In the summer of 2008, I was in Paris delivering a mobile payments presentation to the CEO of a French bank. At the end of the meeting, he asked me when we would see more than 50 percent of retail payments transactions in developed markets go through mobile. With unbending confidence, I responded that within the next five years the majority of consumer transactions in developed markets would originate from mobile devices. I was wrong.
Those with a history in the mobile payments industry know that it has been a slow (and mostly disappointing) journey. But now, reflecting on the current ecosystem forces at play, I believe we find ourselves surrounded by a set of market trends that can finally give mobile payments a viable path to scale.
Over the years, formidable companies have failed in this space. Not because they went bankrupt, but because they are now executing on significantly less ambitious visions. These visions include a focus on smaller market niches, and not going after the replacement of plastic transactions at the point of sale, which remain the lion’s share of transaction volume in developed markets.
When debating the future of mobile payments, there’s a fairly common argument that “it is not about payments, it’s about commerce.” This is the belief that mobile payments adoption isn’t just about the actual movement of funds, but more so focused on the broader mobile shopping experience. For the most part, this argument is accurate. However, it misses the point of payments as the enabling platform for monetizing new retail industry engagement services — commerce — in an increasingly mobile world. These two ideas don’t conflict with one another; but secure, frictionless payments, as a standalone capability is simply necessary to succeed in the emerging retail industry reality.
Of the multiple, easily identifiable trends spurring growth in mobile payments, these three have the greatest potential to drive mobile adoption at both ends of the transaction – for the consumer and for the merchant.
1. Services Before and After the Transaction
Continuing on the payments versus commerce debate, at this point in the mobile payments journey, it is clear that neither consumers nor merchants will adopt mobile payments simply for the payments portion of it. There is nothing fundamentally wrong with the way we initiate and accept payments today. However, there are a number of activities that take place before and after the transaction that can deliver tremendous value to the consumer and the merchant, both in terms of relevance and the ability to drive top-line growth, respectively.
These activities include innovative, data analytics-driven ways to discover new products and services, save money via price-comparison tools, and deliver immediate gratification using location-based services, just to name a few. And this is only possible because of mobile, since the number of relevant data points created through mobile-engagement is many times higher than the ones created using plastic to complete transactions.
2. Broad Usage of “Cards on File”
The “cards on file” service used by consumer businesses to better serve repeat customers has existed for a long time. This of course made sense for frequent client-merchant interactions and not for casual (one-off) transactions – for example, I wouldn’t want the taxi that I took this morning to keep my card on file.
With the emergence of app ecosystems that make mobile the lead channel for a multitude of services in categories as diverse as music streaming and share economy services like non-hotel travel accommodations, “cards on file” has emerged as a key enabler of transactions being initiated on the mobile device. This not only makes payments seamless, but also transparent to the consumer.
But beyond digital ecosystem enablement, many of the online commerce characteristics can be brought to the physical retail environment via the same tool. Once the visions of in-store mobile engagement become a reality, “cards on file” will become a central driver for mobile payments in the offline world as well. That may sometimes not even be in the hands of merchants, but rather in those of centralized repositories that expose APIs to retailers looking to bill/collect from consumers.
3. Increased Security
Security in payments used to be a hygiene factor, something that you expect but that didn’t create differentiated value. However, after multiple, widely covered sensitive data breaches, security has become a value proposition in itself.
Industry surveys continue to rank security concerns high on the list of reasons preventing consumers (and merchants) from adopting mobile payments. Most of us know that some of these concerns are perceptions rather than factual reasons – everything else being equal, mobile transactions are by definition safer than plastic transactions.
Industry-wide initiatives, such as tokenization, have the potential to significantly increase the level of security and subsequently the general public perception about payments — specifically the kind initiated on mobile devices.
My cautious optimism today is much different from six years ago when I stood in front of that CEO. We now, as an industry, have a much better understanding of how to create relevant value propositions – for both consumer and merchant. The growth of mobile payments adoption can’t be based on emphasizing convenience. In order to truly influence changes in behavior, we must focus on building consistent, rewarding user experiences and opportunities for revenue growth.