Why the Payment Landscape Is Undergoing Fundamental Change E-BOOK MOBILE PAYMENTS

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Why the payment landscape is undergoing fundamental change E-BOOK MOBILE PAYMENTS

Within the context of digitalization and the technological change, and the entry of the heavyweights into the mobile payment market, the development of payments via smart phone is gaining momentum. Take the CHANCE!

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Cash was yesterday! The mobile payment systems of Amazon, Apple, Google and many other providers promise consider- able simplification of the payment process. It is therefore clear the mobile payment will gain market shares and the physical wallet will see a slow decline.

Jan Florian Richard from Arvato Financial Solutions explains the perspectives of mobile payment and introduces the most important players.

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“There are still concerning’s with mobile payment“

Where there were previously some big question marks, it is now slowly becoming clear: Mobile payment in places like super- markets is permanently increasing. The relevant studies may be contradicting each other to some extent, but there is a clear trend towards the increasing acceptance of mobile payment. The user figures are nevertheless coming from a low level and security concerns above all as well as a lack of awareness are keeping the majority of consumers from using mobile payment. In Germany especially, we have the traditional great affinity with cash, and many people seem to still be unaware of the topic. So at the end of 2018, the EHI Retail Institute published a survey, which showed that 60 percent of respondents had even heard of mobile payment. And even this group is dominated by the doubters, whereby almost two thirds consider the process to be intransparent and insecure. The threat of hackers and the loss of smart phones are deterrents, but also the reticence to give out personal data. ?

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On the other hand, the numerous benefits are enticing and the existing users and interested parties have very clear expectations of the new process: mobile payment should speed up and simpli- fy payment overall. With the help of an additional practical way to transfer money, consumers also want to become more in- dependent of cards and cash, so for many mobile payment is a contemporary alternative to other payment methods.

The relevant figures also show in this connection that those sur- veyed mainly use their smart phone or smart watch at the supermarket, but prefer to pay in cash or by card in small businesses such as the bakery or for larger purchases such as furniture.

The use of mobile payment is therefore still very dependent on the type and place of purchase. An interesting point for providers is that consumers mainly trust their bank or credit card providers as well as major trading companies. The major tech companies from the USA are still seen with scepticism when it comes to money. Domestic providers should take advantage of these reservations. So my advice is:

“Use the home advantage!“

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Mobile payment doesn‘t just play an increasing role in stationary shops, but the corresponding buttons are also more often integrated in e-commerce. Both Apple and Google, as well as banks, credit card companies and telcos and payment service providers such as PayPal offer the corresponding process.

According to a survey conducted by GS1, Amazon Pay holds a special status - the majority of shops see the payment function of the online shopping giant as competition. So it is still very open as to how the payment market will develop and which processes will be the most popular. The expectations of trade and the results of studies are however very clear: Apple Pay and Google Pay above all are redefining the market and are encouraging increasing numbers of consumers to pay with their smart phones and smart watches.

Almost every third person has already paid mobile

Have you ever paid mobile with smartphone or smartwatch?

30% Yes*

70% 1% Via Smartphone and No No answer NFC provider 26%

Via Smartwatch and NFC provider 23%

Via Smartphone and QR-Code 3%

0 5 10 15 20 25 30

*Basic: All respondents (n=1.005) deviations up to 100% due to rounding | * Multiple nomination possible | Source: Bitkom research

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On a global level too, the prospects are impressive. While the market share of paying using a mobile wallet is currently still below most other payment methods, Worldpay predicts a sig - nificant change here. Accordingly, mobile payment will have overtaken cash and credit cards by 2022. The figures mean an annual growth rate of 30 percent. This is not enough, as until now less than half of all Asians and Africans do not even have access to the internet. On these continents especially, there is therefore huge potential for more mobile payment users.

In 2022 mobile payment should replace the cash and credit card payment methods as the most popular method.

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Mobile Wallets

An overview of the providers on the payment market

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When we talk about mobile payment processes, this mostly refers to the so-called mobile wallet. This is a wallet that is controlled by mobile telephone and which holds various digital payment methods or a credit balance. A mobile wallet can therefore replace or add to other payment methods with the help of your own app solutions or a cooperation with a payment service provider.

In addition to payment processes, many mobile wallets also allow users to execute other applications. These include functions such as authentication of the holder, but also couponing and loyalty programs or ticketing. Payment and other data can be transferred via NFC, the mobile network or Bluetooth to the relevant recipient of the funds.

