The pace of mobile payment adoption has accelerated in recent years and is destined for greater growth.
Today, contactless payment has permeated every facet of our daily life. Across Europe, transport operators are expanding from issuing their own contactless cards to accepting payment from contactless-enabled banking cards. On the high street, the sight of contactless terminals is not a novelty anymore; on the contrary, not having a contactless payment option at a convenience store or restaurant would raise some eyebrows from the customers.
The rise of contactless payment has inspired another phenomenon—mobile payment, and one thing is clear: the pace of mobile payment adoption has accelerated in recent years, globally and in Asia Pacific. For verticals such as retail, transport, and banking, mobile has become a powerful tool to reach out to new customers and cement existing relationships, by opening up new services or enhancing current services on this new platform.
In Asia, several trends have contributed to the stream gathered around mobile payment for consumers and businesses.
Trends in the Consumer Space
Generation Y, the fastest growing demographic of banking customers, has vastly different banking habits compared to the generations before. They have high expectations for personalised and seamless banking, and are inclined to engage with non-banking entities such as Internet and technology companies, for their banking needs. A McKinsey study shows consumers of financial services in Asia are turning to computers, smartphones, and tablets more often to do business with their banks, while visiting branches and calling service hotlines less frequently. To further break this down, developed Asian markets look to Internet banking and it is now near universal while smartphone banking has grown more than threefold since 2011. In emerging Asian markets, the trend is similarly dynamic, with about a quarter of consumers using computers and smartphones for their banking needs. 1
In addition, the number of smartphone users has increased by manifold in the last decade; Forrester predicts that by 2019, the figure will hit 2 billion. For generation Y, smartphones and devices are a core part of their lives, with a 92 per cent mobile penetration among the demographic. The attachment this generation has to its mobile devices is amplified by the exploding multiplication of apps available on the mobile platform, allowing them to perform a range of tasks immediately and on-the-go. So why not pay for stuff with your phone?
In Asia, peer-to-peer (P2P) E-commerce is growing, such as transactions made in marketplaces like Carousell and Shopee; most of such transactions are carried out on mobile phones. In emerging markets, P2P mobile payment is used for remittance. For example, the Philip-pines has continuously recorded growth in remittance, and now migrant workers across the region are turning to telcos and fintech companies to transfer money.
Near-field communications (NFC) is also on-the-rise, leading to new applications in point-of-sale mobile payment. The Singapore government had initiated in 2012 the formation of a consortium led by Gemalto as the technology enabler, supported by the Infocomm Authority of Singapore (IDA), consisting of Singtel, StarHub, and M1, that devotes themselves to pushing developments in the NFC space. The collaboration has borne fruit in 2016: in April, Gemalto helped EZ-Link launch a mobile service that allows commuters to pay for trips with their handsets, doing away with the physical card. Under the partnership, Gemalto provides the NFC technology and the service is enabled by an NFC SIM, which can be obtained from any of the three telcos. More versatile than the physical card, the app allows consumers to check their travel history and pay for other purchases at more than 30,000 outlets across the island.
In the region, NFC developments could be found in many countries. Last year, Joint Electronic Teller Services Limited (JETCO) 2, the largest Automatic Teller Machine (ATM) network consisting of 32 member banks, launched mobile NFC services in Hong Kong and Macau with the assistance from Gemalto providing the technology, allowing users to pay for goods, services, and transport on their smartphones. In Wuhan, China, NFC-embedded wristbands 3 can be purchased to pay for bus and metro rides with a simple wave of the hand. Also integrated in the wristbands is a fitness tracker that records users’ exercise routine and sleep pattern. The wristbands are linked to a smartphone application on which users can perform balance checks and top-ups.
The trend is further fuelled by a string of mobile wallet launches in Asia. Apple Pay made a grand entrance in Singapore in April 2016, following a global launch in the US, EMEA (Europe, the Middle East, and Africa), and China. On the other hand, Samsung Pay officially launched in China in early 2016, supporting select credit and debit cards from nine banks and adding more to its portfolio. In May, Samsung Pay clinched the partnership with Alipay—China’s biggest online payment platform, allowing customers to make payments at various offline stores that already accept Alipay, including restaurants, supermarkets, convenience stores, taxis, hospitals, and for public services. This alliance will also propel Alipay’s expansion beyond E-commerce. The mobile wallet is due to hit the Singapore market later in 2016.
