Global Mobile Brew Is Strong
Turkish coffee is almost as strong as Turkish use of mobile devices for banking and shopping and payments, but not as strong as the payments industry action in Europe. The Turks led a group of 15 countries in most of the categories of questions asked about mobile device usage for a recently released report on mobile banking, mobile shopping and mobile payments conducted for ING International by Ipsos.
The report is titled ING International Survey Mobile Banking 2016 but as ING economist Ian Bright explains, one thing has led to another, as it usually does in fintech, and banking only scratches the surface now, four years after its first mobile banking report.
“It was supposed to be just banking, then someone said, ‘What about contactless payments,’ then, ‘What about shopping?’ Bright said. “Within the course of three years the sorts of topics moved away from just, ‘Are you using mobile banking,’ to ‘Are you actually shopping using your mobile device,’ to ‘Are you making payments using your mobile device,’ and this is changed so rapidly that the report now on the mobile banking side –most important to a bank– is arguably less important than all the issues to do with mobile payments and mobile shopping.”
The key findings are (besides the Turkish love affair with mobile transacting), in a nutshell, that more people are using their devices to bank and shop and of those who use them to bank, many say mobile banking has helped them manage their money better (saving more, overdrawing less, paying bills on time, for example).
The report provides an excuse to ask an ING payments researcher about the climate in Europe for payments and payments facilitators. We’ll get to the report’s interesting numbers later.
Linda Geux, head of payments strategy and portfolio management in ING’s Netherlands office, addressed the rise of payment service providers specifically in the area of rising mobile banking in an interview with paymentfaclitator.com.
“In Europe we have already seen a rise of payment service providers for online before mobile became relevant,” she said. “As credit card adoption varies strongly across countries in Europe, several countries have seen the introduction of one or more local solutions, either developed by a group of banks, like iDeal in the Netherlands, BLIK in Poland, or by fintech companies, like Paypal across Europe, or Klarna originally from Sweden, now active across Europe.
“As a consequence, online merchants need to offer a variety of payments methods to ensure they can support a wide range of customers. Supported by EU-wide legislation Payment Services Directive 1, a large range of payments service providers have been able to step into this gap with local and EU wide offers or a different range of services. With the rise of mobile banking and mobile payments, these payment service providers have expanded their offer to facilitate mobile payments, which can range from ensuring their pay pages are suitable for mobile screens, providing solutions for in-app payments to offering direct-to-mobile banking-app solutions.”
Geux says opportunities for payment facilitators to enter Europe are absolutely there but with caveats. The implementation of Payment Services Directive 2 (PSD2) in 2018 is expected to further open up the European market, she says. PSD2 will allow any registered payment institution to directly access a payer’s payment account on behalf of the payer, bypassing bank channels, to accomplish two tasks: retrieve account information from a payer’s account, and initiate a credit transfer on behalf of the payer directly from his account.
“On one hand yes, particularly with respect to online payments, there still is room to improve services and as of 2018 it will be easier to provide payments services due to PSD2,” she said. “At present online payments still are not hassle-free for both consumer and merchant. Consumers still have to enter a lot of details to enable transactions, while they are concerned about security.
“Merchants have to offer a large range of payments options and on top of that still have to deal with a high failure rate of transactions — over 20 percent of the online card transactions are still unsuccessful.
On the other hand, it will be difficult to compete on price against cards, as prices are already relatively low across Europe compared to the rest of the world.
“The EU Interchange Fee Regulation, which came into effect on December 9, 2015, has capped interchange fees at 0.20 percent for debit card and 0.30 percent for credit cards – with local caps for debit cards even lower in some countries – compared to average 2 percent in the USA. This will make it harder for new entrants to enter the European market with card alternatives using price competition or to build a viable business case for new services.”
Larger payment facilitators, like PayPal and Square, have got some adjusting to do in Europe, says Geux.
“Paypal is already active in Europe, but is not directly impacted by the Interchange Fee Regulation as Paypal does not charge an interchange fee,” she said. “Since the introduction of the IFR caps Paypal has benefitted from lower funding costs as they now pay a lower interchange fee when consumers use a card to fund their Paypal wallet. Expectation is that Paypal will gradually, but only partially, pass on these benefits to merchants to keep offering competitive rates.
“Square has as of yet not entered the European market, but seems to be gearing up to enter the European market (https://www.finextra.com/newsarticle/29197/square-makes-european-move). Square will face a challenge as there are already over 120 mobile point of sale providers active in Europe, none of which have near sufficient scale to be profitable. As result all are trying to gain market share through price competition.”
