Visa Europe processed almost one billion transactions every month, totaling €1.16 trillion spend on Visa Cards in Europe in 2011, according to the company’s annual report 2011.
This growth now means that €1 in every €7 of consumer spending in Europe is on a Visa card, up from €1 in €8 in 2010 and €1 in €18 in 2000. The company also reported that the fraud losses on Visa cards in Europe reached an all-time low. In 2011, fraud was accounting for less than four cents in every €100 spent.
The credit card giant has issued of 30 million contactless cards and launched its first mobile payment services in 2011. ”We expect this growth in electronic payments to continue during 2012 when we will be launching mobile payments and our digital wallet services. These new services, that are a key part of our future of payments strategy, will revolutionise consumers’ everyday shopping experience to the extent that by 2020 we predict that over half of all Visa transactions in Europe will be on a mobile device,’ commented Peter Ayliffe, Chief Executive of Visa Europe.
Although they idea to pay with a mobile phone has been hyped since the late 1990s, only a few countries have successfully implemented such services. Over the last few years, some major players have entered the mobile payment space. Currently the focus of the buzz is on Near Field Communication (NFC)-based services that support close proximity mobile payment.
Mobile payment is being adopted all over the world in different ways. In this article we provide a brief overview on the mobile payments.
Broadly speaking, mobile payment refers to all kinds of financial transactions performed from or via a mobile device. There are four main types of mobile payment: carrier billing, mobile wallets, mobile point of sale and mobile banking. In addition, there are a couple of other mobile payment solutions such as the SMS-based p2p money transfer service M-Pesa in Africa and Starbuck’s proprietary mobile loyalty and payment app. Also there is a lot of talking these days how mobile wallets will replace physical wallets and mobile banking is going to change the way we bank.
One of the easiest methods of paying using a mobile phone is payment via a mobile phone bill. It is a very competitive market and many companies such as Boku, Zong and Atlas offer worldwide mobile carrier billing services. In detail, carrier billing can be realized via different schemes: premium SMS text, premium rate numbers, mobile web (WAP) billing and direct carrier billing. Today, carrier billing is mostly used for micropayments and purchasing digital goods such as ringtones, wallpapers or virtual items in online games.
Mobile digital wallets
A digital wallet works much like a physical wallet. It is a service that allows the user to store and use electronic money or shopping information. Recently there has been a big hype about implementing digital wallets on smartphones and tablets. Mobile wallets, such as Google Wallet or the mobile PayPal app usually feature contactless technologies such as NFC, QR-codes or location based services. Using those mobile digital wallets, the user can use his smartphone to pay both online and at retail stores.
Mobile point of sale
Mobile POS solutions such as Square in the US and iZettle in Sweden allow retail merchants to process card payments via their smartphone or tablet. Usually the combination of a small card reader that connects to the mobile device and an installed application enable the merchant to receive payments without the need to buy an additional device.
Mobile banking provides banking and financial services including the initiation of transactions or balance checking just like online banking services. This includes the use of mobile web pages as well as dedicated smartphone applications. In addition, some mobile banking solutions can also be used to make micro-transactions or contactless payments directly via the mobile phone.
Digital marketing company Acquity Group has released an infographic illustrating the different forms of mobile payments such as smartphone card readers, NFC-based or SMS-based solutions.
According to Acquity, mobile payments are about to rise from $240 billion in 2012 to $670 billion in 2015.
Visa Europe has released its second Contactless Barometer report, a benchmark study looking at consumer attitudes to new payment methods. The study shows that consumers value the convenience and ease of contactless payments but also points out that the current relatively low acceptance levels in some markets is still preventing usage from becoming mainstream.
According to the study, 77% of contactless users agreed or strongly agreed that contactless technology would ultimately become more commonplace than cash as a payment method. 78% also agreed that contactless will be instrumental in bringing mobile contactless payments to market in the near future. Mark Austin, Head of Contactless for Visa Europe commented: “People with experience of contactless cards are starting to see it as the first step to the arrival of mobile payments. The tipping point to more mainstream acceptance will be availability: the more chance consumers have to use their contactless cards, the more enthusiastic their response becomes. For us, London 2012 will be a major tipping point in the UK, with thousands of new contactless terminals installed across the Olympic venues to make payments as easy and convenient as they can possibly be.”
