24 November 2017
Charmaine Oak

Digital Money Ecosystems

Charmaine Oak - Shift Thought Ltd

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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.

How Android Pay changes state of play in the Mobile Payments Game

29 May 2015  |  10093 views  |  11

Now that details regarding Android Pay have emerged, I thought it would be interesting to contemplate on how key mobile payments “ecosystem builders” as I term them, stand with respect to the ongoing mobile payments game.

The latest move is Google’s announcement of Android Pay at the Google I/O conference today. This allows customers to pay at retail stores by simply unlocking their phone, without the need to open an app, in a “Tap and go” experience. Loyalty programs and offers can be applied at checkout. Also the contactless terminal receives not just the payment details but also loyalty points and offers.

Assuming things go to plan as per announcements, here are my thoughts on where players are positioned.

The Prize

Over 2014 to 2016, the mobile commerce market is set to grow by a factor of five. This is 10 times faster than the E-commerce market. But by 2016, with less than 500 million mobile payments users, and a market worth $600 billion there is ample scope for further growth. PayPal recently announced that while online and mobile shopping accounts for $2.5 trillion in annual retail sales, with the convergence of the online and physical world, a unified world of commerce could be worth $25 trillion, resonating arguments I made in my book “The Digital Money Game”.

Key Players

The current scene of the battle is playing out in the US with heavy-weights placing large bets on paying by mobile phone.  Big players currently making investments include Apple, Google, PayPal, Samsung, Facebook, Visa, MasterCard, MCX and others. Also there are several mobile payments providers who have obtained some traction in the market and may now be up for grabs.

Some have folded their hands – Softcard (formerly ISIS) was recently acquired by Google, as an important precursor to their current play, as now handsets from AT&T, Verizon and T-Mobile can come pre-loaded with Android Pay.

Key Enablers

Once an area dominated by mobile operator SIM-SE standards, the dam has burst and we have a number of possible technologies emerging. Samsung’s embedded approach recently announced is similar to eSE introduced by Apple for ApplePay and both work with tokenization services of card schemes. HCE and tokenisation hybrid models first introduced by Google for Android Kitkat (4.4) have since resulted in the launch of a number of pilots around the world. Meanwhile QR Codes have seen good traction, being behind some of the best adopted services, such as the Starbucks Wallet.

Now Android Pay says their service is secure as they won’t send your actual credit or debit card number with each payment. Instead a virtual account number represents the account information. Android Device Manager is to allow consumers to instantly lock their device from anywhere, secure it with a new password or even wipe it clean of personal information. 

Country Positioning

Apple Pay is still largely US only, although reports have emerged from Singapore of people successfully using their Apple Watch to make payments there. Android Pay has a huge potential in terms of reach but for now nothing much seems to be clear in terms of when it will launch outside of the US. While Apple benefits from premium user status, in terms of sheer numbers , once the gameplay extends out of the US, Android is better placed in terms of penetration.

US is pulling ahead, but China, India will not be far behind as they develop apps to meet the requirements of the US and then seek to bring out cheaper and more appropriate services for Asian and emerging markets. Europe though risks being left behind in all this, pity, with it (arguably) being the birth-place of e-money.

Customer Adoption

Recent reports claim $2 out of every $3 spent using contactless payments across Visa, Mastercard, and American Express were being made with Apple Pay.  

PayPal now with Paydiant seeks to challenge this thanks to Paydiant’s earlier work with MCX.  This month PayPal reports it processes nearly 12.5 million payments for customers every single day.

Now Android Pay promises to offer better ease of use than Google Wallet, benefiting from support for fingerprint authentication in Android M. Also with pre-loaded handsets the only challenge that remains is having led the horse to the water, to actually get it to drink: as several steps will still be needed before customers actually make their first mobile payments transaction.

Samsung Pay though claims potential acceptance at 30 million merchant locations worldwide, with near universal acceptance thanks to Magnetic Secure Transmission (MST) magstripe emulation platform, LoopPay.

Reactions from the rest of the ecosystem

Merchants are signing up to many of the new services, whilst also engaged in MCX and so far tending to favour the QR Code approach.

Schemes are not taking sides. Visa, MasterCard, American Express and Discover have announced support to Android Pay, as also with other services. In general schemes are keen to support all options, something that brings joy to their investors.

Mobile operators are on a back foot, but regrouping – more co-operation, greater focus on transport (such as Mi-FARE) where they still hold an advantage, and a continued emphasis on security – though biometrics, tokenisation and the passage of time will leave this argument somewhat weakened.

For now banks can play with the different providers, but where will they invest and how long will it take them? The banks in the US are moving quickly – USAA and US Bank have already declared their support for Android Pay. Citibank had been quick to provide the support needed by Google Wallet.

Regarding processors, for Android Pay Google is partnering with Braintree, CyberSource, First Data, Stripe and Vantiv to make integration easier. There is a huge opportunity from tokenisation which is up for grabs and processors need to also back every horse, while continuing to build the required infrastructure.

