2011 Mobile Payments Outlook 

Ian Scales: Hello, I’m Ian Scales from Telecom TV and today we’re going to be delving into the evolution of the mobile payment market. Late last year, consultancy KPMG and Telecom TV designed and promoted an online survey into the first evolving mobile payments market. Thanks to all of you who filled it out. Then we analysed the results and now KPMG has launched a full report on our findings, which you can download from the URL under the screen down there. With me today to discuss these findings, and their implications for the industry, are KPMG’s partners David Sayer, who is the Global Head of Retail Banking …

David Sayer: Hello.

Ian Scales: David, welcome. And Tudor Aw, who is Partner, Information Communications and Entertainment. Tudor, welcome to you too.

Tudor Aw: Thank you.

Ian Scales: I suppose, before we really start, gentlemen, we should actually define what we mean by mobile payments. So, do you think we could have a definition? I know it’s a bit crinkly at the edges, but let’s have a try.

David Sayer: There are many different definitions. The definition I use is using a mobile phone to make payments, either by near field communications or by tapping in a payment, using the phone as a payment device, going well beyond what an awful lot of banks around the world are doing at the moment, enabling identification of balances and doing statement summaries. It’s actually using it as a payment device. In other words, it really becomes a tool of banking and a payments tool.

Ian Scales: Would you include things like PayPal and so on, services that you can access on the phone and maybe pay your bank account using them?

David Sayer: Well, PayPal can be used across the phone. You can make payments using eBay, using PayPal right now. I think it’s part of the payment component because it generally comes out of a bank account and goes into somebody else’s bank account. PayPal is a useful intermediary in certain circumstances at the moment. But it’s going beyond PayPal. It’s using the mobile phone instead of your rapid transit card, it’s using it to pay for your coffee, it’s using it to pay your plumber when he gives you the bank account details and you just use the phone to make the payment.

Tudor Aw: And I think that’s really the fascinating thing about mobile payments. On one level the definition can be quite narrow in that it’s used as a device to make payments. But of course the more exciting thing is that it’s really the whole concept of your mobile phone as a mobile wallet and being able to do all the things David was talking about, not only making your payments but have your loyalty reward cards there, making use of things like geo location services, social media, etc. And I think that’s what really excites people about the whole concept about mobile payments.

David Sayer: And that’s absolutely right. It’s the things you can build upon it.

Tudor Aw: Yes.

David Sayer: What can stores do once people are going around the store, with the mobile phone identified and you know what sort of things they normally buy because the loyalty card’s built in there. You can flash up the offers. We’re going to need to think about how this would work, how people can exclude themselves from that kind of marketing activity or how they can deliberately include themselves, how they can identify that they’re in the middle of London or Toronto or New York and they are wanting to buy a camera. And this is the sort of camera they want and actually, smart stores will be saying we’re putting the bids in right now.

Ian Scales: So actually it’s much more than just the payment. It’s the transactional information that happens around the payment. Maybe even the marketing information that happens before a purchase.

Tudor Aw: And even the connectivity to other people who are using a device. Also, once you start looking at it in that way, then the monetary models that come from it are also starting to get interesting because you are no longer just monetising the transactional flow, but potentially you are going to get advertising, the value of it may be actually around customer loyalty, decreasing churn, and so you have to start looking at the full value of that mobile wallet and not just the monetary bit.

Ian Scales: OK, so that’s kind of our universe. It’s quite broad but I think we all know what we’re talking about. There’s a really nice hot spot right in the middle of all those technologies coming together, essentially. Now, who do we think are the main players in this market, just briefly, before we get into the main discussion, to set the boundaries of it?

David Sayer: There’s quite a wide eco system. I’d start with the banks, because they actually enable payments right now because people deposit money with them, and you need to start out with having money available before you start doing payments. So the banks, the telecoms companies, retailers are absolutely key. But I think where we should really start is with customers because I think the more customers understand the capability involved here, the more they will want it, and they’ll want it very quickly.

Ian Scales: Now, should people in the industry get excited about this? Before we really get into the discussion, I want to kind of set up how big this market is, how big you think it’s going to be? How big has it proved to be in some of the more advanced mobile banking economies like Japan and Korea and so on, where I know they’ve got a bit further ahead than maybe North American and Europe. Can you talk a little bit to that?

David Sayer: Well, the truth is we’re in baby steps still in most economies in the world. The point I really make is if you listed the customers of the big banks in the United States, in the UK, in Japan who don’t have mobile phones now, you’d be addressing a very small part of their customer base. So the truth is, I think it’s a lot easier if you look at five years hence and say what will the market be like? And I think it’s impossible to conceive of a situation where virtually all banks and virtually all customers are not using the mobile phone to make payments of some sort or another.

Ian Scales: So how’s that going to play out because, of course, the one thing that has changed over the last couple of years, I suppose, that people are factoring in, is the likes of Apple and Google especially, are going to come in, not to take over and vertically integrate themselves into this, but to take a kind of top end position where they may orchestrate, especially around some of the information gathering that you’re talking about, Tudor. Is this one way that the log-jam is going to be broken in that that kind of chutzpah is going to come in and really move things along quickly, along with the technology coming in at the same time?

