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Mobile payments: why we’re on the verge of a revolution

Over the past few years, the movement towards mobile payments has been one of disruptive trends in the banking sector. New payments services are already accelerating the move away from cash. According to Deloitte’s 2015 Payments research, in the UK, the use of cash is decreasing while other payment forms are gaining popularity.

Mobile payments can take many forms, including device initiated credit and debit transactions, digital wallet transactions and peer to peer payments. The opportunity they present is significant - the market for mobile payments is estimated to be worth US $2.8 trillion by 2020. However, with so many new players entering the market and looking to capitalise on this opportunity, retail banks will need to adapt in order to beat the competition.  

Challenges for banks

Payments have traditionally been a key revenue stream for banks as well as a strategic source of competitive advantage, allowing them to sell a range of other services, from current accounts to loans to customers. However, payment technology is threatening this existing status quo, and a new landscape is emerging. Last year, Apple and Samsung both launched their own payment apps and credit card giants Visa and MasterCard have recently taken steps to capitalise on the sector. Android Pay also finally arrived in the UK this May, allowing users to pay for goods and services using an Android smartphone equipped with Google's contactless payments system.

One of the main issues for banks is that the smaller fintech players are usually able to be more agile and innovative due to fewer regulatory restrictions, and being unencumbered by the costs of traditional retail branch infrastructure. Deloitte suggests that while the mobile payments may not pose a ‘life-threatening’ threat to the traditional banks, the growing popularity of alternative services will require a ‘defensive response’ from the sector. This means taking steps to ensure that their card products remain sufficiently attractive, as well as developing a mobile wallet strategy, and continuing to invest in new technologies.

Resolving security issues

In order to succeed, mobile payment systems will have to solve multiple issues that have obstructed adoption in the past. Technology can also help here. For example, new biometric technologies like fingerprint scanning and facial recognition are already enabling safer transactions. In fact, Juniper Research predicts there will be nearly 770 million biometric authentication apps downloaded per year by 2019. 

Blockchain will also potentially help to ensure the security of mobile payments, by providing a ledger of all transactions while cutting out the middleman. Although currently used mainly for Bitcoin transactions, the technology will soon be used by banks and for recording trades of physical goods. Many banks are already trialling blockchain technology; blockchain startup Ripple recently announced it was working with banks Banco Santander SA and UBS Group AG, using its network to make cross-border payments as an alternative to Swift. Four of the major banks: UBS, Santander, Deutsche Bank, and BNY, are also in the process of creating a digital bitcoin-currency alternative based on blockchain technology.

Revolutionising emerging markets

Beyond fintech, the impact of mobile payments will also be significant for emerging markets. Many of these markets are in unusual situation, with low penetration of bank accounts but high adoption of mobile phones. Take India for example - a recent report by GrowthPraxis, showed that the market for mobile payments in the country grew more than fifteen times between 2012 and 2015 to reach its current size of $1.4bn (£979m).

And this is naturally reflected in the actions of the key m-payments ecosystem providers; Visa recently teamed up with one of Africa’s largest mobile operators, Bharti Airtel, in order to bring mobile payment services to seven markets in Africa. Similarly, MasterCard partnered with eTranzact, a pan-African mobile banking and payment services company.

While we may not all be swapping our wallets for phones just yet, these services offer organisations a real chance to differentiate their offerings and build customer loyalty by offering added convenience to existing customers in developed countries, and provide a new way to reach a large numbers of customers in emerging markets. For these reasons, mobile payment technologies not only have the power to revolutionise the finance sector, but also to become a vehicle to achieving financial inclusion. And that is the real payments revolution. 


Comments: (4)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 August, 2016, 19:33Be the first to give this comment the thumbs up 0 likes

Over the past 5-7 years, I've heard various phrases like "cusp of disruption" and "mainstay payment method" that predicted the imminent boom in mobile payments. I'll add "verge of revolution" to that list. I wish mobile payment goes mainstream ASAP so that I don't have to suffer these cliches any more. But, alas, with the adoption of even Apple Pay - arguably the best mobile payment ever - declining year on year, I don't think my wish will be fulfilled any time soon.

Michael Kyritsis
Michael Kyritsis - ACI - London 05 September, 2016, 15:10Be the first to give this comment the thumbs up 0 likes

I find the picture at the bottom of this article hopelessly inadequate, and at the same time it epitomises the mobile-challenge: mobile payments are supposed to avoid the need to take out your credit card, and you should be able to make mobile payments even when you're not sat next to your PC! (all of which are shown in the picture). 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 05 September, 2016, 16:24Be the first to give this comment the thumbs up 0 likes

@MichaelKyritsis: Good catch LOL:) Now that you've mentioned it, the guy in the picture is likely not making a mobile payment at all. Most probably, he's awaiting the SMS OTP on his mobile phone, which he needs to complete a normal plastic payment on a desktop website! We go through this in India regularly! Mobile OTP: Cyanide Or Caffeine For Online Payments?

A Finextra member
A Finextra member 06 September, 2016, 09:39Be the first to give this comment the thumbs up 0 likes

Apart from cash-funded mobile-wallet based services such as M-Pesa, we have yet to see any viable mobile payments application that doesn't depend on the underlying foundation of a debit or credit card, backed by a bank account. So while mobile payments may be diminishing use of cash, that is hardly a disrupter for the banking industry.

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