Mobile Payments Landscape
Mobile ubiquity is here, and it’s transforming the world.
The mobile phone is where consumers see the revolution happening in the payments industry. But that’s not to say it’s easy for the financial services industry.
That we are gradually being converted to it is not in doubt; smartphones are increasingly integral to our shopping. Thirteen percent of UK adults have now made a mobile payment in‐store (compared to a mere 3 percent in May 2014), 40 percent have made an online commerce purchase with their phone and 59 percent have browsed retailers’ mobile sites, according to the Deloitte Mobile Consumer 2015 report.
It has not been easy to get here. Pundits have been predicting a smartphone payments revolution for years, if not decades; it was 1999 when Nokia and Visa piloted a mobile phone that could pay over the net. Of course, smartphones were not ubiquitous then, whereas 87 percent of the US adult population had a mobile phone in 2015, according to a Federal Reserve survey, and 77 percent of those mobiles were smartphones. Global smartphone penetration is expected to exceed 50 percent by 2017, according to research by Forrester.
Moreover, we are using our mobiles a lot more widely. A mobile is no longer just a phone: it is your window into the net, your means of communicating with friends, your way of managing your money and part of your identity. Everything happens on your mobile and that includes financial services; in the US, 33 percent of millennials (those aged 15–34) believe that within the next five years they will not even need a bank.
Yet there is a distinction to be made between mobile banking (interacting with a bank via a mobile) and mobile payments (paying for goods via a mobile); often it is those with the least access to banks that are more likely to use mobile payments. In the US, mobile phones are prevalent among the underbanked – those who have poor access to mainstream financial services. According to the Federal Reserve, 70 percent of all underbanked had access to a smartphone in 2015, 55 percent of which had used mobile payments.
A similar pattern is seen elsewhere. M‐Pesa, Vodafone’s mobile phone‐based money transfer service which operates in Africa, India and eastern Europe, processed 3.4 billion transactions between April 2014 and March 2015. But while it has been a phenomenal success in countries such as Kenya, the service has recently been withdrawn in South Africa as it failed to reach a critical mass of users.
What was the difference? There’s no easy answer. Culture, social networks, regulations and competition all play a part. Some argue that the mobile payments industry is trying to solve a problem that doesn’t exist for most of us; it’s not as if paying for goods and services with a credit card or even with cold, hard cash is necessarily a problem.
The drive towards non‐cash payments is undoubtedly strong, particularly in the Nordic countries. Sweden is aiming to be paper money‐free by 2030; Denmark has declared Bitcoin trades as tax‐free; while Finland topped Citigroup’s Digital Money Index for three years in a row. However, this cashless push comes from the providers rather than the user’s side. This is driven by a desire to cut costs and capture consumer data that is increasingly valuable to retailers, industry players and governments alike.
Retailers want that data to provide targeted marketing and a more personalised service; the financial services industry is keen to cut costs and increase security; and governments see the benefits from a tax and money‐laundering point of view.
With three such powerful sectors behind it, it’s no wonder the mobile payments industry is finally taking off.
- 23 percent of millennials in North America (those aged between 18 and 34) reported using their phones to make mobile payments at a merchant location at least weekly Accenture, digital payments survey 2015
- More than half of those not currently making mobile payments would make them if offered discount pricing/coupons or reward points (53 percent) Accenture, digital payments survey 2015
- 24 percent of all US mobile phone owners reported having made a mobile payment in the past 12 months Federal Reserve, Consumers and Mobile Financial Services 2016
- Security is a key concern, cited by 42 percent of UK respondents as the reason why they did not use mobile payments Deloitte, Mobile Consumer 2015 report
- By 2017 there will be over one billion users accessing banking services through biometric systems Goode Intelligence, 2015
- The number of smartphone users in the US will reach 279 million by 2018; global users are expected to total 2.56 billion Biometrics Research Group, White Paper 2014, and Statista 2016