The great success of mobile wallets is mainly attributable to its positive user experience. So they offer money transfers without media discontinuity and at the same time offer high security standards. Digital wallets integrate the payment process into the lifestyles and daily routines of consumers, and also accelerate the check-out process at the POS.

But how does the mobile payment process actually work? What is the technology behind it and what can be said about the customer journey? To clarify the functionality and potential, we have taken a closer look at Apple Pay and Google Pay. We also take a brief look at other providers of interest on the payments market.

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01 Apple Pay

This service is a mobile wallet, which is available to users of more recent iPhone, iWatch, iPad or Mac devices. Apple Pay was announced back in 2014 and was only initially available for holders of US credit cards. In the meantime, more and more countries have been integrated and German Apple customers have been able to use this payment method since 11 December 2018. They need to add a credit or debit card, which is used to process payments. At the POS, they only need to hold their device to the payment terminal and as such trigger the contactless payment process. Unlike Google for example, Apple prevents third-party providers from accessing the built-in NFC chip. This means iPhone users cannot use any other payment apps.

“The payment process with Apple Pay is very user-friendly.“

Any online retailers wishing to offer Apple Pay must meet certain conditions. As such, shops or developers must have an Apple Devel- oper Account and the relevant acquirer must support Apple Pay.

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Even if e-commerce websites need to meet the Apple guidelines and support the https protocol, they do not need a separate agreement with Apple. Which also means no additional costs. There are also more framework conditions. The shop operator‘s systems must also be compatible and it remains to be clarified whether the relevant payment service provider actually supports Apple Pay for the retailer‘s acquirer. This detour via an additional service provider is necessary because a direct integration of Apple Pay is not currently supported.

It is very simple for owners of iPhones & co. to pay with Apple Pay. When checking out in the online store or at the supermarket, a button will appear with the corresponding payment function and once the orderer has checked the details on the display, they can simply trigger the payment via the fingerprint sensor. If the payment was successful, a confirmation will appear on the display. However, the technology does not work on all Apple devices; older models often do not have the required conditions.

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For many users, there are still two important questions: Where can I pay with Apple Pay and which banks and payment service providers are involved? In terms of acceptance, a lot has been done since its launch in 2018, and all major brand stores from A for Adidas to Z for Zalando, as well as discounters, many chains and even petrol stations and shopping centres now accept Apple Pay. The selection of banks and credit card companies is also very large, and for example the german Sparkasse and Volksbank banking networks are in the integration phase, which means the majority of German banking customers can use Apple Pay. American Express, Maestro, Master- card, Deutsche Bank, N26, HypoVereinsbank, Santander, Comdirect and DKB are all on board already. More will follow.

02 Apple Card

The Californians are venturing even deeper into the finance industry with the Apple Card, a credit card. Although it is a physical card with its sophisticated titanium look, in actual fact it lives in the iPhone; integrated in the Wallet app. For this reason, it does not need a number on the card. Another special feature is that the customer immediately sees all transactions and can even locate individual transactions on a map. These can also be sorted in categories or by periods for more clarity. The company also advertises the fact that it doesn’t charge fees. A special gimmick is that consumers can see the interest they will pay for every payment – in case their credit balance is used up. This puts a psychological obstacle to maxing out the limit. The banking partners are Goldman Sachs and Mastercard, but it is not certain when this will be launched in Germany, yet.

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03 Google Pay

Back in June 2018 and therefore a few months before its competi- tor from Cupertino, the US search engine giant launched Google Pay on the German market. This service combines the previous Android Pay and Google Wallet, but also includes customer and bonus cards as well as other functions. Like Apple, you also need a credit or debit card from a payment partner to be able to transfer money using the mobile. Anyone wishing to pay at the POS with their Android smart phone can simply hold it over the register terminal, which will transfer the relevant data. This requires an NFC-capable device and this is lacking mainly in entry models for reasons of cost.

“Google Pay supports other functions as well as payment“

Anyone wanting to integrate Google Pay in their store first needs the right payment partner. They must support the payment method, and a direct integration of Google Pay without diverting via a bank or payment partner is not possible. They also need a Google account

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including a retailer ID, for which the “Device Payments” functions is activated. The necessary settings in the relevant shop soft- ware must also be applied, whereby the search engine company provides technical guides. Like Apple, Google also does not re- quire a separate agreement for the use of its payment method.

