Barriers to success
Written by Scott Thompson
Scott Thompson reviews the 2013 FStech/Retail Systems Payments Conference, which took place at the IoD Hub, London, in late October
Cash is still king, while the brave new world of mobile and alternative payments is being held back by innovative technology solving a consumer problem that doesn't exist. Those were two of the key messages to come out of the 2013 conference. The event, now into its third year, was chaired by Prof. Steven Furnell, head of the Centre for Security, Communications & Network Research at Plymouth University. He kicked things off by introducing the first speaker of the day, Nic Cumisky, senior industry manager, Google. His presentation looked at the growth and development behind payments on mobile, how we can identify drivers of change, which markets are leading lights and how mobile payments and commerce impact both consumer and retailer. Cumisky started by emphasising that the mobile wallet is so much more than just a payments solution. He followed it up with a sentiment that would rear its head throughout the day: focus on the consumer and everything else will follow. The old saying that the ‘customer is king’ often seems to be forgotten in the rush to grab a piece of the mobile payments action.
"I encourage everyone to think about that. It's logical, everyone is a consumer, if we can make the process convenient and transparent, the consumer will follow," he said, adding that payment solutions must work across devices and platforms.: "It's about encouraging different ways of thinking outside of silos. Let's also not get caught up in smartphones, Nokia phones are powering SMS payments and that is a significant thing in emerging markets."
In terms of mobile wallets, Cumisky noted that no one has exactly the same physical wallet. "We need to think about that when building functionality. Put the consumer first, I beg of you. Don't isolate thinking to mobile."
It was at this point that NFC got its first mention of the day. There has been a high degree of cynicism and scepticism around it. Users need training but it is a defacto part of Verifone's next generation devices, for instance, and there are currently 232,000 NFC terminals in the UK and almost four million NFC-enabled phones, whilst contactless payments are catching on with London bus users. This enthusiasm wasn't shared by everyone at the conference, however. The first discussion panel of the day looked at the role of mobile and NFC technology in payments. Panellists as follows: Neira Jones, Partner at Accourt and Chair of the Cybercrime Advisory Board; Gary Munro, Senior Consultant, Consult Hyperion; and Glen Richardson, CMO, Fruugo. Richardson argued that NFC had been massively overhyped. "I see trouble ahead for NFC. As a dotcom, it's not of interest to us but we may see it in e-commerce. It doesn't have a huge future as far as I see it."
Munro agreed that it had been overhyped but said that things had now moved to the next level. "The infrastructure supporting it is complicated and expensive but that has made the payments industry think about the ways around it, NFC stickers, for instance. There is a future but a different one from what was originally envisaged."
There have been significant adopters, Jones pointed out, such as TfL and McDonald's. "But it will be a matter of customer convenience, that will drive adoption."
Richardson observed that buying a coffee with a contactless card was a useful thing, "but NFC use in mobile, is it useful when making a purchase over £5, a higher ticket item? What problem is it solving? Is cash still king and is chip and PIN good enough?"
"Is NFC the solution to help cross the divide between offline and online, or is it just another solution like QR codes?" he asked.
He added: "Cash is not going anywhere. People love physical stuff, hence why 3D printing is getting so much attention. What's exciting is where the market is going and will it replace cash? I personally don't think so."
Jones agreed: "Cash will remain, if only because it gives anonymity."
Munro put the other side of the argument: "NFC terminal upgrades are coming. We are only just starting out on the m-payments journey, it's a tiny part of the payments landscape, but the growth of contactless (what TfL are doing, for instance) is encouraging. Marks and Spencer are having tremendous success with it."
What will get more retailers onboard with this? Richardson: "Visa and MasterCard are a huge barrier to innovative payment methods. An open API from the bank side would be an interesting development and would pave the way for massive innovation."
Munro: "Which retailer is able to engage across all the various channels? No one. There is a lack of understanding at the moment, so it will be interesting to see how Zapp (VocaLInk's mobile payments initiative, set to launch next year) develops, independently of the card issuers." He argued that the next generation of users will drive this. "They won't use Visa cards. They might pay by Facebook and mobile, cash and cards won't be the norm for them."
