Banking on mobile payments

A global phenomenon 

The global payments industry is experiencing the most dynamic and innovative transformation in its history as Internet access and the proliferation of mobile technologies spur a new era of innovation in payment systems and services. Mobile payment systems—a number of different technologies and processes for initiating and receiving monetary transactions using a mobile device—are at the forefront of this transformation. One of the unique facts about mobile payment systems is that innovations are being driven by as developing markets more so than the richer, more technologically advanced developed ones. In countries like Kenya, Ghana, Tanzania, Afghanistan and India, many new mobile payment users are also new entrants to the formal financial services sector. 

 

They form part of the global “unbanked,” people with no access or limited access to formal bank accounts who nonetheless have could have access to financial services for the first time thanks to mobile payments.

According to the United Nations, the global unbanked population with mobile phones is expected to hit 1.7 billion people in 2012—a 70 per cent increase over 2011. This growth is expected to be attended by an explosion in global mobile payments as well,thereby creating new wealth creation opportunities in developing markets where many citizens do not have the spending power of their counterparts in more developed economies. In fact, ABI Research estimated that consumers worldwide will spend more than US$119 billion using their mobile phones by 2015. 

 

Financial inclusion: A joint undertaking

For the unbanked and economically challenged, demand for mobile payments and mobile commerce in emerging markets represents a significant, empowering shift in financial access. Across the world, mobile payments are much more than a high-tech convenience. For countries, communities and individuals in the developing world is represents a truly transformational shift, opening much-needed financial service capabilities to poor, unbanked, underserved and rural citizens. Despite such projections and prospects for growth, mobile payment is still far from mainstream adoption. For that to happen retailers, financial institutions as well as device and software maker need to work together to develop standards for communication and transactions, much like various industries did in order to push the adoption of credit aand debit cards. In several markets, this is already happening with banks, payment card and processing companies teaming up with mobile and technology providers in order to deliver innovative mobile payment solutions. 

 

Enabling mobile payments

Changing the payments infrastructure to introduce mobile payment technology is a huge, complex, expensive, long-term undertaking. To get banks and merchants to adopt new hardware and technology can be like teaching old dogs really expensive new tricks. Indeed, if the evidence emerging from countries like Kenya is anything to go on, many in the financial sector will actively and powerfully frustrate efforts to bring change and innovation. It is for this reason that very underdeveloped economies, such as Haiti, where it is widespread traditional financial services are unprofitable, are actually at the vanguard of mobile payments in the Caribbean. Nevertheless, the long-term cost advantages and widespread social and economic benefits, including the lowering of costs in the traditional banking sector, means that reluctance to change and resistance to mobile payment technology could ultimately cost us in global commerce and international competitiveness.

 

Global realities = regional opportunities 

The opportunities afforded by mobile payment systems are particularly relevant to the Caribbean. The region has high mobile penetration rates, between 80 per cent and 85 per cent, according to a BuddeComm February 2012 report. The region’s domestic financial services market is comparatively expensive and suffers from lack of competition making formal banking expensive for lower-income citizens. 

The Caribbean also has a very large number of micro-enterprise and small enterprise businesses which would benefit from mobile payment systems if for no other reason than added convenience and security. 

In T&T, it was reported that the three largest merchants for whom local credit cards were utilised in 2010 were HiLo Food Stores, PriceSmart and Amazon.com. This top tier ranking from an entirely online enterprise is significant.

 

From a national economic perspective, the dominance of US financial giants like Visa and Mastercard means that for every local credit card transaction, there is effectively an overseas “tax” in the form of payments to these global giants for use of their platforms. In fact, the real opportunity lies in the local development of more ubiquitous mobile payment infrastructure at both the telecomm and financial services levels. In the region, we may not replace cash for e-money anytime soon. Inevitably, though, our local payment systems will be eventually forced to evolve to take mobile payments into account, even as adoption in the rest of the world increases. The majority of the Caribbean population already has possession of a mobile phone. If the banks, merchants and policymakers seize the opportunity with decisive leadership, Caribbean phones may soon be used for much more than just texting and talking. 

The future of payments is mobile, and it is a future that will change not only how we interact with our money, but how we build our societies.

 

 

The growing world of mobile payments