“Mobile Internet is the fundamental element to the ‘Internet of Things’”
Industry predictions may vary. People’s Bank of China reports that China consumers have “already made 1.67 billion m-payments (worth US$1.6 tril- lion) in 2013”, versus China’s US$177 trillion e-payment transactions. This is in contrast to Gartner’s prediction of global mobile payments market reaching US$721 billion by 2017.
Japan with a 92% urban population has a mobile penetration of 102% and a smartphone penetration at 55%. Japanese are avid app users, averag- ing 40 apps per smartphone. Japanese ranks third globally in app usage, and the highest globally in paid app usage. Some 22% engage in online shopping via mobile, totalling US$ 9.7 billion in mobile transactions. Apple’s iOS is most preferred in Japan at 70% versus Android at 30.5%.
Singapore, with a 100% urban population has a high smartphone penetration rate at 87%. Some 35% of Singaporeans e-commerce purchases in the first three months of 2014 adds up to US$1.2 billion. Android and iOS preference are split almost equally.
South Korea is an Android market with 60% of smartphone users prefer- ring this platform and 30% preferring iOS. South Korea’s m-commerce has experienced a growth of CAGR 154.7 % since 2011.
A total of 60% of Indonesia’s Internet users access the Internet via smartphones, most of whom accessing social media. Some 54% of Indonesians use the smartphone as a gateway to the Internet and ecommerce in Q1 2015, making it the leading country for m- payments. Indonesian smartphone users prefer Blackberry (27%), followed by Symbian (20%).
India, with 32% urban population, has a 19% Internet penetration anda smartphone penetration growing at 150% YoY. Indian m-commerce grew by 800% from 2012 to 2013. Almost 95% of India’s smartphone users are on Android.
Smartphone penetration in the Philippines hovers at only 30% and Thailand, at 49%. However, users in these markets are more open to, experi- mental and receptive to m-commerce. Despite Singapore users having the most smartphones, m-commerce is growing the fastest in Philippines and Thailand. M-commerce in these two markets are anticipated to surpass US$9 million by 2018.
M-commerce, a game changer
A ‘mobile’ device can be anything in the future. As technology evolves, more and more everyday things can be connected to the Internet: hence the term ‘Internet of things’. The watch, toothbrush, glasses … they are not what they seem anymore. These ‘gadgets’ are expected to explode from 10 billion to 50 billion by 2020.
Smartphones have allowed for more seamless transactions across borders, and expanded business opportunities for businesses. In a global survey carried out by Payvision, 37% of respondents cited m-commerce to be the biggest game changer to cross-border e-commerce in 2014.
Banking the unbanked
For developing countries with limited access to banks, an estimated 40% in less developed countries are unbanked or underbanked, therefore accessing alternative sources of funds via payday loans, pawnbrokers or microfinance. Mobile payments can be the answer to this dilemma, offering the convenience of mobile banking. For example, in Pakistan, there are 140 million mobile subscribers, compared to 37 million bank account holders. There is a massive gap that can be served by m-banking.
Access for developing markets
With mobile providing ease of use and access to the Internet, developing mar- kets have seen a surge in online penetra- tion. China and India are two countries exhilarated by mobile Internet access, and in return, plowing e-commerce purchases in the masses.
In India, the penetration of desktop PCs hovers around 5%, in comparison to 75% for mobile, making up 970 million mobile subscriptions in total (2014). It is good to note that, currently, 40% of Indians rely on mobile as their only point of Internet access. Flipkart, Indian’s leading e-commerce company, is on this trend and building its business around it, predicting that 75%-80% of its traffic will soon be mobile.
Solutions in the mobile payments industry
Apple and Samsung are among the big tech players entering the market in mPOS solutions.
In contactless payments, Apple’s Apple Pay allows its iPhone, iPhone 6 and Apple watch users a seamless pay- ment experience at both the checkout and online. It hosts encrypted storage for credit cards within the passbook app. The payment is triggered with Touch ID fingerprint recognition software.
With Apple Pay, there is no requirement for a specific Apple POS device. Instead, it is non-agnostic, working with the various major card schemes’ own contactless terminals: PayWave by Visa, PayPass by MasterCard and ExpressPay by American Express utilising Near Field Communication (NFC) payments. Apple Pay is now available only in the US, and is anticipated to be rolled out in the UK this year.
Google enjoys an Android penetra- tion of 81.5% out of the global market share of smartphone sales in 2014 (one billion Android smartphones globally versus 200 million Apple smartphones sold). In the mobile wallet space, Google has launched Android Pay at the Mobile World Congress in March this year to replace Google Wallet, for its Android user base.
