The global payments landscape is changing rapidly with the rise of mobile and contactless payments. Have the barriers to adoption been overcome and are we reaching a point where cash could be gone forever? Patrick Kingsland asks this to Nathalie Oestmann, head of Samsung Pay Europe, and Jason Oxman, CEO of the Electronic Transactions Association.
At first, the pace of adoption was slow, but in 2017, there are few who doubt the future of payments lies in the mobile wallet. According to research by BCC, the global mobile wallet market will reach $635 billion by 2020. According to Visa, 50% of transactions will be initiated on a mobile device by then, with one in five consumers using a phone to make a transaction every day.
The rise of mobile and contactless transactions is part of a broader shift in the payments industry as new financial technology tools for consumers and small businesses emerge on the market.
“We are moving from an offline world, where commerce took place using plastic cards to an online world where connected devices are driving payment innovations,” says Jason Oxman, CEO at the Electronic Transactions Association.
Africa leads mobile revolution
At the forefront of this new landscape is the mobile phone. For consumers, many of whom are now familiar with mobile payment, the technology offers a convenient, frictionless and often enjoyable way of making transactions.
“Our device is easy to use and works virtually anywhere,” says Nathalie Oestmann, head of Samsung Pay Europe. “The way to use it is firstly to swipe up and view your cards, then to pick one from the deck you have entered, and finally to tap and pay.”
For consumers in remote areas, mobile payment services are particularly useful. People can shop, transfer money and access account information using their smartphones even if they don’t have access to local brick-and-mortar stores. “It opens up a range of new opportunities for consumers who have not been reached by traditional financial products,” says Oxman.
In the developing world, this is arguably even more valuable. Africa, for example, has been ahead of the curve for years, with 15 out of the top 20 countries in the world for mobile money usage coming from the continent, according to a recent survey by the World Bank. In Kenya, transfers via the country’s leading mobile money provider, M-Pesa, account for almost half of the country’s annual GDP.
“These are areas where the financial infrastructure is often not well deployed, but the mobile infrastructure is,” Oxman says. “Many more consumers around the world have mobile devices than have traditional bank accounts. Mobile payments could allow consumers in these places to have the financial tools that will help them lead better lives.”
While paying for goods and services will always be the primary function of mobile payment, many believe the technology can and should offer more. Paying for goods via a mobile wallet is often just as convenient as paying with a contactless card – hardly a good incentive to switch.
The industry is beginning to take notice, however. Starbucks’ Mobile Order & Pay app, for example, offers consumers the ability to pre-order and pay for a drink, and receive customised offers through a special rewards programme, all on their mobile phone.
Mobile phone providers like Samsung are playing their part, too. Samsung Pay, which first launched in 2015 and is now in 18 markets, offers a host of additional features. Its membership card capability gives customers the ability to store loyalty cards on the main screen of their phone. And in the UK, it offers the ability for customers to pick a designated card for a particular use.
“You can have one card as your transport card,” Oestmann explains. “You can then travel through the turnstiles in London without even needing to turn on your phone or swipe the card like you would normally. You simply tap the phone, even if it is off, and it registers with the NFC transmission.”
Mobile payment can also provide consumers with new insight into their own spending patterns. Consumers using Samsung Pay on the London underground, for example, can easily find out what stations they have tapped in and out of. If they forget to tap out at one station, they can check immediately and be alert to potential fines.
“With this new payments ecosystem, consumers have more intelligence and information,” says Oestmann. “It gives them the ability to make smarter choices in their daily lives.”
Social and conversational commerce technology
Companies are also increasingly incorporating social dimensions into their payment technology. Venmo, a mobile payment service owned by PayPal, now offers a free digital wallet that allows users to transfer money from one person to another, whether it is rent, gig tickets or a restaurant bill. The idea is to make peer-to-peer money transfers as easy as sharing messages, videos or photos.
“Venmo has really pioneered the social aspect of payment,” says Oxman. “It has shown that it can actually be fun to pay a bill that you owe to a friend. Say you are out at dinner with ten friends and need to split the bill.
