MOBILE PAYMENTS THE RAPID EVOLUTION OF MOBILE-FIRST DIGITAL CURRENCY

Transcription

1 MOBILE PAYMENTS THE RAPID EVOLUTION OF MOBILE-FIRST DIGITAL CURRENCY October 2015

2 THE MOBILE PAYMENTS ECOSYSTEM THE KEY PLAYERS IN MOBILE PAYMENTS THE CONSUMER PERSPECTIVE TOP MOBILE PAYMENT AND WALLET TRENDS SUCCESS STORIES A look at the difference between mobile payments and mobile wallets; and the opportunities in each A look at who is driving this trend from device OEMs, financial institutions and digital disruptors Projected growth of and consumer attitudes towards mobile payments Ongoing shifts in consumer and retailer behavior Best in class examples of brands on the path towards success WHAT THIS MEANS IN SUMMARY Key takeaways for brands and what they need to know in order to succeed in this ever-evolving space

3 MOBILE PAYMENTS 2.0 Would you like to see it one more time? You may have blinked and missed it. Tim Cook on the launch of Apple Pay While the mobile payments marketplace is still viewed by some with skepticism, it is already greatly impacting the consumer, retailer and marketer value chain. We ve witnessed technology s impact on consumer behavior before and know that these disruptive movements tend to grow slowly over time before suddenly taking over as an indispensible element of daily life. In fact, if you blink you may even miss that pivotal moment when a fringe technology becomes the status quo. Will 2016 be the tipping point? This year we ve already seen tremendous acceleration in this area as tech giants, financial institutions and retailers put the infrastructures in place to give us a solid foundation for future success. According to BI Intelligence, mobile payments are projected to reach $37 billion by the end of 2o15 1 and will account for 50% of all digital commerce in the U.S. by Yet, this holiday season only 22.6 million people, a scant 12.7% of smartphone users 3, are expected to use their devices to make a purchase illustrating that potential is still unrealized by the masses. In this updated Spotlight, MEC reviews the evolution of mobile payments over the past 12 months to keep you ahead of the curve, reviewing the current ecosystem, new players and platforms, as well as the fastchanging consumer behaviors accelerating adoption. We also examine the emerging opportunities and imperatives for brands to drive increased value for consumers across both brick and mortar and ecommerce channels. 1. BII Intelligence & Lexis Nexis Gartner SessionM US Holiday Trends

4 DATA CONNECTIVITY WILL THE MOBILE PAYMENTS ECOSYSTEM SAVE US ALL THE DIFFERENCE BETWEEN PAYMENTS AND WALLETS The terms mobile wallets and mobile payments are often used interchangeably, but the two are separate, albeit symbiotic, things. MOBILE PAYMENTS Mobile Payments refer to any monetary transaction made via a mobile device, whether through a web browser, an app or near field communication (NFC) enabled proximity payments. The term, however, is used most often to refer to proximity payments made via NFC. Unlike online mobile payments made via an app or a website, proximity payments require an NFC chip to be integrated with a physical object e.g. a keychain fob, a credit card or, more often than not, a mobile device. As a result, NFC payments have generally been the domain of financial institutions and device manufacturers. Many card issuers and payment processors have integrated NFC into their cards, dongles, stickers and, in some limited cases, mobile devices in an effort to own proximity payments. However, as consumers increasingly rely on smartphones as a single repository for personal information and life management, it s expected that the mobile payment solutions native to the most popular smartphones will have the most widespread adoption. That means solutions like Android Pay, Apple Pay and Samsung Pay. MOBILE WALLETS Mobile Wallets refer to native apps that can be used to manage and execute a range of information and digital transaction types. Some allow users to execute digital payments, while most give the opportunity to store payment information for online, in-app and NFC transactions. Many also enable users to manage rewards accounts, coupons, tickets and passes of all kinds. Wallets issued by a bank or a financial institution are generally limited to executing online payments, while wallets issued by a hardware original equipment manufacturer (OEM), such as Apple Wallet, can communicate with the device s NFC payment function to augment a transaction in the physical world at point of sale (e.g. apply coupons or accept rewards points). While wallets can be used to conduct monetary transactions, their true value is as a CRM tool. In many ways, they present a more interesting proposition than online payments since they gather and generate a high volume of user data and enable more efficient usage of offers and loyalty programs. As a result everyone, from device OEMs like Apple, Samsung, and Google to retail banks like Chase and Citi to startups of all kinds are competing to own the mobile wallet market. WHAT MATTERS MOST FOR BRANDS? The only choice retailers have in regard to mobile payments is which types to accept and how quickly to integrate them into online and brick and mortar storefronts. A failure to do so will ultimately lead to lost sales and slower, less efficient sales processes in-store. Wallets, however, present more choices and opportunities. For example, brands will have to decide how to develop, distribute and trigger wallet-ready loyalty passes and deploy them with hyper-local targeting to consumers in the moments that matter.