Earlier today, mobile payment service provider mopay announced to extent its product range into broadband billing. The new billing method enables online merchants to charge purchases directly to consumers’ Internet service provider (ISP) accounts. The French cable companies Orange and SFR were among the first to offer mopay to their customers.
Mopay, part of the MindMatics group, provides mobile payment solutions for online merchants in more than 80 countries across the globe. Integrating a broadband billing service, the company now enables consumers to charge purchases through almost any communications account. To pay via the new billing method, consumers have to select their ISP and log into their existing account. The amount of the transaction will then be billed directly to the consumer’s ISP account.
Ingo Lippert, CEO of MindMatics AG, commented: “With the prevalence and surging growth of online purchases, merchants are looking for ways to offer to consumers the easiest possible check-out. At the same time, consumers are demanding purchasing options other than credit cards and standard wallets. At mopay, we are constantly looking for new payment methods that help meet the needs of both merchants and consumers. The very positive effect of adding mopay’s broadband billing solution to an existing mobile payments offer is just the latest example of our commitment to providing world-class service and products.”
Cashlog, a mobile payment provider already present in Spain and Italy, has extended its services to Germany. The company is a subsidiary of Buongiorno, a Italian-based content (games, ringtones, wallpapers, etc.) provider for mobile phones.
With Cashlog prepaid and postpaid users can purchase digital goods and services such as virtual goods and currencies in games, eBooks, tickets and coupons up to €30 with their mobile phone. Since the payment service is based on a SMS-TAN procedure, no smartphone or registration is required. According to Cashlog, no personal data is stored. Payments via mobile phones enable consumers to purchase digital goods online without disclosing banking and credit card information.
We talked to Holger Spielberg, Head of Mobile Payments and Innovation at PayPal Germany, about the latest developments in mobile payment and PayPal’s vision of future shopping. Holger has been with PayPal since January 2011. He has more than fifteen years of experience in leading positions across a number of industries, from telematics and telecommunications to mobile services. He is also involved in startups, as founder, executive, angel and advisor.
Payment Observer: Can you give us some details on the mobile payment background of PayPal?
Holger Spielberg: PayPal is the leading electronic payment method and is mostly known for its activities in the e-commerce world. But PayPal was actually founded to transfer money between Palm Pilot PDAs back in 1998. When the founders recognized that they were really visionary with their idea they started to focus on the emerging market of electronic commerce on the internet. As you know, PayPal was acquired by eBay, and that helped to further the growth and to gain knowledge in how to operate a global payment system. PayPal’s DNA is mobile. Over the last 10 years the company learned how to process mobile payments, how do deal with customers. Now we are coming back to our own DNA, and have the possibility to offer mobile payments based on the operational excellence from online payments. As I always say: If you want to offer mobile payments you have to know payments first.
Payment Observer: Mobile payment is one of the hot topics these days. A lot of companies such as Visa, Google or ISIS are starting mobile payment and digital wallet services. How do you see the market?
Holger Spielberg: We see that the lines between e-commerce and commerce are blurring, at the end of the day it all becomes commerce. The channel through which the purchase is made becomes less and less a distinguishing factor.
With regard to mobile payments, we have to differ mainly two areas: one is payments through mobile web or mobile apps – in that area PayPal is definitely a leading player when it comes to number of transactions and transaction volume. The other area is payment at the point of sale featuring proximity technology (such as NFC, QR-Codes or Audio). This area is not fully evolved yet, there is no clear leader at this point. There are a number of big players trying to enter that market because it holds enormous potential and is ripe for innovation. Banks are playing a role, carriers are playing a role and obviously credit card companies have been a player in that space for a number of years. And, PayPal is clearly on a path also to be integrated at the point of sale.
Payment Observer: Is mobile payment a “must have” feature or just “nice to have”?
Holger Spielberg: I am convinced that for merchants it’s a must have to start dealing with mobile payments today. In the near future, the number of mobile devices will outstrip the number of PCs. We believe that half of the transactions in electronic commerce will be happening trough a mobile device in about 5 years. Merchants will have to deal with mobile payments because the number of mobile devices will be so significant they can’t deny it.
