What's In Store For Mobile Payments In 2016

To say that the mobile payments industry is undergoing a state of flux is a bit of an understatement.

Let’s examine the evidence – several factors are in play today, cutting across the value chain and making the industry more fragmented. Perhaps – and this is open to debate – the incoming of non-banking payment service providers, via the big boys of the technology world-Apple, Facebook, Google, Amazon, etc. – has caused the most chaos. Perhaps not. For the sake of convenience (and to ensure each trend is given its money’s worth), this blog has been divided into two parts – developed and emerging markets, along with which trends are likely to create the biggest splash in that particular space.

Without getting into the nub and ruining the argument, let’s sum up the introduction by saying that several factors-including (but obviously not limited to) the growth in the adoption of digital payments, the debut of non-traditional players, technological innovations and the rising importance of “contextuality”, better user experience and self-service are poised to drive (and change) the dynamics of the overall payments space. Now, onto the main feature.

Developed Markets: Constantly Evolving

1. The Banking Industry: Playing the Technology “Catch-Up” Game

2015 saw the rise (and rise) of original equipment manufacturers (OEM) (read: Apple Pay, Samsung Pay, et al) in the mobile payments space. The question, though, is: do these instruments represent a “tipping point” in the mobile payments space or will banks get their own back?

The latter, in my opinion at least. Faced with the triple threat of competition from these players, technology evolving at break-neck speeds and dramatic shifts in customer behaviour, banks are rolling up their sleeves and preparing a game-plan to match the Apples and Samsungs of the world.

The first step, of course, is overhauling one’s approach to technology. And that, naturally, brings us to Near Field Communication (NFC), arguably where it all started. Now, technology was never a banking player’s forte and though they made more than a mark in the mobile payments space, the lack of technological “know-how” was a serious hindrance.

What complicated the entire issue was that banks simply HAD TO collaborate with telecom operators and trusted service managers (TSM) for such transactions. This, of course, took them back to square one.

Enter Host Card Emulation (HCE)-based payments. Now, the biggest advantage of HCE is that the processes of storage and that of verifying the user’s credentials move entirely to the cloud. This all but eliminates the role of the TSM and the need to change one’s SIM card. This, needless to say, was enough to win banks over and shift focus to HCE. The result – rapid roll out of HCE-based NFC payments by these players without wasting too much time.

All that is very well, but what does this actually bring to the table? Coming back to the original point – this is expected to serve banks well in their battle against the OEM bigwigs. How? Well, the nub of it is this – NFC-based payment instruments are expected to help banks deliver an end-to-end experience for customers across the value chain. To achieve this, banks can launch their own wallet-based applications that not only encompass NFC based proximity payments but also enable online/remote payments and bring in “contextuality” by using Location Based services and therefore partaking in the overall consumer journey. We are already witnessing a definitive transition to the digital wallets space as a number of banks have come out with their wallet offering with aggressive launches in the Asia Pacific, Europe and Latin America region. According to Juniper Research, by the middle of January, 2016, 55 banks had launched HCE based wallets, out of which 98% were in the Asia Pacific, Europe and Latin America region.

Wallet-based applications will have a two-pronged impact – banks can break free from offering tried and traditional products by enhancing their services scope and thus being able to cater to the new era of “millennials”, who typically demand convenience and support for ready and intelligent decision making.

Two – these players can keep an eye on the revenue being lost every time a customer uses a service like Apple Pay, etc. The bottom-line? Enhanced top-line of course! Doesn’t that sound like a win-win situation?

Some banks in countries like India are providing prepaid digital wallets. Prepaid digital wallets enable banks to go beyond their existing customer base and extend their services to non-customers, the first time user, etc, to generate loyalty, and using the resulting goodwill to up-sell savings and other products to the new converts. Thus, by offering their own wallet service, banks not only retain their existing customers but also add new customers to the fold.

“Pockets” from ICICI Bank in India is one of the examples of prepaid wallets. It was the first to enter the unchartered waters of HCE based contactless payment system not only in India but also in the whole of South Asia. By adding HCE to its “Pockets” app, ICICI Bank allows millions of customers to make fast and secure instore payments with just a simple tap of their mobile phone.

