Credit Card Bill

When we last spoke to Bill Gajda, Visa’s head of mobile, in June 2011, the payments provider had just acquired emerging markets mobile banking specialist Fundamo. At the time, the main topic of conversation was banking the unbanked. In a market where two billion people had a mobile phone but no relationship with a financial institution, the opportunities were clear and the outcome the same as that in mature markets—you had to bank the people before you could get them to transact. This year, mobile financial services (MFS) have moved into the mature market mainstream—addressing opportunities in more sophisticated economies, where purchasing behaviour can be mobilised to tie in with loyalty, analytics and social commerce.

Gajda believes the acquisition landgrab he spoke about ten months ago is still in full swing. Visa recently took a 15 per cent stake in the Mobile Money Network (MMN)—a joint venture between Monitise, Best Buy Europe and Carphone Warehouse, and telecoms entrepreneur Charles Dunstone, who is present as a private investor. MMN aims to bring a platform for bank-grade mobile shopping to the mass market with a mobile checkout offering, Simply Tap, which allows customers to identify and purchase a product on their mobile via advertising, in-store or online channels, and have it delivered.

Today, In Europe alone, there are 445 million Visa debit, credit and commercial cards, with €1 in every €3 spent on a Visa card. By 2020 the company predicts that more than half of all its transactions worldwide will be carried out on a mobile device. The endgame is about more than mobile payments or mobile banking, it’s a combination of the two, where the frontiers between m-commerce and e-commerce are blurring.

“We will see further expansion of the number of small companies innovating in this area before we start seeing consolidation,” Gajda says. “And this is a good thing because it is still early days. There’s a lot of innovation going on at the edge of the network, a lot being built on the existing global infrastructure for mobile payments. A couple of years ago there was talk about how the mobile industry could create yet another global payments network—or somehow disintermediate the global payments ecosystem—but I don’t hear anyone talking about that now.”

According to Gajda, the mobile industry has now moved on and is looking at how to use the existing global, scalable, interoperable, secure rails that Visa, Mastercard and a few other companies supply, to extend the reach of mobile financial services.

“There’s a lot of theorising, especially about what role the operators will play. And in my view the operators are absolutely key to distribution with their marketing presence, brand presence, and retail presence,” he says. “They subsidise the handsets, configure the handsets and are able to open up access to secure elements, so they have a key role to play.

“But there are two factors that require a level of cooperation with financial institutions. First, mobile operators don’t want to extend their business to accept risk issues and privacy issues, chargebacks, and dispute resolution, all of the things that finance institutions are experienced in doing on behalf of the industry.  There’s a competency, a risk threshold at play here. Then there’s the regulatory environment. With a few exceptions, most regulatory environments are putting financial institutions at the centre in terms of mobile commerce initiatives,” Gajda says.

With a long history in the mobile sector, first at Ericsson, then at GSMA, where he served seven years as chief commercial officer, Gadja is well placed to draw parallels between the two industries. To open up the value chain to the biggest number of players, you first need to open the MFS sector up to a broader ecosystem, he says. “It’s like starting with voice connections on one network only, then interconnecting between networks. SMS in the US didn’t explode until we had inter-standard roaming. We’ve seen the same in the payments industry and will see the same in mobile payments,” Gajda says.

He identifies the development of several entry points into a “mobile commerce experience”. The card issuers and financial institutions are going to be a major entry point because of their existing relationships with customers, and this will see the extension of mobile banking into commerce.

But some consumers will want to come in through a social channel like Facebook, or a search channel like Google and its m-wallet, while others will want an Isis-type model that is operator-led and supported by financial institutions. “So ultimately, we’ll see five or six key distribution plays for m-wallets appear and then we’ll see consolidation,” Gajda says. “Consumers will probably want one or two different wallets that appeal to different demographics or uses cases. And some kind of social commerce application like Facebook will be one of them, because people of a younger demographic will draw strong links between that service and commerce.”

