The outsourcing company Accenture conducted a survey to find out if consumers want to use their mobile phones for payments. Unsurprisingly, there is a strong correlation between countries where people have already used their mobile phones for payments (eg, China) and where people wanted to use their mobile phone for payments (eg, China).
Overall, 69 percent of survey respondents in Asia indicated they favored using mobile phones for most payments, led by Chinese consumers (76 percent) and India (75 percent), followed by Korea (56 percent) and Japan (47 percent). Outside of Asia, the next highest positive response was in Brazil, where 70 percent of consumers favored using mobile phones for most payments… asked if they had used a mobile phone to make purchases in the past six months, nearly half (47 percent) of tech forward consumers in China indicated they had, followed by Korea (42 percent) and Japan (33 percent).[From Interest in Mobile Phone Payments Strong Among Most Active Mobile Users Despite Security and Privacy Concerns | Business Wire]
Now, the figures cannot represent a desire for mobile out of a lack of alternatives. I’m in China right now, where China UnionPay already has gazillions of cards out there and I’ve been using my splendid Travelex prepaid Visa card all day without a problem (some shops just wanted signature, some wanted online PIN and signature, I don’t know why). Meanwhile, back home, the situation looks rather different.
In the U.S. and Europe, combined, however, only 26 percent of respondents favored using mobile phones for most payments.[From Interest in Mobile Phone Payments Strong Among Most Active Mobile Users Despite Security and Privacy Concerns | Business Wire]
Oh well, I guess there’s no need to spend much money on m-payment solutions in Europe or the US then, when only a 100 million or so people will want to use them, especially so in the US where another survey shows that few consumers are prepared to pay for m-payments.
However, the [Yankee Group] consumer survey results also indicate that less than 10% of respondents would be willing to pay extra for mobile transaction services such as mobile banking, mobile coupons and mobile payments[From Less than 10% of US consumers willing to pay for mobile payments • NFC World]
But hold on, I thought. If you asked consumers in the US if they were prepared to pay for debit cards then only 10% would have said yes. Yet everyone has (and uses) a debit card. Hhmmm…
So who does pay for debit cards then? In the US, where the merchant fees are much higher than in Europe, transaction fees are the major source of income. But the economics of debit are different in Europe where the already lower debit interchange and fees mean that in some countries (eg, the Netherlands) the banks lose money on every debit transaction, whereas in some countries (eg, the UK) they make a small but vanishing margin. Yet debit is profitable for banks. Why? It’s because the major component of income from debit schemes is not the transaction fee but
- The interest foregone on current accounts. Consumers who use their debit cards keep money in their current accounts to fund and the bank earns interest on that money.
- The fees earned from unauthorised overdrafts and such like. If you are out spending on your debit card and you see something that you want, you might go into the red to get it. Or you might make a mistake.
This led to an interesting twitter conversation with Forum friend Scott Loftesness. As Scott pointed out, people do, of course, pay for debit cards, but they just don’t see explicit pricing. But they might, if the “Durbin debate” ends with issuers being forced to reduce interchange. The National Retail Federation (NRF) in the US has told Congress that delay to debit card swipe fee reform will save banks and their customers more than a billion dollars for every month of delay. Actually, that’s not quite what they said…
A postponement of the debit card swipe fee reform could cost US retailers and their customers more than $1bn per month, the National Retail Federation (NRF) warned Congress.[From Debit fees regs delay could cost $1bn]
I wrote before that if retailers think that they are being so grotesquely overcharged for debit schemes then they should start their own, and I do have to say that I am puzzled that more of them haven’t already gone down the decoupled debit route, especially those with strong loyalty databases (eg, Tesco).
My wife’s visit to Target this week prompted a revisit to the decoupled debit space. Target’s value proposition: hand me your check and sign a release form, you will then receive a RedCard linked to your checking account and good for 5% off all future purchases[From Decoupled Debit « FinVentures]
Retailers in the US, it seems, prefer a different kind of competition. A little while ago I read a piece in the Financial Times, which I couldn’t find given five minutes googling, that said that the regulatory capture of $1 billion a month, most of it going to America’s biggest retailers, wouldn’t make any difference to the prices that consumers pay. I’m sure that’s true, and I don’t suppose banks pass on all of that billion to customers any more than retailers would, but let’s face it: someone has to pay.
Banks have never lost out because of their gracious generosity in allowing customers to use cheque books, debit cards or cash machines for free.[From The end of free banking would be another slap in the face | Chris Leslie | Comment is free | guardian.co.uk]
This is what people in the UK genuinely believe. As Scott says, they see debit cards as free. There’s no way you can now charge them for them. So why wouldn’t mobile payment cost be bundled into the bank account fee just as the debit card cost is? Actually, I suspect that it won’t be, for the simple reason that I don’t believe that consumers won’t pay. Mobility has value. If you had asked me whether I would be happy to pay an 8% transaction fee for using mobile payments a few months ago then I would have told you no way. But that’s exactly what I did last week when I went and parked at Woking station, cheerfully paying a 40p extra charge for using RingGo (a mobile payment for parking scheme) rather than use cash for a £5 parking charge.
Scott asks how mobile payments can deliver additional value to the merchants. I would say that in my recent dealings with issuer/acquirer/merchants, three general themes have emerged (I stress that these are general: they don’t relate to any specific project we are involved in).
- The first is that retailers like mobile wallets. anticipate lower online abandonment rates with mobile wallets and I suspect they may also anticipate a higher average sale than with cash in physical environments.
- The second is that retailers expect to be able to use these mobile wallets to interact directly with consumers through loyalty products, coupons, special offers and so on.
- The third is that mobile should mean fewer disputes and chargebacks, which cost retailers time and money.
All of which means that the retailers will incentivise customers to use mobile, so customers will use it even if it costs them an explicit fee versus the implicit fee associated with debit. Ultimately, I’m pretty sure, that the fact that only 10% of consumers say they will pay doesn’t mean anything.
Dave Birch makes some really good points about whether people will be prepared to pay for mobile transaction services.
Really, it is about educating the ‘uneducated’. In the UK, we truly believe that we bank for free, but of course we don’t when you start considering that banks prosper on the interest on your money sitting in your debit account and the fees you get charged for overdrafts, late payments etc. In the ‘debit’ world the transaction costs are hidden, in the mobile transaction one they will be explicit. Will it deter people from taking up m-payment services? Probably not, not when you think micro, convenience and incentive.
Initially, people will use m-payments for micro purchases; goods that cost less than £15. An eight per cent charge on top of this doesn’t really amount to much money, especially when you add it to the next point – convenience.
M-payments are convenient; if Dave Birch hadn’t used m-payments to pay for his parking, queuing to pay could have meant that he missed his train and the start of his business meeting. Then you’re looking at the cost of loss to the business, by missing a meeting, making a deal, or the loss of a business person’s time. Suddenly, paying 40 pence extra doesn’t seem very much in the scheme of things.
Then there’s incentive – by nature humans are motivated by incentives and the false belief of getting something for nothing. M-payments will open up a realm of new loyalty and reward schemes for retailers, who will benefit immensely from the opportunity.
Take these three points into consideration, and it’s a definite yes. Once people have adopted the technology and see the benefits, they will be willing to pay the transaction charges.
Comment from Hemant Lamba, Banking and Capital Markets Practice, Infosys, and posted by Infosys Press Team