Tony Virdi, VP and Head of Banking & Financial Services in the UK & Ireland, Cognizant
Wearables ranging from fobs to gloves that enable contactless and mobile payments are currently the most prominent and talked about trend in the retail banking industry. The global market for mobile payments is forecast to grow about threefold by 2017 to some $721 billion worth of transactions, with more than 450 million users, according to research firm Gartner. In particular the introduction of Apple Pay alongside the launch of the iPhone 6 earlier this year and its availability in the UK this week, has the possibility to further disrupt traditional payment methods.
These new payment platforms, combined with its use of ‘tokenisation and TouchID’ as a security measure, add a new dynamic to the payments landscape and provide an enviable proposition for customers and merchants. In a world where even major corporations are subject to hacking and personal data being compromised, companies need to ensure they have robust security in place, especially when financial information is involved. In particular for merchants, fraud and risk-related losses can be reduced significantly, and the resulting savings for card issuers should justify a case for increased adoption.
At the same time, however, some banks are rolling out their own digital payments services, through Zapp, for example, enabling customers to make online transactions through a “pay by bank” application on mobile devices or are planning to roll out Apple Pay later on in the year. As such, this could be a pivotal moment for payments in general as the need for the use of cards for small payments may be reduced. This is particularly relevant in countries where credit cards were never widely adopted in the first place and the banking structure is not as widely spread as in Europe – especially in light of the economics of card models changing adversely through the capping of inter-change fees.
Many consumers are already paying with their mobile devices instead of cards. Our own research across several hundred finance professionals globally shows that mobile payments have peaked as an everyday payment channel this year. In fact, for 90% of respondents, mobile devices will represent a commonplace option for person-to-person or person-to-business payments within the next five years. Websites that are not optimised for browsing on a mobile device, online services that are not integrated with their offline equivalents, or apps that deliver a poor user experience are all examples of things that simply will not fly in today’s mobile world. The arrival of Apple Pay gives any retailers or banks which have lagged behind on mobile a very powerful incentive to catch up rapidly, since consumers will assume a smooth mobile experience as the norm.
Offering multiple ways of paying using a mobile phone – conveniently and securely – will pave the way for other areas, such as travel. Indeed, Transport for London already announced it is accepting Apple Pay on its public transport system. The advantages are huge, especially for smaller transactions but also will pave the way for other use cases; e.g. when abroad on holiday – imagine if you can pay for your breakfast at a street café using your phone with the mobile device also securing the optimal exchange rate.
From a consumer perspective, the payments solution that will win is not necessarily the one with the most users but the solution that is most convenient, secure and simple to use, regardless of the device. The banking and payments industry players must rise to the challenge by trying to appeal to all customers using mobile payments and via multiple platforms. Flexibility is key – this means hedging their technology bets in order choose a medium best suited to their customers’ needs. Only then can they maximise consumer experience and acceptance.
Apple has a huge advantage in that its loyal fan base is already accustomed to making electronic payments using its technology and, crucially, they have learned to trust the brand with their payment details. This trust is linked to the power and influence of the brand, which has been built on a combination of innovation, design and all-inclusive marketing. Very few tech companies have a similar grasp on their customers.
Ultimately, all payments rely on the collaboration between banks, mobile carriers, card networks and merchants. Apple Pay and Zapp are but two innovative examples of mobile payments enablers that will disrupt the market, forcing banks to increase collaboration with third parties for more wide-spread adoption of contactless payments and related services. One thing is for sure: banks along with the payment schemes, who traditionally have been the gatekeepers of the ‘rails’ for the payments ecosystem cannot avoid the digital disruption posed by the various payments platforms available to banking customers today.