M-payment will grow - in different ways

Friday 23 May 2014 | 11:40 CET | Background

Mobile wallets are predicted to grow over the coming years. Emerging markets and mature markets will follow different paths however. Mobile financial services in emerging markets can serve a role as infrastructure and service enabler. In mature markets, finding the right business model will remain challenging.

One in five mobile handsets will have mobile wallet functionality by 2018, compared to less than one in ten at the end of 2013, according to Juniper Research. Growth is expected to be boosted by two distinct wallet models. In emerging/developing markets, SVAs (Stored Value Accounts) are increasingly enabling first time financial access for unbanked individuals.

Mobile financial services like M-Pesa have shown that they can be an important enabler in areas where traditional banking infrastructure is non-existent or would be prohibitively expensive to develop.

In a number of countries, mobile money or airtime top up has become established and trusted to the point where other services are being developed upon it, such as insurance and lending (as well as mobile gaming and prize draw schemes that overpromise and underdeliver). Remittance corridors now terminate on mobile money as well: Moneygram users can send money to M-Pesa.

Mobile currency

Retailers start accepting mobile money in lieu of cash. In Tanzania Vodafone, with its M-Pesa mobile money service, and service station operator Total Tanzania launched the possibility of paying for refuelling at Total service stations with M-Pesa. Oil Company Shell will accept and sell Airtel airtime in a number of African countries.

In many cases it’s still important that services work on any mobile phone, but smartphone and data centric applications are becoming more common. Juniper forecasts a surge in deployments across sub-Saharan Africa, developing Asia and Latin America over the next five years.

Smartphone wallets

The research agency also expects wallet launches across North America and Western Europe to increasingly feature contactless payment functionality at point-of-sale (POS). Over one in three mobile wallets, and more than 50 percent of wallets in developed markets, will feature contactless payment by 2018. Juniper thinks the sector will also receive a boost both from the anticipated launch of an Apple iWallet later this year.

The number of NFC-equipped terminals at point of sale (POS) is growing in many countries and many financial institutions will issue dual-mode payment cards to their banking customers. This will stimulate upgrades to POS equipment. 

The importance of the iPhone cannot be denied. Although Android is now the larger smartphone OS, Apple is the number one smartphone vendor in the US and second only to Samsung in most EU markets. But the vote is still out on how Apple will launch m-commerce and what threat it will pose to other initiatives.

Google is busy strengthening its grip on the Android ecosystem. On the plus side, this will likely reduce fragmentation, make life easier for developers and shorten lead times for new services. On the other hand, it may also limit the scope for smartphone vendors to differentiate their products.

HCE has potential for new m-commerce applications, but could also bring a new shift in the balance of power in the ecosystem. Since 2010, NFC has shown promise, but delivering a commercial service has proved difficult.

The struggle over the eco system is not likely to end soon. So while it’s a fairly safe bet that contactless payment will feature in wallets that will not necessarily say that wallets will be made into a compelling replacement for the payment options people already have.

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