What was unexpected, at least to me, was the extent to which the idea of the mobile phone as a catalyst for a growing number of three-party payment schemes as a opposed to a carrier for the existing four-party payments schemes permeated the discussions. This was most definitely a change from the last Mobey Forum session that I attended a couple of years ago. When I sat down at the start of the day, I wasn’t really thinking about this aspect at all, expecting more of the discussions to be around mobile wallet architectures and the usual banks vs. telco arguments. Hence I was unprepared for the fascinating case study of the IKO scheme that has been launched by PKO Bank, Poland’s largest.
Poland’s top bank PKO BP wants to have some 900,000 clients of its newly introduced mobile payments system IKO by the end of 2015, PKO BP official Wojciech Bolanowski told a news conference. The bank would like IKO “to become a local standard of mobile payments,” Bolanowski added.[From The Warsaw Voice]
This struck me as rather interesting. So interesting, in fact, that I grabbed Wojciech and dragooned him into recording a podcast for our Tomorrow’s Transactions series. Apart from being the leading Polish retail bank by market share, PKO is also Poland’s biggest Visa issuer. I can’t help but wonder, therefore, what Visa and MasterCard think about the Poland’s leading retail bank launching a new national, non-card, direct-to-account retail payment scheme. And they will not be the last, since I am reliably assured than another of Poland’s leading retail banks is contemplating the launch of a similar scheme.
This is big.
If the mobile phone means that people begin to carry around some three-party payment schemes to support the majority of their spending (which is one the one hand domestic and on the other hand in a very limited number of retail outlets) it could lead to some rather interesting knock-on consequences, which may not be limited to the distribution of transaction fees. Let me give you an example. Suppose that the top 100 UK retailers agree to accept the payment schemes of the top five UK banks, provided that the banks deliver a common API to the retailer applications. This could eat into international scheme volumes in a big way. Add to this the BRIC-thing, with Brazil, Russia, India and China all developing their own domestic schemes, and you could see a major shift in the balance of power over the next five years or so.
The dominant payment brands, such as MasterCard and Visa are facing increasing competition from both newly established domestic networks (most notably RuPay in India and PBOC 3.0 in China) and alternative mobile payment developments including digital wallets and m-POS solutions. ABI Research has forecast that RuPay and PBOC 2.0/3.0 cards will have the largest market impact, accounting for 2% of all cards in circulation in 2013, increasing to 21% in 2018.[From ABI Research]
Now, the international schemes are not stupid and they can read the newspapers better than I can, so they will have to develop new strategies to stay in business. The old strategy, which was to deliver higher interchange to issuing banks, only made sense when the retailers’ choices were constrained. The new strategy must be to use technology to add value to the retailer proposition. Mobile, two-factor authentication, big and small data, But there’s another change in the atmosphere here, I think, because the nature of the POS is changing so the old approaches don’t fit any more. These new strategies to add to value have to be executed much more quickly than might have been acceptable in the past and more flexibly.
One fifth (21.4%) of retailers plan to remove five or more traditional, fixed-station POS units per store and replace them with mobile POS. Does this indicate retail is on the verge of a dramatic shift in POS as we know it? This study says it is.[From It’s the End of POS as We Know It | Retail Insight Blog | RIS News: Business/Technology Insights for Retail, Supermarket Executives]
These mobile POS devices are (remember Tomi Ahonen’s formula “mobile + anything = mobile”) not conventional POS devices that have been untethered but mobile phones and tablets with added card interfaces. They run apps. National 3-party schemes based on mobile apps communicating with other mobile apps that are now POS terminals? This is a whacky world if you grew up (as I did) in an era of consolidation around 4-party schemes with a single international standard (EMV) and it’s one of the reasons why retail payments are so much fun.
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Consult Hyperion or any of its clients or suppliers