Commerce and payments will change more in the next 3 to 5 years than they have in the past two decades.
John Donahoe, CEO of eBay
As John Donahoe says, mobile payments are really hot right now, and have been for the past few years. We are on the brink of a revolution in payment methods. The possibilities are many, and there is a lot happening on the market. What form developments will take and which solutions will win out is not entirely clear.
The battle for customers
The list of companies that have jumped on the mobile payments bandwagon is a long one. It’s a somewhat chaotic situation, with companies breaking into the market from various directions.
Some come from the technical side, such as the 800-pound gorillas Apple Pay and Google Wallet. The major telecom companies (4T) have also joined forces to found “Wy Wallet” as a way of challenging the giants’ preeminence.
Mobile payments can involve anything from transferring money to a friend using your mobile phone to using your mobile as a way to pay in an online or physical store.
We are also seeing collaborations spring up between stakeholders from the financial side who want to succeed in this market. “Swish” was created through a partnership between the major Swedish banks in order to enable rapid transactions between private parties. Now it is also possible for companies and organisations to receive mobile payments using Swish. Even MasterCard is making major investments in mobile payments with Master Pass. Nor should we forget the earlier players Seqr and iZettle, who are still in the game.
Mobile payment solutions have even crept into the social media platforms we use. Both Twitter and Facebook have partnered with Stripe to be able to offer their users a “buy” button right in their news feeds. Pinterest is also following the trend. And Facebook is introducing a feature allowing individuals to send money to one another using Facebook Messenger.
The needs addressed by mobile payment solutions
Purchases made using mobile phones increased by 42% in Sweden (Swedish eCommerce report), from 2013 to 2014, and the need to be able to use the mobile phone to make convenient payments is greater now than ever before. Mobile users need an easy way to provide their information and identify themselves, considering that they may be on the move or not have their payment details with them. Rather than having to provide a host of complicated information, what customers want is a quick way of identifying themselves. Both Apple Pay and MasterPass are attempting to meet these needs by offering single-step identification of the customer and retrieval of the customer’s payment information and shipping address. All without compromising security.
MasterPass simplifies mobile eCommerce purchases in particular, whereas Apple Pay will simplify mobile payments in physical stores as well by making use of mobile phones’ NFC functionality.
A purchase using MasterPass on your mobile phone consists of four steps:
- The user selects his or her products in the online shop and chooses to pay using MasterPass.
- Mobile BankID opens automatically and the user is identified through a PIN code.
- MasterPass will open after successful identification, displaying the default payment card and shipping address. The user can also choose a different payment card or change his or her shipping address here.
- After choosing a card and shipping address, the consumer is redirected back to the online shop where the transaction is confirmed and executed.
The only real input the user was called on to make in this workflow was to enter the PIN code for his or her BankID – the rest was a series of simple taps.
Apple Pay, on the other hand, has gone a step further and eliminated all user input! A purchase made with Apple Pay in an online shop using an iPhone, iPad or Apple Watch may can involve no more than two steps:
- The user selects his or her products in the online shop and then chooses to pay using Apple Pay.
- The default payment card and shipping address pop up from the bottom of the screen. Now the user can choose between several cards or change the shipping address. If the user is satisfied with the default information, he or she need only confirm by providing a fingerprint using TouchID.
Image from Apple.com
Apple Pay can also be used in stores equipped with NFC card readers. Here too, few steps are required.
- When the device is held up to an NFC reader, Apple Pay opens and shows the saved payment cards (even if the phone is locked).
- The user selects the desired card.
- After that he or she confirms by entering a fingerprint using TouchID.
Image from Apple.com
Of course, Apple Pay is limited to Apple’s own products, which imposes a limitation on resellers who need to invest their money wisely. But for the users themselves, Apple Pay is really simple. The convenience threshold is also relatively easy to clear, as it is simple to migrate saved cards and addresses from the App Store, which are then stored in the Passbook app. To add a new card, you can simply photograph your card.
Both MasterPass and Apple Pay currently have their limitations, but would nevertheless represent a huge surge in mobile shopping. We see these two competitors as really exciting solutions that we believe we will be seeing more of in 2016!
