Contents Introduction | Major players

As seen in this recent infographic from Forrester Research, the global mobile payments marketplace is quite crowded.

However the high number of players has not helped to increase the adoption rate among consumers and businesses.

Nowadays the challenges are not to develop the technology but to change the habits of consumers/businesses and win their trust.

Most consumers do not mind using their cards or cash to make a payment and will not switch to mobile payments until they understand the real benefits for them.

The same principle applies to businesses – in order to incorporate new payment services, businesses must see the added value, not only for their business, but also for their Major players in the global mobile payments marketplace customers.

This whitepaper looks at a new trend in the financial sector – the spirit of ‘cooperative competition’, with a focus on the British banking industry, which has started to invest heavily in mobile payments.

Introduction | The Facts

Recent research carried out by PwC, ‘Retail Banking 2020: Evolution or Revolution’, based on a survey of 560 financial services executives from leading financial institutions in 17 countries, reveals that 55% of the senior retail banking executives surveyed view non-traditional financial services providers as a threat to traditional , while 31% perceive them as ‘innovative partnership opportunities’.

PwC also identified the main areas for innovation and six priorities for retail banks to stay ahead of the game. As seen in the graph, there is a striking gap between the importance of the priorities and the level of preparedness. Technological, organisational, talent and cost constraints were identified as the main obstacles to success. Introduction | The Facts

For a functional and successful marketplace (any type – be it These ventures are different, the cooperation involving either a retail, financial etc.) rivalry between companies or groups is a number of mobile network operators, a mix of mobile network common and necessary presence. However these days a new operators and a or two, or just banks partnering up and model is emerging in the banking marketplace, triggered by the launching their own service. new wave of players and their disruptive technologies. There are so many payments solutions out there, all quite To keep up with trend setters such as PayPal, Square, V.me from different and with varying degrees of sophistication, that Visa etc, the banking industry must radically reshape and consumers and businesses are overwhelmed and confused by innovate its products and channels. Therefore some banks and the choices available. Faced with so many options, many financial institutions have adopted a new strategy - the consumers choose the familiar options – cash and cards. ‘cooperative competition’ (as Philippe Eschenmoser, Head of Business Consulting at SIX Payment Services named it) which For these reasons, this new strategy emerging in the global means partnering either with other banks or with various banking industry is significant. Because of the scale of the mobile payments providers. collaborations, these new ventures have the potential to standardize the mobile payments industry and speed up the This spirit of collaboration is definitely defining a new era of adoption rate, as consumers become more comfortable using innovation in financial services. mobile payment apps.

Banks meet consumers’ need for trust and security, while mobile payment providers have the technological means to deliver an innovative, fast and convenient customer experience.

In Europe, recent examples of this spirit of cooperation can be found in Sweden, France, Poland and UK.

The various ventures | Overview

France Sweden

At the end of 2012, Sweden’s major banks joined forces to In September 2013, three major French banks (BNP Paribas, La launch an app allowing users to transfer money in real time to Banque Postale and Société Générale) have decided to work anyone who has an account in another Swedish-connected bank together and launched a new online payment system and pay through the recipient's mobile number. SEB launched called Paylib. The paying experience is similar to paying with a the mobile payment service ‘’ together with Danske Bank, PayPal account, users can pay online using a simple login and , Nordea, Länsförsäkringar Bank, Swedbank and password, after they have linked a card to their Paylib account. Sparbankerna. If more French banks join this venture, Paylib has the potential In December 2013 Swish celebrated one year, having more than to become a competitive payment processor in France. 500,000 active users and registering more than 1 billion SEK (€113 Million) in transactions. These figures show that this collaboration has proved successful so far.

The various ventures | Overview

Poland

In July 2013, six leading Polish banks - Alior Bank, Bank Millennium, Bank Zachodni WBK, BRE Bank, ING Bank and PKO Bank Polski agreed to collaborate and help define a common standard for mobile payments in Poland.

Their mobile payment services are based on PKO Bank's IKO app, which was launched in March 2013. The app lets customers make in-store and online payments, and also P2P (real-time money transfer person to person, using only the beneficiary’s telephone number).

Although all six banks will use IKO app as the basis for their mobile payment services, the participating banks will add their own extra features.

