The global challenge for mobile payments

By Banking Tech

There is certainly something in the air with mobile payments. Long talked about in mobile, technology and banking circles, it seems that the idea of using a phone to make purchases and move money around is finally coming to fruition, writes Paul Skeldon.

One-fifth of Western European net users use mobile banking, according to a new Forrester report based on more than 13,600 consumer surveys. SMS alerts are still the most popular form of mobile banking in most countries, but use of mobile banking apps on smartphones is growing fastest.

As mobile internet use explodes and mobile banking is displacing use of other channels, Forrester believes that ubiquitous mobile banking will mark a bigger strategic shift for the industry than home-based online banking. Banks need mobile banking to provide a platform for mobile payments and to protect their retail payments businesses from digital disruption.

At the same time, Juniper Research has revised its forecasts for the value of mobile transactions up to a whopping $1.3 trillion annually by 2017, predicated on the growing interest in peer-to-peer money transfer, mobile retail in the high street, so called ‘couch commerce’ in the home and, contentiously, its view that NFC is going to take off pretty soon everywhere.

What Juniper’s research has shown is that there is sufficient traction in mobile money now from network operators, retailers and banks that a tipping point has been passed, largely driven by the growing use of mobile to purchase in the retail space.

As Juniper concedes, much of the growth between now and 2017 will be in the purchase of real world goods using mobile either remotely or in store. Retail has a stake in the ground to extend its ownership of the customer through offering omni-channel retailing, where consumers can buy and interact with retailers through stores, the web, catalogues, click and collect, social media and, of course, mobile. For the retailer, mobile payments are just a way of gluing this all together.

Meanwhile, mobile network operators are similarly trying to own the same customers, taking the approach that offering mobile payment services – typically and increasingly through mobile wallet apps – is the way to do this. Operators at least have the pedigree of handling payments through premium rate on bill services, but have largely shied away from becoming banks.

But banks, naturally, aren’t shying away from this space. They see both a threat and opportunity from mobile payments and, now that the heat is slowly being turned up under the cauldron on mobile money, banks are increasingly looking at how they too can own the customer and the payment chain.

While much has been written about the battle royal – and, let’s face it, some non-alignment pacts and curious ententes that make the build up to World War One look relatively straightforward – most of this has centred around individual domestic markets.

However, mobile is, well, mobile and by dint of this, should mobile payments take off, then there is every chance that it could be the next big thing in international payments. But is that going to work in the foreseeable future?

Currently, much of what is looked at in this field of international mobile payments is international worker remittance and migrant workers sending money – and other money-like entities such as airtime and virtual currencies and vouchers – home.

Juniper’s research showed that mobile as a means of enabling international money transfer is already on the rise, and Western Union – a leading international cash transfer company – is meeting this demand with its own Western Union Digital business with a web and mobile optimised site and a range of smartphone apps.

A year ago digital payments cross border accounted for 1% of the company’s business. The digital push has seen that grow to 35% in a year, driven mainly by new customers, says Khalid Fellahi, senior vice president and general manager of Western Union Digital Ventures. “Most of these customers don’t want to go to a physical location to transfer money; they want to do it electronically.”

Western Union uses its existing infrastructure in some 135 countries to move the money and partners with banks around the world to facilitate the extraction of money at the other end.

But this is just a small facet of the mobile payments space. With increasing numbers of digital consumers looking to buy things on mobile, the need to make payments international is something that currently both attracts and repels mobile money companies, operators and banks.

“Much of the work being done in mobile payments, be it by banks, operators or third parties, is country specific right now,” says Karl Rieder, delivery manager at financial technology provider GFT Group. “And that makes taking these services cross border all the harder. Germany, for instance, doesn’t have the same m-payments tools as, say, Spain. Even within some banks, the tools for handling mobile payments aren’t compatible between different countries within the same bank brand. This is why companies like PayPal, which have no international issues, are so compelling.”

Dom Keen, chief executive of third-party mobile payment company, MoPowered agrees: “The growing market for digital gaming and internationalised goods is seeing a small but growing need for internationalised mobile payments that, so far, isn’t being met.”

Right now, says Keen, the best way to enable mobile payments between countries is to use operator billing-based services such as Boku and Zong, but “these are no good for big ticket items, they are purely for micropayments”, he says. And there is the reticence to use these services by many merchants because the amount of ‘commission’ charged by the operators can, in some countries, be as high as 60%.

The answer, both Rieder and Keen believe, lies not in banks per se, but in looking at how banks, brands and particularly retailers can use technology to plug into that does the integration for them.

For example, Envoy Services – recently acquired by WorldPay – has developed a pan-global payments gateway that merchants plug into and which can serve up relevant mobile payment tools in a vast number of countries. So far this isn’t something we are seeing from banks, operators or anyone else.

