Mobile commerce driving mobile payments

In my previous blog post, I discussed the core objectives of players in the m-commerce ecosystem to influence users in choosing a payment instrument and to shape the payment experience with ease of use, assurance of secure identity and transaction, and lures of offers and loyalty. While e-commerce and m-commerce trends are the chief drivers of innovation in retail payment, the focus is driven by convenience, experience and speed of payment processing.

In the past week we have gone through the biggest annual retail events: Black Friday and Cyber Monday. In this post, I discuss some notable trends that are emerging and ways retailers can adapt to them. One of the largest sources of my research for this post has been IBM Digital Analytics Benchmark Hub, which collects data from over 800 retail websites and 8,000 brands across 35,000 engagements. (It does not collect overall sales figures.) Let’s begin with some notable observations on Black Friday and Cyber Monday:

• As the new digital shopping companion for many consumers, smartphones drove 34.7 percent of all Black Friday online traffic, more than double that of tablets, which accounted for 14.6 percent. Yet, when it comes to mobile sales, tablets continue to win the shopping war, driving 16 percent of online sales compared to 11.8 percent for smartphones, a difference of 35.5 percent. (Source)
• Thanksgiving Day mobile traffic accounted for 52.1 percent of all online traffic—the first time mobile devices have outpaced their PC counterparts for online browsing. Black Friday mobile traffic reached 49.6 percent of all online traffic, an increase of 25 percent over last year. (Source)
• Apple users spent an average of $118.57 for each order, marking a 24.5 percent difference with the $95.25 spent on average by users buying with their Android devices. (Source)
• On Thanksgiving, mobile devices drove 52 percent of all US internet traffic. That’s more than Netflix! (Source)
• Thanksgiving Day and Black Friday set new (online) sales records at $1.33 billion and $2.4 billion, respectively. (Source)

So what does it all mean for the retail Industry?

For this discussion, I would like to borrow a page from the IBM Smarter Commerce playbook. The IBM retail solutions group defines the industry components, and we ought to not only understand them but also build upon them. Here is an attempt:

1. Buy: Think procurement.

How do retailers mobilize procurement? Optimize supplier and partner interactions based on changes in demand and customer behavior throughout the value chain.
How and why do we mobilize the buying process? Do retailers use this as a competitive advantage to fuel the feedstock of optimized supply with relevant consumer context? This is something to think about as stores struggle to provide a true omnichannel experience.

2. Market: Think location-based services, and use profile, context and marketing associated with it.

Apply deep customer insights and behaviors from both online and offline channels. In the mobile world, it is all about context and precision. The era of mass “hit or miss” mailings is being replaced with analytics-driven context awareness. This implies a business need to not only invest time in understanding your clients but also maintain a relevant dialogue.

3. Sell: Think mobile browse-to-buy ratio, order fulfillment, client reach, exception processes and mobile payments.

Empower customers and partners to purchase, shop, exchange information and fulfill orders. The net here is the “customer spend”—converting the browse-to-buy ratio. To do this, you must make sure that “browse” is customer experience–focused and “buy” handles issues like payment (which today is either cloud or near field communications, NFC, based). This area requires significant consideration to ensure seamless payments, loyalty and security with frictionless checkout processes.

4. Service: Think notification, bidirectional messaging, social hook points and so forth.

Provide flawless customer service in all customer interactions. We tout that mobility is context-driven, but how do businesses tie in the post-sale processes? This relates back to closing the loop from marketing, selling, accepting payments and loyalty rewards, and ensuring satisfaction for future inroads—all in an effort to capture mindshare of the consumer.
But understanding the industry components of the mobile retail and payments industry is not enough; there are significant challenges that any enterprise would have to consider. Some challenges include:
Payment: Today clients have a few choices:

• Cloud:  Cloud payment solutions are simple to implement and integrate into business processes.
• NFC: Near field communications have become the center of the payment focus, and as the retail industry absorbs the change, a cross-platform payment strategy should not be overlooked.
• Custom processing: This is traditional credit card processing, and most commerce platforms provide integration avenues with payment processors and payment gateways.
• New emerging consortiums: It is important for companies to understand how a large consortium of retailers affects frictionless payment processing.