UK mobile payments landscape | Zapp’s story

Zapp made headlines in January 2014 when it announced that The participating banks will embed Zapp within their existing five UK banks (HSBC, , Nationwide, Santander and smartphone and tablet apps. When shopping online using a Metro Bank) will adopt the Zapp payment app from autumn smartphone or a tablet, Zapp app will be launched at check-out 2014. Zapp has been developed by , one of the main so customers can proceed to pay. If customers are using a providers of payment services to the UK public sector. PC/laptop to shop online then the websites will send a notification to the customer's phone which will then launch At launch Zapp will only work for online purchases, but Zapp’s Zapp. chief executive declared that the company is working on enabling in-store transactions by late 2015. Because the app is not launched yet, there are a lot of questions regarding the security, convenience and user experience of this mobile payment. It all depends how seamless and fast the whole payment experience will be.

Zapp also announced partnering up with a few payment processing companies – WorldPay, Sage Pay, Optimal Payments and Realex Payments. These partners will hopefully bring a good number of retailers on board as well.

1.Download your bank’s mobile app to use Zapp 2.See your bank account balance before you make the payment 3.Pay instantly

UK mobile payments landscape | Paym’s story

2011 - Launch of a collaborative project 'to make paying by mobile as easy, efficient and secure as any other way to pay'. 2012 - Payments Council confirms is building a central database that will allow customers to link their number to their account details, regardless of who they bank While Zapp managed to sign up 5 UK banks, Payments Council with. (an organization which sets the strategy for UK payment 2013 - 8 financial institutions confirm their participation: mechanisms) announced at the beginning of March 2014, that , Cumberland , Danske Bank, HSBC the new mobile payments service they have been working on Bank, , Metro Bank, Royal Bank of since 2008/2011 will be called Paym. Scotland and Santander. 2014 - Payments Council confirms new mobile payments The exact launch date will be announced in April 2014 and the service will be called Paym service will be available to use later in spring. The Payments Council has also confirmed on March 2014 the This cross industry scheme has some major advantages: it is banks and building societies which will participate at launch - backed by the UK government and it will have a mass , Barclays, Cumberland Building Society, commercial rollout. Danske Bank, , HSBC, , Santander and TSB.

It has been quite a long journey for this collaborative initiative , First Direct, Bank, NatWest, RBS to materialize: International trading as NatWest, The , and will join later in the year, while 2008 - The Payments Council invites companies to respond to a Nationwide Building Society confirmed their intention to join in formal Request for Information and if selected they will work on early 2015. Metro Bank and also expressed their developing the UK mobile payments scheme. interest to join this scheme.

UK mobile payments landscape | Zapp & Paym

Paym will be integrated into customers’ existing Zapp & Paym or payment apps as an additional way to pay, enabling them to • Zapp and Paym are two unparallel industry collaborations – send or receive money using just a mobile number. unlike any other mobile payments services launched in UK

and around the world, Zapp and Paym will have on board To receive payments through Paym, customers need to register more than one bank or two. their phone number and the account they want payments made • Their association with established financial institutions will into with their bank or building society. help these ventures to gain consumers and businesses’ trust and therefore be adopted faster. Payments made through Paym are sent by using established • Zapp will cater for consumer to business transactions, payment infrastructures such as and allowing consumers to make payments to retailers utilising the LINK network. their existing mobile banking app • Paym will allow consumers to make person-to-person Customers need a smartphone only when they want to send transactions via their existing mobile banking app using money via Paym, for receiving payments via Paym, they do not mobile phone numbers. require a smartphone, only a mobile number. • Another competitive advantage is that consumers do not need to download any other applications, as both Zapp and Paym will be linked directly to consumers’ bank accounts

