Mobile payments and commerce today

Mobile payments and commerce today

30-Oct-2014 by MichelDrupsteen
Michel Drupsteen has been the Senior Business Consultant at ING since 2002. He has more than 15 years of experience in the payment and financial services domain with a focus on strategic, business development and/or inter-banking projects and initiatives, either in a consultancy or in a lead role.

Do you recall the quote “It’s all about replacing the wallet, and we’re going to start with focussing on payments”? It was Tim Cook’s quote when announcing Apple Pay on September 9th 2014 in Cupertino US. According to Apple, Apple Pay is the solution that will transform mobile commerce.

This announcement was one of the many mobile commerce announcements that have been made in the last four years. Other examples are the announcements of Isis in November 2010, Google Wallet in May 2011, the Weve JV in March 2012, the MCX (Merchant Customer Exchange) in August 2012, the Global partnership of Samsung and Visa in February 2013, the Amazon Fire phone in June 2013, three Dutch banks announcing mobile payments in June 2013, Google Android HCE announcement in October 2013, the Global partnership between Samsung and MasterCard in December 2013, and many, many more announcements.

Apple Pay, a dominant design emerging?

The future will prove whether the Apple Pay launch on October 20th will be really transformational like Apple was with the introduction of the iPhone in 2007, but certainly Apple used some interesting ingredients for their Apple Pay recipe, especially:

  1. Apple deliberately adopted existing (EMVCo and NFC) payment and security standards instead of reinventing the payment wheel. Although some might argue that this approach prevents true innovation and disruption, it does pave Apple’s path towards sufficient market reach, especially at the retailer’s side. Note: Although Apple Pay was already blocked by some US retailers in its first launch week, on the longer run blocking competing schemes cannot be considered as a sustainable model.
  2. Apple provides a payment solution that from the start on can be used in-store as well as in-app. This approach combines the gradually growing in-store mobile payment market with the possibility to directly use the Apple Pay experience for easy in-app purchases.
  3. Apple enforces one consistent payment experience by using Passbook and the bank’s payment card. This contradicts Google’s (carrier controlled) approach that leads to fragmented payment experiences in the Android ecosystem.

The smartphone as your digital wallet

In 3 years-time paying with your mobile phone will be just as usual as paying with your debit- or credit-card. Already today many consumers use their mobile for doing transactions with their mobile banking app. An international survey by ING in May 2014 showed that in Europe 37% of all Internet users uses mobile banking, and in a country like the Netherlands this is even 50%.

Don’t leave home without your (digital) wallet

Combining this high adoption rate of mobile banking with the on-going high growth rates of contactless and m-commerce transactions and Apple’s recent market push, can result in the emergence of a new dominant design: The smartphone as replacement of your wallet. However, in order to really do this, your mobile phone must not only support payments but also support your shopping experience before and after the payment. For example, by replacing your paper receipts and vouchers and the other plastic cards in your wallet.

Ecosystem instead of ego-system

The last couple of years several market players tried to turn their own app into a digital wallet instead of turning the smartphone with multiple apps into a wallet. Although this might seem like a minor difference, this is actually a game-changing difference: The difference between an ego-system and an ecosystem. Just like your physical wallet carries multiple cards with their own brand, this also has to be the case for a digital wallet. That is because none of the big players that play a role in the shopping experience wants to have its (mobile app) brand to be wrapped by another brand. Hence, prerequisite for transforming your smartphone into a digital wallet is the creation of an ecosystem that is enforced by several mobile apps instead of just one ‘universal’ wallet app. Such an approach might seem awkward to some, but is the underlying driver of existing successful markets like electronic payments and mobile telephony that have been build on international standards.

The impact on commerce

So what does this all mean for the e- and mcommerce domain? When the market really succeeds in transforming the smartphone into a digital wallet by creating an ecosystem, the smartphone – in a later stage combined with wearables – will be the instrument to shop in-store, in-app and on-line, travel in public transport and to identify yourself. The smartphone containing the apps from banks, retailers and other players will then be the platform to innovate, develop new services and meet new market demands. It can be expected that especially the ‘traditional’ in-store market segment will see new innovations as this segment is lagging due to the lack of new in-store web and app experiences combined with the lacking customer intimacy (who is my customer?). In addition to this, it is also expected that mobile technology will transform the retailer’s shopping counter by replacing existing ‘dumb’ payment terminals and cash registers by new ‘smart’ mobile points of sales, hence the shopping counter is also an important part of the new ecosystem.

Cooperation to realize interoperability

In order to realize this, ecosystem cooperation is key. Especially on interoperability to make sure that any consumer from any bank can shop with any smartphone at any retailer using any payment terminal. This cooperation will have to be initiated by the existing players in the shopping value chain like banks, card schemes and retailers, but will also include the mobile platform providers like Apple, Google and Samsung and of course start-ups and app developers that will further drive innovation.

Thinking forward

As mobile technology can bring more, a digital wallet must add more value to customers than a physical wallet. As partner for Startupbootcamp’s E- & Mcommerce accelerator and anticipating on new ING innovations to come next year, ING wants to leverage its deep exertise and strong relation with millions of consumers and thousands of retailers to think these opportunities forward to improve the shopping convenience for both consumers and retailers.