Mobile Payments – The End to Cash and Cards?
It only appears to be a question of time until mobile payments become part of our daily lives, given that it is undeniable to suggest that they have an extremely high growth potential. A good number of companies such as Starbucks, Dunkin Donuts, McDonald’s and KFC, among others, have developed different initiatives in relation to them and the data is encouraging. In 2011, the total volume of mobile payment transactions carried out rose to $240 billion (USD), and it is estimated that this figure will reach $670 billion (USD) in 2015.
Mobile Payments vs. Cash vs. Cards
We have had different methods available to make payments alternatively for some time now, with virtual wallets, NFC (Near Field Communication), QR (Quick Response), SmartPass or Passbook, among others. But it does not seem like we are talking about a truly rapid or immediate transition. Why? Because the use of cash is strongly ingrained in a wide sections of the population, whether because of habit, cultural reasons, simplicity or other practical advantages. However, some societies are moving away from cash. In Sweden, for instance, only 1% of the value of all payments made using coins or notes in 2017. It is the same story with cards, where there were 69 million in circulation at the close of 2011; 60 % being credit cards and the remaining 40 % debit cards.
If both cash and credit cards still function in an acceptable manner for the majority of consumers, and we talk about an established infrastructure on a global scale in the case of cards, the announced decline and deferral of both elements does not seem as close as we could have first thought. What has to happen in order for mobile payments to gain impetus? A critical mass of buyers and sellers is necessary in order to solve the traditional dilemma of the chicken and the egg. In other words, sellers do not advocate mobile payment solutions unless clients demand them, and clients will not demand such solutions if a significant number of establishments where they can be used do not exist.
Whats in it for Financial Institutions?
Financial institutions need to innovate and provide the user with a true value proposal, a different experience. Provide answers to questions such as, what value is offered to clients? Which of their problems does it help to resolve? What clients’ needs are satisfied? Some institutions have started to move their mechanisms in this direction, exploring aspects such as advising clients, mailing personalized offers related to the purchase made or the use of discount vouchers that can be used immediately.
It is perhaps easier to find the value proposal in developing countries whose population is not as accustomed to banking; in those countries where joining the banking world and whose first experience is produced via a mobile device. In this way, banks would have the opportunity to reach new clients beyond the traditional networks of branches and ATMs. M-PESA (M for mobile, pesa in Swahili means money) offers services such as payments via mobile and the sending and receiving of money between users and non-users. After the significant rate of penetration achieved in Kenya, the company has extended its implementation to other countries such as Uganda, Tanzania and Afghanistan.
Payments and customer behaviors continue to evolve. We must not forget that financial institutions will have to face an important number of challenges, such as educating their present and future clients, solving the lack of value perceived by clients in some of the existing proposals, or resolving once and for all the inevitable fears that exist surrounding security. The search to reach the necessary balance between security on one hand, and convenience for the client on the other, will be a crucial aspect, given that convenience is what the client demands, expects and is used to.
Oriol Villalante, is a Senior Consultant at Axis Corporate and is based in London. Learn more about