Solving The Mobile Payments Enigma

On April 14^th, MPD CEO Karen Webster kicked off an engaging digital discussion on the future of mobile payments with Srinivas Nidugondi, SVP at Mahindra Comviva, in the following way …

“Mobile payments and its future success is like a riddle wrapped up in an enigma surrounded by mystery. It’s something the payments ecosystem has been pursuing for over a decade – but ignition, wide scale adoption, has been largely elusive. Of course, within the realm of mobile payments, the industry has seen pockets of success in both developed and developing economies as consumers are increasingly presented with new ways to use their mobile devices.”

And away they went.

So what, Webster asked, is happening now to create the environment for mobile payments success? Are the stars aligning now that new players with new capabilities and existing players with new value propositions have entered the mobile payments arena, she asked? Or will this be the payments equivalent of Groundhog Day, where the excitement and enthusiasm gives way to old habits and entrenched technologies and we continue to plod along?

Srinivas Nidugondi, SVP at Mahindra Comviva, then jumped into the discussion to explain that there is movement forward – for example, 22 percent of the U.S. population has done some sort of mobile payment over the last year or so. But what is key is to look at what’s working in those specific pockets of success that Webster mentioned. For one, in emerging markets, mobile payments has become the only way digital payments can move forward. But when it comes to proximity-based, over-the-counter payments, Nidugondi admitted that the ecosystem is “far from even scratching the surface.”

MOBILE PAYMENTS: A BRIGHT FUTURE

To get some clarification, Webster asked, what do we mean when we say mobile payments? It means different things to different people, she explained. When the Fed asks consumers about whether they use phone to make mobile payment, consumers don’t always know how to answer. How hard is it, she asked, to cut through different interpretations and definitions of mobile payments to get a real sense of where we are?

“The term mobile payments itself is looked at differently across regions – for example, there’s mobile money, mobile wallets, mobile banking, mobile commerce and more,” said Nidugondi. People really do mean different things depending on the region – in the U.S., for example, mobile payments is more related to transactions being made on a mobile browser via a tablet or phone.

Mobile banking in India, on the other hand, is predominately seen as an app on a smartphone to make transactions. In Africa or Latin America, it has to do more with SMS and other features within the mobile network.

So where are we, asked Webster, and are we getting ready to cross the chasm?

According to Nidugondi, the ecosystem has already crossed that chasm in certain areas. For example, with M-Pesa in Kenya, the market has crossed – however, in areas like the U.S. and the U.K., there’s still a ways to go. The answer, Nidugondi said, really has to do with different areas of the world and segments within mobile.

THE OMNIPRESENT MOBILE PAYMENT

One key trend that is occurring now, Nidugondi said, is that key players within various industries like the OEM & technology provider space, telecom, payment companies, retailers, social networks and banks are all getting into mobile payments.

“Everyone is believing in that market, and trying to come up with creative new models,” he said.

Webster pointed out that payments companies work across a variety of players within the ecosystem to get scale – they enable telcos, technology players and OEMs to make payments possible.

How does Mahindra Comviva handicap the success of various players getting into mobile payments, and how will the landscape shake out, she asked?

The trend they see, said Nidugondi, is consolidation. For example, Samsung acquired LoopPay, Google bought Softcard and PayPal bought Paydiant. There’s also that important shift as other players like Facebook and Twitter get into payments, something that is really building up, he said.

“But with consolidation, that very fact that so many players are there, there will only be a handful that are successful. The jury is out as to who will be the real winners.”

Payments, said Webster, is not a winner-take-all market simply because of its nature. But what’s fascinating is how many of the technology players are getting into payments in a big way, she observed.

THE SPEED BREAKERS

There are some things that can get in the way of mobile payments’ success – speed bumps that the industry must get through. According to Nidugondi, the two key areas that are causing these roadblocks are security and privacy. Which factors make consumers hesitant in using mobile payment services? And for merchants, does higher security always come at the cost of consumer experience?

