My cab ride took Uber, the latte at Starbucks came off my phone, but I didn’t have digital money for dinner. My share of payment for dinner at a restaurant in San Francisco was $34.15. Everyone used “digital money” to pay Jason who paid the bill. I ended up paying $40 – two crisp $20 bills!
I recently had an opportunity to present at a financial services conference on the impact of mobile payments & what financial institutions should be doing to define their mobile wallet strategy. The rest of my article focuses on key points for you to consider and if you would like to participate in the “homework” I gave my students just send me a note on LinkedIn.
Homework? Review the presentation, complete the assigned exercises, participate in an upcoming webinar, and then write out your mobile wallet plan. I call it, “Give me your mobile wallet!”
What’s in Your Wallet?
The need is real. What was a simple transaction between a buyer & a seller and then supported by financial institutions has now evolved into a complex ecosystem.
Buyer, seller, financial institution, acquirer, processor, technology, payment network, cloud… A $1.2 trillion industry that has taken 40 years to build, but I promise it will be totally redefined in the next five years!
Our physical wallet has identification, insurance cards, payment cards – debit, credit, prepaid, cash, & pictures. Almost everything (yes, there are pilots in Europe, Asia, & South America for digital id’s) can be put on your mobile phone.
What is it going to take to be ready and what is this impact going to lead to?
What is redefining the Way We Pay?
There are three types of payments we need to consider – payments between consumers & merchants, between consumers, & between businesses.
Let us look at the five big trends affecting the way we will pay:
I – Technology Innovation
- Payment networks are much faster due to modern technology, better point-to-point devices, and effective risk scoring algorithms
- It takes seconds to move money vs. the days it took (& still does for some)
- The real time availability to process transactional data allows merchants to personalize offers, resulting in an increase in sales
- Payment encryption & security techniques are helping reduce payment fraud and losses
- Bitcoin is pushing the limits of technology – anonymous, fast, & efficient
II – Regulation & Compliance
- Consumer protections and insurance help insulate consumers from fraudulent charges and identity theft
- Payment interchange fees are moving lower (part technology, part time to transact, part legislation)
- Anti-money laundering rules are still being defined with the goal of helping protect against illegal funds transfer and fraud
- Cryptocurrencies like Bitcoin allow for de-centralized transfer of assets without a central clearing authority
III – Demographic Considerations
- Millennials adopt mobile payments faster, but they also rely on cash
- Baby Boomers tend to use more credit cards and electronic payments
- Young adults are the most under-banked age group
- Higher income individuals prefer credit and electronic payments
- Lower income individuals prefer cash and are also beginning to adopt mobile
IV – International Implications
- 50% of the world’s population is still unbanked
- Businesses and consumers prefer electronics as a medium of transaction
- Many emerging (including Europe) prefer debit over credit
V – Shared Learning
There are a lot of micro and macro pilots in different parts of the word that are driving alliances between brands (even competitors), technology partnerships, enhanced regulation due to learning, and personalization to ease adoption.
Innovators, Disruptors, & Regulators
We have a lot of players in the mix – the disruptors are using lower cost and the ease of adoption to grow their influence (even though some of them are loosing money). The innovators are influencing adoption by offering value added services, including personalization & related advertising revenue.
Of course, the regulators are frantically trying to define what is right and this is a question I pose to financial institutions – what are you doing to define your requirements to the regulators?
An Opportunity Awaits
With 50% of the world’s population still unbanked and the ease of entry due to technology (for non legacy players) a lot of change is expected. Don’t you think that the owner of the wallet that maintains direct contact with the consumer will rule how and where the money moves?
Some more questions for you – have you defined your mobile payment strategy? Should you have a wallet? Have you considered an open wallet?
The way we pay is being redefined, are you in?