Skip to main content

Can banks gain a share of mobile payments market?

Mobile payments are gaining momentum in the UK. Apply Pay had the initial monopoly, with Android Pay launching in the UK a year later. A week after Android Pay launched in the UK, 460,000 payments had been accepted. Countries across the globe are increasingly moving towards cashless societies thanks to advances in contactless payments. Instead of carrying a physical wallet with cash and bank cards, mobile wallets are becoming an increasingly popular method of payment. What role will banks play in this new era?

The death of the wallet

The number of smartphone users worldwide is predicted to grow to 6.1 billion by 2020 according to the 2015 Mobility Report from Ericsson. With the growth of smartphones across the globe and the consequential shifting consumer habits, mobile payments are a natural step beyond plastic cards. Smartphones have become an extension of ourselves; they are always on and we always have them with us. According to payments technology company Adyan, in Q3 2015 47 per cent of UK online transactions were made through mobile devices. Additionally, a report from Mobile Ecosystem Forum tells us that now, an estimated that 69 percent of mobile users globally conduct at least some of their banking using their mobile device.

While mobile banking and payments is increasing, on the flip-side the use of cash is dropping. Last year, less than half of consumer payments in the UK were made using cash, according to Payments UK. In 2015, cash made up 45 per cent of payments, compared with 64 per cent in 2005. This number is expected to continue to fall to around 25 per cent by 2025. With millennials being digital-natives and mobile-first, they put online and convenience above physical presence and traditional banking services.

Mobile payment apps have added a new and convenient way for people to pay for goods and services. The total value of proximity mobile payments is seeing significant growth in 2016 and has the power to revolutionise the shopping experience, making payments more convenient and faster. It is an attractive option for brands and customers alike as it makes a smoother payment journey for the customer.

It is not surprising that major phone-technology players from Apple to Google and Samsung are pushing forward with their mobile wallets, but where does this leave the banks? It is no secret that banks have concerns about the tech giants Apple and Google entering their sectors with mobile wallets and payment solutions.

Don’t be the next MVNO

The risk of banks losing market share is very real, especially as the likes of Apple build on their consumer relationships to make further progress into mobile payments. Banks need to innovate and explore ways to retain their brand position and their customers’ loyalty or face becoming sidelined.

Decreasing revenue and increasing costs are forcing banks, including high-street names, such as Lloyds and Barclays, to lay off employees and automate functions. This tactic of slashing costs can be helpful up to a point, but what about exploiting new markets and technologies to create business and healthier balance sheets?

Banks must now compete on technology in order to stay relevant. According to a 2015 survey by software firm Temenos, 27 per cent of senior bankers reported tech companies as the greatest threat to their business.

Take Mobile Virtual Network Operators (MVNOs) as a recent example of a sector overtaken by technology. In the early 2000s they had all the influence over their customers. Fast-forward to 2007 and Apple iPhone is launched. Exclusive contracts with operators were signed (AT&T in the US and O2 in the UK) and the operators’ worst nightmare of becoming ‘dumb pipes’ began turning to reality. Gone are the MVNO heydays; Apple and Google are now the brands most synonymous with mobile innovation. How do banks avoid the same fate?

Play tech firms at their own game

Banks can ward off tech firms and disrupt the industry if they look at innovative ways to use existing technology quickly. There are a few early movers such as Danske Bank in the Nordic countries which has the MobilePay app using a phone agnostic beacon payment technology, based on Netclearance’s mBeaconPay, to accept payments at retailers. It has over 2.9 million active users and has been installed on an estimated 90 per cent of Denmark’s smartphones. The payment system has also been rolled out to Norway and Finland. Dankse Bank’s mobile wallet is the third most popular app in Denmark and Norway and over 90 million transactions were made through MobilePay in 2015.

Cashless societies

Denmark is well on its way to becoming the world’s first cashless society and MobilePay shows that frictionless, tech agnostic and highly secure POS systems are winning the hearts and minds of the customer, and delivering real value to merchants. It is enabling banks to retain or even grow their customer base.

Tech-savvy consumers, world-leading smartphone penetration and progressive banks have kept the Nordic countries ahead of the game with mobile payments. Mobile payments platforms are providing retailers with an intuitive customer experience via inexpensive technology and remove costly merchant fees as the technology takes transactions direct from bank to retailers, changing the value chain. Without requiring tokenised card details to be held on a database somewhere, the technology is inherently more secure.

By directly engaging their customers, banks can also create additional brand loyalty as well as providing a desirable feature to entice new customers.

Banks have access to huge, proprietary data about their customers’ spending habits, which some have begun using to offer customers more personalised experiences and recommendations. When combined with partnerships with outside retailers and firms, this data could be used to drive spending and create customer satisfaction on a larger scale than the loyalty program from a single company. Customers want an app that allows them easy access to products they like and so far the big technology firms have all failed to deliver.

Frictionless first

At its core, mobile payments are about making payments easy and creating a process that is as frictionless and simple as possible whilst also being secure and adding value to the end user. Banks have the ability to provision this through mobile beacon technology and the time is now to start using it in order to stop the tech giants getting there first.