Mobile payments must be the most heralded innovation of all time. We have been talking about it for 10 years or more, and still don’t have a reliable definition, let alone a clear, widely-accepted process flow.
Mobile payments’ can be:
- A text/SMS direction to a stored value service;
- A transfer or top-up of airtime (air minutes) between mobile accounts;
- A charge on your phone bill;
- A contactless (near field communication or NFC) card transaction initiated from a mobile device, either by a chip that resides inside the phone or a sticker attached to the outside;
- An internet payment executed from the mobile using any number of web-based services; or
- An app-driven service for 3- and 4-G phones using a range of wireless connections.
All of these are in operation, somewhere in the world. Do we need them all here in Australia? Probably not, but in the vibrant world of retail payment innovations, that’s probably the wrong question. Rather, we might ask “which one(s) can win in an open, competitive marketplace?”
Payments providers have a natural competitive desire to get a jump on the market. This battles with the need for a critical mass of network participants to offer the service at the same time, as this maximizes its attraction for customers. Mobile payments have an added complexity: not only must payment service competitors collaborate to get a ubiquitous product, but telecoms competitors may need to do so as well and at the same time. This turns out to be a tall order, based on a quick global survey.
When it comes to mobile payments, countries generally fall into two categories: those with a significant ‘un-banked’ population and those that are’well-banked’.
Where a significant proportion of the population is un-banked or at least under-served by existing payment products, the mobile offers a rapid-implementation, low-outlay opportunity for significantly enhancing consumer payments. Simple consumer mobile payments solutions (text- or airtime-based) often grow fast in such green-fields environments. The widely celebrated M-PESA from Kenya is a good example.
But where consumers and small merchants are already well-banked and well-served for payments, mobile payments are a tougher sell. The incremental improvement from existing, well-established products like cards and bill payments is smaller, and the mere delivery of another payment channel is unlikely to cut it with customers – there needs to be a new angle. This is, of course, where Australia sits, along with the US, the UK and Canada, to name a few.
The payments bodies in the US, the UK, South Africa, and Canada have either introduced rules or are considering policy implications for mobile payments. Many industry participants see mobile payments as a highly competitive space, and therefore not yet ready for general collaboration. There is an evolutionary cycle to such developments. Trails are blazed competitively and in multiple directions, but at some stage there needs to be some standardisation to get ubiquity, economy and efficiency. It is often hard to pick when it’s the right time to start talking about industry standards: too early and competitive development may be stifled; too late and structural inefficiencies and incompatibilities become entrenched.
When regulators get interested, it is generally a sign that industry needs to look at its own approach. In a recent discussion paper from the Federal Reserve Bank of Boston, the regulatory framework, business models and standards to promote mobile payments were identified as potential areas for further policy investigation by the US Federal Reserve.
There may be a loose analogy to the development of ATM networks and debit card schemes in big markets like the US. Initial rollouts were institution-specific, then, financial institutions grouped themselves into progressively fewer, larger networks, ultimately achieving something like ubiquity. But this is only possible when standards and formats are largely compatible – hence the standardisation timing issue above.
At APCA, our role is to promote collaborative enhancement of the payments system. This leads us towards sponsoring the standardisation debate even as competitors are aggressively developing their own offerings, and tending to hold their cards (no pun intended) close to their chests. While network ubiquity may still be quite a way off, the debate itself may encourage greater compatibility to support future evolution.