5 KEY PLAYERS IN MOBILE PAYMENTS THE BIG THREE OEMs A battle royale is underway between the three big device OEMs to dominate proximity payments in the U.S. While Android has a slight edge in terms of its vast reach, Apple still leads the pack with its audience of early adopters. GOOGLE & ANDROID DEVICES Apple Pay and Apple Wallet have won public fanfare, but Google can relax knowing that it owns the lion s share of the global device market. An estimated 82% of global smartphone owners are likely to select Android Pay and Google Wallet simply by default because they own Android phones 1. Google is also well integrated with major carriers. In 2013, Google acquired the IP of Softcard, a mobile wallet joint venture between Verizon, AT&T and T-Mobile and, in March , it was announced that all three would promote Google Wallet and Android Pay by default on all Android devices. APPLE & ios DEVICES Apple announced its long-awaited payment solution in September 2014 and within 72 hours, over 1 million users had signed up for Apple Pay 3. While its global market share of 14% 4 is dwarfed by Android, Apple still enjoys a key advantage in the mobile payment wars. Foremost is security: Apple Pay launched with biometric verification and tokenization across all supported devices, while Android took far longer to put these elements into place. Additionally, Apple users tend to skew higher income and consistently outspend and out-convert their Android counterparts. SAMSUNG PAY & GALAXY DEVICES Samsung expedited its path to mobile payments by acquiring mobile wallet startup LoopPay in February The platform recently launched in the U.S. on Android Galaxy devices on AT&T, T-Mobile, Sprint and US Cellular, and Verizon confirmed its support on October 26th. Though its footprint is smaller than Apple and Google, a key advantage is that LoopPay can be used by legacy magnetic stripe payment terminals which are still used by 90% of U.S. retailers 5. However, Samsung s ability to compete long-term is limited not only by the hegemony of Android Pay on Android devices, but also by its limited relationships with card issuers. Currently, only cards from U.S. Bank, Citi, Bank of America and American KEY FACT: Express can be used to enable payments. 1. IDC Q2 2015; 2. Google ; 3. Apple ; 4. IDC Q2 2015; 5.Samsung ) IDC Q Google ) Apple ) IDC Q ) Samsung

6 KEY PLAYERS IN MOBILE PAYMENTS HOW FINANCE BRANDS FIT INTO THE LANDSCAPE Financial institutions and banks were the forerunners of proximity payments, issuing NFC-enabled cards, stickers and dongles long before Google and Apple entered the fray. However, given consumer reliance on smartphones, it s likely that many consumers will simply adopt the proximity payment solution that comes with their device by default. Consequently, only the larger financial institutions are still investing in proximity payments beyond cards in the U.S. and mostly through third-party hardware partners. FINANCIAL INSTITUTIONS BANKS American Express has chosen to seek out hardware OEMs outside the smartphone industry to enable proximity payments directly. U.S. consumer banks have focused on NFC-enabled credit cards and participation in the proximity payment platforms of device OEMS. And, as plastic cards phase out of use, it s likely that banks and all other financial institutions will abandon efforts around NFC to focus on mobile wallets. There will be stiff competition, since the device OEMs are all vying to own this space as well. However, given the level of comfort in and current consumer uptake of mobile banking and account management, finance brands have a higher likelihood of seeing uptake of wallet apps which provide similar functions. Visa and MasterCard are dabbling in wearables and have had some success with on-device payments in other markets. In the U.S. though, they have focused largely on NFC cards, mobile wallets and supporting mobile merchant solutions. While financial institutions won t own mobile payments at point of sale directly, they are well positioned to own the experiences through which consumers manage payments and, more importantly, manage loyalty and rewards of all kinds. As it becomes easier and more valuable to participate in these programs, financial institutions will gain a high volume of valuable consumer behavior data to use in partnership with retailers.