David Sayer: Well, we may have different views on this. One of the things that slows this whole process up is the fear of participants that they’re going to be utterly disintermediated from their customers and I think there are some essential participants in this to make it happen, and there are others who will play within the eco system. And I think participants are going to have to be very, very clear that the end to end security works, and that will require cooperation between a range of parties. But I think the idea that any one group is going to break the log-jam is probably wrong. I think that what has to be clear is that the players in this feel that they’re not being disintermediated and that will be a real prompt to action if they think there’s a risk that they’re going to. That will break the log-jam. But the more they think there’s a war for their customers, and they’ve got to cooperate with somebody who’s going to disintermediate them, that will slow things up. So there are counter-veiling forces here. I start from the point that it’s impossible to believe that, in five years time, customers will not absolutely expect the ability that their bank and their telecoms company will enable them to use their mobile phone to make payments.

Tudor Aw: I’m a firm believer that the walled garden approach won’t work in the long run and that when you start thinking about all the opportunities that are out there, technology has time and time again has shown us that really you might have a dominant position for a moment in time, but really to survive in the long run you’ve got to evolve. And I think the only way you can evolve, particularly in this market, is that you’ve got to have an open way of working. You’ve got to cooperate within your players, and particularly what you’re going to find is that because the technology is going to be so quick to implement, and be so nimble, what you really need to be when you’re that big sort of ship, is that you’re going to have lots of fast speedboats running around you, and if you’re not going to be open to working with them, then there’s going to be some new application, some new avenue, that you’re going to miss out on, and so you’ve got to open your doors and work with people.

David Sayer: The idea that sub-Saharan Africa and India are going to be on previous generations of mobile phones in five years time is also for the birds. The price point for the really sophisticated smart phones is coming down all the time, will continue to come down. 

Ian Scales: One of the things that the telecoms operators have been guilty of in the past is perhaps pricing their participation too highly. If you talk to other players and their eco systems, they’re the major gripers and they always want about 30%, or whatever it happens to be. Is this part of the thinking that’s perhaps created part of the log-jam up until now?

Tudor Aw: Possibly, but I still believe it was more around the user experience that was an issue and I think the Telcos are understanding the issue around revenue share. And you only have to look at different models, particularly the online digital convergence world, where you’ve got the music industry as a poster chart of what can go wrong if you don’t try and think differently about your share of the revenue.

Ian Scales: But surely part of the change that both the Telcos and some of the handset vendors worry about is that you’ve got something like a Google or an Apple basically creating a layer above them and disintermediating them. Not disintermediating the banking system, but disintermediating their role. And can you see this as another one of those battle grounds that we’re going to see? 

Tudor Aw: But the answer there is not to then just close ranks and sort of say I’m going to keep charging you for this service. The answer is to open it up and entice people to come to your particular service because you’re offering something that’s giving you a much better customer experience, that makes you say I really want to be part of this Telcos network because I can use it for these things and it’s also got these eco system partners that just makes it compelling. If you try and close ranks then the death knell’s around the corner.

Ian Scales: Do you think security is the key thing that the Telco has got up its sleeve in terms of saying this is my area, go away Google, you can’t do this without us because the security won’t allow it to be just an over the top application?

David Sayer: I think security is absolutely key. This is money. One of the most surprising things about our survey was before there’s been a disaster, security is the number one issue by a considerable margin. And we’re having this conversation now with the phone hacking scandal in the UK, all over the headlines. Security on mobile phones, once you start it being seen as real money, is going to be absolutely key, and that’s end to end security. And I think one of the things the banks bring to this is the belief that banking transactions are secure. I mean, there is fraud everywhere in the world but actually they’re pretty secure. Your chip and pin transaction is pretty secure, by comparison with almost any other means of payment. Now, that’s got to be replicated on the mobile phone. There are aspects of the mobile phone that can enhance the security but end to end is going to be key.

Ian Scales: I think one of the main takeaways from the Telecom survey in particular was that the field was more or less open. In terms of the opinion of all the players within it, there was no one group or bunch of companies who they thought were going to dominate. It was very much going to be a share and share alike type of scenario. From your point of view, do you agree with that? Do you think we got it right with the survey on that basis?

Tudor Aw: Yes I do. I mean, I think it still is at a very early stage in the development, so I think it’s all to play for, for different players. If I just go back slightly to the security issue, it’s going to be really important that all the players are able to work together and convince people that they can work together, that there won’t be any sort of disconnect when they hand off the different aspects to it. And then with that, that can really make the success.

David Sayer: One of the things we haven’t talked about which is really important is when you get to near field communication, and micro transactions, you’re bringing into the banking system transactions that currently aren’t captured because they’re done in coin. And part of this is not replacing a wallet, it’s replacing a purse. And the thing I’m really anticipating is that payment transactions are going to multiply tenfold, because you look at the hundreds of billions of very small scale coin transactions that take place, if they’re all captured digitally, then the volume is going to be that much greater.

Ian Scales: It’s rather like when the supermarkets brought in the Epos systems in the 1980s, it was thought that the great thing about this was that the checkouts would move quicker and it would reduce the cost for the supermarket. In fact, it’s been a huge information gathering appliance for them, and they’ve been able to do just in time deliveries and all of that stuff, and you can see similar things happening with lots of small businesses because of the data that’s going to be generated.

David Sayer: And I think the organisations that win in terms of analysing data and enabling their customers to analyse their own data, are going to be real winners in this.

Ian Scales: We’ve just touched the surface of the information that’s in the report, so I urge you to download the report, click on the URL below the screen that you’re looking at now and enjoy. Thank you very much for watching.