B2B: Complete integration with business partner gateway services is another challenge that mobility will need to consider. This includes procurement processes, invoicing and corporate payments. Many financial-technology companies and startups have begun to address this issue and provide package solutions. The idea is to speed up processes, invoicing and payments for better inventory and management of working capital.
Brand management: How do we help a mobile storefront manage a cohesive brand like they do on the web? Mobile interaction is all about perception and given ephemeral and fickle consumer behavior. Every mobile interaction is a brand experience and should be treated with care.
These are just glimpse of issues we can encounter, and it’s by no means an exhaustive list.
So what can we expect to see when we discuss the shift in trends in 2015? Here are some things to keep an eye on.

1. Mobile is to account for 25 percent of US online sales by 2017.
2. Some 45 million Americans used their phones to shop in June.
3. Europeans will increase mobile spending 11x over next five years.
4. Black Friday sales figures are soaring for online retailers.
5. Loyalty, mobile wallets and integrated technology are now appearing in stores.

We can expect to see an upswing in current trends that will be dominated by mobile interaction—not just at the storefront but across all retail and commerce activities, from marketing to mobile payments. A continual data-driven feedback loop will help to maximize the process efficiency and use of customer context data.
Are enterprises ready to handle this shift, not only adapting but leading the disruption, in hopes of capturing mindshare and wallet share of the consumers?

Commerce trends are the primary drivers of innovation in retail payment

Commerce trends are the primary drivers of innovation in retail payment.

Folks it has been several weeks since my last post, and I continue to learn a lot about the evolution of payment industry. Last few weeks I was fortunate to be a part of AFP Conference (Association of Financial Professionals) in Washington DC and Money 20/20 in Las Vegas. It was simply amazing to meet many professionals, evangelists and silicon valley disruptors, all working to make Mobile Payments – safe, cheap and relevant to the times we live in.  I got to speak at AFP Conference on the technology trends that impact Payment industry. At Money 20/20 I got to meet many Mobile Payment Players – old and New, with many new value proposition around Bitcoin, P2P payments and retail payments. I was refreshingly surprised to see interest around Bitcoins, cyber currency and Block chain technology with a large participation from startups and established players in the Bitcoin network, exchanges and consortiums. I am personally very interested in Bitcoin technology and the network while still a skeptic around the currency itself.

            So while a lot is going on in the payment world, in this weeks post I would like to focus on retail payment trends as we approach the biggest shopping event of the year – Turkey Day shopping or Black Friday.  I find these noteworthy shopping events interesting as they not only set the trend but also set the tone of what is to come in future. I firmly believe that it is these commerce trends that are primary drivers of the innovation in retail payment industry. I have listed a few anecdotal evidence below as news worthy announcements. These and many such trends indicate that the focus is shifting from the issuers, rewards and payment network to the end consumer and merchants. The biggest of all is the emergence of “Contextual Payment” which is driving the dynamicity around retail payments technologies and systems. For a consumer it is the device, location services and mobile Wallet or a payment instrument. For enterprises such as retailers, Banks or a Merchant, the story is not that simple.  The growing diversity of payment acceptance such as in-store, in-App, online, social media, cyber currency puts the focus back to consumer that choose a certain way to buy and pay and merchants that support technology for an Omni channel payment experience.

             This weeks blog posts I will attempt to discuss my hypothesis that Commerce trends are the primary drivers of innovation in retail payment, by discussing the e/m –commerce trends, technological evolution  and it’s impact on retail, banking and payment industry. My goal is to  discuss the inflection point that described the intersection of  retail industry and payment industry.

Here are a few news worthy announcements:

1.     Beating the numbers - Alibaba announced that total sales on Singles’ Day — China’s largest online shopping festival — reached a record $9.3 billion, And Alipay, its Paypal-like affiliate, saw the volume of payments processed increase by 60 percent to reach $5.8 billion across the entire day.

2.     mPayment as a Value Add Service for Merchants : Square Register - cloud-based point-of-sale tool to track sales, and manage items and inventory. This point-of-sale software will be soon available to businesses worldwide

3.     Mobile Shopping and mCommerce: According to IBM Digital Analytics Benchmark hub predictions, more than half of all online shopping on Thanksgiving, roughly 53 percent will come from a mobile device, up 23 percent year-over-year. Mobile sales are also expected to grow, reaching 28 percent of all Thanksgiving online sales, an increase of more than 9 percent over 2013.