7 DATA THE CONNECTIVITY KEY PLAYERS IN WILL MOBILE SAVE PAYMENTS US ALL THE INDEPENDENT AD TECH PLAYERS TO WATCH In the early days of ecommerce many consumers strongly resisted the idea of using a credit card online. Today, many vendors don t accept anything but digital payment. For example Uber, Postmates and other drivers of the sharing economy. Yet the brick and mortar world and person-to-person transactions are still all about cold hard cash for now. Numerous mobilefirst startups have arrived on the scene to change the way consumers transact with small businesses and one another. Many consumers are adopting these apps to more efficiently and effectively keep track of their daily transactions. The Cover app enables diners to split the check and pay without waiting for a server. Chimp Change is an app that allows users to make and accept digital payments with family and friends. SpotMe enables groups of users to itemize and split expenses for shared costs, e.g. a trip or rent and utilities. The Stratos card and app enable users to securely load a single physical card with all payment and loyalty card info, and digitally manage usage. The Thanks! app enables a safe, private and secure system for tipping service professionals. The ParkMobile app allows users to pay for public parking via smartphone and to receive alerts when the time is almost up. The Rent Payment app enables users to remit payment to landlords and to ensure that roommates are doing the same. MySchoolBucks enables parents to load their kids school lunch and canteen accounts and monitor usage. Acorns is an app that rounds up credit and debit purchases to the nearest dollar and places them in an investment account.

8 DATA THE CONNECTIVITY CONSUMER WILL PERSPECTIVE SAVE US ALL THE GROWTH OF A CHANNEL According to emarketer reports, proximity payments are expected to spike sharply in the U.S. in 2016 thanks in part to increased consumer acceptance, retailer investment and widespread availability of NFC-enabled devices and payment terminals. Additionally, usage and transaction value are expected to climb, with the rate of growth slowing down by 2017, as the early adopter market becomes saturated. The slower growth rate is not surprising. Like in the early days of ecommerce, it takes time for consumers to become familiar and comfortable with a new way of transacting. U.S. Proximity Payments Users & Growth % 41.7% % % % Proximity Mobile Payment Users (Billions) Proximity Mobile Payment Users Growth U.S. Proximity Payments Transaction Value and Transaction Value Growth % $ % $ % $3.50 $8.95 $ % 84.4% Source: emarketer 2015 Note: Includes point-of-sale transactions made by using a mobile device as a payment method; includes checking in with, scanning, swiping or tapping a mobile device at the point of sale to complete a transaction; excludes purchases of digital goods on mobile devices, purchases made remotely on mobile devices that are delivered later on and transactions made via tablets.

9 1. TURNING BIG DATA INTO INFORMATION DATA THE CONNECTIVITY CONSUMER WILL PERSPECTIVE SAVE US ALL CONSUMER ACCEPTANCE AND ADOPTION It s an unspoken fact that, in order for consumers to adopt a new mobile behavior, it has to be something they can easily do on an iphone. Mobile payments are no exception. When Apple Pay launched in September 2014, consumers began to take notice with over 1 million credit cards activated within the first 72 hours. Now, with over 1 million U.S. retail locations equipped to accept Apple Pay2, the footprint for NFC transactions is considerably wider and consumer awareness and demand considerably greater 1. A March 2015 study from CreditCards.com sheds light on some of the key concerns consumers still harbor. WHAT ARE THE MAIN REASONS YOU HAVE DECIDED NOT TO USE MOBILE PAYMENTS? It s easier to pay with cash or credit/debit card 75 % I m concerned about the security of mobile payments 59 % I don t see any benefit from using mobile payments 59 % I don t trust the technology 41 % I don t have the necessary feature on my phone 37 % I don t understand all the different options 31 % It s difficult or time consuming to set up or use 31 % The places I shop don t accept mobile payments 23 % I don t need to make any payments 23 % Source: CreditCards.com The final stumbling block to mass adoption will be smaller merchants such as mediumsized retailers and mom and pop shops where so many of our daily transactions occur. However, with the recent support of banks and financial institutions, these holdouts may quickly convert as well. According to a study from Berg Insights, there were only 3.7 million NFC-equipped terminals (an estimated 17% of the world total) in the U.S. at the end of However, it is estimated that by 2020, two out of three payment terminals in the U.S. will be of the EMV variety 3 ; a new security standard strongly supported by financial institutions, whereof a majority are able to accept NFC payments. At that point in time it will be up to the merchants to activate the NFC option in an effort to deliver consumer convenience. 1. Apple Berg Insight Growth Praxis