Food retailers investing the most
Introducing mobile payments is a major investment for companies, both technically and financially. In order to convince customers to start using the service, the methods must also be easy to use and must provide an immediate benefit.
Because mobile e-commerce is growing steadily, the new mobile payment methods (e.g. MasterPass and Apple Pay) seen in online stores are addressing a clear need, as they significantly shorten the purchase flow. Yet the benefit provided by mobile payments in physical retail is not always as clear. Some sectors have a greater need for simple and quick payment methods, and see value in the peripheral services that mobile payment systems can offer, which means that different sectors take different investment approaches to mobile payment solutions.
Food retailers, such as coffee shops and grocery stores, see great benefit in introducing mobile payments, which is why they are investing heavily in these solutions. Their customers are often repeat customers, and various kinds of loyalty programs and bonus systems are a common feature. Downloading an app to make every day shopping easier is therefore not a major hurdle to clear. Espresso House and Starbucks are just two examples of companies where we can already see these types of investments being made. In durable goods on the other hand, such as consumer electronics and furniture retail, the speed and simplicity of payment are not as critical, and customers do not return as frequently to shop at the same stores, meaning that mobile payment investments are not yet as attractive from an ROI perspective.
Other sectors that see great utility in expanding mobile payments include public transportation and the parking industry, which have been quick on the uptake of new mobile payment solutions. SL collaborates with Klarna to make it possible to buy tickets using the mobile phone, and the parking app EasyPark has already begun to replace physical parking meters. The reasons we are seeing major investments in these sectors are not only that efficiency is important, but also that handling cash is to be avoided wherever possible.
The key is to combine the service with added value for the customer
In the case of EasyPark, it is not only the payment itself that has been simplified. The payment app also contains relevant features that provide clear benefits and added value to the customer. The customer can stop the parking meter or extend the parking time at the touch of a button from wherever he or she happens to be. This not only saves time and energy, but represents an economic gain for motorists, as they no longer have to pay for more minutes than they actually park. For business customers, there is also added value in that users no longer need to pay for parking out-of-pocket, and are now able to report parking for the entire month on a single expenses invoice.
Because introducing new payment solutions is a costly thing for companies to do, the type of clear added value that EasyPark brings to the table will be a prerequisite for companies to stand out from the competition.
Another example of added value is Espresso House’s coffee card app. In addition to mobile payments, loyal customers are given a discount on all purchases, along with custom offers based on their buying patterns.
Image from Espresso.com
Like we said before, there are many ways to link products and services to value-added services. Here are a few examples:
- Loyalty programs, offers and promotions
- Partnerships and promotions together with other companies
- Pre-ordering products
- Tickets and discount coupons
- Balance checking
- Digital receipts
- Retrieving a stored delivery address during payment
- Total solutions such as “Order online – pick up in store”
In addition, the merchant needs to choose a solution that is future-proof and easy to operate, along with the payment method that its customers actually want to use. Mobile payment solutions must also be secure, fast and easy to use for both customers and in-store staff.
Success is based on the ability to see the customer experience as a whole
The technical solution itself will never be what drives customer adoption and boosts ROI. To be able to invest in a mobile payment solution that works, you need to see the customer’s experience as a whole, and work actively to ensure a coherent and seamless consumer experience in all channels and all customer interfaces – on the mobile, online and in the physical store: i.e. an omni-channel experience.
It is also important for companies to have a presence in all channels where their customers are found
Examples of companies that have adopted the omni-channel approach and clearly understand the benefit and gains to be had in influencing the customer's experience every time they encounter the company include Kicks, Mathem.se, Starbucks and Apple.
One trend we are able to discern related to the omni-channel way of thinking is that even traditional e-commerce stores are now opening physical locations. This way the customers are able to see, feel and try out the products, which strengthens the brand and builds credibility.
Here are some examples of e-commerce stores that are opening physical locations:
Mobile payment methods are here to stay
We are convinced that mobile payment methods are here to stay. There will be room for many different players, but the battle for customers will be fierce. The winners will be the players who succeed in offering merchants and consumers easy payment methods combined with peripheral services that satisfy a need and improve the customer’s overall experience.
Keep your eyes open – these new payment methods will be coming to your favourite store before you know it!