Mobile payments are becoming an increasingly common and important part of the global financial system.
According to the 2016 Debit Issuer Study, commissioned by Pulse and conducted by management consulting firm Oliver Wyman, financial institutions (FIs) in the US expect mobile to account for over a quarter of debit transactions in five years’ time.
Similar growth is taking place in the UK. Figures from Worldpay showed that there were 38 million contactless transactions using a mobile device in the UK last year. Total spending surpassed £288 million ($353.8 million).
The mobile payments space clearly has huge potential for future growth, but there could be some significant obstacles to overcome as well.
A ‘table-stakes offering’
The Debit Issuer Study encompassed 72 FIs – including large banks, community banks and credit unions – and found that more institutions are making it possible for customers to complete point-of-sale (POS) transactions with a mobile phone. By the end of 2015, two-thirds of US issuers offered debit cards eligible to be loaded into a mobile wallet like Android Pay, Apple Pay or Samsung Pay. That marked an increase of over 100 per cent from a year earlier, when less than a third of providers facilitated mobile payments.
Tony Hayes, a partner at Oliver Wyman, said mobile payments are increasingly becoming a “table-stakes offering” for FIs. He added: “Issuers foresee a near-term boom in mobile payments – nearly half of issuers project mobile payments to make up over 25 percent of debit transactions in five years’ time. That would make mobile a primary payment method.”
Challenges of the mobile revolution
If the mobile payments sector is to continue growing in size and customer acceptance, there are some obstacles it will have to overcome, such as the security concerns that are so often linked to the latest technologies and innovations, particularly in financial services. In an article for Mobile Payments Today, Thorston Held, co-founder and managing director of application security firm whiteCryption, said mobile payments are “another way that hackers are seeking to gain control of sensitive data”.
He added: “Hackers are not simply changing to new specific targets; they’re targeting multiple points of vulnerability at once – including mobile payments. It is not enough to focus on protecting merchants as security must now be applied to the entire infrastructure supporting merchants, POS systems and mobile devices.”
As far as banks are concerned, one of the biggest challenges posed by the growth of mobile payments is the need to respond to new technologies, changing customer expectations and agile, innovative competitors. Deloitte has said that the growing popularity of mobile payments and alternative providers demands a “defensive response” from traditional FIs.
“This means taking steps to ensure that their card products remain sufficiently attractive, as well as developing a mobile wallet strategy, and continuing to invest in new technologies,” wrote Jason Ward of Dell EMC in an article for Finextra.
So there are clearly questions for FIs to ponder and difficulties to overcome as mobile payments continue to grow. Those that respond well to these challenges could reap the benefits from being on the frontline of an exciting and innovative sector.