4.     mWallet Wars - Google is to give away $100,000 to users of its mobile wallet who recruit a friend to the platform, as it prepares to do battle with Apple Pay and Softcard for market share over the all-important US holiday season.

5.     Competitive pressures  and Coupon Fraud – Fake Amazon pages created by consumers to get cheap electronics at Walmart, due to Walmarts price match policy.

6.     Bitcoin is gaining momentum - PayPal can now easily start accepting payments from customers that use Bitcoin  - entering the world of cyber/digital currency. And joining the likes of Amazon, Overstock and Tiger Direct to name a few.

Role on Mobile Wallet and battle for Mobile Payments

ApplePay has certainly been the focus of conversation around important of a slick payment instrument. AppplePay has been a stunning  success and has certainly stirred up the mobile wallet wars.  And while we all understand the concept of Mobile wallet, this concept that is simple for the consumer can get quite complicated for industries such as retail and banking. The notion of digital wallet is very confusing. The market of digital wallets is fragmented and changing rapidly. The innovations to the likes of Google wallet, Square, and PayPal to name a few have truly disrupted the traditional payment schemes such as cash or bankcards.  This led to digital wallet frenzy where every bank, including payment processors such as a Visa and MasterCard has launched their own version of Digital or Mobile Wallet. So which is an Ideal Mobile/Digital wallet? The Answer happens to be in our own wallet. An ideal wallet should be

a.    Customizable – Like our own wallets

b.    Does more than Pay (such as a Person to person, like cash,  and have the ability to store other credit or cash instruments)

c.    Work Anywhere (open frameworks technology implied),

d.    Inclusive of rewards management – either links the apps, or drive the reward management from the back end systems

e.    Simple, Secure and Easy to use – Simple and easy to encourage adoption, Secure to institute trust.

Key Battleground for mobile Payments include:

1.     Proximity Technology – With ApplePay endorsing NFC technology, there still remain a competing battle for other technologies that include QR Code, Bluetooth Low Energy (BLE) and Option for in-App purchases.

2.     POS Support – The question for POS vendors is not just survival but reaction of  modular system that can evolve with the Mobile proximity payment options. One school of though suggests using the same technology that is in hands of the consumer i.e Mobile devices, such as use of Tablets as a POS option.

3.     Payment credential Storage or mIdentity –  This includes the security or identity technology. For instance ApplePay has a  secure element that stores a payment token issues by a bank or a network, Google or Android has a HCE or Host Card emulation alternative. Other competing technologies include  SIM Based, MicroSD etc. The idea is to ensure that the payment identity is secured either locally on the device or in the cloud and is unlocked with various 2^nd factor authentication mechanisms.

4.     Payment Account - This is where things get  interesting as the battle for the “Account of choice” ensues.  This includes credit cards, open and closed loop accounts, loyalty accounts, Mobile network provider accounts etc. The goal of the every player in payment value chain is to maximize benefits  fir themselves and the end users.

5.     Interface and Interaction technologies – These sets of technologies sets the focus on the consumer, where the interface or Interaction(in case of wearable) will set the tone on usage and popularity. Easier to use payment instrument with implied security tends to win the mindset and ecosystem share. ApplePay is a  good example of simplified security and ease of use.

Conclusion:

            Mobile Payment and payment related technology landscape is in constant state of flux. Over past several years’ number of innovations in retail payments have emerged and continue to evolve. These innovating that affect the retail and banking industry along with the retail payment industry. The core objective of any players in this ecosystem is to influence the users in choosing the payment instrument and by shaping the payment experience  with comfort of ease of use, assurance of secure identity and transaction and lures of offers and loyalty.  While e/mCommerce trends are the primary drivers of innovation in retail payment, the focus is primarily driven by convenience, experience and speed of the payment processing. There are a  few  imperatives that can be concluded with the emerging payments trends, some of them are:

a.     Only a handful of payment innovations thus far have had an impact of the payment industry. ( NFC for instance with ApplePay and Android HCE)

b.     Many technological option piggy back on the exiting retail payment systems ( most proximity payments rely on credit/debit rails)

c.      While most innovations have a potential for a  global reach,  there is an emergence of regional payment options that dominate the regional market. ( Proximity payments in developed economy and Mobile Money ( like mPesa) in emerging economies)

