Mobile payments On the shoulders of contactless

E-Banking Snapshot 38
Mobile payments
Digital economy and structural change
August 2011
On the shoulders of
contactless payments
The “chicken-or-egg” dilemma of any new payment method is that merchants
do not invest unless many clients use it, and clients are reluctant unless many
merchants accept it. New m-payments might have it easier once merchants
gradually upgrade their terminals to accommodate contactless applications.
Consumers flock to smartphones anyway. This lowers the entry barriers for new
mobile payment solutions but does not guarantee a smash hit. chart 1
The trend towards smartphones is unmistakable. Already 20 to 40% of
consumers own a smartphone. More sophisticated applications (e.g. games,
social networking, GPS navigation), cheaper phones and a bigger choice of data
plans will fuel further adoption. chart 2
Credit and debit cards may go contactless. German savings banks
(Sparkassen) announced their plans to equip all 45 m debit cards with NFC (near
field communication) chips by 2015 to facilitate contactless payment of small
amounts at the point of sale. Major credit card firms are also pushing the issue.
Visa Europe reckons there will be 20 m contactless cards in UK by the end of this
year (plus 10 m in the rest of Europe). chart 3
Contactless is basically an assault on cash. Currently, most Europeans
use cash when buying low-value items such as snacks or newspapers.
Contactless payments schemes are keen to change this. A large fast-food chain,
for instance, has announced it will accept contactless payments for amounts of
less than £15 in its 1,200 British restaurants beginning this year. chart 4
There is interest among merchants – not excitement. Surveys indicate
that about 30% of merchants in Germany and a similar share of major retail chains
in the US plan or consider offering contactless payments options. The needed
card readers could also be used to process payments via mobile phones if the
parties agree on a compatible standard. chart 5
Mobile phones may let consumers choose from a variety of payment
options. A clear advantage of (future) smartphones is that they may be able to
serve as a single access point to a potentially large selection of payment options:
pre-paid wallets, credit and debit cards, coupons, loyalty schemes, etc. chart 6
Consumers are still reserved, but media barrage takes its toll. Most
Author
Thomas Meyer
+49 69 910-46830
[email protected]
consumers have to be convinced of using mobile payments because established
payment options satisfy their needs – at least in Europe and the US. chart 7
Editor
Antje Stobbe
mobile payments. Neither will merchants accept much higher fees. New revenues
might come from combining m-payments with advertising and coupons but
consumers will only accept so much advertising on their phone and may react
huffily when their privacy is infringed. Moreover, given that entry barriers might be
low, a whole armada of new mobile payment options may compete to substitute
cash giving each little leverage over prices. chart 8
Technical Assistant
Sabine Kaiser
Deutsche Bank Research
Frankfurt am Main
Germany
Internet: www.dbresearch.com
E-mail: [email protected]
Fax: +49 69 910-31877
Managing Director
Thomas Mayer
Margins will be thin. Consumers are unwilling to shell out for the privilege of
M-payments: More of an addition than a revolution. The most likely
scenario (as of now) appears to be that mobile payments create a flurry of
additional options to initiate a payment and combine it with other services. The
pace will be set by merchants who first need to upgrade their terminals. This
needs substantial investments and will only happen over time. Some consumers
will use m-payments because they love technology, others might want them to
cash a coupon and many might not care at all. chart 9
E-Banking Snapshot 38
Mobile payments
Interest is rising this year
Search volume at Google for "mobile payments", US
100
90
80
70
60
50
40
30
20
10
0
Aug-06
Jul-07
Jun-08
May 09
Apr-10
Mar-11
Search volume is relative to total and scaled between 0 and 100. Related terms included.
Sources: DB Research, Google Insights for Search, 2011
1
Mobile phones are getting smarter
The “chicken-or-egg” dilemma of any
new payment method is that merchants
do not invest unless many clients use
it, and clients are reluctant unless many
merchants accept it. New m-payments
might have it easier once merchants
gradually upgrade their terminals to
accommodate contactless applications.
Consumers flock to smartphones
anyway. This lowers the entry barriers
for new mobile payment solutions but
does not guarantee a smash hit.
Mobile payments or m-payments are
considered here as payments initiated
using a mobile phone (excluding voice).
They may use NFC (near field
communication) chips at the point of
sale (few phones are endowed with
NFC as of now) but other technologies
(e.g., barcodes) are possible as well.
