Mobile payments are becoming an increasingly common and important part of the global financial system, with the 2016 Debit Issuer Study, commissioned by Pulse and conducted by management consulting firm Oliver Wyman, revealing that financial institutions (FIs) in the US expect mobile to account for over a quarter of debit transactions in five years’ time.
This channel looks to offer some big opportunities for businesses in the near future, but there could be some significant obstacles to overcome as well.
A ‘table-stakes offering’
The latest Debit Issuer Study encompassed 72 FIs – including large banks, community banks and credit unions – and found that more institutions are making it possible for customers to complete point-of-sale (POS) transactions with a mobile phone. By the end of 2015, two-thirds of US issuers offered debit cards eligible to be loaded into a mobile wallet like Android Pay, Apple Pay or Samsung Pay. That marked an increase of over 100 per cent from a year earlier, when less than a third of providers facilitated mobile payments.
With about 3.5 per cent of eligible debit cards loaded, Apple Pay is the current market leader, ahead of Samsung Pay and Android Pay, both of which have 0.2 per cent of all eligible payment cards. However, the Samsung and Android services have higher rates of cardholder usage, typically handling 1.8 and 1.7 transactions per card per month respectively, compared to 0.7 transactions for Apple Pay. These three mobile payment platforms generated approximately eight million debit transactions per month as of January 2016.
Tony Hayes, a partner at Oliver Wyman, said these relatively limited levels of usage have not prevented mobile payments from becoming a “table-stakes offering” for FIs. He added: “Issuers foresee a near-term boom in mobile payments – nearly half of issuers project mobile payments to make up over 25 per cent of debit transactions in five years’ time. That would make mobile a primary payment method.”
Challenges of the mobile revolution
If the mobile payments sector is to continue growing in size and customer acceptance, there are some obstacles it will have to overcome, such as the security concerns that are so often linked to the latest technologies and innovations, particularly in financial services. In a recent article for Mobile Payments Today, Thorston Held, co-founder and managing director of application security firm whiteCryption, said mobile payments are “another way that hackers are seeking to gain control of sensitive data”.
He added: “Hackers are not simply changing to new specific targets; they’re targeting multiple points of vulnerability at once – including mobile payments. It is not enough to focus on protecting merchants as security must now be applied to the entire infrastructure supporting merchants, POS systems and mobile devices.”
As far as banks are concerned, one of the biggest challenges posed by the growth of mobile payments is the need to respond to new technologies, changing customer expectations and agile, innovative competitors. Deloitte has said that the growing popularity of mobile payments and alternative providers demands a “defensive response” from traditional FIs.
“This means taking steps to ensure that their card products remain sufficiently attractive, as well as developing a mobile wallet strategy, and continuing to invest in new technologies,” wrote Jason Ward of Dell EMC in an article for Finextra.
So there are clearly questions for FIs to ponder and difficulties to overcome as mobile payments continue to grow, but those that respond well to these challenges could reap the benefits from being on the frontline of an exciting and innovative sector.
Andy Brown, Marketing Director Payments at NCR Corporation, has nearly 30 years’ experience in e-payment systems both from the delivery and support of systems in the Far East and Europe and in the product management and marketing perspectives. Based in the UK, Andy is responsible for the marketing for NCR’s payments solutions.