The start of a new year seems like a good time to have a lively debate, so let me play devil’s advocate with an outrageous suggestion that the current frenzy of interest in what I’m going to label “contactless, mobile, NFC” payments represents a triumph
of hype over reality.
Let’s start with mobile NFC payments, the idea that we’ll soon be routinely making payments at the physical point of sale using our mobile phones rather than plastic cards. After all, the technology all works – it is a simple matter to load a payment application
on a phone, or attach a sticker (ha!) and then use contactless NFC to link to the POS terminal. The trouble is, this proposition only works when there’s a critical mass of contactless terminals in place, and this doesn’t seem to be happening, or if the terminals
are there, then they don’t seem to be used much. This was brought home to me most forcefully by Barclays’ announcement of a “milestone” of 1 million contactless UK payment transactions in 2010 (Finextra, November). That sounds good until you realise that
total UK card payment volumes in 2010 will be close to 10 billion. In other words, three years after the high profile “London Launch”, and despite intense publicity on the part of both card schemes and banks, contactless payments account for about 0.01% market
Obviously, contactless payment makes sense in certain specialised environments such as urban transport, where it really is important to have transaction times of less than one second, but I just don’t buy the idea that a couple of seconds makes much difference
in the vast majority of retail outlets, including fast food. On the contrary, what the mobile/contactless hype is masking is a remarkable and very important trend towards the use of the humble debit card instead of cash for much lower value purchases, such
as sandwiches in supermarkets or pints of beer in a pub. This is partly due to the convenience of chip and PIN, but also represents a huge social shift, on the part of young people in particular, and is reflected in the inexorable growth of debit card payment
volumes in the UK. This phenomenon goes largely unreported.
Moving on to other much publicised forms of “mobile payments”, it’s important to define terms.
First we have “mobile banking” – ie using a mobile phone rather than a PC to bank online. Whilst, as a grumpy old man this is not something I’d want to do myself, I can see that many people would, and indeed do, and I can be persuaded that a subset of this
population will take the next step of initiating credit transfers from their mobile phones to pay their utility bills or, more likely, transfer funds to family and friends. But the mobile dimension here is just another delivery channel – the real hero of
the story is Faster Payments – a truly revolutionary development and a huge leap forward compared to the three day clearing period of Bacs. Once again, the UK payments industry and its media commentators are curiously shy on this subject.
Secondly we have “m-commerce” – ie using a mobile phone rather than a PC to buy things over the internet. This also strikes me as a case of “just another delivery channel”. Moreover, while it clearly makes sense for purchases which are in some way associated
with the mobile phones itself, such as top-ups, ring tones or apps, I can’t see it taking off in a big way for the majority of e-commerce transactions, where oldsters such as myself like to sit at home in front of a large PC screen as we research, compare,
or simply scratch our heads before actually making a payment which (after about 10 years) is now fairly secure.
Finally we have true “mobile payments” exemplified by the hugely publicised M-PESA scheme in Kenya. This really does seem to be revolutionary. But I get suspicious of any hyped payments development which always uses the same case study. I’ve never been
to Kenya, but I suspect it’s something about that country rather than the mobile payment proposition itself which is responsible for the success of M-PESA. Like the lack of a conventional banking infrastructure, or maybe something else – I note that a similar
scheme does not appear to have taken off in neighbouring Tanzania.
I could go on but I won’t. OK, I’ll be called a Luddite, out of touch, unimaginative or simply a spoilsport, but I do think it’s important that someone at least raises the possibility that the emperor has no clothes. Maybe 2011 will be the year when the
payments industry starts to see through the hype surrounding “contactless, mobile, NFT” and begins to start celebrating real long term success stories such as Faster Payments, debit cards, chip and PIN, and secure e-commerce. What do you think?