The ING/Ipsos report shows that confidence is rising in security of financial data when contactless payment methods are used. In its 2016 report, Visa Europe said there had been 3 billion wave and pay transactions in Europe between May 2015 and April 2016, and that may rise as confidence in financial information security grows. When asked by ING/Ipsos if they had confidence in the safety of their payment data when using contactless payments, 46 percent of the European countries’ mobile users said yes. Only seven of the countries –including the U.S. –surveyed replied yes, but 10 of them increased confidence from 2015. The Czech Republic led the confidence by far, with 69 percent.
Geux foresees a bright future for contactless in Europe.
“As soon as there are sufficient contactless POS terminals and contactless cards in circulation we see contactless payments taking off rapidly,” she said. “For example, in the Netherlands at the end of the December 2015 – 18 months after launch – over 10 percent of card transactions were already contactless with over one of three POS terminals and over 60 percent of the cards contactless enabled.
“Half of the contactless transactions replace low value cash transactions, the other half replace traditional card payments with PIN code. Though initially primarily used for low value transactions, we now see the average value per contactless transaction rise as customers are also using contactless in combination with PIN for higher value transactions (above EUR 25). Due to different penetration rates of contactless terminals and contactless cards per country, local adoption across Europe varies strongly. Given that as of 2015, MasterCard requires all new POS terminals to support contactless transactions, expectation is that all POS terminals will be contactless by 2020.”
Now back to the report numbers:
The U.S. leads the group in percentage of mobile device owners who use them to bank, at 67 percent. The average of European countries was 56 percent. Seventy one percent of mobile bankers in Europe say they manage their money better, while that number is 78 percent in the U.S.
“Though this trend has been known for a while, it is still fascinates me as banking has moved from an activity you do once a week or even two weeks to a daily activity creating a different relation between bank and customer,” said Geux.
The percentage of people surveyed who used a mobile device to buy at least one item in the previous 12 months rose from the 2015 survey to the 2016 survey. The European average increase was 8 percent, while the U.S. number rose 16 percent, the same as France and the Netherlands. Turkey, which boasts the world’s largest food delivery company, Yemeksepeti, led the way with 88 percent; 41 percent of Turkish people who used their device to shop said they bought home-delivered food, by far the most of the 15 countries.
The correlation between mobile bankers and mobile shoppers is high. Eighty two percent of European mobile bankers also shop with a device, while the number from the same group in the U.S. is 85 percent.
The difference in likelihood of mobile shopping between genders is minimal but is substantial across age groups. Shopping usage declines as age rises, though the number for those 55 and over rose 6 percent. Men favor electronics and games and women favor clothing but interestingly, regardless of age or gender, usage is low for taxis and public transportation.
One click ordering is popular among mobile shoppers. 50 percent of European mobile shoppers say they are more likely to return to an e-commerce site if it offers one-click ordering, echoed by 49 percent of U.S. mobile shoppers.
More than half of respondents in 10 of the 15 countries reported using cash less frequently than they did a year ago. Turkey and Italy led the way, with 69 percent and 66 percent, respectively, while the U.S. matched the European average, at 53 percent. Austria (28 percent) and Germany (31 percent) are clinging to cash the most.
“It’s very fascinating to see the differences between countries and very useful to better understand local market needs and thereby likelihood of adoption of digital services like contactless and mobile payments,” Geux said.
When mobile shoppers were asked if they would increase their device use to buy goods, more than 50 percent said they would in seven of the countries. Turkey posted 73 percent and followed by the U.S. and Romania, at 62 percent each. The average for European countries was 52 percent.
The U.S.’s adoption of mobile payment apps – Google Wallet, Apple Pay, Starbucks — stayed the same from 2015, at 42 percent, while Europe’s jumped 7 percent to 40 percent. Turkey and Poland paced the field with 66 percent and 61 percent respectively. A following question wondered if those surveyed would use payments apps more in the future, and more than half of respondents indicated they would in six of the countries, including the U.S. The average for the European countries was 56 percent.
The top reason for on-users of mobile payments apps was distrust, and among those who use payments apps, trust was only the sixth. Banks are by far the most trusted provider of payment apps, but brands like Apple and Google are gaining. Eighty four percent of Europeans chose their bank as most trusted in 2015, but only 75 percent did so in 2016. Brands gained six points, to 11 percent.
“Banks themselves are in an extremely strong position in terms of trust in doing these sorts of transactions,” Bright said. “Banks have a very big role to play in this even as they develop their mobile footprint even more.”
It seems that mobile payments industry folks may need to put on a fresh pot.