24 March 2017
We are just at the start of the mobile payments revolution
Despite the industry fanfare, we are still at the start of the mobile payments revolution and the designing of the winning solution for the future must take into account a significant number of factors, behaviours and trends.
It is a revolution that we have been following for a while at VocaLink and we are very excited about its potential. For example, the number of mobile transactions as a percentage of all in-store transactions has grown by 247% in the UK over the last year, analysis by payments processor Worldpay has found. And online, the percentage of retail sales made on mobile devices, which accounted for 1% in 2010, now accounts for 56% (IMRG). Retail sales through Smartphones last April were up 83% YOY (IMRG).
Basic hygiene factors in payments
There isn’t a new mobile payments solution that isn’t marketed as ‘more convenient’ and ‘more secure’ than the last, but we believe these are just basic hygiene factors for payments.. As an industry we need to innovate beyond people’s basic expectations. But is this really happening?
I would argue that it is not. An example would be the reliance on the card scheme rails for remote purchases, or card not present (CNP) where stolen payment card details are used to make a purchase on the internet, over the telephone or via mail order. According to Financial Fraud Action (FFA),in the UK alone, there was a 31% increase in fraud losses in the first half of 2016 compared with the same period in 2015. While the use of payment card details obtained in data hacks contributed to the increase in remote purchase fraud (Yahoo! being the latest one in the news), the growth of online retail has also given fraudsters more opportunities to use compromised personal information and card details on websites which use less secure systems. E-commerce card fraud totalled an estimated £156 million, up 46% compared to the first six months of 2015.
So whilst there is a lot of talk about payments being ‘more secure’ in reality fraud is increasing significantly on certain user cases. The payments industry should be promoting payment methods, in existence today, that reduce the likelihood of fraud occurring and therefore reducing the cost of payment acceptance across the industry, most importantly for the merchants who bear the brunt of these costs and the consumers who are the victims of this kind of activity.
As an industry we should be embracing the superior models that already exist today - such as Request to Pay and push payments using secure customer authentication. Only when these have been adopted and the basic hygiene factors have been significantly improved, can we look to deliver on the long awaited promise of secure mobile payments.
Real time for the real world
The world moves at real time and we have seen this trend adopted across so many digital industries, music, media, social – and now it is the time for mobile payments.
Real-time technology offers benefits to all parties within the payments value chain. By delivering immediate value, real-time facilitates a higher level of service, creates new revenue streams, and enables new payment channels, all whilst boosting efficiency, reducing costs, and mitigating risk. For instance, in May 2008, the U.K. banking community launched the Faster Payments Service (FPS), which heralded a new era in payment processing. We see a number of opportunities for mobile payments to create innovative new products leverging the real-time payments network rails.
Opening doors with open API’s
Across the payments industry there is a lot of talk of ‘regulation vs innovation’. In the UK, the government is calling for the creation of an open banking standard that makes it easy to share and use financial data, arguing that the move would promote competition, stimulate innovation and most importantly improve choice for customers. I see this as ‘regulation for innovation’.
What we are seeing from the banks, as they move to an open API world, is them getting more hands on in regards to mobile payments, enabling new services to be built using bank and customer data. An open API will remove any information barriers for challenger and neo-banks enabling them to lead the technology charge and push the industry forward - whilst at the same time providing secure and controlled access. Whilst Open Banking is still being defined and there is a lot of talk about technology companies having access to the data, some of the banks have started to expose these APIs (and even plan to have hackathons) to bring new ideas to life. Banks have been written off in the open banking world, but I would not underestimate their role and the fight they have in them.
Breaking down barriers to adoption
There are many barriers to the adoption of new payments methods and I have already discussed security. Another key one is usability. How many ‘mobile wallets’ does a consumer really want, need or have to download? After all, if you can use the same payment card almost anywhere, why should you have more than one mobile wallet? Given that one of the most popular ways to keep on track of your finances is your mobile banking app, I would argue that it should be the ‘one stop shop’ for all your financial activities, including mobile payments.
Allowing people to use their trusted mobile banking app to make both online and in-store payments directly from their accounts, using the app they already have and use regularly and without their personal information ever leaving their bank is a compelling proposition that helps keep the banks brand at the centre if the payment. And whilst it is noted that some people don’t necessarily like their banks, the bank is always the most trusted entity when it comes to looking after your money and keeping you in control of your finances. You can even view your balance whilst paying!
The future and where are mobile payments heading?
Unfortunately in the payments world, nothing happens very quickly. Despite the recent extraordinary growth in contactless payments in the UK, it has actually been 10 years since the first contactless payment . So despite all the disruption and innovation that is talked about, I have a more balanced view. Card based mobile payments across various wallets will continue to form the majority of mobile payments in the short term, but account to account payments will gradually increase in volume and value, spurred on by several trends such as open API’s, real time value add services, better fraud prevention, request to pay and new digital user cases such as chat bots and IoT. I am very excited about the potential of all these trends and one thing is for certain, the future of mobile payments will be an interesting topic to follow.