Instead of ten people writing cheques to ten other people, you can do it instantaneously using a socially connected payment system.”
New developments in artificial intelligence promise to make social and other forms of payment even more frictionless. Last year, eBay launched an innovative retail chatbot on Facebook Messenger. Oestmann hopes this kind of “conversational commerce” can have a big role to play in the mobile payment arena, too.
“I’m very excited about it,” she says. “It offers the ability to use artificial intelligence to understand when somebody is willing to purchase something. Say you are in a restaurant, organising how a bill should be split. What I’m looking forward to is a situation where artificial intelligence recognises that you are having that conversation and offers up the ability to share that payment or to pay somebody instantaneously, with one tap.”
In March, Samsung released its own virtual assistant called Bixby, which Oestmann hopes will make purchasing goods using a mobile phone even easier. The app works on a consumer’s phone and can help facilitate shopping and spending.
“Say you are looking at a bike on a sports site,” she explains. “The AI will recognise this and automatically be able to find multiple vendors for you. After that – and this is my utopia – with one tap you will be able to purchase the bike using Samsung Pay on your phone.”
As capital pours into the financial technology industry, it is no secret that traditional banks have struggled to keep up. Most of the companies that have come to dominate the digital payment space − Apple, Samsung, Google, Amazon and Facebook − had little background in consumer banking until relatively recently.
According to Oxman, now it is the banks that are having to “reposition themselves as fintech companies”.
“Those that do so successfully will thrive but those traditional financial institutions that choose not to probably won’t be around in the near future,” he says.
The trick, Oxman adds, is partnership and collaboration between technology companies and traditional financial services companies.
“Our member companies include financial service providers and technology companies like Apple, Google, Samsung and Microsoft,” he says. “These are all companies that are deploying fintech products and services in partnership with the banks and card networks. And it is these partnerships that are bringing innovations to the market.”
Of course, not everyone is convinced by mobile payment technology. Confidence and security remain big concerns for consumers, who are more likely to trust a well-established bank than a non-bank provider they have little history dealing with. According to a 2016 Marketing Sciences Brand Trust survey, just 26% of respondents said that they trusted Apple Pay.
For Oxman, it is not a subject the payment industry takes lightly. “Cybersecurity is the number one priority for the payments industry,” he says. “Protecting networks and systems against relentless criminal efforts to access customer information is our main concern. While there is no doubt that cybercriminals are attempting to penetrate these systems we are uniquely focused on protecting people’s money.”
The advent of biometric verification is slowly giving consumers more confidence in the safety and security of mobile wallets. According to a recent Visa survey of 14,000 people, in Europe, 73% of respondents said biometric security checks on a payments device is a secure method of authentication. Some, like Oestmann, believe it is even more secure than contactless payment, and chip and PIN.
“With mobile, you have three-factor authentication,” she says. “You know that the phone is your phone, there is only one fingerprint or iris scan that can be associated with you and the transaction is recorded at a certain place at a certain time. There is a lot more information and it makes it a lot more secure for somebody to make a mobile payment than traditional methods.”
Even with these features, some consumers will remain hesitant to dramatically change their payment habits, Oestmann admits.
“There was a lot of hype and ambition from the media and the public that this would be instantaneous,” she says. “It is worth remembering that with contactless payment it took ten years for it to become mainstream in the UK. I expect this will be an ongoing evolution and an ongoing voyage for the consumer.”
Nonetheless, she is confident that the rise of mobile payments will be inexorable. In March 2017, Samsung calculated that it had already transmitted $2 billion on Samsung Pay and had processed 250 million transactions. Consumers active on a monthly basis are also active multiple times a week, with average transactions larger than £30.
“There are so many examples of being able to bring value onto mobile phones, and I think everybody agrees that this is the direction we need to go in,” Oestmann says. “It is the beginning of a long journey, but one that will ultimately end with people using their phones as wallets.”