Despite the heated competition in the mobile-wallet market, many consumers and merchants are still not convinced about the idea of using use a mobile device instead of a plastic card, according to the Payments Innovation Report 2013’s international jury of experts.
“We had a lot of fun in the last session, asking ‘what’s the most overhyped?’ And the answer was [Near Field Communication],” says John Chaplin, Chairman at Ixaris and founder of the Payments Innovation Jury. The Payments Innovation report is produced by Ixaris and Anthemis Group, and is based on the Global Innovation Jury—a panel of 25 executives in the payments sector from 14 countries on five continents, including professionals with experience with the card networks and international payment companies such as Western Union.
More than half of the jurors who participated in the Payments Innovation Report 2013—which was released today—say they do not believe there is a strong business case for e-wallets to replace credit card and debit card payments. And although mobile technology is seen as the biggest driver for payments innovation, the jurors consider using mobile phones to make payments to be an overhyped concept, with NFC technology being the most overhyped.
It is a challenge to convince merchants to pay for NFC readers and to make consumers want to change payment habits, Chaplin says. There are also likely too many companies targeting mobile wallets, he adds.
“I don’t think people wake up and say they want to make a mobile payment,” says Chaplin, who is also the former chief information officer and executive vice president of processing services and strategy for Visa Europe.
The enthusiasm gap for mobile contactless payments also exists with retailers. “Retailers don’t have a problem with getting [mobile] payments, they just don’t want to pay for them. If you come along with a [low cost] NFC solution, that would work. But the idea is to get people to pay more for NFC, not less,” Chaplin says.
The sour mood is specific to developed markets such as North America and Europe, Chaplin says. In developing markets, a history of using mobility to compensate for a lack of business infrastructure has helped mobile money efforts thrive. The success of M-Pesa—a telecom-driven mobile money initiative—is well known, and Visa, MasterCard and local issuers are also targeting developing markets.
To get more consumers and merchants on board, there will be an emphasis on bundling mobile payments with other functions. Companies like Starbucks already tie rewards to mobile payments—a move that’s sparked similar initiatives elsewhere. Fiserv links person-to-person mobile payments with other mobile financial services.
“You want to not just execute a payment with a tap of a phone or a scan of a barcode but also allow consumers to cash in on coupons or check in on their loyalty account," says David Kaminsky, a senior analyst at Mercator. Kaminsky was not part of the Payments Innovation report.
"You can also integrate that with social media, there are a number of things around the payment transaction that can be done with the mobile device," he says.
Other findings from the report include: Asia will show the most innovation over the next two years, with Africa, North America and Latin America close behind—while Europe will lag. Adoption of smartphone and tablet technology will be the biggest driver for innovation in payments—48% of the jurors mentioned this—with open application programming interfaces another important trend.
“The open development platforms allow you to mix-and-match much easier to build a payments system…the average time to market is about eight weeks by using an open development strategy, versus about two years for the old model,” Chaplin says.
Four in five jurors say the demand for integrated platforms for multiple payments products will be met by the use of open payments platforms, 39% say the best way for financial institutions to approach payments innovation is to partner with companies that have developed technology; and 34% said financial institutions should work with start-ups. A growing number of tech start-ups are using open development, with some companies extending their technology to other payment start-ups.