They’re commonplace in many emerging economies but face some resistance in developed markets. But mobile payments offer major business opportunities, and organisations must work together to unlock their potential, writes Tej Kohli
Whether purchasing cinema tickets or travelling around big cities, a rising number of people are enjoying the convenience of making payments through their mobile phone. Some are also paying friends and businesses with their mobiles. And they find it as easy as sending a text message. With increasing smartphone penetration and the spread of easy-to-use and secure technology, mobile payments may make wallets redundant.
The growth of these payments is impressive. They are expected to grow by 60.8 per cent from 2013 to 2015, totalling more than 47 billion transactions, according to the World Payments Report 2014 (by Capgemini and RBS) In 2013 alone, PayPal processed more than $27bn (£17.1bn) in mobile payments – around 15 per cent of total volumes.
If developed countries follow a path similar to Kenya for mobile payments, the industry’s growth will be staggering. Since 2007 Kenya has been leading the adoption of making mobile phone payments on a large scale. In Kenya, the M-Pesa mobile banking and payments system, which is popular throughout sub-Saharan Africa, has more than 17 million Kenyans on the network. Monthly transfers and payment of goods and services amount to around £733m.
The development path of many emerging countries has been different to Europe and North America. Emerging economies such as Kenya typically have fewer people connected by landline and therefore find it easier and cheaper to install mobile telephone networks. As a result, they bypassed analogue landline networks for mobile digital systems. This, combined with few people having traditional bank accounts, provides the perfect setting for a thriving mobile payments-based economy.
Consumers in emerging economies have been quicker to adopt mobile payments than developed countries. The take-up of such payments at a specific location has been highest in China and India, according to a 2014 report, Mobile money – the next wave of growth, by EY. In the case of mobile money transfers, India, China and Russia recorded the highest proportion of respondents using this technology.
By contrast, and surprisingly given the high smartphone market penetration, the adoption of mobile phone payments has met some consumer resistance in most developed markets. In the UK, one in four users would be reluctant to use their smartphone as a credit card mainly due to security concerns. In the US, according to the EY report, 57 per cent had no intention of using mobile money transfers compared with 24 per cent in India. The Economist has reported that it is easier to pay a taxi fare with a mobile in Nairobi than in New York.
The barriers to the widespread use of mobile payments are not that difficult to overcome. One problem is that few retailers have points of sale (POS) equipped with near-field communication (NFC) to enable mobile payments. But by October 2015 the banks will require that all retailers in their Europay, Visa or MasterCard payment systems have to use the embedded EMV chip system, which will increase the use of NFC point of sale devices necessary for mobile payments.
Rapid advances in mobile device security systems, such as fingerprint technology to ensure only authorised users carry out transactions, are addressing security worries. Through such technological advancements, mobile payments will increasingly become the most secure way to pay for goods and services.
The number of countries where more than half the population own a smartphone is growing rapidly.
The logic is overwhelming: if the majority is carrying a smartphone, it makes sense to have a digital wallet for making payments integrated into it. Then there is the convenience of instant mobile money management.
For business, the savings made from avoiding the cost of handling cash are huge. But retailers, merchants, app developers, banks and mobile networks must work together to establish common, secure systems that the public can trust. And they must be accessible everywhere.
Tej Kohli is chairman of Kohli Ventures, a venture capital firm with offices worldwide, including London
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