The challenges for banks deploying mobile payments in Europe

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Should you deploy on iPhone first?

Recently published White Papers by the European Payments Council, Mobey Forum, Global Payments and a host of other entities have bought sharp focus onto the market for mobile payments. While a number of initiatives are proving successful in emerging markets, such as Vodafone’s M-PESA, the translation of these models into the large volume, low margin European market, where considerable legacy infrastructure already exists, is proving troublesome for the payments industry. It is now 10 years since the first international scheme publications on the topic and there is still nothing more than tentative pilots in Europe or North America – the markets currently jointly responsible for over 2/3 of global payments traffic.

The first challenge in deploying payments with mobile is obtaining reliable and accurate market data. If you’re going to spend 100k EUR  on developling an iPhone application, it pays to know how many iPhones are actually in use in your market – is it 1% or 10%? – does that 100k EUR represent marketing collateral or meeting a valid customer need? The same can be said of any of the other technologies that you might target, getting a good overview of the landscape of existing technology can be a huge barrier to overcome in order to achieve the right results. Clearly there are some aspects that can be taken as read – a number of older technologies are already pervasive in every market and it is possible to deliver viable and valuable products by leveraging them. However, this leads on to the next challenge, which payment instrument(s) to deploy.

Again, the answer that can be derived from the few successful projects so far seems to lie with matching your project to prevailing market conditions – and of course understanding what these are. Perhaps demonstrated best by the Dutch Minitix scheme, where the Dutch market was already exceptionally comfortable with the concepts of e-Purse and funding accounts using iDeal or credit transfer. Therefore the ‘leap of understanding’ for consumers was low and the project a success. The fact that Minitix is also built to work with any mobile handset, and has specific low limits that made it unattractive to organised fraud mean that the product was nicely fitted to requirements and the technology found to accommodate this. Similarly with the contactless terminal availability in Turkey already in place, Akbank used the mobile to deliver additional value on top of existing card services rather than simply replacing them with stickers. This idea of bringing additional value to the consumer has to be at the forefront of mobile initiatives as the business model can be complex and with narrower margins that traditional products.

And indeed, framing the business model to ensure a profitable product is the next challenge. There is little consumer appetite in most markets to pay more for mobile services than their static equivalents. For example, Nordea, a bank that charged customers additional fees for secure internet banking access, has not felt able to justify new fees when extending remote banking access to the mobile channel. Card replacement products cannot be more costly than their plastic counterparts as the incentive to use them will not extend past a geeky few. Minitix have kept costs as much as possible out of their model – indeed bringing the acceptance charge down below that in their physical e-Purse system as they pass on the costs purged through absence of hardware.

Should you select to base your mobile product on existing SEPA instruments, it is clear that the existing MBP rules will still apply – legislation being completely channel ambivalent.  This means allowing additional parties to take a cut of transaction revenues either gives a smaller slice for the issuer or increases costs for using the payment instrument when deployed in the mobile channel. Thus, selecting models that require additional parties requires efficiencies to be generated or to risk creating a product that it less profitable than the alternatives.

There are a number of answers to each of these challenges, and clearly no single payment instrument or business model can be stretched to fit all scenarios. Indeed one of the most exciting challenges is finding the gaps that mobile can fill and avoiding the pitfall of chasing headlines.


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