Jones: "It's about the experience. There are many surveys showing that customers are looking for convenience, plus trust and security. This is a nut that has to be cracked. There are lots of things to sort out in the trust and identification space."
Is, a conference delegate wondered, battery technology holding things back? Richardson: "That's a great point. It prevents me from doing so many good things on my phone. I have to restrict various features. There are some fantastic apps but they kill the battery. Apple and Samsung, get your acts together!"
Next up, John Petersen, global head of business development at Validsoft, gave a presentation on how advancements in telecommunications and voice biometrics will affect mobile payments. The rapid growth in new telecommunications technologies has seen us enter a new digital age, he noted. As everything moves digital the financial services industry is looking to address the growth of the mobile channel as the value of mobile payment transactions look set to top $721 billion by 2017. From the use of apps and mobile wallets, through to the growing market of micro-merchants using the mobile as a payments terminal, the potential is wide ranging, increasing the potential for fraud. While forecasts point to significant success in mobile a reported 44 per cent of mobile customers still fail to use their mobile device for banking due to security concerns. We risk failing to capitalise on the potential of the mobile channel due to a lack of understanding and implementation of strong security. Petersen discussed the threats and weakness of these new payments methods and how by using a multi-layered approach financial institutions can provide strong security yet with low-friction customer experience.
As was mentioned earlier in the day, after years of hype but little in the way of substance, contactless is finally catching on, with the likes of Marks and Spencer, McDonald's and TfL getting behind it. UK consumers made over eight million contactless purchases in August, with an average spend of £6.55, according to Visa Europe. In a further boost for this way of paying, a day after the conference took place, it was announced that all Boots UK stores now accept contactless payments. On the same day, however, researchers from the University of Surrey outlined an eavesdropping attack on a transaction. Security concerns among consumers continue to hold back progress and this was addressed by two presentations rounding off the morning session.
Graeme Forward, forensic data analyst and fraud risk advisor, TFL, gave a presentation entitled, Staying Ahead: How the Modern Fraud Investigator Deals with an Evolving Payment Landscape. With almost nine million daily passenger journeys TfL manages one of the busiest transport systems in the world. Customer numbers continue to grow and to keep one step ahead requires continuous investment for the future. Part of this investment is to ensure customers can pay for services in the same way they would expect to with any 21st century business. Offering an ever-increasing number of payment channels creates fantastic opportunities, but also opens up a whole new set of risks. Forward's presentation looked at the role of the modern fraud investigator and how the evolution in payments has created opportunities and challenges for investigators and fraudsters alike.
Meanwhile, Neira Jones, partner at Accourt and chair of the Cybercrime Advisory Board, spoke about 21st century payments: when innovation meets trust: With the average person having their mobile in reach 14 hours a day, the mobile phenomenon is transforming businesses and lives. The cloud, Big Data, mobile and digital commerce are creating new consumption habits. Innovative digital players are rapidly, and sometimes unexpectedly, disrupting traditional businesses that are too slow to embrace change. Identity is becoming the new money and privacy is being redefined. In the meantime, the regulatory landscape has become a maze. As a result, the world of payments is evolving at a drastic pace. With mobile set to outpace other payment methods in the next five years (Javelin, April 2013) and consumers demanding not only convenience but also assurance that their privacy is protected, businesses have no other option than to innovate whilst maintaining customer trust.
"Every year we share more of ourself online. The more connected we become, the more privacy we erode. The new payments era will demand higher levels of trust and security alongside customer convenience," she said. And bonus points to her for producing the best fact of the day: more people own a mobile than a toothbrush.
This began with a presentation by Darren Foulds, director of Barclays Mobile and Pingit, Barclays, looking at Pingit as a case study for driving rapid innovation in large companies, what conditions need to be in place to support rapid innovation and specifically how customer engagement has been leveraged to really drive payments innovation. In a good example of how this is a brave new world, Foulds remarked that Barclays didn't know, upon launch, how Pingit would evolve - e.g. it received many blunt messages via social media from 16/17 year olds peeved that you had to be 18 or over to use the service (this has since been addressed). "We need to act like a start up, to start with the customer and end with the customer. Pingit has encouraged us as an organisation to challenge the way we traditionally do things."