2. Retailers: Blurring the Lines Between the On-and-Offline Spaces

In today’s omni-channel world, the age-old question before every retailer is, “What do customers want?” Of course, top-of-the-mind recall and constant engagement with the customer are the two most obvious responses, but let’s just delve a bit deeper into this subject.

Now, I am not going to claim that I hold all the answers to such queries. Far from it – in fact, I’d merely like to offer my two cents (from the mobile payments point of view, obviously). While there are a million ways to answer these questions, I’d like to highlight the role the humble wallet may play in this context. First off, it is my opinion that retailers are beginning to focus increasingly on the mobile wallet, with the aim of providing their customers a contentual, complete and enhanced experience. And why not? These mediums offer a plethora of advantages, two important ones being support for both proximity and remote transactions and enhanced customer experience at every touch-point.

There is a catch, though. Retailers will do well to remember that the offers pushed through this medium ought to be relevant to the customer. Bombarding the customer at every opportunity isn’t the idea. Catching the consumer’s attention with contextual and customised offerings is. In other words, retailers, move from a “one-to-many” to a “one-to-one” mode of communication.

To illustrate – either of these approaches will serve well-targeted marketing or the “buy now” button concept. Very briefly-targeted marketing entails analyzing a consumer’s past behaviour and current interests. This, obviously, makes it much easier to generate marketing material that is tailored to that particular individual. The “buy now” button concept typically simplifies a customer’s online experience by permitting them to purchase something on the spot. Bye, bye long check-out lines! Offline, though, it is slightly more complicated than that. A customer receives a hyper-local offer while standing at their favourite store at the mall. They scan the product into their mobile handset, avail the offer and make the payment by simply tapping the mobile at the point-of-sale.

Of course, none of these advancements would have been possible without a combination of technologies, all ensuring a seamless customer experience. I am, of course, referring to the holy trinity of HCE, QR Codes and Bluetooth Low Energy (BLE) beacons. HCE for payments can be used in places for tap-and-pay while QR Codes come in handy for payments where the point-of-sale machines aren’t available. Besides payment, QR Codes enables online as well as offline marketing of discounts, offers and promotions using mobile’s point and capture capability. For example, QR Codes embedded in posters could provide details about discounts, offers and promotions.

BLE can be used to provide hyper local offers; however, this is where it gets slightly tricky. There is little doubt that this technology has succeeded in capturing more than a fair share of mind space. However, it is facing the very real possibility of plunging into the trough of disillusionment. This is simply because the expectation and hype have failed to deliver enough value to clients in the short-term and therefore enthusiasm for the technology is starting to wane.

In a nutshell, the lesson here is simple – the lines between the on-and-offline worlds are blurring. Retailers would do well to keep pace with this.

3. Telecom Operators: Targeting Actionable Insights

With so much action taking place on the retailer and banking fronts, operators cannot be too far behind. In fact, I feel that it is safe to say that these players will focus on wallets – going beyond mere payments, of course. After all, why shouldn’t they vie for a share of the mobile payments pie? Besides, mobile wallets are a superb way to enhance customer loyalty. Once again, a win-win!

Operators may even try their hand at experimenting with a hybrid HCE technology, which clearly differentiates them from the bank or retailer-enabled HCE offerings. This would essentially entail storing the customer’s credentials on both the cloud and SIM card. This will not only ensure higher security for the data but will enhance the operators’ role in the overall ecosystem.

That apart, telecom operators will turn their attention to using data pertaining to a customer’s mobile and mobile wallet usage to offer relevant products and promotions.

The insights thus gained will be used to target the customer with relevant offer and information and, hopefully, gain an edge over competition.

In sum, we live in a data-rich age, but operators would do well to remember not to go overboard with the data at hand!

Emerging Markets: Bridging the Gap

1. Interoperability: Gaining Traction

Mobile money interoperability has made tremendous strides since its debut in Tanzania. In a nutshell, apart from providing a fillip to the broader goal of increasing financial inclusion, interoperability helps draw more cash into the formal financial system and improves customers’ lives by simplifying transactions and adding speed and convenience to their daily routine.

