The cost of a new way to pay

Online retail giant recently revealed a new checkout service borne from the Swedish payment solution company, Klarna. The partnership is still in its infancy, and Overstock admits that this is very much a testing period to see how customers respond to the integration of this new system into the buying process. But what was the reasoning behind the introduction of Klarna to a new audience? Well, it’s pretty clear once you understand how Klarna works. This system allows users to purchase products through Overstock simply by typing in their email and shipping address and perhaps their phone number. With Klarna, there is no need to type in your credit card information. 

Considering the growing amount of time that consumers spend on their mobile devices, it’s no surprise that many retailers are looking for the best way to enhance the user experience when it comes to a digital interface. Retailers like seek payment systems that make it as easy as possible for the consumer to buy.

Klarna addresses this with a system that combines the ease of Apple Pay or Android Pay with the “one click” element of buying something through something like Amazon’s app. The difference is that with Klarna, you aren’t limited by your device or the specific site that you’re visiting to utilize the service. Klarna works on various platforms and on many different sites.

When a user types in their email address, Klarna’s system almost instantly decides if it can allow you credit, by analyzing public and private data about you as a consumer. If the system deems that you qualify for this mini-loan, then it allows you to place your order and have 14 days to provide payment information. This system has already proven to be not only effective, but powerful in places like Germany, where almost nobody uses credit cards.

In coming years we will see how the system fairs in other countries with similar buying habits.

Does anyone really need a mobile wallet?

Reflecting on another conversation at last week’s conference, there were lots of discussions about why the mobile wallet wars were lost.  No one’s won the mobile wallet war yet, not even Apple, but it is there to be won.  In fact I wondered why it took a firm like Apple to take up the mantra and aim for this crown – not forgetting WeChat, Alipay and others – and realised it’s because no one has yet worked out what a mobile wallet is for.

For example, came up with some interesting stats the other day.  The website did two surveys of iPhone 6 users – 400 people in November 2014 and 1,000 in March 2015 – in partnership with InfoScout.  The findings are intriguing.

The March 2015 numbers showed improvement over the November 2014 in all categories – 6 percent use the service (up from 5 percent), 9 percent had tried it but weren’t using it (up from 4 percent) leaving 85 percent who had never tried it (as opposed to 91 percent).

In the almost six months since Apple Pay launched, users have certainly become more willing to try Apple Pay – that category nearly doubled since InfoScout first measured it in November. So why weren’t those users using it more often and converted from “triers” to “users?”

The main reason those who had tried Apple Pay in the past, but didn’t on some transactions where it was available, seems to be forgetfulness – almost a third (32 percent) said they just forgot it was an option.

“Muscle memory is a challenge,” InfoScout Co-Founder and CEO Jared Schrieber told an audience at Innovation Project yesterday. “If I’m Apple, I’m dead-focused on point of sale and making sure there is a trigger to make sure I pull out my phone and not my card.” Schrieber further noted that Apple could perhaps leverage beacon technology as a triggering mechanism.

OK, so the mobile wallet has to be relevant and seen in the same way as card or cash, and it’s not right now.  For example, I mentioned other attempts to crack this markets include Japan with LIN£ Pay, a Facebook Messenger service that started late last year.  LINE has 170 million active users in 230 countries and the service is available globally except in Korea and China.  The service has been enhanced recently by Cybersource, but there’s little results yet.

In Korea, Daum Kakao launched BankWalletKakao and Kakao Pay.  In this case the internet giant Daum Kakao has partnered with 16 banks to enable bank transfers and online payments, as well as peer-to-peer payments that garnered 1.2 million users in the two months after launch, only to encounter teething troubles such as not being able to make payments on the first day of launch.  Still a way to go.

Probably the best success so far that we’ve seen is Tencent’s WeChat and Alibaba’s Alipay in China.  This is because they are both taking this seriously, investing heavily and aiming to capture this market for mobile money before anyone else does.  In order to do this, you have to create a reason – an incentive – to open up a wallet and use it.  Both companies achieved this by targeting the tradition of sending red envelopes of gifts of money to friends and family for Chinese New Year.

WeChat launched the first salvo in this market area last year.  According to Forbes, over 40 million virtual red envelopes, totalling 400 million yuan ($64 million), exchanged in just a few day.  As a result, millions of new users signed up to WeChat’s Tenpay payment system and linked their bank accounts to it. 

Jack Ma of Alibaba called the move a “Pearl Harbor moment” for his company and so, not to be outdone, launched its own virtual red envelope campaign this year.   According to Alibaba spokeswoman Teresa Li, 240 million virtual red envelopes were sent through Alipay on February 18 alone, accounting for almost 4 billion yuan ($640 million).

All in all, China is showing a different approach by focusing upon the use case for a mobile wallet, and reinforcing it with rewards.  In fact, this update from the Financial Times puts China’s approach to the market in perspective:

Third-party mobile payment providers [in China] processed Rmb6tn ($960bn) in payments in 2014, five times the previous year’s total, according to iResearch. That compares with $52bn in the US last year, according to Forrester Research, though that figure is set to grow following the launch of Apple Pay. Five months since its launch, Apple already accounts for two-thirds of all US mobile payments.

In China, most mobile payments are still used for online purchases, but thousands of brick-and-mortar retailers have begun to accept QR payments — made by scanning codes — over the past year.

Alibaba and Tencent have shrugged off a directive by China’s central bank halting mobile payments based on swiping barcode-like QR symbols and are moving aggressively to expand their reach to offline stores.

