Has the time to ditch cash for mobile payments in the Middle East?
The use of social media has grown exponentially in the Arab World, with data from the first quarter of the year indicating that the UAE continues to have the highest Facebook penetration rate amongst all Arab countries with 41 per cent.
Coming hand in hand with this is the growth of e-commerce, as users have a natural tendency to purchase goods, content and services through their mobile phones. One of the main barriers to purchasing is trust, with increased interoperability, flexible regulations and acceptance networks being key to developing an ecosystem that will encourage increased usage.
Trust is vital in mobile payments, where service providers are the guardians of a consumer’s credit, personal data, and financial identity. It is becoming even more important as the market expands with the entry of start-ups and companies whose brands are not typically associated with payment services. The most successful ventures will have trusted brands on board, brands that provide endorsement for a service, inspiring confidence among consumers and making them more comfortable with trying something new.
In most instances, payment newcomers do not hold the same level of consumer trust as established banks. Gaining consumer acceptance and driving use of new payment tools is often problematic due to issues of trust, security, and lack of awareness. Banks, on the other hand, do not face these same hurdles. They hold a natural advantage as they are already the trusted provider of payment services in consumers’ daily lives, and for most consumers and merchants it is not a major leap to perceive them as the natural providers of mobile payment services.
Telecom operators are trusted, strong brands too; when partnered with established financial services brands such as Visa, MasterCard, or renowned banks, their mobile payment services are likely to be trusted.
However, for many banks this poses a problem. They need to remain innovative in payments, and to achieve this they need both platforms that can provide them with flexibility in the types of payments they can offer, and effective payment networks between merchants, consumers, and banks. For most banks, achieving this on their own is not a cost-effective proposition, and even where it is possible, it will not help to overcome the need to form networks to make the technology work, and work quickly. So banks hold a natural advantage in mobile payments, but most can’t go it alone.
The mobile payments market has long been gestating, and is now finally starting to gain momentum in terms of product launches and levels of investment from significant players across the financial services, IT, and telco markets. However, it is clear that the market is unlikely to reach a big bang moment, and will instead continue to evolve on several fronts at once. Hurdles such as interoperability and e-money regulation need to be overcome by the key players and require a fine balance between competition and industry cooperation, in order to encourage development of a mobile payments ecosystem. What this also means, however, is that market entrants must think beyond existing business models to find a means of creating a technologically and financially viable mobile payments ecosystem for all parties involved.
Key to this is understanding that mobile payments are not a vertical market. Players must understand how the different participants in a payment system — the merchant, issuer, and consumer — can all benefit through mobile. Only through a combination of interoperable payment technology, flexible regulation and ubiquitous acceptance networks can mobile payment players hope to reach their true potential. In the 15 years since the launch of the world’s first mobile payment service — an SMS-enabled Coca-Cola machine in Helsinki — mobile payments have remained frustratingly far away for many potential players in this emerging payments ecosystem. For it to grow first there is a need to demonstrate real value. Consumers need to be convinced that mobile payments can provide a real benefit above and beyond existing payment mechanisms. The benefits need to be demonstrated in an experiential way: it is not enough to just tell people that mobile payments are useful, they need to see it. Although in theory mobile payments promise greater convenience, it is not always clear to consumers how this can be the case if they have to take steps to open an application, enter a PIN code, maybe attach a credit card reader device, or tap a POS terminal to complete a payment sequence.
The biggest challenge is to create favourable market conditions for a mobile payments ecosystem to flourish; if this is achieved, then usage will follow provided that customers find and understand the value and benefits. Layering on value-added services such as promotions and rewards can encourage usage. Another way to encourage habitual usage is to target payments at market scenarios where daily spending is entrenched, the initial focus being more on the frequency of transactions than the size of the transactions. The most obvious vertical that lend itself to this is the retail sector, and particularly purchases such as groceries, small household goods, petrol, and drinks and snacks. The transport/transit sector is another important vertical of this type. The hope is that once usage has become entrenched and habitual in these verticals it will spread to others.
The writer is the chief officer of Du.