Cardmaggeddon in China (and Canada)

I nipped round to Waitrose to get some milk the other day. As I closed the door behind me I realised that I’d left my wallet on my desk. But guess what – I didn’t care. Waitrose takes contactless, and they’ve implemented in properly (with CDCVM), so there’s no need to take cards as consumers are forced to do in less-developed nations. I had my phone in my hand, so I used that. It’s the future, you know…

More than two thirds of the UK’s 16-34 year olds (67%) have used their mobile phone to make an in-store payment, research released by Worldpay reveals. Over half of all age groups surveyed (54%) expect smartphones to replace cards as their main method of payment within the next five years.

From Two in three young Brits have made a mobile payment in-store • NFC World

As Anthony Jenkins (former CEO of Barclays) accurately predicted years ago, mobile phones are going to replace cards before they replace cash. But when I got to Waitrose and used my phone, the ensuing transaction was just a boring (although very secure) old MasterCard credit card transactions running over the same old rails. But for how much longer? Look at what is happening in China right now.  China has a very vigorous mobile payments market, and it’s dominated not by banks but by AliPay with about three-quarters of the volume and WEChat with around a fifth of the volume. The for all the excitement of a few years ago, the telcos are not even in the top 10! However, with falling revenues in other areas (text message volume was down 8% last year), the major carriers (who have held licences to provide mobile payment services since 2011) need to develop new businesses and mobile payments is one of them.  

“We expect to overtake them once the next generation of payment technologies replaces QR codes,” [China Telecom Bestpay General Manager Gao Hongliang] told the financial magazine Caixin Weekly on August 12.

From China’s telecoms refocus on mobile payment market after falling way behind – Global Times

What are these “next generation of payment technologies”? China Mobile, the biggest carrier, is focussing on NFC. But I suspect that Bluetooth, wifi and other technologies will come along too. The “last millimetre” problem is fading. Meanwhile, the banks aren’t doing too well out of the mobile payments revolution either. Indeed, China gives us a very accurate glimpse at the #cardmaggeddon (the time at which cards will cease to dominate non-cash retail payments by volume) approaching in developed markets.

The move by more Chinese consumers to switch from swiping plastic cards to scanning QR codes with mobile wallet apps knocked $20bn from banks’ fee income in 2015

From China banks starved of big data as mobile payments rise – FT.com

If you think about it though, there’s a much bigger problem looming. It’s one thing for banks to lose interchange income (but they are losing that anyway because of the downward pressure on interchange everywhere) but hey, it’s only money. The truth is that they are losing something far more important. As the FT notes, when the banks don’t see the payment transactions, they don’t see the data either.

The loss of data poses a challenge to Chinese banks at a time when their traditional lending business is under pressure from interest-rate deregulation, rising defaults, and the need to curb loan growth following the credit binge. Big data are seen as vital to lenders’ ability to expand into new business lines.

From China banks starved of big data as mobile payments rise – FT.com

So #cardmaggeddon is about a much bigger shift in bank strategy than the replacement of income from interchange revenues. What can they do in response to this? Well, I’m going to be talking about this and making a couple of suggestions to begin the debate in Toronto on 29th September at the fourth Tomorrow’s Transactions Toronto Unconference. Here’s the skinny…

This year’s focus will be a peek at the post-card payments world because at some point in the imaginable future, mobile “tap and pay” and “app and pay” will overtake card payments or, as we prefer, #cardmaggedon or the #cardocalypse, where plastic card products no longer dominate and begin their slide into history.

Come and listen to global FinTech guru Dave Birch, Director of Innovation at Consult Hyperion and a Visiting Professor at the Surrey University Business School, moderate a day of discussions on the future of digital transactions.

Dave was named one of the global top 15 favourite sources of business information (Wired magazine) and one of the top ten most influential voices in banking (Financial Brand); was found to be one of the top ten Twitter accounts followed by innovators, along with Bill Gates and Richard Branson (PR Daily); was ranked in the top three most influential people in London’s FinTech community (City A.M.), was voted one of the European “Top 40” people in digital financial services (Financial News), was listed of the world’s top 100 most influential FinTech leaders (Hot Topics) and was rated Europe’s most influential commentator on emerging payments (Total Payments).