Both Apple Pay and Android Pay are compatible with NFC terminals. One differentiator is that Google’s ecosystem is open to developers for building an NFC-enabled mobile payments solution on Android.
Recently, Visa and MasterCard has introduced host card emulation (HCE), a new specification for NFC mobile pay- ments. Instead of on the SIM card, the “secure element” will be placed on the handset. HCE enables “any NFC enabled handset to ‘talk’” to contactless payment terminals and emulate a physical contactless card. HCE implementation guarantees that any NFC data received by the processing app was actually received directly from the controller.”
There is also Samsung Pay, to be launched this summer. It is compatible with both NFC and non-NFC termi- nals. Its platform allows for “imitating credit card magnetic strip payment through a function built into its phones: Magnetic Secure Transmission (MST)”. This would work well in the US. How- ever, in European and Asian markets, magnetic strips are becoming obsolete.
Based on purchase volume, China UnionPay is currently the most globally used payment method (as of 2014). As it launches on Android, it would set itself to take on rival AliPay Wallet.
China’s Alibaba e-commerce busi- nesses and shopping cart platforms consisting of Taobao, Tmall, AliExpress, and their online payment service, AliPay, process 80% of all online commerce in China. Alipay’s 300 million registered users process 80 million transactions daily. Alipay Wallet is its mobile app platform and the leading mobile wallet in China, with 190 million annual active users. The app allows for direct purchases from the app itself, making payments via NFC and QR codes, with QR codes far more used in China.
Creative m-payments strategies
Starbucks is a success story with the implementation of its mobile wallet and rechargeable loyalty scheme gift cards. With 30 million mobile users (as of Dec 2014), making seven million mobile transactions a week, its m-commerce amounts to 16% of all its total transac- tions.
China’s omni-channel success stories include Ubox — “a new generation of vending machines” supporting payment via mobile wallets and QR codes.
Alipay Wallet allows consumers to make transactions at Ubox vending machines, ticketing machines in subway stations, cabs and retail stores. With creative promotions such as e-coupons and loyalty cards akin to Apple’s Passbook app, and no fees (such as for card schemes), Alipay and retailers can make it attractive for users to take up m-payment.
As more big players and numerous startup vendors and solution providers come up, it has become an increasingly fragmented market.
Startups introduce innovation while the big players have the clout, know- how, but outdated legacy systems, and processes and may be slow to change. A good provider would have a combina- tion of both startups and big companies’ strengths.
Paypal, a leading independent player in the mobile wallet space seeking to get into the mPOS space has put in a bid to purchase Paydiant. Meanwhile, Braintree, an US payment gateway credit card processor that powers Uber’s mobile payments, has been acquired by eBay since 2013. There is also Payplaza in Eu- rope partnering with Payvision, a global processing company.
Examples of other independent mobile solutions providers in the market include Acapture, PayPlaza, Sign2Pay and NoblyPos.
“Around two dollars out of every three spent using contactless payments across Visa, Mastercard, and American Express are being made with Apple Pay since the service launched in October.” — Tim Cook, CEO, Apple Inc.
Security and fraud is an industry concern. In 2013, 2,164 incidents exposed over 822 million customer records, twice that of in 2011.
To heighten security measures and to combat fraud, biometric identification for payments, as introduced by Apple, and tokenization are being introduced and explored. Down the line, the swipe and sign authentication will eventually disappear.
The rise of mPOS and the digital store
In terms of split in mobile payments, m- commerce currently stands at 90% and mPOS at 4%. A confidence vote for the growth of mPOS by end-2017, Forrester predicts in-store mobile payments will experience the most growth, anticipated to leapfrog from 4% to 45%, while m-commerce’s growth will drop from 90% to 50%.
Retailers need to consider moving towards being a digitally connected store. Consumers in developed markets harbour higher expectations in adopting mobile payments: Reliable and meaningful experiences; high levels of security; and a seamless experience.
As 80% of buys are impulse buys, the consumer will only engage with the retailer and make the final purchase if the mobile shopping experience is as per their expectations. One-quarter of global web searches are on a mobile device. 57% mobile users will abandon website if it takes more than three seconds to load. In addition, 30% will abandon the shopping cart if the website is not optimised for mobile.
In the US, as it stands, 31% of consumers do not see the need for mobile payments and 62% are concerned about data security. Nevertheless, the tipping point is getting closer, anticipated in the coming 12-24 months.
The revolution is closer than we think.
“As 80% of buys are impulse buys, the consumer will only engage with the retailer and make the final purchase if the mobile shopping experience is as per their expectations. One-quarter of global web searches are on a mobile device. 57% mobile users will abandon website if it takes more than three seconds to load.”
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