The rationale of mobile payment


We have been hearing it for some years now. “Mobile payment is the future”, “This will be the year of mobile payment”. But until now the great breakthrough had yet to come. In the Netherlands we have seen several pilots of mobile payment programs. Payter did an extensive pilot in Rotterdam in 2007 and the Rabobank performed several smaller pilots starting in 2007. And in 2010 the three major banks in the Netherlands  (ABN AMRO, ING and the Rabobank) and the three mobile operators (KPN, Vodafone and T-Mobile) signed a declaration of intention to work together to enable mobile payments and created a joint-venture called Sixpack/Travik. Although this joint-venture already ended after two years, the major players have continued the implementation separately. Vodafone launched last year Vodafone Smartpass, a solution that allows customers to pay with their mobile, and the ING expects to launch their mobile payment solution later this year.

Why are banks and mobile operators then so eager to implement mobile payment? One important reason is to stay competitive. There is a fear that banks may become the ‘bit pipes’ of the financial industry. In the telecommunications industry mobile operators and internet providers have already seen threats as VoIP, social networks and internet messaging. These services are developed by third parties with operators not sharing in the revenues and they increasingly threaten traditional revenues like voice and text messaging. In the end mobile operators could be reduced to simple ‘bit pipes’, only offering the infrastructure to enable these services without getting a share of the earnings.

This could happen in the financial world too. New players on the market can play a disruptive role by introducing new services that reduce the role banks play in the financial system. That role would only be the funding of the virtual accounts with all transactions and money streams occurring outside their influence. A popular example is Paypal that enables customers to pay online for transactions on sites as Ebay. Recently we have seen other big players like Apple and Google introducing their payment solution for mobile phones. Banks play virtually no role anymore in this service. To prevent this from happening both banks and mobile operators try to strengthen their position on the market before a new company can enter and develop new services that add value for the customer.

This brings us to the second reason why banks and mobile operators are so eager to implement mobile payment. Mobile payment is just an enabler around which extra services can be built. It functions as an interaction moment for these services. Mobile payment is in this way not the killer app
, the application that really shows the value of the product and the reason for customers to adopt it. Other services will have to provide this extra value. One example is the wallet function of a mobile phone. A normal wallet usually contains payment cards, but also loyalty cards, membership cards and gift cards. All these cards have to be handed over during the transaction. Mobile payment could combine this in one interaction. In the same way discount coupons can be made electronically. Instead of cutting out a coupon from a newspaper the customer can just scan it using NFC or QR code and put it in his mobile wallet. This simplifies the process and triggers the customer to actually use the coupon.

Still, banks and operators will have to hurry if they want to strengthen their positions. Mobile payment initiatives are popping up fast (think Apple Pay, Android Pay, Samsung Pay and the next one is LG G Pay?) and they could find themselves lagging behind.

JH Aben 171724

References:

http://www.payter.nl/nl/over-ons/

http://www.emerce.nl/nieuws/banken-en-telecombedrijven-samen-in-mobiel-betalen

https://www.ing.nl/particulier/mobiel/mobiel-betalen/index.html

https://www.vodafone.nl/shop/mobiel/abonnement/extra-opties/apps/smartpass.shtml

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