On the consumer side, I believe mobile payments are currently more a nice to have feature. But as more and more merchants are providing mobile payment options the ubiquity and availability will be much bigger. In a few years mobile payments will be a must have for consumers if they want to be able to make use of offers and deals only possible at specific times or locations.
Payment Observer: Can you give us some details on the role of mobile in PayPal’s vision of future shopping?
Holger Spielberg: Our vision is to enable payments anytime anyplace by any means. We see mobile payments as a catalyst for innovation. The broad features of mobile devices allow us to change the way people are shopping and how merchants interact with consumers. Our vision includes picking up the customers really early in the shopping experience by empowering them to find product information or deals, and providing them the flexibility to choose different payment methods.
Mobile payments is not only an additional payment channel but rather connecting different worlds. We see mobile payments as a combining catalyst of storefront, online, mobile and even purchasing on the go. We provide payment options and flexibility for merchants and consumers through all channels. We believe the combination of being a bank and an internet player provides us the flexibility to think innovative along the entire shopping process. Our aim is not just to exchange the POS terminal, but to change the whole end-to-end shopping experience.
Payment Observer: Can you give a real-world example of how mobile devices can be integrated into the shopping experience?
Holger Spielberg: Just recently, PayPal Germany announced the availability of the PayPal QR shopping solution. As a consumer, if you are interested in an item you scan the QR code and add it to a virtual shopping basket and in the end pay directly with PayPal. Merchants are starting to include QR codes on advertising and in stores. Some retailers also want to enable the purchase of items trough the shopping window. Basically they can enlarge their store virtually to create more revenues per floor space. PayPal is the enabler of such multi-channel solutions by providing a secure end-to-end platform.
Payment Observer: Is PayPal relying on QR solutions only or are you also looking at other technologies such as NFC?
Holger Spielberg: PayPal is agnostic towards technology, we include everything which makes sense to us to provide a secure and stable transaction service today. We are looking at any technology including NFC, we just believe it will take a while before market readiness. We bring out our solutions based on existing technologies, whenever it makes sense to us to add another technology we will certainly do that. I would predict that NFC is moving closer into focus in the year to come.
Payment Observer: Will PayPal continue to focus on processing transactions or will it venture into other services?
Holger Spielberg: We really believe in extending the value chain and also includes special offerings, deals and coupons. The pressure on the transaction price in retail is significant, and will even grow. PayPal clearly sees additional revenue potential beyond transactions in value added services such as couponing, deals, inventory availability and product information.
Payment Observer: Can you give us some numbers on how many mobile transactions have been processed by PayPal so far?
Holger Spielberg: Aggregated over the time period between March and November 2011 we processed $165 Million in Germany. In markets with higher penetration of smartphones the percentage is even higher, about 6-9% in the UK and above 10% in Australia. A significant part of our transaction volume already comes through mobile means and mobile payments. We expect these numbers to increase significantly over the next two to three years.
With increasing availability of smartphones and mobile internet, new payment methods are emerging. Mobile payments and digital wallets are one of the hot topics these days. Will new payment methods replace cash and the traditional credit card payments?
Earlier today, Intuit published an infographic exploring new payment methods finding that over time online and mobile payments are expected to replace traditional credit card payments. According to Intuit, only one in four U.S. customer is willing to pay for goods and services using a mobile phone. The infographic reveals that security concerns are the main obstacle to mobile payment adoption.
MasterCard is investing in mFoundry, a mobile banking and payments solutions provider for retailers and financial institutions. In addition to the strategic investment MasterCard and mFoundry announced an international partnership, combining MasterCard’s NFC-based PayPass technology with mFoundry’s mobile financial services platform, to make mobile payments accessible to more customers.
Founded in 2004, California-based mFoundry now has more than 500 banks and credit unions customers for their software-as-a-service (SaaS) mobile banking and payments technology. mFoundry developed and manages Starbucks Card Mobile application, one of the most successful mobile payment services in the US.
The collaboration will help MasterCard to expand its PayPass technology to more payment providers and strengthening the company’s position in the emerging field of mobile payments. “This collaboration is going to allow more banks, credit unions and mobile phone operators around the world to offer their customers the convenience and security of Mobile PayPass,” commented Ed McLaughlin, chief emerging payments officer, MasterCard.