Data Drivers

PODCAST: Has Mobile Flattened The Payments World?

In what has been — historically speaking — the blink of an eye, mobile phones have gone from zero to nearly ubiquitous in a remarkably short time. Today, more than 5 billion people on planet earth carry a mobile phone of some description. With those phones, customers are completing an ever-increasing series of activities: communicating (of course), but also shopping, banking and paying. In short, the mobile device has become the necessary navigation tool for day-to-day life.

Beyond the commerce opportunities that these devices have inspired and unlocked, CEO Vijay Sondhi at NMI told Karen Webster during this week’s edition of Data Drivers podcast that there are immense quantities of data that have been unlocked by these mobile experiences.

 

“There are billions of devices always on the internet, creating massive clouds of data exhaust whenever they are used to … enable commerce or make a payment,” Sondhi said.

However, he added, when one looks at all that data, it quickly becomes apparent that the way it is managed, stored and used varies greatly, depending on where that consumer happens to be. Data privacy as a concept is understood quite differently all over the world, particularly in terms of determining who owns the data and who is in charge of how it is managed.

The simple example, he noted, is between the U.S. and Europe — two developed markets with similar consumers and very different approaches.

“In Europe, people are very much focused on [the General Data Protection Regulation (GDPR)] and the privacy of the data. In the U.S., it is often more a situation where utility will trump privacy. Consumers will often be willing to trade some privacy for more utility,” Sondhi said, noting that this trade is predicated on the consumer believing their data is still being kept secure, and on seeing a tangible value in the exchange.

As one takes a bigger look around the world (to places like India, Australia and China, for example), those differences in approach around mobile payments become more clear — and more instructional — on how and what payments innovation will work best, and where.

India’s Unique Experiment

India is a unique market in a variety of ways. There are over 1.3 billion in people in India, an estimated 500 million of whom have access to the web. According to NMI’s data, they are a rather mobile-enthused group, with more than 60 percent of Indian consumers shopping five or more times monthly via mobile apps. The device that nearly every Indian consumer owns and uses has become their onramp for digital payments — for both merchants and consumers.

“The innovations that are emerging are things like QR or printed barcodes that can instantly turn a piece of paper into a point-of-sale [POS] device,” Sondhi explained.

It’s also a growing market. At its current rate of growth, the aggregate value of domestic digital payments in India is projected to grow to $1 trillion by 2023. Layered over all that — and driving hard, according to Sondhi — are the efforts by the Indian government to firmly nudge its citizens toward digital payments, including movements like demonetization having taken large cash notes out of circulation and its development of RuPay.

Sondhi said that when the Indian government spearheaded RuPay, its goal was to make payments free or almost free. Now, traditional players like Visa and Mastercard are leveraging their business models, and the incentives they provide for the ecosystem, to build out a robust infrastructure to support digital payments. What Sondhi hopes and expects to see as digital payments develop in India is for more players to build on top of those rails — domestic or third-party rails — in a way that can deliver additional benefits to consumers.

By way of example, he noted, once an Indian consumer uses digital rails to push a payment from their bank account to someone else’s, it can be quite hard to claw back if something goes amiss. Providers have recognized these frictions and are offering services to “insure” consumers against a loss, should that happen. That’s just one instance of taking free payments as a given and building a monetizable menu of services on top of them.

“India is a case where, if conditions are correct, you can really have a massive explosion of electronic payments,” Sondhi said.

That doesn’t necessarily mean one is going to see that in the country tomorrow because, both Webster and Sondhi agreed, as a digital payments economy, India is still very much a work in progress. Cash has turned out to be surprisingly tenacious — and still has a powerful hold, even as demonetization is approaching its second birthday. There are many different service providers, both domestic and foreign, flooding into the marketplace and looking to make payments and commerce offerings.

This brings about challenges when it comes to mobile evolution in India, he noted, which is building from something of a blank slate. In Australia, though, the challenges often arise from a slightly more familiar place for U.S. readers: overcoming the consumer habit of using cards.

