It isn’t black and white

[Dave Birch] A couple of days ago I made a presentation on the mobile payments market for one of our customers — the purpose to and details of which are naturally not germane to this post — and I mentioned in passing some of the dynamics of the Japanese market. At the time I made a mental note to make reference to this on the blog. First of all, let me set some context by noting that a model of the marketplace that simply divides the globe into developed and emerging markets, while widely used, is not sophisticated enough to help with strategic perspectives.

The mobile payment services market, while stagnating in the developed markets amid the abundance of alternatives, is accelerating rapidly in the emerging markets because of the lack of alternatives.

[From Pricing the key to success of mobile payments | Telecom Asia]

I don’t think it’s that straightforward. If it were simply a matter of alternatives, then no developed markets would be using mobile payments, and this is obviously not the case. Perhaps people who talk about stagnation might be thinking of Japan, where the proliferation of mobile and e-money schemes means that e-cash transactions only grew 197% in the last two years. Oh wait… What’s the explanation? Japan and Korea have plenty of alternatives yet mobile, e-money and mobile e-money are already in the mass market. Maybe it’s because in Japan and Korea it’s MNOs, transit operators and retailers who are pushing e-money that interesting things are happening?

In the twelvth regular survey into electronic cash… it is now not just credit card electronic cash that has passed the 50% penetration mark, but also mobile phones have reached that milestone, although the majority of the mobile phone contactless IC chips are lying idle.

[From Majority of mobile phones now have IC chips | What Japan Thinks]

In fact, if you read the actual survey it shows that while the penetration of e-purse cards has continued to climb, the penetration of mobile e-purses appears to have got stuck about a sixth of mobile phone users. The use of all e-purses is still rising, however. The statistics show that 3% of e-purse users in Japan are spending more than $1,000 per month on them, an astonishingly high figure for Europe and the US but Japan remains a cash-oriented society and this prediliction extends to the virtual.

Note also that while the survey data shows that the penetration of mobile phones for proximity payments appears to have plateaued over the last year, the penetration of mobile proximity for other applications, particularly ticketing, is still rising.

While the figures from Japan (and Korea) show that telco-led mobile proximity payment markets are showing genuine evidence of an emerging mass market (in the sense of cash replacement) this does not by itself mean that mobile payments must inevitably become a telco proposition. What it might mean, though, is that banks perhaps need to develop more active strategies if (and let’s set aside this discussion for the time being) they want to remain in the value network as providers of mobile payment solutions. This is certainly true in emerging markets, where the banks have rather tended (as far as I can see) to hope that doing nothing and relying on regulators to block progress is an adequate strategic response.

Andi Dervishi, the Global Practice Lead for Investments in Payments at IFC, put it very simply: “The banks are asleep at the wheel.”

[From Mobile Banking: The banks are asleep at the wheel – PSD Blog – The World Bank Group]

Well, OK, telcos might have some advantage due to their familiarity with innovation but that doesn’t mean that banks won’t evolve more innovative responses in time. Personally I think there is already evidence that this process has started, with banks looking to over new forms of financial services over telco mobile money transfer networks in Asia, Africa and Latin America. So do telcos win in payments while banks win in financial services? The real world, as always, is not so black-and-white.

Since this is an industry in which network externalities are crucial, it would be tempting to predict that the market will eventually “tip” towards a dominant solution. But politics and regulation creates a particular source of uncertainty, as the global financial industry and therefore a large part of the payment media markets (e.g., deposit services) still operate under extensive regulation.

[From Who Owns Mobile Money? – pymnts.com]

A typically penetrating analysis. Payments aren’t like other markets (and nor should they be, because they are part of national critical infrastructure). Regulation, in particular, is a driver of the payments market and times of changing regulation are therefore times of opportunity. This is one of the points I will be making at the CSFI round table on payment regulation next week, look forward to seeing you there.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]