10 1. TURNING BIG DATA INTO INFORMATION DATA THE CONNECTIVITY CONSUMER WILL PERSPECTIVE SAVE US ALL MARKETPLACE FACTORS THAT WILL FACILITATE ADOPTION Two critical marketplace updates have converged and will most likely combat complacency and assuage concerns. EMV SUPPORTED SYSTEMS INTEGRATED AT RETAILERS As of October 1, 2015, all US retailers are required to install card processing terminals that support EMV, a standard backed by Europay, MasterCard and Visa. In the U.S., 98% of cards will be EMV-enabled by and merchants that do not adapt to this standard will assume all liability for fraud. The typical EMV credit card transaction is estimated to take an average of 5-8 seconds longer than a simple swipe. This is predicted to lead not only to increased consumer frustration, but also to more implementation errors on the part of both user and sales staff, thus causing longer check out lines. All factors are expected to compound and create a significant incentive for users to opt for proximity payments and for retailers to encourage this alternative. Luckily, the majority of EMV terminals are also compatible with NFC. ELEVATED AWARENESS OF THE INCREASED SECURITY OF NFC PAYMENTS Apple Pay was the first proximity payments platform to use network-level tokenization, a highly secure method of safeguarding transaction details. In layman s terms, tokenization replaces the credit card number with a unique ID number, ensuring anonymity. Google followed suit when launching Android Pay in mid Samsung Pay that was recently launched in the U.S., employs tokenization as well. While the technical specifics of advanced security isn t easily understood by the average consumer, fears will fade as millions of shoppers pay without incident. 1. MasterCard and the Payments Security Taskforce ;

11 1. TURNING BIG DATA INTO INFORMATION DATA CONNECTIVITY WILL KEY SAVE TRENDS US ALL WHAT DOES THE FUTURE LANDSCAPE LOOK LIKE There are four key trends that we expect to see evolve in the next months, creating new opportunities for marketers to enter the mobile payment space. DEEP LINKS AND SECOND SCREENING WILL IGNITE COUCH COMMERCE Digital media designed to coincide with broadcast television advertising will be easily linked to product pages within apps, and apps will be increasingly able to execute seamless mobile payments courtesy of Apple Pay and Android Pay integration. Example: Staples revealed in early 2015 that 30% of purchases made through its ios app are processed via Apple Pay 1. In the near future, it will likely be possible to target these users with digital media aligned to broadcast that enables them to immediately click through to the app to apply a discount and complete purchase via Apple Pay. APPS WILL BECOME THE REAL COMMERCE PORTALS According to a study from the Mobile Ecosystem Forum, 56% of respondents prefer making a mobile purchase from within an app versus using a mobile website 2. As consumers continue to chose in-app payments over stand-alone options, brands will be forced to adopt appcentric ecommerce strategies. Example: The Starbucks app has 16 million active users and experiences 8 million app transactions per week (19% of all transactions in US stores 3 ). As Apple Pay makes it easier for other brands to adopt a similar model for both payments and loyalty, online and in brick and mortar locations, we ll see a stronger focus on getting the usability and retention formula right for branded apps. 1. Staples ; 2. Mobile Ecosystem Forum Global Mobile Money Report ; 3.Starbucks.com