Contactless cards are debit or credit
cards with integrated NFC chips. See
also the E-Banking Snapshot 34 for
more information. back to front page
Smartphone adoption, % consumers, 3 months moving average
40
35
30
25
20
15
The trend towards smartphones is
unmistakable. Already 20 to 40% of
consumers own a smartphone. More
sophisticated applications (e.g. games,
social networking, GPS navigation),
cheaper phones and a bigger choice of
data plans will fuel further adoption.
back to front page
10
Dec
2009
Feb
2010
Apr
2010
Jun
2010
Aug
2010
Oct
2010
US
UK
Spain
Italy
Germany
France
Source: comScore, 2011
2
Don't touch – we're British
Adoption of contactless cards in the UK
25
60
20
50
40
15
30
10
20
5
10
0
0
July 2010
Dec 2010
Contactless cards (m, left)
Dec 2011*
Terminals ('000, right)
*Estimate by Visa Europe. Sources: UK Cards Association, Visa Europe, 2011
August 2011
Credit and debit cards may go
contactless. German savings banks
(Sparkassen) announced their plans to
equip all 45 m debit cards with NFC
chips by 2015 to facilitate contactless
payment of small amounts at the point
of sale. Major credit card firms are also
pushing the issue. Visa Europe reckons
that there will be 20 m contactless
cards in UK by the end of this year
(plus 10 m in the rest of Europe). back
to front page
3
2
E-Banking Snapshot 38
Mobile payments
Contactless is basically an assault on
cash. Currently, most Europeans use
cash when buying low-value items such
as snacks or newspapers. Contactless
payments schemes are keen to change
this. A large fast-food chain, for
instance, has announced it will accept
contactless payments for amounts of
less than £15 in its 1,200 British
restaurants beginning this year. For
larger grocery bills, credit cards are
already popular in the UK but not much
in Germany. back to front page
Cash is king – time for a revolution?
How do Europeans usually pay at the POS? (%)
89
Cash
56
6
Debit card
41
2
Credit card
23
1
Cheque
4
3
3
Other method
0
20
40
60
80
100
Buying a newspaper/canned drink/chocolate bar
Food shopping/groceries
Source: Forrester Research Inc, 2008
4
There is interest among merchants –
not excitement. Surveys indicate that
about 30% of merchants in Germany
and a similar share of major retail
chains in the US plan or consider
offering contactless payments options.
The needed card readers could also be
used to process payments via mobile
phones if the parties agree on a
compatible standard. back to front page
That may be optimistic
Share of German retailers, %
Plan to introduce contactless
payments in 2011
Consider introducing contactless
payments in the short or medium term
0
5
10
15
20
25
30
35
Basis: 448 retailers in Germany representing 58,000 shops
Source: EHI Retail Institute, 2011
5
3% of payment volume initiated via phone
Transaction volume at PayPal, USD bn (left)
120
3.5
100
3.0
2.5
80
2.0
60
1.5
40
1.0
20
0.5
0
Mobile phones may let consumers
choose from a variety of payment
options. A clear advantage of (future)
smartphones is that they may be able
to serve as a single access point to a
potentially large selection of payment
options: pre-paid wallets, credit and
debit cards, coupons, loyalty schemes,
etc. PayPal, for instance, lets clients
already initiate payments via phone
which accounts for 3% of transaction
volume. back to front page
0.0
2008
PayPal
2009
2010
PayPal mobile payments
2011*
% mobile (right)
* Extrapolation (PayPal), estimate (mobile). Sources: DB Research, PayPal, 2011
August 2011
6
3
E-Banking Snapshot 38
Mobile payments
A spark of interest – not a firework
% of US adults interested in mobile payments
20
18
16
14
12
10
8
6
4
2
0
18
15
11
2008
2009
2010
Source: Forrester Research Inc., 2011
7
Read my lips: No new fees
Willingness to pay for using the mobile phone as credit or debit card
No extra fee
91%
Extra fee
9%
Staggered
amount
24%
Flat
rate
45%
Pay per
use
28%
Don't know
3%
Basis: 2468 German consumers, 2011
Sources: Accenture, DB Research, 2010
Margins will be thin. Consumers are
unwilling to shell out for the privilege of
mobile payments. Neither will
merchants accept much higher fees.
New revenues might come from
combining m-payments with advertising
and coupons but consumers will only
accept so much advertising on their
phone and may react huffily when their
privacy is infringed. Moreover, given
that entry barriers might be low, a
whole armada of new mobile payment
options may compete to substitute cash
giving each little leverage over prices.
back to front page
8
M-payments: more of an addition than
a revolution. The most likely scenario
(as of now) appears to be that mobile
payments create a flurry of additional
options to initiate a payment and
combine it with other services. The
pace will be set by merchants who first
need to upgrade their terminals. This
needs substantial investments and will
only happen over time. Some
consumers will use m-payments
because they love technology, others
might want them to cash a coupon and
many might not care at all. back to front
page
Don't say goodbye, yet
Source: Deutsche Bank, 2011
August 2011
Consumers are still reserved, but
media barrage takes its toll. Most
consumers have to be convinced using
mobile payments because established
payment options satisfy their needs –
at least in Europe and the US. Yet the
constant talk about mobile payments
also sparks some interest, albeit from a
low base. According to a survey
sponsored by BITKOM, 19% of
Germans are interested in using mpayment instead of debit or credit
cards. In the US, 18% of adults are
interested in m-payments. Consumers
are more eager to use m-payments
when there is a clear value added, e.g.
when paying for parking. back to front
page
9
4
E-Banking Snapshot 38
Mobile payments
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Research”.
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ISSN Internet: 1619-4829 / ISSN e-mail: 1619-6465
August 2011
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