What should you expect from mobile payment adoption

Mobile payments have been one of the recurring topics for the financial service industry for more than a decade. Having followed this development a while, one thing is for sure No matter the approach to mobile payments, the only thing that matters is user behavior and reaching critical mass in terms of user adoption.

Looking at the various approaches to mobile payment, it becomes evident that there is no single recipe for mobile payment adoption. The choice of use case, technology, and market to launch follow different adoption patterns. The only similarity is if mobile payments do not solve a perceived “problem” for its users, there is no incentive to change consumer behavior.

Direct carrier billing is still the dominating form of mobile payments worldwide. While this form of mobile payments may be associated with purchasing ringtones for many, direct carrier billing is the primary way cy\sutomers pay for digital goods in emerging markets, with average conversion rates are about 5 times that of credit cards. Mobile research firm Ovum forecasts that total direct carrier billing revenues will increase to $24.7 billion in 2019 from $14.5 billion in 2014, and since its inclusion on Google Play last year, direct carrier billing sales have grown by 300%.  While app stores only represent 14% of the carrier billing revenues today, it is by far the fastest growing segment.

Mobile payment services such as M-Pesa and Easypaisa is widely known as pioneers in mobile payment services by providing basic mobile banking services to markets with lacking financial infrastructure. M-Pesa was first launched in March 2007 and grew to 17 million subscribers by December 2011 in Kenya alone. Easypaisa launched in Pakistan two years later, targeting a market of over 200 million people, with only 15 000 registered bank accounts. As a result, Easypaisa caters to over 6 million customers each month.

While these are compelling stories, these are not necessarily transferable to western economies and or markets with developed digital financial infrastructure. Direct carrier billing remains dominant in the Asia-Pacific region, and while many associate direct carrier billing to financial inclusion, much of the carrier billing opportunity today is confined to high-margin content, such as in-game virtual goods, as well as operator bundled OTT media services such as Spotify and Netflix.

Carrier billing has been around for a while, and my first encounter with mobile payments was with working on carrier billing in Southeast Asia back in 2005. Even though the technology may be perceived as dated, carrier billing is still going strong. as an alternative to existing payment methods as well as for financial inclusion on developed economies. Telcos are also incentivized to maintain growth in carrier billing as a means to exploit existing infrastructure in a time of diminishing revenues from traditional products such as SMS revenues.

Peer-to-peer payments is where we have seen rapid adoption patterns and has proven to be a favorable entry point to mobile payments. The inherent network effect of a peer-to-peer use case both incentivize to recruit friends as well as maintain a relatively high switching cost. This has proven to be the case with the launch of Venmo in the US in 2009, Mobilepay in Denmark in 2013 and Vipps in Norway in 2015. All services have shown similar adoption patterns as well as the ability to leverage a first mover position to move into other payment use cases and eventually follow in the footsteps to payment platforms such as Alipay, providing a wide range of payment options.

US banks have scrambled to launch their own response to Venmo through the payment app Zelle, and is showing a rapid growth in transaction volumes, and has managed to surpass Venmos volumes in less than a year.

But perhaps the biggest challenge for mobile payment services emerging from the peer-to-peer space is the threat from platforms like Facebook and Wechat, where payments are just one of many uses embedded in the platform. Amazon is already experiencing significant growth in the payments space, with 33 million active users and 200% year-over-year growth in merchants adding the “Pay with Amazon” buy button to their online stores an is rumored to launch a current account product. 

Whether you start out as a small fintech startup like Venmo, a bank-driven initiative like Vipps or Zelle, or approach payments as digital ecosystem like Facebook, peer-to-peer payments have proven to be an effective means to an end for rapid user adoption.

Proximity-based mobile payments are for many the very definition of mobile payments and are often associated with NFC through Apple Pay. Even though there are several other OEM options out there such as Samsung Pay, Google Pay, as well as various white label mobile wallets launched by banks or retailers, the majority of NFC-based mobile payments in western economies are performed through Apple Pay. For reference, 90 percent of all mobile in-store payments in the US are conducted through Apple Pay. Further findings from the US markets shows that 27 percent of the addressable market has registered and tested Apple Pay, indication a low to moderate adoption rate, but only 8 percent of iPhone owners are frequent users of Apple Pay. Even with relatively low adoption rates so far, Worldpay reports a 328 percent year-on-year growth in contactless mobile payments the in UK.

On a global scale, eMarketer predicts that in 2018 more than one-third of smart phone users ar will use a mobile phone to pay for a purchase at a physical point of sale at least once every six months. This will be mainly driven by the Asia-Pacific region, more specific China where Alipay and Wechat pay are dominating the payment field. where other methods of payments like QR-codes are also deployed through payment services like AliPay to encourage merchant adoption without upgrading existing payment infrastructure.

Given these number, it seems like proximity-based payments is a slow train coming rather than exponential user adoption. One of the barriers to user adoption is reportedly widespread adoption of contactless cards. Just replacing your good old credit card with the mobile phone simply does not add necessary value to get users to change their behavior.

Although cash is also still used extensively in several countries, such as Austria and Germany, the use of physical cash is diminishing across the board. Even the U.S., where cash accounts for one-third of all purchases, the use of cash is declining. Peer-to-peer mobile payments have shown to replace cash in western economies, and direct carrier billing is substituting cash in emerging economies.

It is difficult to predict and end-game in the payment space as various approaches to mobile payments show different adoption patterns. Wechat and Alipay may be the most successful mobile payment platforms to date, but their recipes for success is not necessarily transferable to markets with widespread card adoption and cost-efficient payment schemes.

A general prediction of mobile payment adoption may prove as useless as the G in Lasagna since there are several prerequisites that shape market dynamics in different markets.

• How developed is the underlying digital infrastructure?
• What is the smartphone penetration?
• Is the use of cash still widespread?
• Which payment schemes are present, and is there any dominant scheme?
• What is the payment processing costs?
• Are consumers still riddled with hidden payment fees?
• What percentage of the population has access to traditional banking services?

These are some examples of the many questions that one should ask oneself before attempting to predict mobile payment adoption. Before venturing into mobile payment waters, these and many more should be accounted for in order to map the current landscape of your target market(s).

No matter the outcome, there will not be a linear transition to mobile payments, and we should expect a fragmented landscape. Context is king, and providing a relevant user experience is crucial to drive user adoption. Otherwise, mobile payments are just another solution looking for a problem.