Australia Loves Contactless, So Long As It’s On A Card

Contactless cards have been incredibly popular in Australia and represent the vast majority of in-person card payments. The “why” of their popularity is easy to see. They are as secure as a chip-and-PIN card in terms of protecting customer data by being nearly impossible to clone, but they are that much easier to use. Instead of having to stop and dip or swipe, the customer can quickly tap and be done with it.

“Customers like tap-and-pay cards — they are the Swiss Army knife for payments — because, if the tap doesn’t work, the customer can move right to the dip or swipe they need to do,” Sondhi said.

Though they are unusually popular in Australia, he added, they are popular wherever they land. In both Europe and Canada, contactless cards are used at the POS more than half the time. The U.S. has a 1 percent use rate, largely because most U.S banks, as of now, aren’t issuing contactless cards. However, that might well change now that Chase — the largest issuer in the U.S. — is making a major contactless push with its Visa-branded cards.

Markets like Australia, which has a highly concentrated banking and retail system, make ignition easier. That’s because there are fewer banks to corral to issue contactless cards and fewer merchants to persuade to accept them.

The only trouble, Sondhi noted, is contactless cards are so popular that customers are showing far lower-than-expected interest in other forms of contactless payments. Contactless cards predate Apple Pay in Australia  by the time it was up and online, Australians weren’t the big adopters they were expected to be. Customers were in the habit of using cards, and found the contactless card tap-and-go to be easier than the “unlock, open the app then tap-and-go” on their phones.

In markets like China, he said, the story has been different because the foundational habits going in were different.

China’s Mobile Leapfrog

Long before Alipay and WeChat Pay had grown to their current massive levels, Sondhi told Webster, the QR code had remarkable penetration in China. Consumers were using it to exchange personal data, product data and housing data — it was such an ingrained part of life that the addition of a scan-to-pay capability was not much of a stretch.

The massive innovation of Alipay and WeChat Pay was to wrap that payment capability around digital and social media experiences, which were also in their early development phases in China, so that all this activity felt like routine behavior within the ecosystems.

“This really saw people merging who they were in their online social lives with commerce and payments,” said Sondhi.

While there is much to be learned from the Chinese system (since the mobile payments market is some 50 times bigger than its counterpart in the United States), he noted that there are two large differences between the U.S. and China that people must keep in mind.

The first is that the highly regulated U.S. market doesn’t give FinTech firms quite the same ability to offer all the services a bank offers without facing the regulations a bank faces. A frequent complaint among Chinese banks, Sondhi explained, is that firms like Alipay have not had to live under the same obligations (in regulatory terms) as their counterparts in banking, which has been to those companies’ advantage in gaining market traction.

The other big difference is that the U.S. has a 100-year tradition of very developed in-store brick-and-mortar shopping — the Chinese leapfrogged much of that with mobile-based eCommerce. China’s entire digital ecosystem, he noted, developed as a unit, and the melding of those institutions is natural in the Chinese marketplace. The U.S. has much more clearly designated “swim lanes,” and customers in this market have strong preferences about where they get certain types of services.

“The Chinese model is not what U.S. consumers are used to, and there is no strong reason to believe that is what they really want,” Sondhi said. “Do Americans really want Facebook to manage their money? I don’t think so — they didn’t even want that when there was a backlash against banks during the financial crisis. I think you will see a lot more players sticking to their swim lanes in the U.S. and U.K.”

There won’t be a single solution globally, he said, because the needs of global players are too diverse to make that practical. Depending on where they started, how developed their infrastructure already is, and how centralized their banking and commerce systems are, their needs will change. However, for the consumer, wherever they shop or buy, their expectations are aligning. They are increasingly looking for smooth experiences that move seamlessly, online and offline.

“We’re not going to have a one-size-fits-all globally,” Sondhi said of mobile payments — though there will be many parallel developments that will inform and enhance each other around the globe.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out our April 2019 Unattended Retail Report. 

TRENDING RIGHT NOW

To Top