Payments are receiving a lot of hype at the moment, particularly of the mobile variety. Gartner’s hype cycle (a professional gauge of the adoption and enthusiasm for different emerging technologies), highlighted both NFC and OTA payments as a couple of years away back in 2012. With the first NFC enabled iPhone (heralding Apple’s long awaited move into the area), plenty of noise in wearables such as Samsung’s acquisition of LoopPay, and the inevitable hoard of entrepreneurs (over 1,500 payments start-ups are now listed on Angel List) – it seems that we’ve finally reached the ‘Plateau of productivity’ (see below) for mPayments.
There are three trends that will shape the industry going into 2020. Disintermediation is an opportunity to reduce costs and improve transparency within the system, something that numerous start-ups are making their mission at the moment. The rise of digital wallets through e-commerce and smartphone adoption is driving rapid adoption of new payments techniques within the developed world as we finally complete the move away from cash & cheque. Finally, the success of SMS based banking in the developing world (mPesa being the flagship example) heralds a monumental shift towards formal financial services for even the most remote population areas.
Disintermediation is all the rage at the moment, and payments are no exception. Currently Visa and Mastercard dominate the ‘acquirer’ business (with American Express on the sidelines, Discover in the US and Japan Credit Bureau / China UnionPay respectively all-powerful across the pacific). They provide a network to link your bank account to the merchant you’re trying to pay, taking an interchange fee for their trouble, in addition to volume related charges and often regular subscriptions. The fee varies depending on the nature of the transaction, but as a combination of fixed and a percentage they normally make up around 0.5-2% of purchase value. The complex and opaque fee structure is driving a whole range of new entrants, and the movement towards more direct payments is only going to accelerate.
Secondly, the growth of e-commerce (internet based shopping) has sponsored the rise of groups such as PayPal and AliPay (offshoot from Alibaba – the Asian retail giant). These digital wallet services store your card details online (in the same way that Amazon remembers them) and provide a parallel link, this time between internet based retailers and consumers. Smartphone adoption (there are now more of them about than people) has really brought digital wallets to the fore – given the smaller screen sizes, consumers were unlikely to repeatedly enter complex card information each time they wanted to buy something on their phone. Ultimately, retailer websites and apps are going to become completely integrated with their physical counterparts, driving the adoption of enabling technologies such as NFC or BLE to bridge the two, and social media to boot. Chirpify is one start-up that is enabling people to buy things directly using a tweet or Facebook post…
Finally around half of the worlds population is without a bank account, mostly within the developing regions of Africa, Asia and South America. But initiatives like mPesa (using simple SMS to transfer funds using tokens) are rapidly bringing formal finance with fantastic social benefits. Mobile adoption is accelerating, and the indications are that consumers will skip traditional computers in favour of their smartphones. The advent of bitcoin, combined with a complete lack of existing financial infrastructure raises the possibility of a similar jump in payments. Consumers may simply move straight to direct mobile transfers, possibly based on cryptocurrencies, and skip out card payments entirely.
We can clearly see that the future is digital – the question is when?