To highlight the success of interoperability in developing markets, one, naturally, must turn to Africa. Interoperability first came to Africa back in 2014, when Tigo, Airtel and Zantel announced a pioneering interoperability agreement. In fact, this partnership very recently went a step ahead, with Vodacom joining the three operators’ partnership. With this, Tanzania became the first African market with full interoperability for mobile money person-to-person (P2P) transfers. Similarly, in October last year, Airtel Rwanda and Tigo Rwanda announced a partnership to pilot interoperability between their two mobile money transfer service platforms. This makes Rwanda the second market in Africa to launch interoperability after Tanzania. We will, needless to say, witness an increasing number of markets jumping on the interoperability bandwagon.

2. Contactless Payments: Coming into Play

It took a while but it has been firmly established that contactless and NFC isn’t a concept for just the developed markets. Indeed, players like Airtel Tanzania have done away with this misconception. Airtel Tanzania has introduced the NFC merchant payment solution for their customers to improve the merchant payment user experience. In a nutshell, this service simplifies mobile merchant payments and addresses customer and merchant related adoption challenges. This is achieved by providing an NFC card (linked to an Airtel Money account) for consumers and a portable and low-cost GSM enabled NFC POS to retailers.

Picking up from where Airtel Tanzania left off, Econet Wireless has recently launched a tap-and-go payment system called EcoCash! It provides consumers with an NFC sticker attached to the back of the mobile which will enable them to buy from vendors and informal merchants without using cash. This is done by just tapping the sticker on a special NFC POS.

No PIN is required when paying for purchases of up to $3, and any transaction above $3 requires a PIN up to a daily limit of $1000.

3. Turning the Spotlight on the End-To-End Payment Lifecycle

The first step towards realising a truly “cashless economy” is ensuring that the payment lifecycle is “stitched up” in an end-to-end manner. In other words, all payments must be digital and presented on a single platform. This may entail a mobile money platform used for different purposes, such as salary transfers, and P2P, P2M, B2B, et al payments.

An interesting example in this context – imagine an individual receives his salary on his mobile phone. He uses that money to pay his bills, buy groceries, remit to his mother who lives in a village and even stash a bit away as savings. All this is carried out via a single platform-the mobile handset!

Digitizing all the transactions carried out by a consumer daily would help reduce the usage of paper money and makes the economy cash-light.

4. Operators to go All the Way

I have mentioned this before and will do so again. A threat from a new quarter-i.e. OEMs has arisen. Operators thus need to occupy the white space not filled by conventional banks. This can be achieved by offering innovative financial services, such as savings, group savings, recurring deposits, loans and insurance services.

5. Self-Service and Enhanced User Experience Come to the Fore

Even today, the South Asian region and markets like Bangladesh and India, the bulk of mobile money transactions are still carried out with the help of an agent (over-the-counter transactions). This basically defeats the overall purpose of striving for a cashless economy-cash is clearly still the king!

To overcome this, therefore, operators ought to push self-help applications, which would enable customers to instantly avail of various services in real-time. There is a catch, however- a successful self-service application would, first and foremost, require an outstanding user experience. And this is where “appification of mobile money” comes in. Simply put, applications can help in providing network agnostic services as well as enable innovative services using biometrics, QR code and barcodes. Secondly, it requires operators to educate and motivate customers to carry out these transactions themselves.

6. The Rise of Segmented Offerings

To deepen product and network reach, mobile money operators typically launch services that focus on specific segments. These include women, small and medium enterprises, farmers and students.

An interesting example is the EcoCash Savings Club in Zimbabwe. This service benefits multiple segments like self employed individuals, women groups and small entrepreneurs. In addition, EcoCash is working with the Organisation For Public Health Interventions (OPHID) – a local Zimbabwean NGO to promote the EcoCash Savings Club amongst women groups. One such group is the Mbereko Women’s Group at the Border Church clinic in rural Marondera District. Mbereko Women’s Group is a savings group for pregnant women and new mothers. It helps women to meet financial requirements during child birth. The group has been pilot testing the Savings Club product over the past six months, with guidance from OPHID.

All in all, 2016 is set to be an exciting year for mobile payments. While it is too soon to predict which trends will actually make an impact, one thing is for sure-the industry ought to buckle up-choppy times lie ahead!