Mobile payments trends that will drive the cashless economy further in 2015

Sanjay Krishnamurthy

The rapid adoption of mobile payments applications, supported by advances in digital-enablement technologies, is truly a "tale of two markets." The drivers in the developed or urban markets are customer convenience and lower cost-per-transaction, supported by traditional banks with their existing network of branches and ATMs. The driver in the emerging or rural markets is - at least initially - a socio-economic cause to provide services to un-banked and under-banked population.

Mobile payments technology as an offering in emerging markets has resulted in many small businesses getting a new "lease on life" in tight economies. The logistical difficulties and costs of installing land lines for geographically remote communities makes wireless communications based mobile payments an attractive option for these businesses. In India, the new, non-bank "payments banking" providers will likely help these businesses as they attempt to deliver basic financial services profitably.

In the developed markets the mobile payments space is getting increasingly competitive, with banks and non-banks striving for insightful data, market dominance and consumer loyalty. In 2014, we saw the rise of the "cashless society" in the developed markets that in 2015 will drive further decline in conventional retail banking.

Trends in Mobile Payments

Some of the trends that will be most dominant in developed markets for 2015 are:

Wearable Payments - Commerce of Things: The more objects connect to the Internet, the more methods of payment will become available. Coupled with innovations in information security and payment services, these new forms of payment will enable increasingly frictionless payments. We like to say that the “Internet of Things” will inevitably become the “Commerce of Things.”

Proximity Payments - Contactless Adoption: Contactless transactions are growing at rates of 200% to 300% a year in some markets. With rising contactless adoption, the point-of- sale (PoS) readers in place can be used for Near Field Communication (NFC) transactions, and it is a small behavioral step for consumers to migrate from contactless cards to mobile NFC (or to other contactless technologies such as QR codes or bar codes).

Mobile Wallets - End-to-End Purchase Integration: Payments are becoming an integral part of digital commerce, where pre and post purchase activities such as search, comparison, selection, payment, and rewards operate seamlessly together in digital wallets.

Retail Innovation & Retailer Apps: Ongoing rapid innovation in retail, especially around omnichannel retailing, where consumers switch between channels such as mobile, Internet and shops to complete a purchase.

Cloud-based payment solutions: There are an increasing number of mobile and Internet applications, most notably Apple iTunes, MasterCard Cloud Based Payments, where cards are registered once in the cloud and then re-used within these applications to make payments when a purchase is made.

Real-time payments: In the few countries that currently have a real time payments capability, such as the UK, it is enabling new business models, including immediate availability of funds after online loan approval.

Virtual Crypto-currencies: Analogous to physical gold as a store of value and to physical cash in the way value is transferred, these virtual currency offerings – such as Bitcoin and Litecoin – are driving a wave of investment and innovation by companies such as Bitpay. In the months to come, it is highly anticipated that digital currencies will be used interchangeably with legal tender, creating a new payment system that will expand beyond the existing financial ecosystem.

Regulation: The cross-industry nature of mobile money prompts regulators, in both the telecom and financial sectors, to confront important questions and develop a new generation of financial regulation. This leads to the emergence of new regulatory concepts of e-money and payment. The adverse impact of regulation on card profitability is making non-card payment propositions more attractive.

The Role of Customer Experience

A cashless economy is the future vision of the mobile payments industry. With the rapid growth of smartphone ownership the world over, this vision is fast becoming a reality. But it is the consumer experience when paying for goods and services using their smartphone that will really tip the scales. Make it seamless, compelling and secure, and users will go for it. Though it is still early days, the age of seamless payments is coming. Companies taking a “consumer first” approach to their user design and mobile payments strategy today will be well-positioned in this cashless economy.

In October, Apple CEO Tim Cook announced that more than 1 million credit and debit cards were hooked up to Apple Pay within three days of the launch. Subway, McDonalds, Walgreens, Uber and 220,000 other vendors have already signed up to receive Apple Pay.

Recent rumors suggest that other mobile payments providers have received a boost following the launch of Apple Pay. For instance, Google Wallet has had considerable growth in the last couple of months following the unveiling. And with Google’s Android operating system having an estimated 80% of the global mobile phone market, one can be sure that Google Wallet will ride the coat-tails of Apple Pay for as long as it takes to make this new payment method an everyday expected behavior.

The author is Service Line Leader-Digital, Opus Consulting Solutions