d.     Continued focus on speed of payment processing,  this manifest itself in form of faster settlement or faster payment initialization. ( e.g. Stand-in services by PayPal, or batched approval for micro payments such as bPay)

e.     While developed economies focus on speed, engagement experience and contextual value add services, the emerging economies  see financial  inclusion as a primary driven in development and evolution of regional payment blocks. (BKash, Tigo, mPesa etc. are examples that has enabled opportunities for financial participation in untapped markets)

f.      New entrants and lowering the barriers to entry into payment ecosystem.  The markets dominated by Banks, payment processors and payment Networks; see a flood of new entrants. These new entrants such as Dwolla, Ripple, Boku, Zong etc. not only provide technology innovation for low cost of transaction, faster processing, settlement etc., but also provide a competitive landscape to the seasoned players with long history and maturity in payment business.

   And more…

References and Interesting reads:

1.     http://www.finextra.com/news/fullstory.aspx?newsitemid=26729

2.     http://www.celent.com/reports/top-trends-retail-payments-year-review-0

3.     http://techcrunch.com/2014/11/10/alibaba-makes-strong-start-to-singles-day-shopping-bonanza-with-2b-of-goods-sold-in-first-hour/

4.     http://www.bis.org/cpmi/publ/d102.pdf

5.     http://www-01.ibm.com/software/marketing-solutions/benchmark-hub/

6.     http://www.finextra.com/news/fullstory.aspx?newsitemid=26719

7.     http://www.nbcnews.com/tech/gadgets/wal-mart-scammed-selling-playstation-4-90-n251831

8.     http://money.cnn.com/2014/09/26/technology/paypal-bitcoin/

Adolescent years of Mobile Payments…inching towards Maturity…

Adolescent years of Mobile Payments…inching towards Maturity…

I have been trying to write this post for a while; the delay was just massive amount of data and recent trends in Mobile Payment industry.  Since I started my journey into Mobile Payments, a lot has changed, or should I say Mobile Payments is evolving.  As we try to understand the Mobile Payment landscape, looking at the direction technology in commerce space is moving, mobile payments i.e. ability to pay via Mobile device or any other wearable technology is inevitable. The technology design that is driving the mCommerce and mPayments are hence in lockstep of development curve. While the Payment industry comes to grips with the cost model and value of the ‘interchange fees’ in new and bold mobile payment world, the retailers and mCommerce engines are finding new and creating ways to fuels the ecosystem and provide the value to the end customer. Value in terms of convenience, speed and incentives.  While many pundits may focus on the traditional value chains and ‘interchange fees’ and mechanics of ‘Card present’ and ‘card not present’ rates of a  transaction, I believe Mobile payment has a more refined promise. A promise to provide a richer engagement and understanding of the constituents  with value added features such as a analytics, loyalty, deeper understanding of value and costs models which are not a constant anymore but varies for every individual.

In this post I intend to discuss various elements of Mobile payments ranging from proximity technology which is forefront of any mobile payment experience to Speeding up the process of authorizing, clearing and settlements of Payments.  I think these are interrelated topics and grouped under large umbrella of Mobile Payments.  As I discuss these trends with proof points from my own research, experiences, analyst reports AND recent industry movements, I would like to draw attention on various interplays. There is an implied interplay between consumer readiness ( development vs. emerging economies), financial service, environment, infrastructure ( Telco may have a role  here) and regulation. So while the Mobile Payment industry is in a flux and inching towards maturity, it is the confluence of the factors that interplay  not only from  technology point of view but also from adoption, regulation and overall  readiness that will dictate the speed of change. Money is changing, and it is changing fast.

Following are a few categories that contribute to overall evolution of the Mobile Payment Landscape:

1.    Proximity Payments Technology

a.     NFC (Host Card Emulation - HCE, iBeacon, BLE, QR Code and RFE – This is to do with a set of technology that enables the user to either open an app, Tap and pay or simply wave the device in front of a mPOS – Mobile Point of Sale system. While the security elements and other physical aspects such as a distance, speed etc may differ the intent is to make things more convenient than say pulling out a credit card.

b.     Mobile Wallets - Despite the efforts of PayPal, Square, and even Google Wallet, few people have actually replaced their wallets with their smart phones, which was the original idea behind mobile payments, this trend begs the question in viability of wallet in ‘seamless mobile payments’?

