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A flurry of new technologies is attempting to transform how consumers can pay for goods. So far, however, their efforts are failing to inspire people to adopt the new methods.
Many of the emerging payment technologies are focused on smartphones. The latest iPhones come loaded with a digital wallet, which allows users to pay by waving the device over a till. Android and Samsung have similar offerings, while companies such as Amazon are rapidly developing complementary services, including the ability to use a selfie rather than a password as a security measure.
Established payments companies, worried that they will be left behind by a potential fintech revolution, are also rushing to partner with start-ups, sometimes with eye-catching results.
American Express has a joint venture with fitness tracker company Jawbone. This enables owners of Jawbone wristbands to use them to pay for goods as well as measuring their steps and tracking their sleep.
In Australia, Heritage Bank and Visa, along with menswear label MJ Bale, have crafted a suit, made from some of the finest Australian merino wool. Wearers can “purchase items at any Visa payWave terminal by simply swiping their sleeve”, says Heritage Bank. It has produced only 12 of the outfits so far.
Such efforts, however, have been met by apathy from consumers, who struggle to differentiate between similar and overlapping apps, worry about security — or simply do not see the point.
“These propositions could be more compelling than they are. They are fiddly for consumers, and merchants have to pay a fee to the likes of Apple or Google to accept a payment that comes from a smartphone,” says Simon Burrows, a director in PwC’s payments and fintech team.
“It is a really crowded space and there are so many players coming from different angles that everyone is holding back to see who the winners and losers will be,” he says.
Banks and large retailers have also mostly sat on the sidelines instead of promoting or developing mobile wallets or other smartphone-enabled payments.
Banks in the UK and the rest of Europe are busy adjusting to recent regulatory changes, he says, while “merchants are getting this long list of different ways to accept payments that are being thrown at them from all directions”.
Anders Lykke, of Priori Data, which tracks the performance of mobile apps, says: “Processing payments via your phone has not at all taken off yet — at least not on a scale that would imply a wide, profound consumer interest.”
Juniper Research, which analyses the digital commerce sector, predicts that the global value of payments made by mobile devices or wearable technology will reach $95bn annually in 2018, up from $35bn last year.
However, of the 100 most downloaded finance apps across the Android and Apple stores in the UK, as measured by Priori Data, only five are mobile payments businesses. These include Android Pay, the long-established PayPal, and a breakout success from Barclays, called Pingit, which enables users to send money to each other in a similar process to text messaging.
In a survey of 16,000 consumers conducted last year by Ovum, the consultancy, 37 per cent of respondents said they knew what a mobile payment service was but had no plans to use one. Of those who had no plans to use mobile wallets, almost a third cited security concerns as a reason while a further 30 per cent said using cash or cards was easier.
Payment industry executives say attitudes will change.
“What is changing about consumer behaviour is the focus on the mobile phone as the focus for our lives, says Mike Cowen, head of digital payments for UK and Ireland at MasterCard. “We have shopping experiences that have to happen on a mobile phone, and people are increasingly living their lives through their phones. This means new ways to shop that require new ways to pay.”
MasterCard has developed several smartphone payment mechanisms, such as its Masterpass digital wallet, which stores consumers’ bank account and address details and allows them to buy items online without entering those details again, as long as the merchant accepts the technology.
Big retailers are slowly coming on board, with Boots and Argos joining the scheme in the UK. A plan to persuade banks to incorporate the service within their own mobile banking apps has so far not caught on widely, although Santander has signed up.
Payments businesses such as MasterCard, American Express and Visa are embracing smartphone technology partly out of fear. While it is difficult to start a credit card network, barriers to entry in mobile payments are lower.
Start-ups can bring technologies to market quickly, according to a recent report by PwC, thanks to advances in technology such as open-source software, cloud computing, developers on demand, open app stores for distribution, and social media.
In a survey accompanying the PWC report, 87 per cent of payments industry respondents told the consultancy they believed some part of their business was threatened by fintech start-ups.
“There is an awful lot of activity taking place, within both fintech and payment companies,” says David McCreadie, managing director of Tesco Bank, which has launched a payment app. “Some have started something afresh on their own, others are embedded [in other apps] or working in partnership with incumbent payment providers. It is hard to know who the winners and losers will be.”
Mr McCreadie believes that payment technologies will struggle to survive if they “are only about payment, and therefore unlikely to make a difference to customers’ lives”.
He argues the most successful will offer tangible benefits beyond quick payment — such as a Starbucks app that enables customers to order and pay ahead in order to jump the queue.
Tesco’s new app, Payqwiq, allows shoppers to pay for goods with their smartphones and collect loyalty points from its Clubcard scheme at the same time. This is a digital wallet similar to Apple Pay or Android Pay, and an early example of a major retailer cutting out the intermediary and developing its own mobile payments technology.
“The banks and telecom and technology companies are in fierce competition as to who owns the payments value chain, and both are desperate to keep the other out, while merchants like Tesco have to pay for accepting these digital wallets,” says PwC’s Mr Burrows.
“More retailers would like to forge ahead with their own mobile payment schemes,” he adds. “But how do they then persuade a customer to adopt even yet another way of paying?”