Retailers that accept QR-code payments through Alipay’s mobile app include 7-11 and Family Mart, two convenience store chains with a combined 3,100 outlets across China.

International fast-food chains Pizza Hut and Dairy Queen are also on board, along with local chains such as Old Auntie’s Boiled Dumplings. Meanwhile, at least six major department store and shopping mall chains accept QR code payments through WeChat.

“The central bank just suspended QR payments but didn’t ban them. After that they never put out any official policy, so Alipay and WeChat just kept on going,” said Qian Haili, internet finance analyst at China E-Commerce Research Center.

The use case, rewards and working around the regulations are all key ingredients to the China story which, in many ways, is leading the world.  After all, I’ve been blogging about this stuff for long enough to see that not many markets have yet worked out what a mobile wallet is for.

Take this example from three years ago: Let the Mobile Wallet wars begin, which had this chart of the key players in 2012 (doubleclick chart to enlarge):

O2 wallet1

Not much movement there, with Orange and O2 out of sight and Pingit moving along nicely … but not really as a wallet (yet).

Or take this research from December 2013: The Future of Money (in Denmark)which looked at what it would take to get consumers onto mobile wallets.  The main conclusion: consumers are ready for mobile payments, but that does not mean they will use mobiles for payments. There has to be a reason.

Simple, but darned hard as no-one’s really cracked this yet.  If anyone will, it’s probably Tencent, Alibaba and Apple.

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To say "banks are failing to grasp the mobile opportunity" is like saying "Apple is failing to grasp the technology opportunity"

At last week’s Payments International conference, Dave Birch and I engaged in a fun Oxford style debate entitled: This House Believes That Banks Are Failing To Grasp The Mobile Opportunity.  Unfortunately Dave got to propose the motion – we both said afterwards we could have argued either way – and, purely because a lot of bankers were in the room, he lost the motion.  I opposed it and, purely for the record, thought I’d share my notes, for what they are.

Apple Watch

I cannot believe that this audience believes that banks are failing to grasp the mobile opportunity as, when I look at the innovations around me today, I would say they are leading them.  Banks are continually sending me notices of their ability to be the first to adopt Apple TouchID, Apple Watch, Google Glass and such like, and are often ahead of the curve when they do this.

This is because banks have adapted over the last quarter century to becoming more agile, nimble and capable or responding to the mobile challenge.  Take Bank of America, one of the larger banks, as a case in point.  Bank of America has continually been at the forefront of internet banking adoption, after pushing the envelope in this territory in the early 2000’s.  Today, they have 48 million customers of which 31 million use online banking and 17 mobile banking on a regular basis.  In some ways, it is surprising that only 2/3 of customers use online and just over 1/3 mobile, but the things that Bank of America is doing with mobile is far ahead of what I see in other industries.  For example, take a look at BankAmeriDeals, which targets offers in real-time based upon customer proximity to stores.  When the customer is near a store they regularly use – Ping!  They get a deal coupon on their mobile to use there and then.  Relevant, localised, proximity-based deals is an innovation I haven’t seen coming from the mobile industry yet.

And that’s just one of the biggest banks in the world, but many others are getting it, even our very own struggling Royal Bank of Scotland (RBS).  RBS’s UK retail bank NatWest recently upgraded their banking app to use TouchID to sign-on on the Apple iOS.  That’s a unique feature that is also well ahead of the pack (some banks tell me they can’t do this due to local regulators for example).

In fact, when we get all excited about Apple Pay, Simple and Moven, I think we mistake innovation in mobile for value creation through mobile.  The innovation are valuable but they are not displacing banks.  To say banks are failing in grasping the opportunity due to these services, is not recognising that these services are just wrapping themselves around banks through the mobile ecosystem. That’s fine, but banks are also innvoting in that system.

For example, just look at Paym and Zapp here is the UK, or iDeal and Blik in the Netherlands and Poland.  These are examples of banks working collaboratively to generate PayPal-like services and mobile services that deliver real-time service to the mobile customer.  In fact, PayPal only exists because banks could not work collaboratively to create a secure internet payment service.   I would claim the same about Apple Pay, as a failure of banks being unable to work well at creating a frictionless wallet.  So I am not saying that banks are unbeatable or cannot be critiqued here, but I think we provide a disservice if we claim they are complete failures.

After all, I see innovations almost every day somewhere where banks are innovating around mobile and, in particular, in Turkey, Poland, Spain, India, Africa, China and Japan, we are seeing substantial movements of banks to grasp the opportunity.  Just look at Jibun Bank in Japan, a joint venture between the Bank of Tokyo-Mistubishi and KDDI.  Jibun is one of the first banks to offer a mobile wallet and demonstrate leadership as mobile-first bank that was deployed seven years ago, the first mobile-first bank I had ever encountered. 

I could just as easily point to many other examples from Hana Bank in South Korea to Banco Sabadell in Spain to even a bank like the Nationwide here in the UK, who launched an Android Watch app last year and are one of the first to announce an Apple Watch app this year, as has Citi and others.  Similarly, the Halifax announced they are using the Nymi heartbeat authentication app   for account access recently.

All in all, I believe that banks were missing a trick in the days before the smartphone by not using the mobile network for payments and balance checks but, since 2007, most have been working in earnest to innovate and differentiate via the mobile smartphone.  In fact today, banking is the industry that is ahead of the curve when it comes to developing and deploying mobile innovations.  That is mobile innovations, not mobile banking innovations.  Therefore, to say banks are failing to grasp the mobile opportunity is a little like saying Apple is failing to grasp the technology opportunity.

I rest my case. 



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