So what’s the difference between security and privacy, from a consumer’s perspective? Is privacy a concern about how data is used, or just concerns over the possibility that credentials are not being kept private, Webster asked?

Nidugondi said that here, what’s important to understand is that privacy relates more to how consumers feel that they want to control what they share, and when. And security, on the other hand, is more of a mindset – it’s that perception and requirement that’s important.

“Security is more of a state of mind,” he said.

And as long as friction is eliminated, noted Webster, consumers are willing to make tradeoffs about what information they will share.

Perhaps they’d be willing to trade off concerns about security when using a mobile device to avoid going to a store or standing in line or share private information to get something from the merchant in return, like access to a loyalty program or relevant offers.

“It’s really about those tradeoffs and having a clear and compelling value proposition,” she said.

THE HOLISTIC SECURITY MODEL: HYBRID HCE

HCE and tokenization have come about and really shaped the direction that NFC is going, said Nidugondi. More specifically, both have shifted how proximity or over-the-counter payments work in the context of NFC.

“With HCE, what we’ve seen is the ability to remove friction that’s dependent on specific hardware – all HCE meant was downloading an app to keep credentials tokenized,” he said.

But certain organizations, like many banks in Europe, for example, feel more apt to take on mobile payments if there is also a hardware element in addition to software.

“This is what I call the hybrid way of looking at the market,” said Nidugondi. In other words, it’s another layered approach to security. There’s a hardware element like a SIM card, as well as the software on the device, that both work together to keep credentials safe.

“That’s the shift that I see in market for security, and for the consumer, the experience is no different.”

But, asked Webster, doesn’t that hybrid approach introduce a new player to the ecosystem, and therefore another player that needs to be “fed” in the mobile payments business model?

Yes, said Nidugondi, one more player is being added to the mix in this case, but the complexity involved in that partnership has been reduced.

“The elements of the right players mixed with the right requirements now come more easily. In the overall scheme of things, that would not bring down margins substantially.”

The other concern, added Webster, is that it’s not just the business model but it’s also who controls access to the customer. That was one of the big reasons NFC never got traction in the past – lots of different players needed to be “paid” to access the consumer. Does this model raise any of those questions about who controls to the consumer?

Not really, said Nidugondi. With something like the hybrid model, the service provider like the bank controls the consumer data. What is being transferred is a credential, and that’s not complicating the matter, returning to the old days to bring up the issue of ownership.

“That debate isn’t too relevant anymore.”

CONSUMERS: THE POWER PLAYERS

Both agreed that consumers really hold the keys. They hold the power for change, and they need to be convinced that there is a good reason to use something new like mobile payments solutions, and to change their behavior.

To do this, service providers need to incentivize (make an offer), allow consumers to opt in (asking them if they want to explore new offers when they’re in the vicinity) and educate consumers about which options they can turn on and off.

DELIVERING THE IDEAL DIGITAL WALLET

The type of wallet that is the future, said Nidugondi, is one that integrates consumers’ payment tools, identity tools and access together. That, he said, is where the world is going.

“That ability to stitch together an integrated experience is what will bring in consumer adoption,” he said. “I see banks and other service providers walking that path, and I’d say there are just two to three years before we see that integrated experience really shaping the way we make payments.”

That short time frame surprised Webster, who asked, “What makes you think this will happen in 2-3 years?”

Nidugondi said that he simply thinks that all of the elements and building blocks are in place – players are coming together, standards and specifications are coming together, and there’s the right movement across the industry.

And while Webster admitted she could perhaps see that happening in specific merchant categories like restaurant and food services — where the nature of the business calls for it —wholesale is still very hard for her to imagine in just a 2-3 year time frame.

The industry, however, is making progress, and what is key is to make sure that value is added to consumers’ experience, and friction is eliminated.

Perhaps, Nidugondi and Webster suggested, they’d just have to bury this conversation in a time capsule and meet again in 2-3 years’ time to reassess. Until then, time will tell.