Over The Top providers have become the staple wildcard in almost any sector set on a collision path with mobile. By and large they are very good at what they do: connecting a user with their chosen content or service by whatever means available.
Despite all the talk of competition and co-opetition, there’s a central theme that runs through the mobile financial services space, something on which all parties agree: There is no money to be made simply by providing a new way to pay—but there is gold in the hills of a richer, more contextual purchasing experience. Much of the focus is on the replacement of the physical wallet with a digital application; virtual cash and cards accompanied by relevant coupons, adverts and vouchers.
The idea is to give bricks and mortar retailers a direct marketing channel to the consumer that can be exploited at the POS. But the recent disappearance of big brands from the high street and the uncertain future of many more—HMV, Blockbuster, Game and Borders, to name a few—reminds us of the fact that internet companies have been doing this for years.
Many consumers have an established online profile that follows them from site to site thanks to the ubiquity of social networking services. These same services track behaviour, documenting preferences and regurgitating this information to anyone who taps into the API, privacy settings notwithstanding. Consumers are comfortable with making online purchases and are increasingly happy storing their payment information with their favourite sites, or in a third party wallet application like Paypal.
The parallels between the mobilisation of commerce today and the online revolution of the 1990s is not lost on Paypal spokesman Rob Skinner, who acknowledges the same milestones on both timelines. “First people were using the technology to get online; then they were finding places where they want to go and shop; then they moved on to an information seeking exercise such as checking prices; and now they are actually using mobile devices to make purchases and orders.”
The next stage in this evolution—the mobile wallet—is where the biggest bets are being placed because it’s seen as a revenue generator for mobile players that tend to assume their experience of mobility will see off competition from alternative payment providers.
But is this really the case? Paypal has a strong presence online, as does Amazon, which has a dedicated payments division. There are also dozens, if not hundreds of white label shopping cart and checkout developers out there. The questions are how and if these services will trickle down to the mobile and become as popular in the physical world as they are in the virtual.
One argument states that consumers like choice, and will likely have several wallet or payment apps on their device. Visa’s head of mobile, Bill Gajda: “We’ll see five or six key distribution plays for m-wallets appear and consumers will probably want one or two different wallets that appeal to different demographics or uses cases. And some kind of social commerce application like Facebook will be one of them, because people of a younger demographic will draw strong links between that service and commerce,” he says.
Indeed, the socialisation (in the social networking sense) of commerce is well underway, although established online players have already identified a key distinction between macro level influences and those within the more immediate social networking circle. A recommendation from a friend counts for a lot in many situations but ratings from thousands of strangers and the ability to directly compare products and prices counts for a lot more. Consider the success of online giants Amazon and eBay, where participating merchants rely on the recommendations of the crowd and live and die by the strength of their reputation.
And in the same vein that eBay and Amazon allowed the average consumer to become an armchair trader overnight; and Square and iZettle allows those same small businesses to take digital payments; social platforms can give brands big and small the same kind of reach previously only offered by carriers and retails.
“When mobile wallets were first created, the intentions were that operators could put a stored payments type option there for buying small value goods via carrier billing,” says Stuart Neil, SVP of business development at Boku. “But Facebook has communities and fan clubs and businesses with pages and fans, so we’ve created a social commerce environment on this platform. Any retailer, no matter how small, can sell their products. We automated the process of creating a Facebook shop and to make payment easy we’ve integrated a wallet. In a remote web session you decide which card you want to use and payment is assisted by the wallet. This overcomes the inconvenience of mobile. It’s more than just an NFC wallet, it’s a remote wallet, more like a Paypal wallet.”
At MWC this year Facebook announced that it has partnered with operators around the world to minimise the number of steps needed to complete a transaction in related mobile apps and to facilitate purchases via operator billing. This minimal click solution is the Holy Grail being hunted down by all mobile payment players but, again, it’s already something that’s been nailed by the likes of Amazon and its One Click patent.
Charles Damen, VP of mobile billing and payments at MACH says: “Everybody wants the same purchase experience as iTunes, but they don’t have the platforms in place to offer one click payment. We used to leverage operators’ own billing APIs, but we now offer a billing platform to operators because operators are not geared up to develop and maintain these APIs. Google does the same—you have to integrate with their API. So being able to set up app store controls and a UI for real time transactions is very powerful.”
What all digital payment methods have in common is their contribution to the eventual extinction of cash; something that the plastic card has long been used to work towards. Today cash and plastic are similarly widespread in mature payment markets. But for the generation growing up online, plastic may prove as redundant as cash. For these young people digital currency will be the norm and their understanding of commerce will likely be informed at least in part by social games like Farmville or World of Warcraft.
Dominic Keen, CEO of Mobank Group, believes the cashless and cardless society will happen eventually and through a three phase process: “The current phase is point type payments, which are discrete and don’t require a consumer shift, such as QR tags and NFC stickers. Then we will move to m-wallets with store cards virtualised on the phone, although there will be still a place for plastic as well. Then a long time into the future cash and plastic will both disappear. But that’s a generational shift,” he says.
“Plastic is probably just a transient payment method. Money and coins are more wired into the psyche. Our grandparents physically divided money up. Now it’s half and half, and in the future it will probably be all online.”
This abstraction of currency, from coins and notes to bits and bytes, has left a gap in the market for alerts and money management services, to help users better understand their finances. Stuart Neil of Boku says this phenomenon is what drove the company to create a stored prepaid account that lives on the handset and gives the consumer enhanced control and the ability to manage their finances. “In the current economic climate people are concerned about managing their budget and keen to have greater control over what they spend,” he says.
Consumer control is an important element to bear in mind. “Consumers are ahead of the merchants, banks and issuers,” says Dominic Keen. “Operators are making a strategic error if think they can own the consumer and force them down their path of choice. The Apple and Android models allows consumers to figure out their own way [by giving access to OTT services].” Keen also makes the point there is a user demographic that might not have a relationship with a financial institution.
“There are people who use our carrier billing product that may not have a plastic card because they are unbanked or because they have not yet been given access to a credit product—the teenage market is a great example,” he says. “They have phones but they don’t have cards.”
And consumers like to have freedom of choice. The ‘pre-plastic’ world revolved around one form of money, while the advent of plastic meant several different payment methods could disperse that money. Keen argues that moving into a completely digital world means more expansion and more fragmentation on this front. “It’s like the Like move from vinyl to digital,” he says. “With vinyl you could only have so many records, but with digital you can have ten times or more the amount. So lots of businesses are trying to draw you into their own money system.”
There’s a bewildering array of options to choose from. Store cards have been around for decades and the idea of using loyalty points as a form of currency is well established. An assortment of prepaid cards like that offered by Starbucks have been introduced into the mix and we are now seeing the rise of virtual currencies driven by OTT players. Robert Broadbent, executive VP & president of the Telecom Applications Business Unit at NewNet, believes that increasingly, the concept of social commerce is attracting the attention of main stream payments and he sees an active drive “to integrate main stream payments with the emerging social commerce payment models using non-cash, non-card, but social network credit point-based payments.”
There’s everything to play for in the mobile money space, which means the winners and losers are yet to be decided. The big question is whether the stranglehold of existing payment systems can be broken. Whatever happens, we are not looking at fundamental change in the short term. The reality is that generational shifts—and this is what we are witnessing with the growth of social networking—require the time that their name suggests to make any impact.