Advanced Payments – Which paths to success?

PCM in partnership with Edgar, Dunn & Co. and American Express unveil the findings of the latest Advanced Payments Survey.

The annual Advanced Payments Survey, which this year has been produced by PCM in conjunction with American Express and written by consultancy Edgar, Dunn & Co. (EDC), has become one of the benchmark indicators of where the payment industry is heading at a time when many forms of payment methods and technologies are embarking on the path of convergence.

With m-commerce and m-payments now at the forefront of business strategies across the value chain, survey responses were received from virtually all areas of the payment industry, including merchants, card issuers, merchant acquirers, banks and financial institutions, payment schemes, mobile network operators, payment service providers, device manufacturers and vendors and start-ups.

More solutions but minimal volumes

Speaking to PCM about the findings of the survey, Mike Matan, head of American Express Global Network Business, said: “In the short-term, we think we are going to see online mobile payments continue to grow and gain more traction with consumers.  Essentially, online commerce has moved from the desktop to the mobile phone, giving consumers anywhere, anytime access to online shopping.

“What comes next is making the online check-out experience on a mobile phone even easier, while continuing to ensure the security of the transaction.”

Speaking to PCM, Gregoire Toussaint, manager at EDC, said: “At the moment we have a wide array of initiatives with low volumes. There are only two initiatives at the moment which have any significant volume, PayPal and Starbucks. In a way, it’s proof that if there is a value proposition clearly articulated and implemented, then consumers will adopt it and use it on a regular basis.”

Samee Zafar, director at EDC, added: “It’s really the usability of the service which is a measure of its value, not necessarily what underlying technology it uses. At some point consumers don’t really care about the technology and it’s more about how convenient it is to use. For example, O2 Wallet which started in 2012 will shut down by March and if you read the reviews of that app on Google Play, you will see how people were having all sorts of difficulties in that they couldn’t top up, they couldn’t link to their card, it didn’t work the way it was supposed to, and people were dropping it in exasperation. As a result, they didn’t get enough users, and that’s the critical lesson that nobody has really mastered yet.”

Success factors for m-payments

Survey respondents across the payment value chain were definitive on what would be the key success factors driving mobile payment usage, with providing the consumer with a smooth and practical experience coming out as the clear winner, followed by providing a mobile payment solution relying on an existing payment.

Matan told PCM: “One of the biggest challenges to m-commerce is creating an easy-to-use interface that allows the consumer to pay for a purchase and the merchant to accept that payment in a secure manner – and creating a global interoperable solution that provides the consumer with a consistent purchasing experience wherever they may be around the world.”

“In terms of key success factors, there are key three aspects,” Toussaint told PCM. “The first one is consumer experience, as with the O2 example and Google Wallet at the beginning. From the consumer experience perspective, it should be easy, convenient and quick, and then the second aspect is considering the whole purchase process. It’s not about payments any more, it’s about driving people to buy and assisting them through the purchase process.

“The third point is about value-added services, and how to change consumer behaviour. It’s not a case of putting a contactless card in the hands of the user and getting them to use the contactless feature, you also need to provide incentives and from the consumer perspective, the question they would ask is why would they change? What incentive do they have to change?”

Jane Cloninger, director at EDC, added: “The value proposition has to be there for consumers but it also has to be there for merchants as well, because the merchants are the ones implementing it and it’s got to be easy and cost-effective for them to implement, to help them achieve their goals of increasing sales.”

Perhaps one of the most notable questions in this year’s survey was on the subject of which players are most likely to drive growth in mobile payments going forward. Here, survey respondents were more divided, with a slight majority tipping traditional incumbents like card schemes and payment schemes, banks and financial institutions as front-runners, with merchant-led initiatives and emerging alternative players just behind. Interestingly, mobile network-led initiatives were ranked as least likely to drive growth along with mobile network and bank joint initiatives.

Matan said: “We will continue to see a significant level of innovation occurring in this space, and we think collaboration is going to be key to driving advances in the mobile payments space. Ultimately, in order for m-commerce to thrive, traditional and non-traditional payment players will need to collaborate to create an interoperable mobile payments ecosystem – one that is going to create a seamless, frictionless environment that offers security, convenience and added-value for the consumer.”

Zafar stated: “In our Advanced Payments Surveys, consistently PayPal has been coming at the top, which is also the case this year as well. One of the reasons for that is that people are familiar with PayPal online. Whether you use a mobile device or a laptop, the interface is very similar and the statement is the same so all you have to do is just use an app. With PayPal, if you’re doing something on a laptop you can do the same thing on a mobile. But PayPal still remains an online player. Despite its collaborations with Discover and other pilots in different places, it hasn’t even begun to crack the physical payments space.”

Promoting consumer and merchant adoption

In relation to the key drivers for consumer adoption of mobile commerce and mobile payments, convenience, ease of use and speed of payment came out on top, followed by deals, offers and incentives to consumers, and relevant and personalised consumer offers and payment methods adapted to the mobile channel, such as one-click payments. On the flip side, key drivers for merchant adoption of mobile commerce and m-payments were identified as being development of m-commerce by merchants in order to give a 360 degree view of the whole purchase process and not just the payment piece. Other answers such as having a multichannel strategy in place and incentives offered to retailers also ranked strongly.