The notion of digital wallet is very confusing. The market of digital wallets is fragmented and changing rapidly. The innovations to the likes of Google wallet, Square, and PayPal to name a few have truly disrupted the traditional payment schemes such as cash or bankcards.  This led to a digital wallet frenzy where every bank, including payment processors such as a Visa and MasterCard has launched their own version of Digital or Mobile Wallet. So which is an Ideal Mobile/Digital wallet? The Answer happens to be in our own wallet. An ideal wallet should be

·      Customizable – Like our own wallets

·      Does more than Pay (such as a Person to person, like cash, and have the ability to store other credit or cash instruments)

·      Work Anywhere (open frameworks technology implied),

·      Inclusive of rewards management – either links the apps, or drive the reward management from the back end systems

·      Simple, Secure and Easy to use – Simple and easy to encourage adoption, Secure to institute trust.

2.    Remote Payments

a.     Cloud based Secure element – Now Host Card Emulation (HCE) introduces the concept of Cloud Based SE – Secure Element. HCE might accelerate the introduction of NFC services, because it provides an alternative for NFC based solution albeit, more-simple-but-less-secure way to provide host card emulation service. In this way, it has great added value for merchants, service providers and e-commerce/m-commerce operators, that can accept a trade of reduced level of security in exchange for an improvement of other factors such as time to market, development costs and the need to cooperate with other parties. But it appears that this technology concept can be applied to any or all of the discussed proximity payment technology – iBeacon/BLE, HCE/HFC and QR Code etc.

3.    Speed and Immediacy of Payments

a.     Venmo for instance is a Peer to Peer (P2P) money transfer app which enables the user to integrate facebook accounts with their Bank accounts, making say splitting restaurant check easy,

b.     PayPal, Square Cash and ClearXchnage – All aim to enable faster exchange of Money and aim to provide a unique value proposition

c.      Ripple - is an open-source Internet protocol for real-time funds transfer. Ripple protocol, a crytocurrency transfer protocol is build on distributed public ledger, which is quite similar to solving for bit coin block chain. The Promise of Ripple is to reduce cost, and time in settlement, thus enabling real-time fund transfer and settlement. Stellar seem to have a similar technology platform with a slightly different mandate. It is to be noted that Ripple aim to work with existing payment processing consortiums and financial intermediaries as opposed to create a entirely new system.

d.     Bit coin – while may seem far away from mainstream adoption, Bit coin does provide some amazing technology to address speed and immediacy of settlement and fund transfer. Bit coin’s underlying technology provides a good, cryptographically secure platform for exchange, and traditional transactions have moved to the Internet and are leveraging Internet speed for what used to be typical offline transactions.  In essence we can see technologies enables by Bit coin and Ripple protocol be applied for traditional transactions and leverage Internet speed for processing and settlement.

4.    Technology driving the Security enabling Mobile Payments

a.     Payment Tokenization - The Payment tokenization standard has the potential to move away form two variables namely Card present and card not present transactions to several creative ways to set the base rate of all type of Omni-channel transactions.  This is due to elimination of traditional risk model and adaption of new risk models. The idea behind token is to protect the data, and device a system to ensure that if the token are lost or stolen the data is preserved or uncompromised. This also paved way to many other qualities of services included in toke metadata such as time of expiry, other policies if access etc. I believe that Payment Tokenization  will significantly change the rick model of proximity/remote payments, and provide the enabling technology needed for many Mobile payment options discussed in this post.

b.     Contextual Multifactor Authentication – This includes  the contextual and multifactor security such as  correlating usage to past behavior, location and other device specific factors such as a device fingerprinting, failed password attempts etc. The goal is to ensure  transactional, interaction and identity security. This is to address emerging vulnerability directly impacting mobile payment security  such as

                                               i.     a. Mobile devices themselves have become security tokens  that are easily lost or stolen

                                              ii.     User interaction with mobile devices is brief,

                                            iii.     Situational Impairments

                                            iv.     Ephemeral nature of data acquisition and interaction.

Some Notable recent Announcements:

1.     FIS to Acquire Clear2Pay -  Clear2Pay - company's flagship Open Payments Framework offers a suite of re-usable components through which banks can process multiple payments types via a centralized payments engine.

