In the future, the technological developments which the Payment, Telecommunications and Retail sectors will experience will all take the digital path. We have entered an era in which multi-channel has become the norm, as is the massive adoption of mobile payment. This is no secret to enterprises, which, regardless of whether they are actually specialised in payment, have all chosen to invest in digital strategies. Companies from the banking sector are now capable of offering digital transactions and payments, and have as such completely flattened the payment, banks and telecommunications landscape, leaving them to be reshaped from the ground up.
Payment: An Ecosystem in the Throes of Revolution
The most recent developments in payment have been extremely swift. The number of payments made via mobile terminals has been unremittingly on the rise. Over the first part of Year 2015, dematerialised payment volumes (including Cards, which posted a total volume of $47 trillion in 20141 – and electronic payment) overtook paper payments (“cash” and checks). In 20162, card payments, fuelled by the same trend, are expected to overtake cash payments and become the preferred method of payment across the world, and most significantly, in China. What’s more, the shift to electronic commerce has caused currency itself to become dematerialised, in a trend that will inexorably spread in the years to come. Electronic wallets will form the sole tie between sellers and buyers.
From January 2014 to July 2015, more than 1 billion contact-free transactions were completed3; by way of illustration, in March 20154, VISA cardholders alone spent €1.6 billion.
Liisa Kanniainen, VP, Corporate Mobile Solutions – Nordea Bank: “Year 2014 proved to any industry players who still had doubts that contact-free payment is here to stay. The benefits it offers, being a reliable, secure and easy-to-use mode of payment, encourage cardholders to use it frequently. New contact-free payment players, including Apple Pay, Samsung Pay or Android Pay, have made their way onto the market and are, more often than not, edging out traditional payment giants (VISA, Mastercard).”
As Jean-Noël Georges, Global Program Director, and Research Manager at Frost & Sullivan put it: “The interoperability of Smartphones or notebooks – there will be 19 billion of them in use across the world by 2019 – is now part of our everyday reality. Such connected tools have given rise to new uses and new ways of sharing information using technologies such as NFC (Near Field Communication), QR codes (two-dimensional bar codes), Bluetooth Low Energy (BLE), and Host Card Emulation (HCE). As each of these technologies make headway on the market, they will reshape the payment industry over the years to come. In 2014, NFC and LTE (Long-Term Evolution) cards posted over 100% growth.”
On the mobile payment market, Apple was successful in taking position and establishing itself very quickly with Apple Pay, launched in late 2014. John Devlin, Principal Analyst and Creator of P.A.ID Strategies, noted that over the course of Year 2015, Android Pay and Samsung Pay, just like Apple, were able to catch that wave, positioning themselves as manufacturers, in the hopes of hitting upon new sources of income and breathing new life into their businesses.
The Payment Industry’s New Players: Friends or Foe to Banks?
With non-banking organisations now capable of offering digital transactions or payments, banks have no choice but to reinvent themselves if they want to remain competitive. In 2014, the World Bank estimated that half the adult population – over 2.5 billion people – did not have a “physical” bank account. Those newcomers to the payment industry who are capable of capitalising on this, in particular by appealing to their younger customer base, will play an instrumental part in this shift.
In John Devlin’s view, “The gradual convergence of traditional methods of payment with on-line transactions (in-app, peer-to-peer) offers banks the opportunity to more quickly take position as service providers. Playing a uniting role, they could offer a combination of mobile, on-line and person-to-person services, which would in turn pave the way for them to new sectors, new services and new sources of income.”
Hyper-connectivity brings about new behaviours and a heightened need for security and trust. Users now demand more protection in terms of confidentiality and security for their personal data. Fraud attempts nonetheless appear a major stumbling block in the system. It is for this reason that strong authentication, in particular for mobile payment, is vital. As Liisa Kanniainen from Nordea Bank points out that, “the trust and security challenge in payments is only becoming greater in this new ecosystem.”
Biometrics are emerging as one of the best-suited solutions for offering fully-reliable identification. “In our digital and connected world, humans appear to be kept out of technological developments — new devices, however, will put the main emphasis on people rather than on the mobile. Seen in this light, biometrics appear an appropriate response to authentication and identification needs,” statesJean-Noël Georges.
Telecommunications: from the Physical Model to the Digital
“Over the past 3 decades, the SIM card has enabled GSM to grow. However, we are now faced with a huge transformation in the role the card plays, as data management migrates from the physical to the digital. We still need an authentication tool to gain access to the various networks,” explains Sergio Cozzolino, Mobile Service Development Department VP at Telecom Italia.
“However, on the Telecommunications market, the SIM card continues to develop, reaching nearly 5.3 million units in 2014. The number of M2M (machine-to-machine) cards is expected to increase to 21 million,” noted Jean-Noël Georges.
The physical model is now giving way to the digital model, thanks to the roll-out of the SIM e-card for M2M, and thus for the consumer market. This radical change will have a profound effect on the distribution model and relationship with the end-user, opening up new growth opportunities for M2M.
The challenge for operators will be to guarantee their clients continued high service quality, during their communications or over the course of data exchange, without clients feeling the need to move from one network to another.
In John Devlin’s view, “The latest figures show that contact-free is becoming an extremely wide-spread system, POS (point of sale) terminal are now almost always equipped with readers, which are also widely incorporated into other devices, from food vending machines to ticketing machines, kiosks and terminals, giving consumers a better user experience and the chance to choose their mode of payment.” However, the risk of “softwarisation” looms over the sector, and the hardware used up to this point (SIM card, chips, etc.) could soon be replaced by nothing but software. Despite these various threats, SIM cards remain the least expensive option and best compromise between benefit and usefulness.
As Jean-Noël Georges emphasises, “30 years in the field of technology are equal to 150 years in the field of industry.”
1 Source: Euromonitor International
2 Source: Euromonitor International
3 Source: Visa Europe.
4 Source: Visa Europe.
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