But it is easy to see why international mobile payments are not – yet at least – a top priority. Already they are not really anywhere near mass market in domestic commerce and taking them overseas is likely to be fraught with technological and regulatory issues. That said, the propensity for so many entities in so many regions all trying to get top dog status in each country in the mobile payments sphere is going to go one of two ways.

Either there will be mess of payment mechanisms and tools so that the only way to integrate them is to get in some sort of platform that the mobile service provider plugs into to facilitate it, or this tangled web of providers will see one clear winner rise to the top.

My (mobile) money is on the latter – but who that will be remains to be seen: it certainly isn’t a done deal for banks, mobile operators or anyone else.

Sidebar: Wallet wars

One of the key ways to pay using mobile is shaping up to be the mobile wallet. Already there are several examples globally from operators, banks and third parties and rumours that Apple is looking at including some sort of wallet-like app in IOS6 are all over the web like a cheap suit.

As to facilitating international payments they look set to be a simple way to offer a user interface that the consumer can easily use anywhere in the world (the issues being the back-end systems that is holding that back right now).

The payments world is giving a much-needed boost to the rollout of NFC-enabled equipment – such as handsets and point-of-sale systems, to name but two. By 2016, more than a quarter of US consumers will own an NFC-enabled handset, believes Forrester Research. But NFC-based mobile digital wallets are not the only game in town. There are several hardware-agnostic wallets entering the market, and because they face fewer hurdles, they will see faster adoption.

These will make international integration far simpler and are likely to garner greater support from consumers, merchants and even banks.

Integration with loyalty schemes and better contextual relevance – along with a compelling purchase experience – will also play a role in increasing the penetration of mobile wallets.

But while the advantages of wallets is clear, there are many issues with them. The development of mobile wallet technology is being held back by a number of ‘hidden controls’ that remain largely unexplored in the public domain, asserts Mobey Forum, a global bank-driven industry association enhancing the evolution of a sustainable and prosperous mobile financial services (MFS) ecosystem.

“As the first wave of mobile wallet solutions start to appear, the market’s attention remains fixed on mobile wallet apps and the devices where they reside,” explains Amir Tabakovic, head of market development at PostFinance and chair of the Mobey Forum Mobile Wallet Task Force. “We think this is unbalanced: the mobile wallet ecosystem is highly complex and its component parts are interdependent. The market’s failure to adequately consider the external forces influencing the mobile wallet is preventing the technology from fulfilling its full potential.”

“Mobey Forum has already established that providing an ‘easy way to pay’ will not be enough to guarantee mass market adoption of the mobile wallet,” adds Sirpa Nordlund, executive director, Mobey Forum. “Consumers must be lured away from their conventional wallets by the promise of some form of unique, additional value in return for agreeing to change their behaviour. But how will these new value oriented services integrate with the payment systems? What will motivate merchants to accept mobile wallet payments and what form will the acceptance infrastructure take?  What are the integration issues?

Sidebar: the culture club

One of the biggest non-technical challenges faced by the internationalisation of mobile payments is the differing payments cultures in countries around the world. Anyone in the business already knows that outside the US and UK, credit and debit cards are not that popular, but as the whole world of alternative payments – of which mobile is but a part – opens up, even more striking differences emerge.

For instance, India and Austria are already big users of mobile payments domestically. Austria’s PayBox boasts more than five million users and in India, where mobile phone penetration is vast, the move to m-commerce is significant.

However, in Germany where credit card payments are relatively low, Elektronisches Lastschrift Verfahren, a form of direct debit payment, makes up a huge 28% of the market. In the Netherlands, which has been a huge adopter of e-commerce and latterly m-commerce, its own domestic version of PayPal – Ideal – has accounts for some 66% of the market.

Understanding where mobile payments fits in culturally and then trying to make it all work internationally is a huge task and, even with the technology sorted out, this could perhaps be its biggest barrier to success. It may simply just not happen.

But the fact that mobile and the wider digital world is increasingly the preserve of the young could yet shift these cultural mores.

“Cultural payment preferences have always existed but, until fairly recently, online purchasing options were dominated by global card schemes,” says Phil McGriskin, chief product officer, WorldPay. “With the advances in technology, a new generation of shoppers and developing online and online mobile economies, alternative payments are growing in popularity. This presents an opportunity in the e- and m-commerce space for merchants to gain a competitive advantage by offering customers the option to pay using their preferred payment type. Merchants need to identify where their target customers are located and offer the relevant payment options to cater to cultural preferences. This will ultimately drive revenue for merchants, especially in new and developing economies.”