The banking industry has been discussing the social and business promises of mobile payments for more than a decade. However, in developed markets, electronic payments using plastic cards still dominates the volume of transactions in offline commerce. In emerging markets, cash remains the primary form of payment. Even so, there is little debate that mobile payments, defined as transactions originating from a consumer’s mobile device, will transform value chains across industries – including banking, retail and telecommunications.
Mobile payments is a broad topic encompassing distinct offerings that can deliver new value propositions across the transaction flow – from the consumer to the merchant. Those value propositions can vary greatly in regions across the globe. To better understand the factors shaping the future of mobile payments, it’s important to examine business opportunities in developed versus emerging markets, and how organizations can begin to capitalize on those opportunities.
Transitioning to Value Added Services Through Data Analytics in Developed Markets
In developed markets, where most consumers have access to electronic payments, in the form of credit and debit cards, prepaid cards or deposit accounts, there is a well-established acceptance network that delivers a fast and reliable way to exchange funds. This established network is actually the primary reason why many new mobile payment services have failed to gain traction from a consumer perspective. The process for making payments electronically simply isn’t inconvenient for consumers today.
Examples of early mobile payments adoption are tied to very specific value propositions, such as offering a faster way to pay for coffee in the morning. On the other hand, adoption tends to lag when mobile payments offerings try to address too broad a spectrum of use cases. For instance, the customer experience for paying a bill at a restaurant is very different from the one required for entering the subway.
Consumer adoption only represents half the challenge. At the other end of the transaction are merchants who bear the cost of the entire value chain. For them, the incentive to invest in a new acceptance infrastructure must go beyond just having the ability to take payments in a new form factor. As a result, the retail payments value chain has expanded to include services that allow merchants to identify, understand, incentivize and better serve consumers, before and after the transaction.
In fact, there is an emerging group of players in the mobile payments space that is creating new revenue opportunities by using data analytics to deliver value added services across the broader commerce space. These services are driven by the ability of mobile devices to collect more data and of businesses to analyze it and derive insights from it, transforming the mobile payments industry by creating more valuable, engaging interactions with consumers.
Mobile Money Platforms Pave the Way for Digital Ecosystems in Emerging Markets
In emerging markets the business opportunity is completely different. Building businesses around mobile payments first requires an easy mechanism to transform physical currency to electronic value, to be able to store it safely and to convert that balance back to cash if needed. Mobile Network Operators have taken the lead by leveraging their existing network of physical agents to perform these services.
This type of offering is called mobile money, and it has a well-documented societal impact in low-income segments that typically transact only in cash. Beyond those benefits, mobile money has an even greater potential -- to ignite the creation of massive digital ecosystems that are virtually non-existent in most emerging economies today.
Growing global businesses from music and video rentals to car sharing services are built on their ability to access electronic sources of funds: credit and debit cards, prepaid cards and bank account information. It would be difficult to scale these businesses in a cash economy. With more than 200 million mobile money accounts globally, and growing, the truly transformational opportunities for mobile payments in emerging markets are less about purchasing music or movies, but more focused on other services that can also be consumed digitally like education, healthcare and government services.
Convergence Is On the Horizon
Eventually, as smartphone penetration in emerging markets continues to accelerate, and as the middle class of Asia, Africa and Latin America continues to grow, opportunities associated with value added services driven by data analytics and the growth of mobile money will converge. That convergence will enable businesses built on the digital economy to have access to consumers on a global scale. For now, as investments in these areas mature and technology platforms evolve to support these segments, mobile payment adoption in developed and emerging markets will remain on different – but equally exciting – paths.
Alberto Jimenez is director of mobile payments at IBM MobileFirst