Mobile Payments: How to Succeed, the Scandinavian Way

Launching in Europe earlier this year, Auka, the first fully Google Cloud hosted mobile payments provider, says that brave banks are the key reason Scandinavia is leading the way when it comes to mobile payments.

AliPay announced in April that it would launch in Europe during the summer – which is now here. The arrival of the second payment services directive (PSD2) in January 2018 will crack open bank accounts to allow anyone with a licence to access bank account data and initiate payments. The biggest tech companies in the world, such as Apple, Facebook and AliPay are all examples of companies who are likely to swoop in and take advantage of this. Being a retail bank right now isn’t easy and will only get harder.

So, what can banks do to gain a competitive edge?

Online banks are helping to accelerate the attitudinal shift and acceptance of digital and mobile payments. CaixaBank, through their mobile-only imaginBank, are already allowing users to see their account balance and recent transactions through an integrated Facebook app. The January 2016 launch of Samsung Pay in Spain, the first country in Europe to launch the contactless payment service; has put further pressure on banks without a mobile payments strategy.

A recent survey undertaken by MasterCard in February found that 10.4 per cent of digital users* – a proportion of the population – in Spain use their phone to pay in-store. This figure showed an increase of  4.2 per cent compared to the same time the year prior.

This might sound like impressive growth on paper, however in Scandinavia more than half the whole population actively use mobile payments. Further, in Spain the main form of mobile payment is near field communication (NFC) payments as a result of investments in NFC card issuing and new payments terminals. This has been a massive investment and is limited to newer phones that have the correct NFC functionality and it has to be used with new POS terminals. In Scandinavia, people have skipped being limited to NFC and pay using QR or Bluetooth Low Energy (BLE) initiated payments which require minimal investment from retailers and works on all smartphones for all customers.

Auka’s CEO, Daniel Doderlein, will be at MoneyConfin Madrid on 21 June and can talk about how Scandinavia has managed to become the world leader in public mobile payment adoption and why other countries are failing to catch up.

Daniel Doderlein, says:

“There is a clear gap between what expert analysts are recommending and what consumers actually want.

Many analysts are advising banks to launch a mobile wallet whilst consumers – those who’ll end up being the deciding force when it comes to the success or failure of retail banks – are saying they don’t think they want or need this.

A bank can only be successful when it leaves its preconceptions at the door. The whole point of PSD2 is that what used to work is just not cutting it in the innovation stakes now. The banks who’ll come through are those who are willing to accept they don’t have all the answers right now but are willing to do what it takes to stay relevant and succeed.”

With standard mobile wallets failing and consumers sitting on the fence, how has the Scandinavian market been able to see more than 50 per cent mobile wallet adoption – a figure that continues to grow?

If the north can do it so can the south and this is how they can achieve it.

Winning the market “The Scandinavian Way”

Originally, in Denmark, one retail bank decided to address the market alone. Danske Bank introduced a mobile payment app (MobilePay) and made it separate from their traditional mobile bank app. They enabled the new app to address the whole market, including customers from other banks. This would become the app that today, almost everyone in Denmark has downloaded.

The MobilePay app enables you to charge your card when you send money to mobile numbers. The recipient is invited to join the free to use service, asked to enter a bank account number to where money will be forwarded and then asked to add their own card to complete the loop.

In this way the system addressed the market of private transactions, replacing the need for cash, for free.

This system was evolved and replicated by two of Scandinavia’s other leading banks in quick succession. DNB bank in Norway built their own mobile payments offering. Sparebank 1, also in Norway, recognised the need to rapidly compete and entered into an exclusive arrangement with existing mobile payments powerhouse, mCash (now Auka) who had recognised the clear need for mobile payments many years prior.

Key learnings from Scandinavia for European banks introducing mobile payments to a market:

• Create a new brand that allows access to anyone – not just existing customers
• Build trust by powering the brand with the known bank name
• Add a viral spread element (sending money to new customers drives enrollment, for example)
• Do massive, nation wide advertising, building awareness and trust to support the viral spread

Besides the lack of marketing, this might seem on the surface identical to several other mobile wallet services, such as Pingit by Barclays. But there are differences. The main one being that the next new feature of Pingit was introduced more than one year after its launch, so the great success of 120,000 users in five days was quickly superseded by a lack of consistent innovation. People get bored, fast.

The next step: It’s not about retail payments

In sharp contrast to what Apple, Google and most other mobile and contactless payment initiatives have been focusing on, the actual success from mobile payments comes from addressing a different payment situation altogether.

As long as the solution actually does not provide any real and sustainable value to anyone, there is no reason for the customer to build a new habit.

Solving problems for the underserved merchants

Scandinavian banks started to address payment situations that were plagued by two main problems; cash and scaling issues.

The merchant doesn’t need hardware or cash, they can just validate the payment on the screen of their customer’s phone and hand out the product. It’s all accounted for digitally and you can focus on generating revenue.

Key learnings about introducing mobile payments to underserved merchants

• Offer super easy merchant enrollment
• Enable 100% self service solutions
• Build best practice use-cases with known merchants
• Do massive, nation wide advertising, focus on the benefits for both sides (no cash, no hardware, no standing in line)

Key learnings about introducing mobile payments to retailers

• Introduce fast tracks and pre-purchase
• Introduce one click online payments
• Incorporate loyalty schemes
• Introduce clickable print ads

So what’s in it for banks?

With consumers and merchants clearly enjoying the new ways of paying, what’s in it for the banks?

When a bank succeeds in getting its app on the devices of half the population and more importantly, it enjoys high frequency of use; they have successfully secured a new revenue stream from merchant services (that they alone are providing).

Furthermore, the bank has built a sales channel filled with potentially millions of customers. This channel is the best and cheapest way to acquire new customers. The customer acquisition cost is unbeatable since the channel is the bank’s own.