Banks should take mobile payments seriously
Increasing number of consumers are using mobiles to shop online
Over the past few years, most banks have been satisfied to let start-ups and tech giants take the lead in piloting mobile payment solutions. They’ve opted to wait and see which, if any, of these efforts will gain traction. The rationale for waiting on the sidelines: relatively few bank customers use mobile payments — the early adopters who have the right phones and who seek out willing retailers.
That’s about to change. Many consumers already use their mobile phones to shop online, according to Bain & Company’s recent survey of about 25,000 consumers in the US and major Western European markets. In the US, 6.6 per cent of consumers said they have used their smartphones to make in-store purchases. Many more said they expect to begin shopping that way over the next few years.
Mobile payments still represent a small percentage of in-store purchases, but that percentage rose by 103 per cent in the US between 2010 and 2013, according to Bain’s analysis of reports from sources including Morgan Stanley, Credit Suisse, PayPal and Forbes. Approximately two million people in the Middle East, according to Statista, use some form of mobile payment — and that figure is expected to triple in the next three years.
Given these trends, it’s time for banks to get serious about integrating mobile payments into their long-term digital strategies. Just as customers embraced online and then mobile banking, they will expect their banks to provide them with mobile payment solutions. The good news for banks is that even though they’re late to the game, no one is better suited to provide payment solutions and digital wallets. Our research shows that consumers trust banks with their data more than they trust retailers, technology companies or alternative payment providers.
But the time to act is now. Bain’s research indicates that most customers will have only one or two payment apps on their phone. Banks that want to be one of them will have to act fast.
Lenders that wait for others to create their payment solutions may also find themselves cut out of the conversation between their customers and payment solution providers. Mobile payments in the US are likely to use well-established credit card networks, but brand loyalty could shift to the name on the digital wallet, such as PayPal or Google Wallet.
The best mobile payment solutions will go beyond treating phones like payment cards. Customers want mobile payment programs that deliver extra value, such as better loyalty rewards or apps that help them manage their money. Of course, these apps must also be secure, widely accepted and easy to use. Where possible, they should also make it easier for customers to shop—for example, by eliminating the need to key in long credit card numbers for online purchases.
As banks plan their mobile payments strategies, executives should keep in mind three important facts. First, mobile payments are part of a broad transformation to a digital model that includes mobile banking, online payments and personalizing the banking experience by using data from customers’ transactions. The payments technology that banks use must harmonize with their overall strategic road map.
Second, no single bank has the market power to develop and thrive with its own proprietary solution. Banks will need to build mobile payment systems that work together and depend on common standards. The ideal positioning could be a digital wallet that puts a bank’s brand in front of its customers, while relying on existing payment networks.
Finally, banks should be prepared to build new capabilities to make the most of the new data that mobile payments will deliver. Banks will gain crucial insight into what consumers buy and when and where they buy it. Such transactional and contextual information should inspire innovation for new products and services. But unless banks can put in place the right people and teams to build on this data, its potential value will remain untapped.
In the Middle East, penetration of mobile payments is still relatively low. Nonetheless, the practice is growing quite rapidly, pushed ahead by a combination of high mobile and smartphone penetration, consumer appetite, government backing and private sector initiatives and partnerships. Research shows that in Saudi Arabia, for example, around 25 per cent of mobile phone users claim that they have used their mobile phone in some way to make a financial transaction. Yet, this has not yet translated into regular usage.
However, a large number of players are trying to make their mark on mobile payments, each building on their own strengths and working to create the right propositions and partnerships to position themselves in the market.
In the UAE, the government and banking sector are jointly pushing the agenda. Examples include the mobile wallet project implemented this year, near-field communication payment terminals in public transport and Abu Dhabi Commercial Bank’s partnership with Mobibucks, which allows customers to use a mobile phone number instead of a credit card.
Telecom operators are also playing their part. For example, Etisalat has partnered with MasterCard, creating a major opportunity for the region, which houses some of the largest remittance flows globally. So called P2P (person-to-person) mobile transfers provide the most effective and cost-efficient way for people without access to bank accounts and transfers to remit money back home.
We have begun to witness significant uptake in this domain, as telecom operators offer specific solutions often in partnership with either banks or remittance specialists. For example, UAE Exchange has partnered with both du and etisalat, and Saudi Arabia’s Bank Albilad and Western Union have teamed up with Mobily.
New kids on the online payments block are also entering the mobile space. One example is the three-way partnership in Qatar between PayPal, Qatar National Bank and the telecom operators.
In summary, while mobile payments remain small today, they have definitely started to transform the payments landscape in the Middle East, as in other parts of the world. Many players across sectors have placed their bets, yet the jury is still out on which models and partnerships will prove to have the winning formula that persuades consumers to leave their wallets at home and just carry their mobile phones on their next trip to the mall.
Tom De Waele and Karim Ahmad are partners with Bain & Company. The opinions expressed are their own and do not reflect the newspaper’s policy.
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