Social commerce is an interesting notion, and one that has already seen significant success. Amazon could arguably be described as a social network that happens to sell various goods, while the success of eBay can be attributed to the social ranking capabilities of its user base. An entire generation of young consumers are growing up with Facebook and other social media accounts, and Gajda believes we will see lots of innovation linking commerce and social networking.

“We’re just seeing the start of what will be possible now,” he says. “You could enter a restaurant and tap a card reader which checks you into that restaurant for loyalty points. Then on the way out you tap the reader several times to offer a rating of that restaurant which is automatically updated to your Facebook page. Mobile and commerce and social networking are all converging and we’re just at the beginning of innovation in that space.”

So far, relatively small companies have led the pioneering movements in this space. Whether it’s Square, iZettle, Paypal, or Intuit using the mobile to create new ways to authenticate transactions, location based services and unique IMEIs, or the use of data to drive loyalty and offers in a more relevant and timely way, the dynamism is clear to see, Gajda says.

He predicts the emergence of two types of core mobile financial service, one targeted at emerging markets, and one at sophisticated markets, but both serving the same ends. While MFS in developing markets have become a core service offered by many mobile operators and financial institutions, they are often limited in scalability and reach, so the aim for Visa is to have m-banking and the m-wallet to co-exist.

To reach these millions, potentially billions, of people a roadmap is required that is scalable and reliable with added features and benefits including interoperability and a standards-based approach, Gajda says. So Visa is approaching existing mobile money scheme operators and offering a Visa overlay to open up their system and allow for new kinds of transactions and interconnectivity between these closed loops.

In mature markets, he suggests, a mobile wallet will centre on an application that allows people to virtualise their payment and loyalty cards on their mobile device to enable a broad range of payments, whether its via NFC at the point of sale, ‘one click’ payments championed by Amazon online or the ‘frictionless’ virtual currency system backed by Facebook. “We think of the mobile wallet as a simple application that uses USSD in emerging markets, or as a rich application that uses a smartphone OS, but really it’s just an application that securely allows an individual to virtualise a payment or loyalty card on to a phone to enable commerce,” Gajda says. “It incorporates what Isis and Google are doing and what Visa is doing with V.Me and Paywave.”

On both fronts, cash is the common enemy, and this is an issue all players in the ecosystem are trying to solve. Fundamo is tackling a market where more than 90 per cent of payments are made with cash, and very few people have access to any kind of banking facilities. That is very different to what Visa is doing.

“Payments are already very easy, the infrastructure is pretty much ubiquitous. But if all we do with mobile wallets is replace tapping or swiping a card with the same action on a phone, they we’re not doing enough. That’s not where the value is, it’s using all the other elements of an application linking location or loyalty cards or keeping track of all your coupons. It’s context time and location and putting control in the hands of the consumer with real time alerts, to help users manage their spending. The actual payments part is already easy,” he says.

Through its agreements with Monitise and the MMN, as well as virtualising existing Visa accounts on mobile phones, Visa is offering a new array of payment types for things like mobile top-up, utility payments, and transit ticketing—all applications that can be pitched to today’s developing markets at some point in the future.

There is much debate within the industry as to the readiness of NFC and the timescale by which it will become a mass-market technology for mobile payments. Gadja is on the optimistic side; in fact, Visa has a lot riding on its adoption. “NFC is one of the core pillars of our mobile strategy and a key focus in sophisticated markets,” he says. “There are a number of elements driving the adoption of NFC. It may not happen in US first but were seeing it adopted in Singapore, in Hong Kong, Japan, Korea, Australia and Canada, and every major manufacturer is coming out with devices that are NFC enabled. It’s this consumer demand that will convince the merchants to invest. So probably in two or three years it will take off in the US, but that’s because of the size of the market.”

But Gajda stresses that the elimination of cash will also drive merchant enthusiasm for NFC, particularly among smaller, or occasional merchants. “These guys experience everyday the real costs associated with dealing in cash. It’s expensive. I’ve spoken to Square merchants who say many more transactions are happening digitally because they can take alternative payment. People don’t carry so much cash around. This is the opportunity cost of cash.”