Any user wishing to pay with Google Pay will find the corresponding button on the check-out page of the relevant online store and on the stationary register display. To trigger payment, the pin or fingerprint for the account must be authenticated and the payment method selected. On the following page, the data can be checked again or amended, and once approved the store’s confirmation will appear. The customer experience is therefore very similar between Apple and Google.

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Google is also striving for the greatest possible number of cooperation partners who accept and execute payments. Examples of banks and other payment methods are Commerzbank, N26, BW Bank, boon or PayPal. More have been announced. Thanks to PayPal integration, virtually any current account can be connected with Google Pay. The list of participating trade partners can also be viewed, and like Apple, this includes many major brands and chains. Overall, however, the selection is currently smaller.

04 Other providers In addition to Apple and Google, there are also other providers tumbling about on the mobile payment market and due to Apple restrictions, only Android users can install third-party providers.

With the “Mobile Payment” app, the German Sparkasse banks are the largest provider in Germany with more than three million potential users. However, there are no figures on how many users actually use the mobile payment function in the app.

The same applies to the Volksbank banks, whose banking app has also included the mobile payment function since 2018. Users of both banking networks can transfer money to the payment termi- nals at the POS using their Android mobile. Payback Pay, Postbank, Deutsche Bank and other providers are also pres- ent on the German markets with their own apps.

Even before the entry of Apple and Google in the payment market, Amazon Pay was launched in 2007. This may not be a mobile payment service, but due to the dominating role of Amazon in e-commerce, the process should not be left out.

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The principle behind it is the same as PayPal. If you come across a product in a third-party internet store and do not wish to create an additional buyer account for the purchase, Amazon Pay offers a payment option by completing the purchase via an (existing) Amazon account. The buyer must share their profile information with the relevant retailer, whereby they choose from the delivery addresses and payment methods on file with Amazon. The shop operator needs their own Amazon Pay retailer account and they will incur additional costs.

But it is not only the US shopping giant who is surging onto the market as the Chinese competitors are also waiting in the wings. Alipay and WeChat Pay are existing solutions, which will also be available in Germany and other European countries. Also the Chinese competitors are ready

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Mobile Payment - Goodbye cash?

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The developments over the last few years very clearly show that the major providers, both finance and payment service providers as well as in the digital and shopping industry also need to take the issue of mobile payment seriously. Consumers can now pay with their smart phone almost anywhere. This applies both to the register in a stationary store and e-commerce. Because providers are making the payment process in their apps simpler and simpler based on the receptiveness from trade, the number of users is also continuously increasing. Mobile payment has become attractive.

“Consumers appreciate mobile payment. A shop offering such payment will therefore become much more attractive.“

It is less clear, however, which providers will end up dividing the market between themselves. Due to the good competitive posi- tion, the trade and banking industries also consider the Sparkassen app as an important player with a growing share in all Sparkasse money transactions. As concerns the US internet groups, traders view Google as having the best chances of cooperation. A look beyond the horizon shows that mainly the Asians are ahead. Even

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at the end of 2017, almost half of the Chinese were using mobile payment systems and in India too, significant market penetra- tion can be observed. On the other hand, the US Americans are more reticent, whereby the most frequently used payment plat- form in 2018 was the Starbucks app, ahead of Apple and Google.

A significant obstacle on the path to the mobile payment world is definitely the fragmented payment landscape. The Germans mainly continue to rely on cash and even the high prevalence of card payments precludes this, because many debit cards now also have a contactless function and so there is hardly any additional benefit to paying with a mobile. Regardless, the possibilities offered by smart phones and smart watches mean that consumers are increasingly demanding mobile payment functions. The trade industry would therefore be well advised to integrate the corresponding options.

19 E-BOOK MOBILE PAYMENTS Who is Jan Florian Richard?

Arvato Financial Solutions [email protected]

Jan Florian Richard has been the Director for Strategic Partnerships since 2019 and is specialized on the international e-commerce industry. He focuses on topics around Payment and Financing Services, along the entire customer journey in the online shopping business. Jan has been successfully supported online retailers for 11 years and strengthens strategic partnerships and cooperation’s.

Find out more We at Arvato Financial Solutions are familiar with the complex world of financial services. We therefore strive to guide our clients through this world by offering integrated solutions along the entire credit management chain. An important part of this mission is to continuously explore trends and changes in the financial sector before they can cause any surprises. We offer our experience and knowledge in three different formats. You can find all publications under finance.arvato.com/insights.

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