Mobile money set for new wave of growth
London, 4 March 2014 – Mobile payments are set for a new wave of growth but mobile operators must address customer concerns within a fragmented technology landscape to ensure that they make the most of the market’s potential, according to EY’s Mobile Money – the next wave of growth report, released today.
Operators in emerging markets were the first to leverage mobile money. The lack of competing infrastructure and high demand helped the industry to develop at a rapid pace in certain countries including Kenya, Pakistan and Indonesia. However, innovations in developed markets are now also speeding up, encouraged by developments such as widening availability of near field communications-enabled handsets, growing usage of mobile wallets and hardware and app-based innovations. Yet developed markets are still at a much earlier stage of growth.
Accelerating growth is expected in the value and volume of mobile payments transactions globally, with non-banks accounting for a rising share. While this is an opportunity for operators the proportion of mobile phone users actively using mobile money remains tiny.
The widening scope of mobile payments and related services comes as supporting technologies proliferate, with established and emerging standards being used to meet a variety of needs. While long-standing mobile messaging technologies such as SMS and USSD are being used mainly in emerging markets for money transfer and salary disbursement, NFC and cloud technologies are being used for transit payments and retailer loyalty schemes in developed markets.
Jonathan Dharmapalan, EY’s Global Telecommunications Leader comments, “Mobile payments services in developed markets are at an early stage of growth but present unprecedented opportunities going forward. After a slow start, growth in mobile payments take-up is projected to accelerate from 2015, driven by factors including rising merchant acceptance, stronger policy support and improved customer education.”
Regulation requires a coordinated approach
While demographics and socioeconomic forces clearly influence mobile money take-up, the regulatory environment often plays a “make-or-break” role.
The challenges around regulatory oversight and policy agendas are greater in developed markets than in emerging ones. Sector-specific policies and consumer protection frameworks need to be aligned to help overcome fragmentation in mobile payments.
Jonathan comments, “It is essential that governments, industry regulators, consumer protection agencies and trade bodies reconcile the various drivers of their activities in order to generate a holistic roadmap for the regulation of digital payments services.”
Wider range of services needed but complexity must be reduced
The desire for sustainable competition in banking and payments services should be balanced with a keen understanding of changing customer needs, as well as commitment to proportionate rules for new entrants.
Horizontal (multi-operator) and vertical (multi-industry) partnerships in mobile payments are becoming more prevalent. However, as partnering models seek to drive take-up and usage of mobile money, competition between them may accelerate technology fragmentation, undermining scale and confusing customers.
Greater interoperability between different mobile payments platforms can help reduce customer confusion and the fragmentation of technologies by acting as a tool to achieve broader goals of business model efficiency, increased competition, scalability and greater customer reach.
Currently, markets such as Singapore, Indonesia and China are leading progress toward interoperability in mobile payments, while markets such as the UK and US are still at relatively low levels of interoperability.
In a more competitive environment, operators should also widen their service portfolios to include a greater range of financial services, while combining payments with related functionalities in location-sensitive marketing and advertising for consumers, businesses and partners alike.
Adrian Baschnonga, Lead Analyst, Global Telecommunications at EY, comments, “Flexible business models are vital if service providers are to meet customer demands, adapt to changing market conditions and cope with shifting regulatory imperatives. New partnering frameworks, innovative pricing models and targeted acquisitions will all have a role to play.”
Greater confidence in privacy and security is essential
Young, urban smartphone owners are leading the adoption of mobile money services. The proportion of smartphone owners using mobile payment services regularly or occasionally is twice that of non-smartphone users. Given the sharp contrast between different groups of consumers it is important to segment customers to target the likeliest adopters.
According to EY research, more detailed information on security and privacy measures and a better understanding of the service benefits would encourage customers to take up mobile money transfer sooner.
Dharmapalan concludes, “In future, service providers must reassure customers that mobile money services have robust privacy and security credentials, and can deliver new forms of convenience. Engaging more closely with a range of end users – from consumers to merchants – will help operators differentiate their mobile payment propositions in the long term, ensuring that their evolving offerings live up to industry expectations.”
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