A couple of weeks ago, Google announced its new payments functionality. The new functionality allows anyone using Google’s API (online stores, for example) to give their customers the ability to pay using any of their cards they currently have stored in their Google accounts.
The mobile payments market is predicted to grow to USD 17.56 billion by 2021. Currently, Apple Pay users are thought to outnumber Android Pay users. It should come as no real surprise, then, that Google would want to take a stake in this multi-billion dollar market.
At the moment, most traditional banks around the world haven’t really got it sorted when it comes to mobile payments. Sure, they and the big card companies - the likes of Visa and Mastercard - might be working with Apple, Samsung and Google to facilitate access to their customers cards for contactless purposes. But this is just a partnership and is in no way allowing them to own the mobile payments solution or indeed, to monetise it.
Google, like many others, can see that at the moment, banks aren’t properly monetising mobile payments. They also know these banks are under pressure to meet data-security and second payment services directive (PSD2) regulation requirements - in Europe, at least. With trust in traditional banks declining and challenger banks becoming more popular, it must seem to Google - and many other disruptors - that it’s surely the perfect time to sweep in.
This new development is Google starting the process of making mobile payments easy to use and valuable for the masses. That is, everyone... the everyday consumer as well as online and offline merchants wanting a way to more simply (and more cheaply) take payments.
Google has millions of users. Millions of people already intimately familiar with the Google login process. Taking all these millions of users and allowing them to use the same login credentials to easily make payments isn’t a big leap. When Google is able to go to direct to account (the second payment services directive (PSD2) within Europe allows them to do this) it seems likely they will seek to autonomise this payments process - perhaps cutting out the cards companies and by association, the banks. As of January 2018, PSD2 regulation will allow bank API access to companies who have been granted an e-money license.
There is a huge - almost global - market ripe for disruption in the mobile payments space. The exception are places like Scandinavia. Banks in Scandinavia have created and monetised mobile payment solutions which facilitate all types of payments for every person - individuals and businesses. This means that the likes of Apple Pay, Android Pay and Samsung Pay haven’t yet been able to gain traction in the Nordics.
Right now, whilst banks in the rest of the world don’t yet have the same protection in place with their own robust mobile payment solutions, they do have a time advantage. They also have direct access to the customer. Combine this with experience and the ability - whether they realise it or not - to relatively quickly put in place a future-proof system prior to regulations, such as those outlined in PSD2, coming into effect.
Basically, until PSD2 comes into effect, all that third-parties like Apple Pay, Facebook - or indeed Google - can do is create a payment experience that works relatively similarly to what’s currently on offer. Until they can create innovative new experiences - and what is starting to happen is a hint of what is to come - customers are starting to losing interest.
Banks effectively have a choice to make now. Knowing they have a head start they could, like Nordic banks have done, invest heavily in delivering and monetising innovative mobile payment solutions that their customers want to use. If developed, delivered and marketed before their competition, who are no longer just other banks, gain traction and accounts are opened up - they are in a great position to retain relevance. Not only could they gain renewed relevance but alongside this, grow their customer base and their bottom line.
The alternatives include partnering with other banks to create a combined offering, strengthening partnerships with the card companies and hoping they will create a solution favourable to their existing relationship or… doing nothing and hoping for the best.
A recent EY survey recommended banks overhaul their consumer relationships strategy. Another report from PwC, Catalyst or Threat, concluded that European consumers were already au fait with digital payments, including mobile. This report also made reference to the fact that banking customers wanted to be able to use innovative third-party financial solutions. A bank could take from this: unless we do something - fast - our customers will leave.
Deals between banks and fintechs or big tech companies don’t ensure continued relevancy. Nor does the addition of simple technology - such as near-field communication, tap and go, contactless - without a bigger strategy around value-add for the customer and for the bank.
Many banks are still fixated on card payments. But in certain areas - like in China and the Nordics - app based mobile payments continue to quickly grow. This is because these solutions consider all payment situations. They make it easy to build eco-systems, receive payments and solve common issues. This fixation and the launching of variations of a technology which hasn’t fundamentally changed in decades - guarantees a huge amount of wasted money. Wasted money which could be 100 per cent better spent on providing customers with game-changing payment innovations.
Companies like Facebook and Google are now a bank’s biggest competitors and this will only intensify in the future. Banks can secure their position by simply becoming... a better bank. By listening to what customers want, developing fun and easy to use technology and knowing how to then monetise the resulting payment solutions is a sure-fire way to stay relevant - and profitable. So, my advice to banks is this: launch a system that your customers - and everyone in your market - actually needs and wants. Make it easy for individuals and business owners to pay and get paid - in any situation. Stop restricting, start facilitating.
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