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Margaret Weichert Payments Evolution in the Mobile Millennium: The Challenge of Aligning Solutions to Customer Needs Margaret Weichert Market Platform Dynamics In the United States and much of the Western world, discussion and debate among “payments professionals” has been consumed in recent years with technology debates and regulatory battles, even while the broader world continues its steady march towards the new realities of a mobile millennium. In developed markets, e-commerce continues to grow at double-digit rates, despite the relative maturity of those markets. Still other less developed markets, such as Mexico, are experiencing triple digit e- commerce is growth, as broader economic growth and technology access to mobile Internet capabilities dramatically ramps up the e-Commerce/m-Commerce markets. Even markets with relatively low overall Internet usage are poised to experience dramatic e-Commerce growth as banks, policy makers and business leaders recognize that the mobile web is a profound tool for financial inclusion. Low cost internet-enabled POS devices will enable a wide range of consumers to have access to web-enabled commerce. In India, for example, nimble entrepreneurs and technology companies are working diligently to enable 250 million Indian debit card users to get access to the mobile web via POS mobile technology. Mobile commerce is already a meaningful part of the payments ecosystem and is poised to grow even faster than e-commerce did. However, one of the biggest challenges in global adoption of mobile commerce solutions is a fundamental mismatch between the payment preferences of most global consumers – for debit card payments – and the accessibility of debit-oriented mobile payment solutions, especially in the quickly evolving world of mobile web commerce. While mobile innovators are developing entirely new mobile business models, complete with different economics, customer value propositions and consumer-oriented, lightweight (often cloud based) technology solutions, traditional payments companies are deep in discussions about NFC, EMV, and interchange – issues that remain rooted in the realities of the 20th century, and do little to meet the practical challenges of the new mobile ecosystem. Many in the payments industry have focused on credit-card centric models that view mobile technology as simply another form factor that will replace plastic cards for POS transactions. However, the reality of the evolving mobile commerce is much more complex and dynamic and requires more thoughtful solutions. First and foremost, what is clear is that response to emerging mobile commerce capabilities must address the needs and realities of the market and meet fundamental market needs for 1) customer ease/convenience; 2) seamless portability across channels; 3) security and scalability; and 4) global solutions for merchants. A range of players — both traditional payments companies and alternative players — have introduced innovations designed to address these global commerce challenges. However, only a few of the solutions attempt to bridge the core challenges of serving all payment channels (physical POS, e- commerce and mobile) across geographies. Three key solution categories bear watching: • Innovative PIN Debit Solutions (e.g. Acculynk PaySecure) • Global Card Networks (e.g. Visa, MasterCard) • Alternative Payment Networks –(e.g. PayPal ) ImportanCe of Emerging Channels – Why Cross Channel Payment Evolution Matters Although some merchants took a while to understand the importance of taking a cross-channel approach to retailing, consistent double-digit growth in e-commerce sales volume educated most merchants of the importance of a solid cross-channel strategy. Today some of the largest e-commerce merchants are multichannel retailers, with multi-channel powerhouses like Walmart, Target, Tesco and Staples dominating the e-commerce top 10 lists globally and in individual markets. Continued impressive growth rates in e-commerce sales (NRF U.S. estimates - 12% YOY) will partially offset lackluster growth in the retail sector overall (expected to be between 3-4% in the U.S. and less than 2% growth in the UK)1 Mobile growth rates are even more impressive, and are expected to grow over 98.6% to $20.85 Billion in the U.S. alone.2 This growth trend is expected to continue unabated, as sales of tablets and smart phones will soon cause mobile web access to outstrip PC-based web access. (Figure 1). Figure 1 Source: Gartner Research, 2010 1 National Retail Federation – U.S. Holiday Sales Estimates – October 2012; Opera Solutions Retail Predictor, September 2012. 2 Internet Retailer, MCommerce Sales, September 2012. In addition to expected mobile retailers like Apple and Amazon, major multi-channel players like Walmart, Marriott, Orbitz, EasyJet, Intercontinental and Expedia are driving significant commerce volume via the mobile channel. And far from being a channel for just digital goods, data already shows that mass merchandisers like Walmart and Amazon account for 63% of mobile sales volume.3 Given these impressive growth rates and meaningful mobile sales results already, it is clear that mobile web payments are already taking place, despite lack of significant uptake of mobile payments at the point of sale (POS). This trend suggests that mobile web payments will in fact lead the way to broader mobile payments activity, so any mobile payment strategy must start with a mobile web strategy. As such, a comprehensive payments approach should address all the existing barriers to mobile web growth and adoption. Market Requirements As outlined above, it is clear that e-commerce has established itself as a mainstream channel, while mobile web commerce is well on its way to becoming ever more important. As Internet commerce has grown over the last 10-15 years, a range of new payment solutions evolved to ease the friction and challenges associated with the new channel. PayPal, Bill Me Later, Acculynk, eBillMe, Secure Vault Payments, and many others created capabilities that addressed unique challenges of e-commerce payments. As the mobile payments market evolves, some of these same players may emerge as leading mobile commerce solution providers, even as purpose-built mobile payment experiments attempt to gain scale. What will determine which solutions succeed is how well they meet fundamental market needs for 1) alignment with customer needs; 2) seamless portability across channels; 3) security and scalability; and 4) global solutions for merchants. • Alignment with Customer needs – successful payment solutions must be easy to use, with minimal enrollment or change required by consumers. Solutions that require consumers to change behavior spend more, or sacrifice convenience, rewards or other benefits will face major challenges in competitive markets like the US. Most importantly, solutions must incorporate the underlying electronic payment types that consumers prefer, which in most of the world means debit and prepaid. • Seamless payment portability across channels – solutions must easily adapt across channels so that consumers and merchants aren’t required to adopt completely new payment solutions to take advantage of new business models or channels, especially in the evolving mobile payments ecosystem. 3 Internet Retailer, Mobile 400 Merchants, September 2012 • Secure, technically scalable solutions - beyond all the “sexy” attributes of a mobile payments solution, consumers won’t adopt and continue to use a solution unless it has robust security features and near flawless technical delivery. Consumers may accept imperfect service delivery when it comes to cell phone coverage, but they will not trust or tolerate service quality or security issues when it comes to their money. • Global merChant solutions – practical evolution of global commerce solutions require the ability to operate at scale across national boundaries, since most of the global e-commerce and mobile commerce volume is being driven by global retailers that operate across broad geographic boundaries. In addition, many of the global commerce innovations are being driven by global players like Apple, Amazon, PayPal, and retailers that want to expand revenues by selling globally. To date, key players have customized payment solutions to work differently according to the underlying requirements of different national payments systems. However, this national customization is expensive, inefficient, and sometimes confusing for consumers that need to adopt varying solutions depending on the country of origin of the merchant or retailer. Solutions with the most scalability will work seamlessly for both retailers and consumers, regardless of payment preference and/or country of origin. How Different Alternatives StaCk Up – Evaluation of Potential Solutions Although there are a host of solutions evolving to address these complex market requirements, three categories of solution have the most promise for developing global scale. These three include: • PIN Debit - Globally PIN debit is the preferred electronic payment solution by far. However, PIN debit’s evolution in e-commerce and mobile channels have been hindered by lack of cross- border consistency, and the challenges of securely adapting PIN debit to non-face-to-face channels. Innovators like Acculynk have partnered with debit networks worldwide to attempt to address these challenges in a consumer friendly way. At the same time, national debit networks, have introduced unique innovations (including PINless debit, online “credit
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