Our research | Consumers

Our research The advantages of a mobile/ to Back in September 2012 we conducted an online survey (with consumers : 204 respondents of varied demographics from UK) to find out • An option to offer ‘One click shopping’ experience and what the population think of mobile/digital wallets, if they know flexible payment methods what one is, their likelihood to adopt them in the near future • No need to worry about keeping track of a physical and what their reservations would be. wallet/cash • Privacy/Password Management While neither Zapp and Paym have all the required features to • Review purchases across websites if the system is be classified yet as ‘digital wallets’ ( they should also integrate implemented universally offers, loyalty schemes as well as bank accounts, credit and • Electronic bill/receipts records debit cards), both ventures have a huge potential to become • Saves time (No wasting time on re-entering information) that ‘universal digital wallet’ that many companies are already • Easier to get a refund to cards used for purchases rather working hard to create. than being forced into store credit because the original card used is forgotten at home. Our research identified various considerations which needs to be taken in account when developing or introducing a Possible concerns of a mobile/digital wallet to mobile/digital wallet , considerations which are still valid today. consumers: • A new concept which deals with money so reliability is For a digital wallet to succeed it is very important that users unknown perceive a unified user experience which is defined as being: • Not yet one universal wallet that can be used on all • Useful websites • Secured • The need for WiFi or 3G/4G connection to enable • Trustworthy transactions • Easy to learn • Possible security issue • Easy to use

Our research | Businesses

The advantages of a mobile/digital wallet to Other possible considerations to bear in mind: businesses : • The accessibility should be carefully looked at to cater to • Increased efficiency for customers (i.e. less queuing time) various types of users in various situations thus happy customers • Distribution of it should be wide and seamless (i.e: via • Less impact on resources i.e. staff as processing purchases smartphone) will be done by customers • Coverage by many vendors accepting it as payment • Possibility to advertise store offers and upsell during the method purchase process • Designing a system where the ‘account’ or ‘profile’ is not • Less physical cash held in-store jeopardising users’ privacy, so in cases the mobile / digital wallet security is breached there is minimal damage. Possible concerns of a mobile/digital wallet to businesses: • Cost of implementing infrastructure to support the use of digital wallets, i.e. WiFi and digital presence. • The need to adjust to changes in shoppers behaviour which may have an impact on the business model • Possible lack of ‘face time’ with customers to enable physical upsell of products and services • Possible need to interact with 3rd party vendors to gain shoppers insight and marketing opportunities • Possible need to interact with 3rd party vendors to gain shoppers insight and marketing opportunities • The reliability of the technology

Conclusion | Our thoughts

There are a lot of questions regarding both Zapp and Paym apps, although both services promise a fast, simple and secure payment experience, until the apps are launched, no one can fully assess the functionality and reliability of these two mobile payments services.

Nevertheless, these ventures mark an unprecedented phenomenon in the banking industry and the mobile payments marketplace.

Consumers and businesses are still waiting for that standard secure mobile wallet that will make them move away from cash and cards, with extra benefits such as faster checkouts, discounts and promotions, access to real-time balances and location-based marketing offers.

References

1. PwC. March 2014. Retail Banking 2020 Evolution or Revolution? Available: http://www.pwc.com/gx/en/banking-capital-

markets/banking -2020/download-and-read-the-report.jhtml

2. Payments Council. March 2014. Overview of Paym. Available: http://www.paymentscouncil.org.uk/mobile_payments/

3. Mobile Payments Today. March 2014. Mobile payments taking off in UK. Available: http://www.mobilepaymentstoday.com/article/229771/Mobile-payments-taking-off-in-the- UK?utm_source=NetWorld%20Alliance&utm_medium=email&utm_campaign=EMNAMPT03242014 4. Mobile Payments Insider. January 2014. Major players in the mobile wallet race. Available: http://www.mobilepaymentsinsider.com/2014/01/24/major-players-in-the-mobile-wallet-race/ 5. Bain &Company. February 2014. Mobile payments: Finally ready to take off. Available: http://www.bain.com/Images/BAIN_BRIEF_Mobile_payments_Finally_ready.pdf 6. The European Financial Review. February 2014. Burying the Hatchet: Banks across Europe Collaborate to Innovate. Available: http://www.europeanfinancialreview.com/?p=7921 7. Global Banking & Finance Review. July 2013. Polish banks in unique cooperation to set the standard for mobile payments. Available: http://www.globalbankingandfinance.com/polish-banks-in-unique-cooperation-to-set-the-standard-for-mobile-payments/ 8. Phoenix UX. September 2012. Digital Wallets: The next big thing? Available: http://www.phoenix-ux.co.uk/digital-wallets-big-thing/