Value-added services have become almost symbiotic with the provision of mobile wallets and here, survey respondents ranked the ability for consumers to check their bank account balances as the most valuable feature, ahead of payments integrated with loyalty or coupons and price comparison tools. At the bottom of the list were pushing of in-store communication and marketing offers and location-based specific offers outside of stores.

Matan told PCM: “For consumers, value-added services have to be relevant, personalised and delivered in a seamless fashion. Consumers are constantly looking for new offers and deals, and increasingly, they want these benefits to be delivered directly to them and in a customised fashion.”

The emergence of mPOS over the last few years is also making the industry sit up and take notice. Here, survey respondents stated that solutions with mobile as a POS terminal would become widespread. In relation to which mPOS players would be most likely to drive growth going forward, established alternative players like PayPal were ranked as the favourites, followed by payment service providers and start-ups.

Cloninger told PCM: “What’s been interesting is how rapidly mPOS has moved from the small individual micro merchant seller to the more mainstream merchants. With the mainstream merchants, we’re seeing the banks and traditional acquirers and players having a bigger footprint in that market, and we’re seeing more of the terminal manufacturers moving to mPOS-type terminals as part of their product lines. If that continues, there will be room for both players and there will be some emerging players that will become established and be a part of the market dynamic going forward. But they will be there with some of the traditional players as well.”

The future of NFC? 

With so many disparate technology platforms competing for attention – NFC, QR codes and biometrics for example – survey respondents are still putting their faith in NFC, particularly embedded NFC in SIM cards or in stickers. However, Bluetooth Low Energy solutions, which have gained a lot of attention in the past few months, ranked a somewhat surprising second choice, ahead of QR codes on mobile. Confusingly, on the next question about which technologies would be most likely to succeed, survey respondents cited that alternatives to mobile NFC will be most likely to develop and succeed!

Matan told PCM: “Over the longer-term, we think that mobile NFC will continue to evolve, although the pace of that evolution will vary by market. While many have already started to tout the death of NFC, we are still seeing important inroads being made, which are largely driven by the strong penetration of contactless payments.  For example, we see that in countries like the UK and Australia, once the contactless payment infrastructure is in place, consumers begin to experience and enjoy the ease and convenience of contactless payments.

“As that happens, consumers – who are already using their phones to do everything from downloading apps to shopping online – are going to be much more inclined to take the next step and use their mobile NFC-enabled phones to also make their purchases at the POS. As more and more countries move to mobile NFC solutions, we do think that, over time, we can expect to see this payment method become available on a global scale.

In terms of barriers to NFC, Matan added: “One of the greatest barriers to NFC adoption is the new infrastructure that is required, such as an NFC reader. We think, however, that as merchants adopt contactless payments and begin to see that consumer behaviour grow, they will quickly realise the value that the mobile NFC infrastructure can provide their businesses when it comes to offering their customers a fast, secure payment alternative.”

Toussaint told PCM: “The question for retailers is related to the need to invest and the return on investment. Do consumers currently need it at the moment? No. Do they request it? Only a few. One of the barriers for NFC is that it doesn’t fully match with consumers’ perspectives. There are NFC-enabled cards, but maybe not enough, and may be there are not enough transactions or willingness for consumers to use it. When we talk to our clients and contacts in the industry, NFC often doesn’t make the cut, or doesn’t appear to be high priority on their payment roadmap.”

“So far the real issue has been the slow growth in infrastructure, it’s the oldest problem and it remains the thorniest problem. It’s as simple as not being able to use an NFC application on my latest phone. Also, not many retailers have contactless. While NFC or some derivative of NFC will be implemented in the future or will become widespread in the future, it will take a lot longer than people are perceiving,” Zafar added.

The ongoing debate around the secure element in mobile devices was also a notable question in this year’s survey – survey respondents cited that the most suitable candidate for the secure element where confidential payment credentials can be securely stored was some form of a software-based secure element saved in the cloud, ahead of previously popular answers like the SIM card or an embedded chip in the mobile device.

Cloninger of EDC told PCM: “One of the most interesting things to me in this year’s survey is the question about the secure element and where it should be. In an NFC model where should the secure element which houses the sensitive information be located? In the past the SIM has always been the strongest one but this year there is a significant drop for that whereas there has been growth in software as the secure element based in the cloud. Cloud-based solutions are being seen as the possible technology that could solve a lot of the business case questions around mobile payments.”

Overall, the findings of the survey show that payment industry stakeholders remain divided over one key issue. Zafar of EDC told PCM: “Having looked at the survey results, it’s the same thing that keeps coming at the top of the survey, that people still question the business model. The harshest criticism of mobile payments is that there is no demand and there is no money in it. We believe both are wrong but in the survey the greatest concern of the respondents was that they still don’t understand the business model very well. Consistently in past surveys we have been saying that this may be true, that there is difficulty in understanding direct revenues but in the future, if you are a payment provider and you haven’t covered the mobile channel, you will not be able to play in this game.

“If you are a retailer and your website is not optimised for mobile payments, you will be left behind. It’s not a question of the business model, it’s a question of whether you want to be in this business or not. But industry opinions and concerns continue to be around the business model because people are looking in the near term.”

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