FINANCIAL REPORT: The future of M-payments

Everyone agrees on two things about mobile payments: it has a huge future, and it’s fragmented — badly.

A global survey of businesses by KPMG found that 83 per cent of respon-dents believe mobile payments will be important in four years’ time, but that just nine per cent see them as main-stream today. What’s holding back the segment is the breakdown of the old payment value chain — owned by the banks — and the gradual emergence of a new, more complex one. “It’s very, very fragmented at the moment,” says Egidio Zarrella, clients and innovation partner at KPMG China.
Consolidation among the providers in the next five years will be inevitable, says Zarrella. “You can’t have a completely fragmented market. Corporations will say: ‘We have to choose one player. This is not working’.”

Not surprisingly, businesses have been on the sidelines. The study found that while 58 per cent of corporations say they have a mobile payments strategy, few have actually implemented it.
The opportunity is a huge one. KPMG expects mobile payments worldwide to top the US$1 trillion mark by 2014, with an estimated one billion users. The good news for Asia-Pacific businesses is that much of that will be in this part of the world.

Some 11 per cent of mobile consumers in the region now prefer to use their mobile devices for banking. And while Asia will not dominate by the value of transactions, it will be the biggest by volume. Research firm Synovate estimates that last year, Asian mobile users carried out 63 million mobile transactions, 58 per cent of the global total. With m-payments mostly being carried out in developing markets where many have a mobile phone but few have bank accounts.  

In those markets, airtime transfer between mobile users is well-established and serves as a marker for wider adoption of payment services, which is “a small but significant step to move to cash transfer by mobile,” Angel Dobardziev, emerg-ing markets practice leader at Ovum says. “In emerging markets the segment is dominated by banks and mobile operators, often as partners.”

In China, for example, all three mobile operators are pushing payment services, with market leader China Mobile taking a 20 per cent stake in Shanghai Pudong Development Bank. Chinese users clocked up 63 million mobile transactions in the first half of last year alone. In India, the biggest mobile firm, Bharti Airtel, has hooked up with multiple banks. One of those, ICICI Bank, already offers transaction services and says it is about to launch a mobile wallet, aimed at the unbanked segment.
In the developed markets, respondents see established payment services like PayPal as challengers to banks and credit card companies. PayPal Mobile expects to deliver $3 billion in transactions this year. The company believes at least 10 per cent of e-commerce payments will go mobile. It also predicts mobile will account for a significant portion of point-of-sale transactions that are currently done by cash or credit card. In the face of this uncertainty, KPMG’s Zarrella says marketers should see it as a plus that now they have the choice of several payment partners or providers, instead of just a bank. Marketing professionals are advised to make sure they are involved at an early stage to help build profiles if their company goes ahead with a mobile payment strategy. But he warns they must do their homework. “There are a lot of opportunities for everyone, but you must be very careful with your due diligence,” he said. “There is some risk. You need an exit strategy and you need to continually monitor the market.”

Not everyone is hesitating though. One of Asia’s most innovative services is a smartphone shopping app by Tesco in South Korea under the Homeplus brand. Tesco used technology to make an end-run around its larger retail rivals. It has taken the shopping experience directly to the consumer, creating virtual stores in subway stations in the form of big media walls. Customers can point their mobile phone at a product’s photo, scan the QR code, and place their order while waiting for their train. When the initiative was rolled out, Tesco saw its online sales increase by 130 per cent, highlighting the potential power of m-commerce.

Other features in the 2011 Financial Report include:

Bank on trust

Domestic banks have more local appeal

M-Payments: the future

Insurance industry: bright prospects

New face of China's banks

Banks take a retail feel