2.     MCX Announces  CurrentC – MCX – Merchant Customer Exchange  - a consortium of Retailers announced  payment network. Working with tech partners FIS, Gemalto and Paydiant the group has now unveiled its CurrentC network, which will enable customers to pay with their mobiles at more than 110,000 US merchant locations

3.     Apple and Mobile Payments – At the time of writing this blog post, we are 2 days away from significant Apple announcements. But a Few pre-release articles suggest that Apple has been aggressive in going after Mobile Payment space. This includes aggressive  negotiation with Visa/MasterCard and AMEX for favorable (Card present) rates and technology certification but also capitalizing on its 800 Million iTunes user base to not only digital goods but also physical goods. Apple already has 800 million iTuned customers, so why not use a model where the consumers cannot only buy goods from store as opposed to ONLY digital goods. So Apple is partnering with VISA/MC and other payment processor to make sure they address security/support etc and use of their touchID which reduces risk and provides avenue to multi factor authentication , and on client side which is what consumers will see is include array of option with proximity technology like NFC/iBeacon/BLE. Next step is to enable a ecosystem that will make payment seamless and iTune account a primary account to manage it all. Apple gets behavioral data and analytics, retailers gets the spend and payment processors benefit from spend at retailers.

4.     ISIS Wallet Changing name to Softcard – This was an interesting development of events where a non related entity causes a marketing nighmare for ISIS to change it’s name to Softcard. Softcard is  same carrier-backed mobile wallet, which after initial success is now struggling for wide consumer adoption.

Analyst Tidbits on Mobile Payments:

1.     Merchandise purchases (e.g. via Amazon and eBay) account for most of m-payments in developed markets.

2.     Money transfers and prepaid top-ups account for most of m-payments in developing markets.

3.      Gartner (June 2013): estimates that there are 245 million people making mobile payments (money transfer, purchases, bill payment) in 2013. This is expected to grow to 450 million people in 2017.

4.     Juniper (April 2014): global payments via mobile devices expected to be US $507 billion in 2014, up 40 percent from 2013.

5.      Gartner (June 2013): estimates mobile payment transaction values at $235 billion in 2013 and will reach $721 billion in 2017. Money transfers account for about 71 percent of total transfers in 2013 and 69 percent in 2017.

6.     Gartner (June 2013): forecasts that Asia pacific will overtake Africa as the largest region for mobile payments by 2016 worth $165 billion against Africa’s $160 billion.

7.     Juniper (April 2014): growth of mobile payments will be driven by purchases of physical goods via mobile devices. Average transaction sizes over tablets are already exceeding those via desktop PCs in many markets. Spend via smart phones is increasing sharply, but primarily used as search and discovery devices with the final purchase being made on the tablet.

Conclusion:

Re-iterating  Gary NorCross of FIS that, many institutions are struggling to adapt to the evolving global payments landscape, inclusive of high-value and cross-currency corporate payments and new channels. As the title of this blog posts suggest that while Mobile Payments has a long way to go in asserting itself as mainstream and a de facto payment option - Cash threatens it!  80% of all world transactions are cash transactions. The flux of technology options and value propositions of each of technology option while may be a characteristic of a Mobile Payment industry’s adolescent years, the proof points set by technology and mass adoption will push the industry into a progressive maturity model where proximity technology, remote payments, security and speed of payments will be foundational requirements of any Mobile Payment solution.

References:

1.     http://www.gsma.com/mobilefordevelopment/the-evolution-of-cross-border-transfers-new-infrastructure-for-mnos-to-increase-remittance-volume

2.     http://paymentsviews.com/2014/05/15/there-is-no-such-thing-as-an-international-wire/

3.     http://www.finextra.com/news/fullstory.aspx?newsitemid=26410

4.     http://www.finextra.com/news/fullstory.aspx?newsitemid=26416

5.     http://www.slate.com/blogs/business_insider/2014/09/05/mobile_payment_not_a_bigger_screen_will_define_the_iphone_6.html

6.     http://www.forexminute.com/bitcoin/bitcoin-tech-provides-good-cryptographically-secure-platform-exchange-says-fireeye-founder-42502

7.     http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/f#m-payments