12 1. TURNING BIG DATA INTO INFORMATION DATA CONNECTIVITY WILL SAVE US ALL KEY TRENDS WHAT DOES THE FUTURE LANDSCAPE LOOK LIKE There are four key trends that we expect to see evolve in the next months, creating new opportunities for marketers to enter the mobile payment space. BIG RETAILERS WILL LEARN TO LOVE APPLE PAY The advanced security measures taken by Apple Pay, and now Android and Samsung Pay, have led to a decrease in consumer data available to retailers, making many big brands reticent to adopt proximity payments enabled by device OEMS. However, as consumer enthusiasm for device based proximity payments increases we predict that many of these holdouts will embrace the trend and find ways to work with the device OEMs to mutual benefit. Example: In 2014, several big box retailers, including Best Buy, CVS, Walmart and Rite Aid, banded together to create the Merchant Customer Exchange (MCX), a consortium of brands with their own competitive mobile payments platform, Current C. In mid-2015 however, Best Buy and Rite Aid announced their support to Apple Pay and others are expected to follow suit. MOBILE WALLETS WILL BECOME SIGNIFICANT MARKETING TOOLS Nearly 70% of Apple Wallet users state that coupon usage is their number one reason for using the app. New platforms are launching to enable dynamic management of passes for Apple and Android Wallet, making it easier for brands big and small to distribute, manage and track coupon redemption and facilitate management of loyalty programs. This will lead to greater investment in digital CRM marketing by brands of all kinds, creating a greater incentive for users to adopt mobile wallets. Example: Pep Boys recently revealed that 30% of customers who save passes to Android Wallet go on to redeem them in-store Pep Boys and Vibes

13 SUCCESS STORIES This year, Chevron debuted Apple Pay at Bay Area service stations with more locations planned for later in the year, enabling consumers to tap to pay right at the pump. An early Apple Pay partner, Chevron had already rolled out Apple Pay inside service station stores during the technology s official launch in Support at the pumps promises to further speed and streamline the process of filling one s tank, and we likely will see the inclusion of offers, awards and redemption of points integrated soon. Marriott announced plans to start accepting Apple Pay in March 2015 with a pilot program that rolled out to 11 properties over the summer. Guests using a 6 Series iphone or Apple Watch now have the option to tap a contactless reader to pay at the front desk, eliminating the need to swipe a physical card for room payment or incidentals. Marriott Rewards members who use the program s co-branded credit card, can also choose to designate it as the primary payment method in Apple Pay to earn Marriott Rewards points any time the option is used at a participating retailer. Target was one of the very first big consumer brands to add Apple Pay as a payment option in its app, announcing support for iphone 6 and 6+ users when it was first announced in September Target CEO Brian Cornell has announced that support for in-store payments is also planned once all brick and mortar payment systems have been upgraded for EMV. Target s support for mobile coupons is already fairly robust users are able to redeem in-store coupons on their phones as well as through the app, and it is likely that as Apple Pay appears in stores, the process of redemption will become even more seamless.

14 WHAT THIS ALL MEANS FOR BRANDS Unless you are in a line at Starbucks, you likely won t see evidence of the masses converting to mobile payments. But we re at a proverbial tipping point, and thanks in part to Moore s Law, adoption is progressing far faster than initially predicted. This past June, the global trade body Mobile Ecosystem Forum released its third annual Global Money Report, a survey of 15,000 mobile users across 15 countries. Among the findings, an estimated 69% of mobile users have carried out a banking activity via mobile and 66% have initiated a transaction. So what does this all mean? While it s still early in the shift from paper and plastic to a digital status quo, it is imperative for brands to carefully observe the behavioral and cultural shifts and put plans in place to actively support the inevitable retailer and consumer adoption. Below are the key takeaways as you begin to prepare for this change. MOBILE PAYMENTS ARE COMING, LIKE IT OR NOT: BRICK AND MORTAR RETAILERS MUST BE PREPARED It is estimated that EMV terminals will number 12.4 million in the US by 2017, and that over half of US retailers will have converted by the end of this year 2. Brands should embrace the move to EMV, but should also be mindful of, and well prepared for, the frustrations it may cause consumers. Likewise, brands that offer online commerce will benefit from integrating digital wallets as a payment solution as consumers begin to expect a more frictionless digital shopping experience. DIGITAL RETAILERS ARE NOT IMMUNE SO CHANGE IS IMMINENT A MOBILE WALLET STRATEGY IS NEEDED TO STAY COMPETITIVE As consumers move to managing all mobile payments, coupons and rewards through a single point of reference (e.g. Apple Wallet), and use the same single seamless option for executing payment (e.g. Apple Pay), retailers will quickly integrate these options into online and in-app storefronts. This will offer brands the unprecedented opportunity to increase the adoption and utilization of loyalty and rewards programs. With 70% of consumers actively saving coupons to their mobile wallet, brands must explore options for digital distribution and integration (e.g. pass integration into and digital media). Testing and learning within different channels, will allow brands to understand where they can get the highest conversion rates. For questions or to request more information, please contact Rachel.Pasqua@mecglobal.com or your MEC Account Lead.