Trouble ahead?

This is a critical time for the m-payments sector. Progress has been made, but, as Scott Thompson reports, the mobile dream could yet be derailed

There has been much hype around mobile payments but to date little substance. We’ve recently witnessed an onslaught of news about initiatives, projects, phone launches etc, to the extent that we at FStech are suffering from mobile fatigue. And yet there is very little happening in the way of people actually paying by phone. Nonetheless, when you wade through the hype there’s no doubt that the last 12 months have seen things coming together, slowly but surely. Technology infrastructure standards have been finalised, mobile network operators have committed to the market and pilots from both mobile operators and financial institutions have transitioned to commercial service. Perhaps most importantly, NFC-enabled smartphone models were announced by almost all handset manufacturers and Google launched its wallet in the US.

A recent Juniper Research report found that the NFC retail payments market will exceed $180 billion globally by 2017, a seven-fold increase over 2011. At the same time, however, it warned that some parts of the ecosystem are unprepared for the future. In particular, retailers are not convinced of the benefits of NFC payments over existing card technologies and are unwilling to invest in contactless infrastructure so soon after the transition to chip and PIN. In a challenging economic environment, you can hardly blame them for being reluctant to splash the cash.

“I agree with the report – and Jupiter should be ashamed because they were amongst the analysts who hyped up the market,” observes Professor Merlin Stone, head of research at The Customer Framework. “It will take some time before there are enough contactless card readers around to support the NFC approach, and meanwhile competition from PayPal and Square using a more cloud-based approach will make an impact. Also, there are questions over the benefits for consumers from the NFC approach, and retailers are still worried about security.”

The trouble with m-payments is that it arrived in a blaze of hype and has spent the last few years trying to live up to the grandiose claims of analysts and various people with vested interests. Yes, we’re seeing NFC-enabled smartphones hit the streets. And yes, the arrival of Google Wallet goes some way to pushing it into the mainstream as would the long-mooted NFC iPhone. But on the other hand, Apple has yet to make the jump, the infrastructure in place is patchy, many retailers and their customers remain unconvinced and not enough banks and card schemes are getting their acts together.

Hardly surprising, then, that awareness of mobile payments is relatively strong, survey after survey states that very few consumers see themselves using NFC in the next two years. “To accelerate take up, and move mobile payments in the mainstream here in the UK, there are a number of key areas that are being addressed, including: increased availability and communication among large retailers; better and more frequent articulation of the benefits of mobile payments to consumers and merchants; and of course, addressing the security concerns. We are seeing more and more advances here, with new launches by High Street brands such as Marks and Spencer installing contactless payments in 25 London stores. With over 60,000 contactless payment terminals in the UK and 15 million contactless bank cards issued, I do think the foundations are being put in place this year,” says Ken Cregan, financial services principal at Capgemini Consulting.

“Broadly I would agree with the Juniper Research report,” says Simon Barrows, head of financial services at Glue Reply. “Mobile NFC payments will only work, i.e. have mass customer take-up and be successful from a business perspective, if there is a coherent end-to-end model where all the various parts of the ecosystem function well together.”

He argues that banks need to make the payment accounts available on mobiles with the assistance of the card schemes/mobile operators/wallet providers/trusted service managers. “There are various permutations here and there is unlikely to be a single model across all banks and even potentially across products, e.g. credit and debit accounts, within banks. Customers, who will typically have multiple bank and card accounts across multiple providers, will look for convenience of use, security and an integrated experience which implies the need for collaboration amongst the key players to avoid customers having to juggle multiple apps and virtual wallets.”

All this, however, is no good if the infrastructure isn’t there to provide customers with a convenient way to use mobile payments. “Similar to contactless cards, a dearth of readers in shops, fast-track queues etc will limit customer propensity to use vs cash and cards. Customer take-up and business revenue will be increased through value-adding services such as integration of payments with mobile banking/balance provision and loyalty/rewards (e.g. from retailers, which could be proximity-based), which will enable mobile payments to be elevated to something more than just a contactless card on a phone,” observes Barrows.

Early days

People always have a fear of the new and that has mainfested itself in concerns around security of mobile payments. Capgemini’s Cregan argues that not enough is being done to address these legitimate worries. “There’s been no major advertising investment to dispel security concerns and the only media coverage recently has been predominantly negative. In general, people are unaware how these concerns compare to that say of credit cards,” he says. “Providers are starting to promote their individual products, but so far have not effectively done so. For example, people are unaware of how easy it would be to manage all your loyalty programmes in one place, select discounts for particular shops as you shop, choose your payment provider based on their benefits or loyalty programmes at the point of sale. Of course, this also starts to highlight the increased control being put into the hands of the customer, with their ability to use one wallet to manage all their financial products in one place, irrespective of provider – making it easier to pick and match products.”

“They are right to be worried about the security of any new payments mechanism, as each produces its own pattern of fraud. However, it looks like the risks are not high. It is premature to excite consumers about this as the ecosystem is not fully in place,” adds The Customer Framework’s Professor Stone.

It may well be premature but nonetheless some banks and telcos are pressing ahead. Barclays, for instance, has been on a Pingit and PayTag publicity blitz during 2012, including TV ads and the first use of Google+ Hangout by a financial services brand.

“Customer awareness in the UK is certainly growing but is still very much in gadgety early adopter territory rather than mainstream. It is also a bit of a chicken and egg situation vs what’s actually available,” says Barrows. “Out of the major UK banks and card providers, Barclays (especially Barclaycard) are currently ahead of the game with Pingit and PayTag NFC mobile stickers. The former is geared for small person to person (P2P) payments and has received a mixed response to date in terms of take-up, views on ease of registration and use, and concerns reopening users (inc. payment recipients) up to mobile spam. The NFC sticker approach is a simple, tactical, solution to kickstart customer use of mobiles to make NFC payments but is really just a contactless card in a different form factor and as such doesn’t begin to explore the key aspects of mobile wallet/app-based solutions.”

The killer reasons why customers should rush to join the mobile payments party have yet to arrive. “Just another way to pay is probably not enough. Mobile payments need to be part of a transformational shopping experience – something we in Reply term ‘Proximity Commerce’ – where payment capabilities, location-based services, customer insight and social media all come together to provide a rich and personal customer experience,” he notes.

Add retailer apathy to the mix and you’ve hit a formidable road block. Retailers, battling challenging times, are putting this low down on their list of priorities, seeing, as they do, limited consumer adoption of mobile payments and arguing that high merchant service charges do not justify the jump. Many banks and card schemes continue to be stuck on the starting grid. Hardly surprising, then, that consumers are, for the time being at least, distinctly underwhelmed.

“There is a significant amount of progress being made in pockets, but as of yet no coherent, integrated understandable vision has been presented to consumers,” says Capgemini’s Cregan. “In one sense, that’s OK as we’re in the relatively early stages and we need to encourage competition for the best solutions. There is strong commitment among the relevant players that this is the future, although they don’t know what the future looks like and in many cases are hedging their bets.” He adds that, to encourage take up, they need to: Address consumer’s lack of awareness, with only 36 per cent being currently aware of mobile wallets and 12 per cent aware of NFC (YouGov’s Mobile Wallet tracking study); Increase the potential benefits for consumers, such as loyalty schemes, discounts etc. as part of a clearly articulated customer proposition; Tackle the significant concerns about security, stated by 68 per cent of those surveyed.

We’ve had the flashy ad campaigns and flurry of media announcements, backed up by lavish press launches. Now starts the hard work of presenting consumers with a coherent, compelling proposition, underpinned by a sound infrastructure.

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