Cardmaggeddon in China (and Canada)
I nipped round to Waitrose to get some milk the other day.
As I closed the door behind me I realised that I’d left my wallet on my desk. But guess what – I didn’t care. Waitrose takes contactless, and they’ve implemented in properly (with CDCVM), so there’s no need to take cards as consumers are forced to do in less-developed nations. I had my phone in my hand, so I used that. It’s the future, you know…
More than two thirds of the UK’s 16-34 year olds (67%) have used their mobile phone to make an in-store payment, research released by Worldpay reveals. Over half of all age groups surveyed (54%) expect smartphones to replace cards as their main method of payment within the next five years.
As Anthony Jenkins (former CEO of Barclays) accurately predicted years ago, mobile phones are going to replace cards before they replace cash. But when I got to Waitrose and used my phone, the ensuing transaction was just a boring (although very secure) old MasterCard credit card transactions running over the same old rails. But for how much longer? Look at what is happening in China right now. China has a very vigorous mobile payments market, and it’s dominated not by banks but by AliPay with about three-quarters of the volume and WEChat with around a fifth of the volume. The for all the excitement of a few years ago, the telcos are not even in the top 10! However, with falling revenues in other areas (text message volume was down 8% last year), the major carriers (who have held licences to provide mobile payment services since 2011) need to develop new businesses and mobile payments is one of them.
“We expect to overtake them once the next generation of payment technologies replaces QR codes,” [China Telecom Bestpay General Manager Gao Hongliang] told the financial magazine Caixin Weekly on August 12.
What are these “next generation of payment technologies”? China Mobile, the biggest carrier, is focussing on NFC. But I suspect that Bluetooth, wifi and other technologies will come along too. The “last millimetre” problem is fading. Meanwhile, the banks aren’t doing too well out of the mobile payments revolution either. Indeed, China gives us a very accurate glimpse at the #cardmaggeddon (the time at which cards will cease to dominate non-cash retail payments by volume) approaching in developed markets.
The move by more Chinese consumers to switch from swiping plastic cards to scanning QR codes with mobile wallet apps knocked $20bn from banks’ fee income in 2015
If you think about it though, there’s a much bigger problem looming. It’s one thing for banks to lose interchange income (but they are losing that anyway because of the downward pressure on interchange everywhere) but hey, it’s only money. The truth is that they are losing something far more important. As the FT notes, when the banks don’t see the payment transactions, they don’t see the data either.
The loss of data poses a challenge to Chinese banks at a time when their traditional lending business is under pressure from interest-rate deregulation, rising defaults, and the need to curb loan growth following the credit binge. Big data are seen as vital to lenders’ ability to expand into new business lines.
So #cardmaggeddon is about a much bigger shift in bank strategy than the replacement of income from interchange revenues. What can they do in response to this? Well, I’m going to be talking about this and making a couple of suggestions to begin the debate in Toronto on 29th September at the fourth Tomorrow’s Transactions Toronto Unconference. Here’s the skinny…
This year’s focus will be a peek at the post-card payments world because at some point in the imaginable future, mobile “tap and pay” and “app and pay” will overtake card payments or, as we prefer, #cardmaggedon or the #cardocalypse, where plastic card products no longer dominate and begin their slide into history.
Come and listen to global FinTech guru Dave Birch, Director of Innovation at Consult Hyperion and a Visiting Professor at the Surrey University Business School, moderate a day of discussions on the future of digital transactions.
Dave was named one of the global top 15 favourite sources of business information (Wired magazine) and one of the top ten most influential voices in banking (Financial Brand); was found to be one of the top ten Twitter accounts followed by innovators, along with Bill Gates and Richard Branson (PR Daily); was ranked in the top three most influential people in London’s FinTech community (City A.M.), was voted one of the European “Top 40” people in digital financial services (Financial News), was listed of the world’s top 100 most influential FinTech leaders (Hot Topics) and was rated Europe’s most influential commentator on emerging payments (Total Payments).
He has lectured to MBA level on the impact of new information and communications technologies and has contributed to publications ranging from the Parliamentary IT Review to Financial World. He is a media commentator on fintech issues and has appeared on BBC television and radio, Sky and other channels around the world. His most recent book “Identity is the New Money” was published in April 2014 and his new book “Before Babylon, Beyond Bitcoin”, about the future of money, will be published later this year.