In Depth

Mobile Payments’ Retail Investment And The Value Chain

Every payments executive with a mobile payments app that he/she wants to put in market wants to know the answer to the million (or perhaps billion) dollar question: What will make consumers use it regularly?

More specifically, what makes them care enough to turn to their smartphone instead of their plastic card to make a payment?

Indeed, it is the billion dollar question!

A new study, however, provides some further examination into one key stakeholder that must be convinced that mobile transactions are the way to go.

Retailers.

With everyone focused on the consumer, the new study — coined 2015 Global Payments Insight — that was conducted by market research firm Ovum shows that more than half of retailers across the world aren’t investing in new payments technologies because of their hesitancy surrounding security concerns. In fact, in the survey that consisted of nearly 700 global retailer executives, 54 percent of them named security as a top barrier to increasing their investment in payments. Maintaining the existence of its legacy infrastructure was listed second at 43 percent and customer protection requirements were listed as an obstacle by 40 percent of respondents.

While half of the retailers recognized in their responses that the customer is king, and the key driver to increase their payments investment, many are still hesitant to invest in technologies they are wary of. It’s worth noting that 93 percent of retailers surveyed said they believe consumers want access to a broad selection of payments tools — which, based on the trends highlighted in the survey, includes mobile payment-enabled terminals.

[pullquote] “The customer experience is king and this will not change. All players must satisfy shifting consumer demand and enhance their payment capabilities.” – Ovum 2015 Global Payments Insight Report [/pullquote]

What may also be holding retailers back from more payments investments is the fact that close to half of the retailers surveyed said their payment costs have increased in the past 18 months, and 56 percent of respondents said they expect those figures to keep rising. With the pressure to keep up with the modern payments systems — and the current pressures to upgrade — it’s no wonder many retailers may be cautious to invest in too many technologies at the same time.

In terms of which payments outlet retailers view as the best method to gain their trust, the study also reveals some particularly interesting stats about what retailers think of payment technologies used via their bank vs. telecoms providers vs. startups vs. a third-party payment specialist (like Apple Pay, PayPal or Google Wallet).

“Banks, Retailers And Billing Organizations Want To Work Together”

Ovum’s survey indicated that the three key players in the payments ecosystem want to collaborate, but the figures are scattered when it comes to which provider retailers trust the most when it comes to payment technologies.

Banks still come out on top when it comes to retailers and billing organizations’ trust of providing payment services. This gives them an advantage on the payments side, Ovum reported.

When it comes to contactless cards, real-time clearing and settlement, that’s where the advantage is seen, with 68 percent of those surveyed picking banks as their preferred carriers for the first, and 66 percent listing banks for the latter. But when it comes to other payments options that aren’t inherently banking-focused, the percentages begin to drop in the survey.

Figures provided by Ovum’s survey show where the trust exists most when it comes to payments tech. One statistic worth pointing out — specifically as it relates to mobile transactions — is the mobile NFC capability. A majority of those surveyed prefer to have their banks/payment acquirer handle their NFC transactions, while only 25 percent preferred a third-party payment specialist. Not surprisingly, telecoms providers and startups fell last on the list.

mobile data

Simplifying The Payments Value Chain

When it comes to retailers and billing services evaluating payments technologies, mobile payments is increasingly playing a larger role in what survey respondents said they plan to offer in the future, or have in development as part of their value-added services of their payment options.

“As payments become more complex, there is growing interest in reducing the number of what are viewed as ‘fee-collecting’ intermediaries in the payments value chain, and this remains a top priority for many billing organizations,” the report concluded. “The payments market is at a critical inflection point, and those players which do not seek to collaborate across the value chain risk their long-term viability.”

And when it comes to the retail side, the industry is looking for efficient ways to reach their customers without adding expense to its payments side. Retailers are also realizing as their customers get savvier, they must keep up — particularly on the payments side.

“As payments become smarter, this evolution has the power to transform the payments experience, and as such, the needs, experiences and expectations of all of the players in the payments value chain are more critical than ever,” Ovum’s report said.

Retailers across the globe agree: Customer experience when it comes to the payments experience cannot be overlooked. Moreover, consumers are increasingly expecting a frictionless payment experience. In a growing world of startups, apps and mobile payment schemes, consumers also want to know they have options tailored to their specific needs.

“Across the global payments value chain there is a growing sense that consumers want a broader choice of payment tools. Globally, over three quarters of respondents surveyed by Ovum (79 percent), incorporating retailers, billing organizations and banks, either somewhat or strongly agreed that consumers want to be able to use a broader choice of payment tools,” the report said. “The ‘broader’ list includes tools such as PayPal, e-billing, mobile payments and so on.”

Ovum’s survey also shows how mobile payments plays into the payments value chain list of priorities.

Mobile data 2

So what can be concluded by this research? Besides understanding that the “customer is king,” and that retailers want to invest in mobile payments technologies — but are reserved because of security concerns — what this research points to is one key factor that’s at the crux of the payments debate: Which way is the payments industry headed, and how will mobile play a part?

While we won’t know for some time what the future of mobile payments looks like — as mobile transactions are still relatively new in the grand scheme of the payments technology evolution — what we do know is that the payments industry (especially mobile payments) is at a crossroads, and there’s a shift occurring, no matter which industry we’re talking about.

“The seismic shifts now happening in the payments markets mark an unprecedented period of potential disintermediation for some, and long-term advantages for others, and it is unclear exactly how the dust will settle in the years ahead,” Ovum’s report concluded.

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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. The May 2019 AML/KYC Tracker, provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.

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