23 November 2017
Stanley Epstein
Stanley Epstein

Stanley Epstein

Stanley Epstein - Citadel Advantage Ltd

44Posts 182,358Views 52Comments
Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Why I am worried about the future of mobile payments

02 March 2015  |  4143 views  |  3

Developments in the mobile payments world have really got me worried. I come across an ever increasing account of different banks and technology companies coming to market each with their own variations of what they call “mobile payments”.

To start with the term “mobile payments” is confusing to most, even some seasoned bankers. What the man-in-the street is missing are the fine distinctions in mobile payments such as that between your mobile device as a store of the actual payment or “money” (much like you purse or wallet holds a few banknotes and some small change) and the mobile device as a payment enabler (Apple Pay which actually replaces the many pieces of plastic that once lived in your wallet or PayPal’s mobile app or Pingit in the UK, which accesses and generates a payment from your UK bank account to a beneficiary).

From what I am reading, mobile payments are being embraced by one-and-all and are being used by more and more people to pay for all sorts of goods and services.

However, nice as this all is, there is a problem that threatens the whole concept. There are so many different apps required for you to enjoy the benefits of this new way to pay, that their sheer numbers threaten to smother the whole mobile payments concept before it can take hold. New apps are appearing all the time; either from this or that bank or from individual merchants and stores.

For each additional mobile payments app introduced an additional layer of complexity is added to the payments process, both for the merchant/retailer and for the user. This complexity is further compounded by that fact that many mobile payments apps work in different ways from one another. Often they all have their own unique predefined conventions and rules.

Each of these different method has its own drawbacks too. To illustrate this let’s just consider Apple Pay. Firstly (on the user side), the system works only if you have an iPhone 6. This is a new iPhone model and although it is popular, ownership is still far from being widespread. Secondly (on the merchant/retailer side), the retailer has to purchase terminals that are compatible with Apple’s system. It has been reported that only about 3% of US retailers have the necessary “Near Field Communications” (NFC) compatible terminals to participate in Apple Pay.

Each layer of complexity makes it that much harder for merchants to work within this multiplicity of systems and processes. And complexity has many, many costs attached to it – costs in terms of the multiple systems needed, the specialized hardware, the multiple training needed for staff on each system, differing settlement procedures and the need for separate reconciliations. The more separate processes there are, the greater the propensity for errors to creep in on the human side, of managing the mobile payments receipts for the merchant. In the end many merchants will limit who they will be prepared to work with, in the mobile payments arena, to the few that have the largest user base in their type of business or geography. And we haven’t even looked at the question of international travelers and mobile payments yet.

From the user’s point of view the obstacles are equally severe, from different (and often confusing procedures) to the need for different brands of smartphones. Ideally for the user a single method would be the optimum. Perhaps one payment vehicle (linked to his/her bank account) and one wallet application (stored value on the mobile).

If there are too many payment apps, their use is going to lead to frustration. Frustration will lead to abandonment and abandonment will lead to failure. And that would be a pity.

For some fifty years now the credit card has reigned supreme as a payment mechanism simply because of a standardized numbering convention which has allowed the bulk of cards to be processed via a single merchant/ end user input point. The banks and clearing houses have taken care of all the other financial “plumbing” in the background, far beyond the sight (or the care) of either the retailer or the consumer. To both the credit card has become a seamless payment mechanism. That is what needs to happen to mobile payments.

If mobile payments are to succeed, a single, simple, uniform and universal method (read app) has to be the solution.

TagsMobile & onlinePayments

Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 02 March, 2015, 12:45

I think the industry needs to evangelize that mobile apps are nowhere as cumbersome as desktop apps: I find it very quick and easy to install a mobile app and uninstall it later if I don't like it - even quicker and easier than reading their app store reviews. Besides, if we survived several plastic cards in our wallets for 50 years, I guess we'll survive several mobile apps in our smartphones for at least 5 years, until the next best thing comes along. Personally, there's compelling reason to replace plastic with mobile wallet more for loyalty and other non-payment cards. And, as I'd highlighted in my post Mobile Wallet Has Few Takers - Even At Starbucks, that's the real hurdle to mainstream adoption of mobile payments. Interestingly, ISIS, the mobile wallet that I'd taken a dig at in the opening paragraph of this post, has shut down!

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A Finextra member
A Finextra member | 03 March, 2015, 08:18

Principally I agree with the points Stanley worked out.

I see one possibility to make life easier for the customer: Social network wallets.

Here in China a huge number of users communicate with WeChat. WeChat has a wallet fonction which you can bind to your card / account. Easy like chatting the user can transfer money to his friends or contacts. If we think about the waste number of users of facebook and their WhatsApp then this could be an interesting solution. Of course there is still some coding work to be done before we can use such a wallet to pay the coffee at Starbucks or the new TV-set in a mall.

No need for different apps from different banks, if every social network user is using the integrated wallet this would reduce the number of necessary apps. Mobile phone users are used to switch between 2 or 3 chat / social network apps to communicate with all of their friends.

The shop is already "liked" so why not have some brands / shops as "friends" where one can send the money to?

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A Finextra member
A Finextra member | 25 March, 2015, 06:16

One of the interesting areas of standard creation is that of the passwordless experience from FIDO, behind high profile recent launches from Alibaba, Microsoft and others.

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Stanley is a Director and co-founder of Citadel Advantage Ltd., an international consultancy to the financial services industry that provides specialist services and training in the areas of operation...

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