Trends in the Business Space
In a 2015 report, Forrester said that online and mobile-based purchases in Southeast Asia were expected to surpass US$22 billion in 2015, and the number would increase over the next few years. This is due to a confluence of factors.
First, governments in Asia are rolling out policies that encourage mobile payments. For instance, the Monetary Authority of Singapore (MAS) has committed US$160 million to grow the country’s fintech industry. The same dedication is observed in Malaysia too, with the government investing over US$240 million for the development of financial products, expecting alternative payment methods to spring up in the coming years.
Second, M-commerce is growing by leaps and bounds in the region, thanks to the expanding middle class and increasing disposable income generated, leading to opportunities in the payment sector. Companies are now boosting their investments in online and mobile marketplaces, such as HipVan, Zalora, and Lazada in Singapore. In the country, cross-border M-commerce also accounts for a huge percentage of mobile payments, with 55 per cent of online consumers shopping on their mobile devices.
Third, mobile payments at physical point-of-sale, such as those using NFC, have also been trialled and launched. For such transactions, the primary driver for adoption by companies is to accelerate transactions, and in turn, encourage more sales. For merchants, a seamless customer payment experience is also to be ensured, and mobile payment provides unprecedented convenience, flexibility, and speed that play into that exact customer demand.
Security in Mobile Payment
However, to launch mobile payment services is not without its challenges. First and foremost, security is a concern that needs to be crossed for consumers to feel comfortable enough to start experimenting with the new payment method. Building that trust is instrumental for any technological innovation to take off on a larger scale. Education programmes are to be rolled out, and wisdoms on how users can protect themselves from data losses/breaches, be dispensed.
There are several myths surrounding NFC mobile payment. First, users are not ready to pay with their mobile. Gemalto has been involved in many NFC pilot programmes with our partners around the world, and found that 90 per cent 4 of consumers who had tried NFC mobile payment before loved it, especially for its convenience and flexibility.
Second, mobile payment via NFC isn’t safe. The truth is, by using the same logical and physical security mechanisms used for contactless cards such as EMV, coupled with additional security layers to comply with post-issuance activation of an NFC payment application, mobile payment is as secure as a card-based payment. Mobile payment application has to obtain all requisite certification from the payment schemes such as Visa and MasterCard, be compliant with standards in Global Platform and the guidelines set by financial services authorities, such as MAS, or Hong Kong’s Monetary Authority (HKMA). It is a rigorous process no less than what it takes to make a banking card secure, thus reinforcing security for mobile payment.
Some consumers are worried about loss or theft of a mobile device, and think that it would be a tedious course to cancel or block their accounts. This is simply not true. In reality, if a handset embedded with mobile payment function is lost or stolen, the user can contact their mobile network operator (MNO) to remotely lock all the applications and notify all concerned service providers to block their respective services, preventing unauthorised transactions. A new SIM will be issued to the user on which all services that were available on the previous SIM would be restored.
The technology for mobile payment has matured over the years and has reached a level of security that safely protects user data and transactions. By the end of day, service providers and authorities need to implement comprehensive education programmes concerning security to get the public up-to-speed with technology, giving them the peace of mind to take a leap to using mobile payment.
Given the many trends that are taking shape in Asia, mobile payment, be it peer-to-peer, in-app purchase, or point-of-sale payment, is destined for growth. However, building a robust mobile payment system is not a day’s work. To push mobile payment forward, it takes all parties in the ecosystem, from government, technology vendors, to service providers, to work together. Considering the great potential of mobile payment in Asia, it will be an exciting space to watch in the coming years.
1 McKinsey & Company, March 2015, Digital Banking in Asia: What do consumers really want?
2 Gemalto, 10 March 2015, JETCO launches mobile NFC services in Hong Kong and Macau with Gemalto’s Trusted Service Hub, http://www.gemalto.com/press/Pages/JETCO-launches-mobile-NFC-services-in-Hong-Kong-and-Macau-with-Gemalto-Trusted-Service-Hub.aspx
3 Gemalto, 6 July 2015, Gemalto NFC wristbands enable speedy transport
in China, http://www.gemalto.com/press/Pages/Gemalto-NFC-wristbands-enable-speedy-transport-in-China.aspx
4 Bordonada M, 15 November 2011, The top 8 myths about mobile NFC, Gemalto blog, http://blog.gemalto.com/mobile/2011/11/15/the-top-8-myths-about-mobile-nfc/
Copyright © 2016 Singapore Institute of Management