Foulds was followed by Eden Zoller, principal analyst, Ovum, who picked up on a point made in the morning session: mobile payments is about more than payments. "By populating it with complimentary features, you will make it make it more attractive to retailers and, by turn, consumers."
It's a crowded market, Zoller added, "there are tough times ahead that will lead to commodisation." There are also a number of issues that need to be addressed. On the customer side, security is a major concern and in particular the misuse of personal data. And on the retailer side, the majority of merchants have reservations, for instance, upgrading PoS terminals to support m-payments and issues of customer data ownership.
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Last up was the second discussion panel of the day, this one looking at the brave new world of alternative payments. Panellists as follows: Jeremy Light, Lead- Payments Business Across EALA, Accenture; Mark McMurtrie, Director, Payments Consultancy; Kebbie Sebastian, Managing Director, Penser Consulting; Glen Richardson, CMO, Fruugo. What was their take on this as things stand? Are we seeing genuine progress in terms of alternative payments or is this still at an early stage?
Richardson said that there are lots of start ups doing interesting things, alongside established players like Barclays with Pingit.
Sebastian advised the audience to follow the money. "Billions of dollars have been invested in companies in this area. MPOS, next generation payments gateways (e.g. Stripe and Braintree), wallets have cooled off, data and analytics are heating up. Cash is still dominated but alternative payments have taken off."
McMurtrie: "There has been huge progress, but there is still confusion around what alternative payments actually means."
Light noted that, while there has been lots of money invested in start ups, there is precious little consumer adoption. "Pingit is an exception. The key to it is seeing where mass adoption is happening: contactless and mobile commerce (just look at the growth at eBay and Amazon). There is a lot of inertia among consumers. But if they try something and like it, they will continue to use it. They are increasingly buying by mobile and using contactless, come up with applications around that."
Mass adoption will only happen once a series of barriers have been removed. Richardson: "Stop putting barriers in the way of consumers. Mobiles, tablets, installing PoS terminals at retail sites is too expensive. We need to remove hardware barriers."
Sebastian: "The issue is that there are lots of technology solutions searching for a consumer problem. Innovative technology not solving a clear problem, that's what is holding back mass adoption."
McMurtrie: "Alternative payments have to do more than traditional payments methods, because cash, cards and cheques work."
Light lamented the fact that, "the card has been shoehorned into online and now it's being shoehorned into mobile payments."
McMurtrie added: "We are seeing stakeholders trying to compete on the infrastructure and other areas, trying to own the customer rather than share them, in an attempt to maintain the status quo, and that's holding things back."
Sebastian: "The ones most likely to success are those least focused on payments (e.g. advertising) as there isn't enough to go around in terms of what the merchants take. I wouldn't want to be a retailer right now as they are getting hit by 15 different payment methods every day, all claiming they will change the world. PayPal is the only one of substance right now. Mobile payments has been 18 months away from being the next big thing for the past 18 years. PayPal took 14 years to get where it is now."
Light: "There's alot of evidence that consumers like payments to be invisible, Direct Debits for instance. Halo is popular because you get in a cab, you get out at the end of the journey and the payment bit is invisible."
For Richardson, Square and PayPal are the standout players in the alternative payments sector, "they've proven it can work. I'm excited by payment methods that don't focus on hardware (as NFC unfortunately does)."
And, of course, it wouldn't be a discussion on mobile and alternative payments without someone mentioning Apple. The company didn't include NFC in the iPhone 5S; if it were included on a future iPhone, however, this could give the sector a much needed push which could propel alternative payments into the mainstream. Sebastian commented: "Starbucks have had a lot of success in this area. And the guy who built their app is now working at Apple, so make of that what you will."
And with that, the curtain was drawn on the 2013 FStech/Retail Systems Payments Conference. Thanks to the sponsors, ValidSoft, VeriFone and Black Duck, for their support and the speakers/panellists and Prof. Steven Furnell for their contributions. Further info on the event can be found at: http://www.fstech.co.uk/payments/