A new realm of competition
Ten years ago, payments via a mobile phone were a thing of fantasy.
Now, not only is it an option, but there are several providers of said option, all of whom are competing for their share of the market. Patrick Brusnahan looks into Timetric’s research into the competition within mobile payments
While mobile payments’ market share is still limited compared to well-established payment methods, they have reached a new milestone with the introduction of Samsung and Apple to the fray. The integration of mobile payment apps into products offered by technology and e-commerce giants, and the proliferation of near-field communication (NFC) technology are likely to promote proximity in-store mobile payments in the near future.
The popularity of one-touch checkout buttons, peer-to-peer (P2P) payments and sharing economies, such as Uber, has only helped this rise.
What is forcing us to think about mobile payments?
Since the October 2015 launch of Apple Pay in the US, quickly followed by a UK launch, Apple has driven consumer awareness of not only its own product, but mobile payments as a whole. Within a year of its launch, it became a leading mobile payment platform.
However, the value of transactions through Apple Pay is still relatively low. Timetric estimates, in its report Competition in Mobile Payments, that the value of Apple Pay transactions in 2015 is ‘less than half of that of Kenya’s M-Pesa’. China’s Alipay and Tenpay still remain the leading global mobile payment providers, according to the report.
Consumers across the world are likely to be polarised between Apple and Android mobile proximity payment solutions, just due to which brand smartphone they have. Alipay and PayPal ‘will continue to lead remote payments for the foreseeable future’ and may become contenders for in-store payments.
Partnerships between major participants in the payments field – most notably card networks, phone manufacturers, card issuers, merchant acquirers, payment processors, and mobile network operators (MNOs) – are set to largely influence which way the global mobile payments market will go forward.
Despite mobile payments growing over the next five years, it is still highly unlikely that they will disrupt the card market. Considering that most mobile payment platforms are card-based, the two sectors are more likely to complement each other than to compete.
Even if payment cards vanish, as unlikely as that seems, mobile solutions such as Apple Pay could continue to rely on infrastructure built by card networks. This is to benefit from interoperability and existing security standards. Payment cards could also be backups if NFC infrastructure is not readily available or if devices are out of battery.
Global expansion of NFC-based payment solutions is limited by the low penetration of NFC-enabled devices. As a consequence, payment service providers (PSPs) are utilising alternative technology such as quick response (QR) codes and barcodes to enable mobile proximity payments.
For example, Alipay and Tenpay use this technology in China, while in the US, JPMorgan Chase has announced a mobile payment solution based on QR technology. A key advantage of using QR codes over NFC-based solutions is that merchants require minimal investment in new POS infrastructure.
Timetric’s research suggests that 80% of consumers see ease of use as the main incentive to try mobile payments. However, multiple steps in mobile payments, such as shifting in-between pages and 3D Secure authentication, are not making the service easy. The launch of one-touch checkout buttons and biometric authentication, as used in Apple Pay, is addressing this difficulty.
How can mobile payments become successful?
Consumers do not tend to pick one payment method over another. They tend to use several payment methods in unison. Nevertheless, growth in mobile payments requires adoption by all industry participants, including consumers, merchants, card networks, issuers, acquirers and smartphone developers.
As the limited-to-no success of Google Wallet and Softcard showed, industry-wide cooperation is necessary for mobile payment deployment. Google Wallet failed to gain support from MNOs for using SIM cards and both companies failed to gain a large enough amount of early adopters to educate the market. Customer adoption did not accelerate and, as a result, merchant did not see the point in investing in NFC terminals.
The penetration and acceptance of underlying technology is another key factor that can directly impact the success of mobile payments. NFC is already established in several countries, including the UK, Finland, Poland, Turkey, Singapore and South Korea. NFC is also becoming ever more popular in the US after the launch of Apple Pay.
According to MasterCard, contactless transactions in Europe grew by 174% annually in the last quarter of 2014. In July 2015, Visa Europe reported 1.1 billion contactless transactions, amounting to €12.6bn ($16.7bn) made through Visa cards in the twelve months prior. Visa has 131 million contactless cards in circulation in Europe and expects all Visa-accepting POS terminals to be NFC-enabled by 2020.
Data published by the UK Cards Association suggested that contactless payments have become common in the UK. Contactless transaction value and volume grew by 255% and 218% respectively annually in 2014. The number of bank-owned NFC-enabled terminals rose from 169,591 in 2013 to 215,380 in 2014.