Where are mobile payments heading in 2015?

It looks like an exciting year ahead for the mobile payments space, as analysts predict Apple Pay to be the leader in mobile wallets, banks to give up some control to gain influence in the market, and more people using the Bitcoin blockchain concept to develop new financial products.

“The battle for consumer digital IDs and information will accelerate in 2015. This is a key underlying trend which drives interest in mobile payment systems,” said Gartner analyst Christophe Uzureau.

One of Apple Pay’s main features is the fingerprint TouchID technology, which is “paving the way to position Apple as consumers’ digital ID access point, in order to promote Passbook”, according to Uzureau.

Ovum analyst Gilles Ubaghs said another feature that makes Apple Pay stand out is combining biometrics with tokenisation, which is considered by payment networks to be as secure as presenting a card to a merchant and therefore incurring the same transaction fee as a card.

“What that means is they have been able to negotiate 'card present' transaction rate. When you use in the store a merchant, the retailer will pay less to process that payment than they would if it was a 'card not present' transaction, which is what a lot of mobile payments do.”

Alistair Leathwood, executive director at TNS Australia, said if he had to back one mobile payments player in the market for 2015 it would be Apple because “they seem to be pretty good at driving this [mobile payment] standard”.

Google Wallet, on the other hand, has been struggling to gain acceptance for proximity transactions, Uzureau said, despite some traction it received following Apple Pay.

“The use of Google Wallet is mostly through Google Play and has not impacted much the use of mobile payment systems at the POS [point of sale],” he said.

He added Google is also ending its Google Wallet APIs for digital goods in March 2015.

Ubaghs said that Australia might not see any of these services any time soon, as Apple and Google have not made any definite plans to deploy their wallets in the country. “They say they will expand at some point, but it’s unclear when.”

Forrester analyst Tim Sheedy said from his understanding Apple might not deploy its digital wallet in Australia until the New Payments Platform is ratified. The Reserve Bank of Australia is working with industry on a central hub infrastructure platform to support ‘overlay’ or mobile payments services. By the end of 2016, any transaction will occur within a few seconds using the new platform.

The take up of contactless payWave cards may also hamper mobile wallet penetration next year, Sheedy said.

“Mobile payments are about ease of use, so taking your phone out of your pocket, putting a pass code in or even putting your thumb on the pin pad, going into and app and hitting pay versus taking your card out and waving it across a terminal – the card is always going to win there,” he argued.

“payWave has taken off faster than any other payment solution has ever taken off in Australia.

“For a wallet to be successful everyone has to play nicely and be on board. Google and Apple will get some way towards that, but certainly by the end of 2015 they won’t be there in developing that wallet ecosystem.

“Until we get that, whilst we still have a wallet in our pocket, we will pull out our payWaves, because that’s the easiest way to do it.”

When it comes to the banks, Leathwood said they may feel the threat of other mobile payment players in the market in 2015.

“If Apple wins the mobile payment space, does iTunes basically become your currency? If you can pay for things with iTunes vouchers, then you’ve almost disintermediated the banks from that whole process.

“You can imagine a far end possibility where the bank as we think about it sells you a loan via your Apple payment infrastructure. It’s another provider of a service that goes through Apple. And you get paid in hundreds, thousands of dollars of iTunes vouchers so you can go out and buy a car,” he said.

Uzureau said banks will have to give up their control of the payments system and start to collaborate with non-banks to stay relevant and gain influence in the market.

“By partnering with non-banks in the payments space, banks also capture important information in the use of payment solutions which will help them contextualise their services.

“For example, social messaging apps such as WeChat and Line. What is interesting about social messaging apps is that they create a very specific context to introduce flash sales and group purchases. The payment solution – e.g. WeChat wallet – is driven by a new type of consumption (not just convenience or security rationales like with Apple Pay), therefore driving consumer interest and adoption with stronger incentives for consumers – implying the incentives are sufficient for the users to actually register for WeChat wallet and link cards/accounts.

“As a response, some banks have co-branded cards with social messaging app providers such as Fubon Bank with Line social messaging app in Taiwan. This will demand that banks increase their level of cooperation, lose some control over the payment process in order to gain some precious influence on their customers’ spending patterns.”

Leathwood said banks’ role may start to become more “manufacturers” of financial services and products. “They are the ones that figure out what you should pay for your loan, mortgage, what interest you should get, what you should pay for your life insurance, superannuation. That part of their role is still very relevant.”

Digital currencies such as Bitcoin will continue to gain traction next year, but will still be quite niche in the market, Ubaghs said.

Besides using Bitcoin for making purchases, Uzureau said more people will be interested in looking at how they could use the Bitcoin blockchain concept to design new financial products and services.

“In the case of Bitcoin, the impact is beyond mobile payment systems. The combination of mobility and the Bitcoin Blockchain will enable the design of new financial products and services,” he said.

Ubaghs pointed out that Bitcoin still faces a fundamental problem, which is it “looks very fiddley, very complex”. He said once someone cracks the usability and user interface side of Bitcoin, “it’ll definitely take off much more”.