When it comes to consumer payments, the future is obviously mobile. But the “how” of mobile payments turns out to be rather complicated.
I recently had the opportunity to participate in the Annual Conference of the Payments Association of South Africa. Systemic comparison is one key benefit of such an experience. Here we have two resource-driven economies of roughly similar size, similarly large physical distances but markedly different population demographics. The retail payments systems are diverging, rather than converging. This highlights the obvious point that payment systems are shaped by people’s habits, not by economics.
Consider, for example, some simple comparisons between bank account ownership and mobile phone ownership. According to the World Bank, Australia is one of the most heavily banked populations on earth, with a 99% banking rate in 2012 – that is, 99 out of 100 Australians over the age of 15 had a bank account in 2012. South Africa, by contrast, has a 54% banking rate, and therefore a large community that is still cash-based. Now let’s look at mobile phones: the “phoned” rate in Australia is a healthy 106%; in South Africa, 135%. Yes, every person in South Africa has a mobile phone subscription, and every third person has two. If you suspect the interaction of these two comparison pairs leads to different payment evolutions, you would be right.
In Australia, developments have all centred around putting mainstream payment products – cards, BPAY, direct entry and, once the New Payments Platform commences, real-time payments – conveniently on to the mobile through banking apps, evolving towards “virtual wallets”. goMoney (ANZ), Kaching (CBA) or the newly announced flik from NAB are all examples.
In South Africa, there is a particular focus on alternative solutions that reach the entire “phoned” community. The mobile is being used to supplant cash. Villagers run transaction accounts with their mobile network operator, paying each other in air minutes. A number of instant payment remittance services have sprung up, including a very successful one run by a bank. There is a debate about linking up the various closed loop networks. An SMS service can supply a real-time virtual token to draw cash from an ATM without needing a bank account. All these solutions use the mobile without needing a banking account at both ends.
It may be that these two schools of mobile payment products will converge over time. One can certainly imagine mobile wallets holding virtual cash products as well as account-based products: but if the phone owner has no prior relationship with a bank, who provides the wallet? Nevertheless, the comparison highlights the sheer breadth of alternatives made possible by the mobile platform.
In fact, we can identify a third school of mobile payment products, alongside account-based and cash-based solutions: the merchant-based solutions. In a merchant-based solution, the payment process is integrated into whatever purchase activity is going on between a store and a customer through the mobile. For example, the Starbucks coffee app allows patrons to use Starbucks cash to scan and pay, keeping track of award points at the same time. It is, I expect, only a matter of time before you can order your coffee from your phone: all the technology is there, and such systems are being trialled now. The merchant has the opportunity to enrich the service provided on the mobile way beyond providing super convenient payments.
It is certainly true that merchant solutions can be account-based, such as using card networks to execute the payment element. The intriguing question is how the remarkable breadth of possibilities offered by mobile will converge in the future, and who will have the opportunity to add value, and therefore derive revenue, in the reformed value chain.
So if you have been strategising on retail payments and concluded that mobile is the answer, I am sure you are right. Now we need to work out what the questions are. I can’t help thinking that merchant-based solutions are rich with possibilities for customers, although it may be that merchants will need plenty of help from payment professionals to realise the potential.