He has lectured to MBA level on the impact of new information and communications technologies and has contributed to publications ranging from the Parliamentary IT Review to Financial World. He is a media commentator on fintech issues and has appeared on BBC television and radio, Sky and other channels around the world. His most recent book “Identity is the New Money” was published in April 2014 and his new book “Before Babylon, Beyond Bitcoin”, about the future of money, will be published later this year.

Dave will be co-hosting with FinTech industry veteran, Debbie Gamble of NorthCommons, as they discuss the impact of FinTech and the new norm of digital transactions.

We hope you can join Dave, Debbie and other thought leaders for a day of colourful debate and speculation about what will happen when push payments replace pull payments and how the dynamics of the payments industry will change at the Tomorrow’s Transactions Toronto Unconference 2016.

And don’t forget to check us out on Twitter #TTTU2016.

It’s time to being planning for the post-card future of retail transactions and looking to see where your organisation can play in the new value chain built from instant payments, APIs, biometrics, mobile phones and the internet of things. Come along and get started on 29th September. The madmen are literally giving away the tickets for a measly CAD75, so it’s going to cost you more in gin and tonic for me than for the ticket itself. See you there.

MasterCard and VocaLink is a big deal

I’m sure by now you’ve all read about MasterCard’s acquisition of VocaLink. If not, you can listen to me talking to David Yates, the CEO of VocaLink, about it on the latest podcast in our Tomorrow’s Transactions series, either via iTunes or directly via our web site. It’s very interesting, in my opinion, to hear David’s rationale for the deal and his very positive view of the future that has VocaLink experience in instant payments married to MasterCard’s global presence. And for more on this deal, Karen Webster over at Pymnts spoke to MasterCard’s Chief Product Officer to look into the “why VocaLink and why now” behind the acquisition and wrote a nice piece about it.

With VocaLink’s Zapp proposition, Miebach explained, a consumer can go to a merchant’s checkout, use their mobile device to access their trusted bank’s mobile app, and see a variety of payment options including Zapp’s pay-by-bank offering.

From Mastercard Talks VocaLink Acquisition | PYMNTS.com

Personally, I think this initial analysis didn’t touch on a couple of issues that are relevant to understanding the deal. First of all, the reason why VocaLink was worth so much to MasterCard rather than anyone else (and thanks to the collapsing Pound was a bargain for them) is that Visa dominates the UK debit market and the push future for “instant payments” at retail presents a debit-like proposition to consumers. Zil Bareisis made this point over at the Celent blog.

Visa controls 97% of the debit card market in the UK. I would imagine that a Zapp-like solution would have more of an immediate impact on debit card transactions rather than credit card spend.

From The Future of Zapp and Other Musings on MasterCard and VocaLink

Secondly, if a push payment debit-like in-app and in-browser alternative to the traditional debit card which did not run through the card network but through the Faster Payment Service (FPS) is attractive enough for consumers to want to use then merchants will have to accept it and potentially pay more than they do for existing debit cards (which they will do, because the push product will have more attractive rules and rights) and that will give scope for MasterCard to offer rewards of one kind and another.

Somehow this takeover didn’t make the news headlines, but mark my words it was one of the most significant events in the evolution of the UK payments industry since Reg Varney got a tenner out of that first ATM in Enfield half a century ago. It’s a significant milestone on the road to #cardmaggedon, and it’s not only me who thinks this. Using mobile phones to make instant payments is going to impact the use of traditional plastic cards and plastic card products. Not just because the card will vanish into the phones but because the products themselves will be reinvented for the new age.

As ANZ rolls out Android Pay to its customers, the Australian bank’s chief executive Shayne Elliott has predicted that mobile payments could displace plastic cards in well under a decade.

From ANZ chief predicts mobile will kill off cards in less than a decade – BayPay Members Blogs

This is exactly what Anthony Jenkins said (when he was head of Barclaycard, before he was the CEO of Barclays) when he said, as memory serves, that mobile phones would get rid of cards long before they get rid of cash. But I think the change is more profound than he was thinking about back in the day.

The mobile phone isn’t just going to get rid of the 1940s embossing and 1950s card and the 1960s network and the 1970s magnetic stripe and the 1980s chip and the 1990s online card-not-present use and the 2000s 3D secure and keep only the 2010s network tokenisation in devices but it is going get rid of the whole bundling of PAN-based payment with credit and fraud management and merchant guarantee. The push for push, as they say (or, at least, I say) is inexorable.


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