2014 has been a big year for mobile payments. With the introduction of Apple Pay, mobile payments are becoming increasingly popular and are receiving more exposure than ever. With 90% of India’s 250 million Internet subscribers accessing Internet through mobile (source: TRAI Data, June 2014), it is inevitable that the mobile payments landscape in the country is heating up. There are more than 20 mobile wallet services in the market as per the RBI website. Such services allow a registered customer to top up or recharge money, which can be used for a variety of transactions. Out this article brings to you an overview on mobile payments trends in 2015.
In the coming year, mobile payments have the opportunity to be a $540B market, as per a report from Thrive Analytics, Changing Landscape of Mobile Payments, with $240B from U.S. mobile purchases and value-added services, and $300B coming from a percentage of the small transactions space.
By end of 2015, 5% of the base of 600 – 650 million near-field communication (NFC) equipped phones will be used at least once a month to make contactless in-store payments at retail outlets. The core advantage with any smart-phone transactions is the potential for greater security, when payments are made with phones featuring either built-in or SIM-based tokenization capability. When someone pays using an NFC-device, the tokenization facility creates a unique code which is sent from the device to the merchant’s NFC-enabled till. The credit card number is not transferred which means in the event of a breach, only card information used for traditional transactions would be exposed. The card information is either stored with the issuing networks, or is stored in the cloud (HCE), or in a secure element on the phone. Using a fingerprint, an eye scan or a heart rate sensor as an additional form of authentication makes the payment more secure still. The combination of biometric authentication, an embedded secure element and tokenization may provide more robust security than card swipes or chip and PIN. The volume of NFC-smart-phone transactions and the range of spend value to increase steadily over time as consumers become more familiar with the process and more banks and merchants in more markets accept this form of transaction. However, mobile payments will likely co-exist for some time with all other means of payment, from contactless credit cards to cash. It will be a long while before the majority of us can jettison our physical wallets.
Local Retailers and Mobile Payments
With the ever-growing and evolving mobile payment landscape, local retailers should adopt mobile payment methods to keep up with the trend and remain relevant and competitive in the market. As the commonality of mobile payments increase, consumers will more and more demand them and search for businesses that offer mobile payment. Mobile payments also provide opportunities for merchants by opening up new avenues for revenue and providing data to better understand customers. The adoption of digital payment services and the brands associated with these services, such as Apple Pay and Google Wallet, also bring credibility, trust and recognition of brands that consumers identify with and merchants can use to enhance search results or listings. Early adopters also reap the benefits of loyalty by those who seek out and rely on their phones to handle more daily tasks and transactions. A credit card reader that currently allows merchants to accept credit card payments on a smart-phone or tablet via an attachable reader and a corresponding app, recently announced that the service will support Apple Pay in 2015, bringing the popular mobile payment method to SMBs. Using Square to accept Apple Pay will allow SMBs to keep costs low and requires minimum training for employees. Mobile payments allow searches to lead to better conversions of search-to-sale by capitalizing on the impulse, spur-of-the-moment purchase. Ability to make purchases online or via an app allows consumers to purchase a product in the instant that they want it, quickly and without leaving the site or the app.
For financial institutions, smart-phone contactless payments offer an additional way to transact which also may help maintain the current ecosystem, albeit at a cost in terms of commissions. Retailers should consider four main benefits: reducing the need to protect customer data, the higher speed of contactless transactions relative to other payment means, the ability to attract consumers with higher disposable incomes, and the opportunity to provide more personalized experiences. Handset vendors can differentiate their devices through the inclusion of components, such as a fingerprint reader, or a tokenization engine, that would enable contactless payments. These functionalities need to be offered as part of a payment ecosystem, and should be easy to use. Overtime, other contactless processes such as premise entry and exit could be incorporated in a handset; and contactless payment is likely to be combined with other processes at the point of transaction, such as collection and redemption of loyalty points.
Consumers already use their phones for everything, yet currently, only 33% of SMBs accept mobile payments, according to Thrive Analytics and Street Fight’s 2014 Local Merchant Report.
What inside Future Mobile Payments
2014 was a big year for mobile payments, with Apple finally making the move that the whole industry had been waiting for. The release of Apple Pay means that millions of iPhone 6 owners will be making contactless payments in year 2015.
The biggest reason why consumers don’t adopt mobile payments is because they don’t trust the security of the mobile device. That should start to change in the next year, as large brands that consumers already trust have thrown their weight behind mobile payments. As per Mr. Tommy Marshall, partner at Capco, “We see the consumer surveys in the end, though; Apple’s brand will make people trust it. You have MasterCard and Visa. Those are trusted brands that are going to continue pushing it as secure.” The current state of payments security in the US isn’t that great anyway, so consumers need to be educated on how mobile can be more secured.
If security is no longer the biggest obstacle for consumer adoption, the lack of NFC terminals is the next big challenge. Large chain retailers are more likely to adopt NFC-capable payment terminals, since they are already updating their terminals for the EMV liability shift in October of 2015. The real challenge is going to be medium and small businesses, which are likely years away from changing their terminals. “It will take a decade for mom-and-pop retailers to adopt NFC.
Digital wallets and mobile payments are slowly becoming popular payment options for consumers – 78% of consumers are aware of digital wallets, but only 32% have used them, according to Thrive Analytics’ Digital Wallet Usage Study.
The Apple Watch equipped with ApplePay will likely give innovators a chance to turn their focus on wearable for payments. Wearable will offer new ways for consumers to integrate their financial and everyday lives. The impact of wearable will also seep over into mobile banking. Mobile payments – the use of phones to complete transactions in stores instead of cash and physical card swipes – are going to grow much more quickly than many observers believe. In no small part, this will be thanks to the growing popularity of Apple’s new Apple Pay system.
- Explosive mobile payments growth: US mobile payment volume is forecasted to grow at a five-year compound annual growth rate of 172%. Volume will rise to $818 billion by 2019, under 15% of total US payment volume.
- Apple Pay is showing early signs of success: Payments made through Apple Pay accounted for between 0.1%-1.6percent of transactions at five top retailers in the month following the launch of the feature. Considering that the feature can only be used on the new I Phones we think that’s indicative of exceptional momentum.
- Current C: Despite a firestorm of bad press for the yet-to-be launched mobile wallet from the MCX retail consortium, which includes Wal-Mart, there is still a chance it could have some success. Current C retailers account for over $1 trillion in annual volume and we think these retailers are going to push it aggressively to their customers. Even with mediocre results, that adds up to a lot of payment volume in aggregate.
- Android mobile wallets are benefiting from Apple Pay: Multiple sources confirm that Google Wallet saw a jump in payment volume following the launch of Apple Pay. Soft-card a mobile wallet backed by big wireless carriers including Verizon, also struck a number of new deals that were likely a result of retailers attempting to give their customers an Android-based alternative to Apple Pay.
Conclusion
Contactless payment, initially in single-vendor closed-loop systems, has already been available for decades, but it is only in recent years that contactless cards have started to enjoy a surge in adoption. 2015 should see strong growth in contactless mobile and card payments usage, but the rise will be from a small base to a slightly less small base. Customer education and marketing will be essential to increase awareness of the ability to pay using a phone. While we expect significant growth in usage in 2015 relative to the prior base, there many challenges remain before smart-phone contactless payments can become mainstream even in developed countries.
