected eventually to fade away, provided that Google does not determine that the game is not worth the possible eventual rewards and that it has other more serious challenges to its core business on hand, as other players have done in different parts of the mobile payments market (e.g. Nokia’s exit in India).
The approaches of Square and PayPal are both revolutionary and game-changing. Their main focus is on micro, small and medium businesses, bundling a merchant acquiring agreement and card acceptance app with a handset and contract. In the US, where there are about eight million “traditional” merchants, Square has signed up over a million of them. PayPal’s activity is distinguished partly by the immediacy of the availability of funds. This contrasts with the failure of the US to develop a mechanism for immediate funds transfer, like the UK’s Faster Payments scheme. This means that not only is the US behind on card developments, but also on money transfer between individuals and businesses. However, three of the largest payment processors – Bank of America, Chase and Wells Fargo – have joined up to create their own back-end system for processing the money, clearXchange. For younger people and the unbanked, it might be more logical to use a socially based (in-app) payments mechanism e.g. Facebook.
Behind all this chaos lies a clear lack of consensus by all the players, including governments and regulators, about what the future world should look like, and what the benefits for consumers and business will be. I am reminded of the early scepticism about the use of personal computers in the early 1980s, or even of computers themselves in the 1940s and 1950s. However, the difference in this case is that there are many existing, acceptable, trusted and efficient methods of achieving the different kinds of payments. Early 2012 has seen a tipping point, not in terms of take-up of the different technologies and approaches, but of the public voicing of scepticism about the speed of their take up by some major suppliers, and a realistic view dawning of how to progress.
This emerging realism is good, because decision-making based on probably exaggerated views about the speed of change rarely leads to the right outcomes! My advice is, if your company is thinking of getting involved, take a long hard look at the business case, and consider whether you can afford the distraction.