Outlook for Mobile Payments

This further confirms the growing fragmentation, with potentially myriad implementations as service providers seek to navigate a murky minefield of patents relating to mobile payments, and still bring out something that helps maintain some control over large, desirable customer segments.

What is quite clear though is that massive disruption to existing business models is now well and truly on the cards. Current retail, banking and payment systems must consider their roadmaps as payments becomes invisible, embedded, transparent and often free. The future of payments is in the cloud, but could this result in massive “honey pots”?

When will Android Pay, Apple Pay, Samsung Pay and PayPal’s newest services launch across Europe, UK, Canada, Australia, Poland Germany, Singapore and other countries ripe for these services? And where does Android Pay leave Google Wallet? A lot of important, yet unanswered questions that will become clearer in the next few months perhaps.

 

Android Pay TagsMobile & onlinePayments

Comments: (11)

Keith Fernandez
Keith Fernandez - Jeslinx, Inc. - Miami Beach | 29 May, 2015, 18:48 Thanks Charmaine... Just what I was looking for. Your article is very comprehensive and instructive and brought me up to date on a technology that is changing and evolving with huge momentum and impact!
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A Finextra member
A Finextra member | 29 May, 2015, 19:19

Thanks Keith. It has been a long wait but it seems the door to innovation in mobile payments is now open. With the emergence of so much FinTech talent I'm awaiting the whole next level of innovation that's just waiting in the wings. I always return from our research in each of the emerging markets with a sense of awe regarding how much has changed since my last visit, and I suspect we'll see a whole new spectrum of services from there.

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A Finextra member
A Finextra member | 01 June, 2015, 07:00

Charmain - very good synopsis - actually an executive briefing that can be used as such. As a lead architect on core banking we are trying to realise the dream of real time instant banking across the ecosystem - but it is sometimes difficult to make executives understand their role in driving a business model that counters these disruptions. I am trying to find research on banks not having to 'own' the customer always but to also drive towards participating in the transaction flow across the ecosystem. Rather than being disintermediated - banks should participate and drive towards new leaner business models and through that gain the trust of the customers.

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A Finextra member
A Finextra member | 01 June, 2015, 07:56

Gerhard, thanks for your feedback, greatly appreciated. The mobile operators are just coming around to this point of view at great cost to themselves.

Having studied countless case studies over the last decade I am beginning to see the key role Executive action has in success or failure. Funnily often over-eagerness can also drive poor decision-making, and teams working in stealth can produce great results - Example M-Pesa Kenya 2007. Let's connect offline to share regarding research that may be of help.

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Nick Collin
Nick Collin - Collin Consulting Ltd - London | 01 June, 2015, 09:26

Nice article Charmaine - thanks!

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A Finextra member
A Finextra member | 01 June, 2015, 10:18

Gerhard van Wyk, interesting move by China to stop banks from verifying identity of new customers using biometric information, while Ant (Alibaba Group) pushes it's "smile to pay" forward. Regulators are walking a fine line here - are they protecting or hindering banks with moves like this?

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Grant Millar
Grant Millar - First Rate Exchange Services - Brentford and City of London | 04 June, 2015, 13:10

A thoughtful and informative piece Charmaine - many thanks. Many options are emerging, and identifying the best oportunities for individual organisations will be a challenge. Assessing reach and value will be areas of focus, but "sitting put" will not be an option, and that is very concisely put in your article. Well done!

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A Finextra member
A Finextra member | 04 June, 2015, 13:59

Grant Millar, Nick Collin thanks for your feedback, greatly appreciated. Larger context is how US payments market is likely to change in next few years, outcomes now made clearer by the Fed. Success in in-person payment will position players well for next "games", where Online Checkout and other initiatives connect. European providers could (should/ must?) play a strategic role in what's ahead. Digital payment leveraging services could migrate across countries faster than we'd expect.  

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Prasenjit Das
Prasenjit Das - NIIT Technologies Limited - Noida , India | 04 June, 2015, 18:09

Indeed a very informative and balanced piece remaining to the confines of payments.Certainly a break from the noise made all around - Banks are doomed , Banks are going to be the slave of Facebook,Google etc.Good one

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A Finextra member
A Finextra member | 04 June, 2015, 18:19

Thanks Prasenjit Das for your kind feedback, greatly appreciated!

I am not sure if banks are doomed by the current incarnation though. Most of the services I've analysed recently use bank issuers and bank acquirers as well as card networks. In the case of some services such as Google there could be slight loss of brand and certainly concern about customer data, but largely a number of these are being seen to be helping to convert from cash to card payments.

The main bank disintermediation to-date comes from services such as PayPal that can take payments direct from bank. The US potential improvements to ACH, move to Faster Payments (future) and European initiatives to grant access to bank accounts, as well as various Fintech moves could have the potential to change this. 

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Prasenjit Das
Prasenjit Das - NIIT Technologies Limited - Noida , India | 04 June, 2015, 18:46

Thanks Charmaine for adding few more valueable and interesting facts . Certainly the potential is enormous with 85% of transaction globally being in cash.

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