Peter Keenan, Zapp, Chief Executive Officer, tells us why a cardless society is closer than some may think…
Increasing smart phone adoption is driving a change in payments – by 2018 almost 100% of mobile phone users will have a smartphone. Today, the smartphone is less an instrument of communication than a remote control for our entire lives. We use them to take pictures, listen to music, check the news, watch films, and of course shop. In doing so they’ve displaced all manner of other gadgets, from cameras to alarm clocks to MP3 players.
Payments is the next sector to undergo a major revamp at the hands of mobile. With huge jumps forward in other industries occurring around us, the way we pay has remained comparatively stagnant for the last half a century since the introduction of debit cards in the 1980s. With the exception of EMV chips and NFC, we have seen minimal innovation in payments, but mobile is set to change this. A cardless society is closer than you think.
The popularity of mobile banking has created a generation that is used to accessing their finances on the move and in near real-time, through their mobile phones. The FCA estimates that around 25% of current account holders (the equivalent of 42% of smartphone owners) are active users of mobile banking and this number is increasing. Naturally so are the numbers utilising the convenience of their mobile phones to pay – 50% of the population are either already using mobile payments or interested in doing so and this shift is gaining pace. The Centre of Economics and Business Research (Cebr) predicts 20 million adults will use their mobiles to pay by the end of the decade.
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With consumers increasingly reaching for their mobile phones when paying both online and in-store, retailers are beginning to sit up and listen. Our recent partnerships with, amongst others, Asda and Sainsbury’s illustrates this perfectly. If retailers do not accommodate mobile payments, their competitors will. Apple’s recent move into payments hints that mobile payments are to become a mainstay of the retail industry, we are all aware this company has a history of successfully entering markets only when they are ready for mass adoption.
Aside from giving companies a competitive edge over less innovative retailers, mobile payments have a lot to offer businesses that credit cards can’t.
For example, faster settlement when customers pay. The Faster Payments infrastructure that some mobile payment solutions are based around means money taken from a customer is transferred almost instantly from their bank account to the retailer’s. This is especially helpful for small companies for whom late payments can put significant stress on their cash flow. On top of this, mobile payments will lower retailer transaction costs. Credit cards are very costly to process – another reason survival is not on the cards.
Some may argue the cost of upgrading in store payment systems to be able to receive mobile payments would outweigh the above benefits. However, if retailers partner with a mobile payments solution that takes a technology-agnostic approach, the infrastructure for mobile payments is already in place through NFC and Chip and PIN devices meaning that businesses can embrace innovation, and compete at little extra cost.
The rise of mobile payments also presents opportunities for the banking industry. Our research tells us that consumers are far more likely to pay for items using their mobile phone if the service was provided by the banks. Bank involvement has the benefit of allowing consumers to keep a better eye on their finances by checking their balance before they pay. A service consumers would no doubt be thankful for as over a quarter of UK consumers incurred an overdraft charge in 2012.
Placing the bank account at the heart of mobile payments allows consumers to make payments on their mobiles without sharing any of their private account information with the merchant. As well as ensuring the security of the consumer’s card details, this innovation (known as tokenisation) will save the banks money as well – fraud losses on plastic cards last year totaled £388m.
It is clear, consumers are leading the way, calling for the convenience of mobile payments and a cardless society. Retailers and banks need to keep up with the ever accelerating pace of innovation or risk turning customers away.