Mobile payments have often referred to be “a lost opportunity” or “a solution looking for a problem”. Still at the same time new mobile payment solutions are popping up and some of which have gained a massive traction – especially in developing countries in Asia and Africa. But in Europe and the US mobile payments are still more or less a niche.

Even the giants like Apple have not been able to transform the way we pay (yet). One reason for slow up-take of mobile payments is that payments in general are working well: Cards are widely used and accepted which makes them the dominant mean of payment in many Western countries, the Nordics in front. User experience of contactless cards is hard to beat – from both consumers’ and merchants’ point of view. Transition from card to mobile NFC payments seems to be slow and require at least one generation to take up. In fact it seems that there’s not much broken in payments today. Or is there?

Are You Happy With Payments When Shopping Online?

Payment is still one of the most common reasons why online purchases fail. Reasons may be various, but quite often the failure is due to cumbersome and complex checkout process leading a frustrated customer to abandon the shopping cart.

Improving the convenience of online payments’ user experience and lowering the failure rates of online purchases are real challenges, which have inspired many innovators – both FinTechs and incumbent players. Seamless one-click payment was a buzzword of its time couple of years ago introducing us numerous checkout solutions.

But how does this reflect on mobile payments? We are moving from e-commerce to mobile commerce and majority of time spent on retail sites takes place on a mobile device[1]. Mobile commerce has introduced in-app payments which accelerate the converge of online and offline worlds and the online user experience is spilling over to in-store payments. With numerous mobile applications we can preorder food and coffee, or book a ride or hotel. Payment is embedded in the purchasing process and done behind the scenes with minimum effort from consumer.

As a consumer, you still need to register your payment credential to each of these services separately. However, many of the checkout solutions are trying to turn into a general purpose digital wallets, which can offer convenient and unified user experience independent on whether you are online or offline. At least Visa, MasterCard and Apple followed by other Internet giants seem to be pursuing this. In this light the slow up-take of Apple Pay as mobile NFC payment is just a curiosity in the bigger picture.

Payments Create Costs For Merchants

In 2015 Finnish merchants bear total cost of EUR 422 million[2] originated from payments of purchases paid with card or cash. Two-thirds of the total costs were originated from card payments and one-third from cash payments. Thus the merchants have an incentive to get rid of cash and find payment methods alternative to cards. This example is from Finland where the card payment related merchant fees are one of the lowest in the world so the incentive is even greater in the countries with higher merchant fees per transaction.

Currently many existing mobile payment solutions are based on cards. However, card schemes consider payments within mobile app as online payments which are more expensive for merchants than in-store payments with a physical plastic card.  Hence the cost problem of merchants remains and may even increase with the new mobile payment solutions. Therefore also alternative infrastructures need to be considered. Emergence of real-time payments, popularity of P2P payment schemes and evolution of card schemes’ rules and pricing models are interesting to keep eye on.

Solving of real-life customer problems drives mobile payments, not just technology

As we can see, there are still real problems in payments to be solved – both from consumers’ and from merchants’ perspective. Mobile will play a key role in solving those problems. And mobile NFC is just a tiny part of the story. The winning formula for mobile payments is not to convert cards into mobile but enhance customer experience and create value for both consumers and merchants.

Currently, payments landscape is fragmenting which may be a problem on itself. The situation is confusing for both consumers and especially for merchants who are worried about potential costs to accept all possible variants there are on the market. After all, merchants are not able to easily abandon existing payment methods, cards and cash, and there is a risk that mobile payments are seen only as additional costs.

When talking about payments, network effects must be taken into account: The more users – payers and payees – a scheme has the more benefits it can create. In order to succeed a mobile payment scheme must be able to orchestrate an ecosystem of payers and payees and potentially ensure interoperability between different payment service providers (PSP’s) in both ends of the value chain. Revised Payment Service Directive (PSD2), emergence of real-time payment infrastructure and perhaps block-chain technology are enablers, which most probably are on development roadmaps of each mobile payment scheme. Meanwhile, crucial is to find the real problems to be solved, the right use cases for go-to-market and expansion strategies. Important also is to have a compelling value proposition for both payers and payees. In the end consumers and merchants will decide who will win.


[1] 55% of all time spent on retail sites according to mobiForge (2014)
[2] According to Finnish Commerce Federation

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