It pays to be in the mobile money game

01 September 2017

The mobile payments market is growing rapidly, with 54% of users now buying something through their smartphone on a regular basis. But how is this impacting wholesale? James Pearce finds out.

The mobile payments market is experiencing a massive boom, despite being a relatively young market. It has been a decade since MPesa’s launch marked a change in mobile money, but retailers have only seen massive take up with the advent of the smartphone.

In 2003, 95 million cell phone users worldwide made a purchase through their mobile device. But these included internet purchases, SMS buys, and other types of spending. In 2016, according to Visa, more than 54% of users make payments regularly through some kind of mobile device, be it a smartphone, tablet or wearable.

For perspective, that figure was more than triple 2015, when just 18% of people regularly used their mobile device for payments. When Visa carried out its initial Mobile Payments users survey, 38% of people said they had never made a mobile payment and had no plan to do so. A year later, that had fallen to just 12%.

Kevin Jenkins, UK & Ireland managing director at Visa said: "This data is a confirmation that the future of digital payments has arrived, with consumers across the length and breadth of the UK and Europe embracing a variety of new ways to pay. Visa sees smartphones and wearables as the beginning of a broader trend, with millions of new connected devices making it simple, safe and secure to integrate daily commerce transactions into almost any technology. 

"In Europe, we’ve seen Apple Pay launched in the UK, France and Switzerland, Samsung Pay has launched in Spain and Android Pay in the UK. We’ve also seen a new era of wearable payments: smartwatches, wristbands and even clothing. It’s clear that this trend will continue to accelerate, enabling consumers to choose the connected device that fits with their lifestyle."

In 2015, $8.71 billion in mobile payments were made in the United States, according to an October 2015 report from eMarketer. The total for 2016 is expected to surpass $27 billion. And Forrester estimates that US consumers will spend $83 billion via mobile payments in 2016, a figure that’s expected to increase to $142 billion by the end of 2019.

Allied Market Research found that by mode of transaction, in 2015, SMS accounted for about 54% of the overall mobile payments market revenue. This was followed by wireless application protocol (WAP), which covers one third of the overall mobile payments market size. #

However, NFC has high growth potential and is anticipated to exhibit CAGR of around 36% during the forecast period. Overall, the research firm predicts the market to be worth $3,388 billion by 2022, showing how huge mobile payments could become.

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Regional variation

Ian Streule, a partner at Analsys Mason, says wholesale divisions will play a crucial role in burgeoning mobile technologies such as mobile payments.

In a report on "the role of wholesale in expanding next-generation mobile services", he wrote: "Wholesale divisions need to understand the commercial market-facing realities of multiple user segments, as well as the underlying investment and cash flow economics of the legacy and 4G networks in the short and longer-term. Buyers of access in its various forms will need to negotiate and interface with wholesale suppliers to achieve service terms that are consistent with their own service offers and business growth objectives."

Take-up has been variable depending on the market, however. Whilst smartphone penetration in Africa may be relatively low compared to other markets, it is the second largest market in terms of number of payments in figures estimated by Statista, behind Asia-Pacific.

For the wholesale industry, mobile payments can prove a noticeable opportunity, as retailers and finance firms demand specialised routes, built with stronger security, to support traffic generated by the technology.

Safaricom was one of the first companies to launch any kind of mobile money service in Africa when it launched MPesa in 2007. The money transfer system last year reached the 25 million users mark across markets in Africa, Asia and Europe.

Wangeci Kanjama, who has headed up Safaricom’s wholesale division since February 2015, said the African operator had definitely seen growing demand for its mobile money services.

She explains: "What happens is that we do support mobile payments and mobile money services, but wholesale has come from a tradition of SMS and voice and seen this as primarily a value-added service. We see a lot of exchange of knowledge with other wholesale companies about mobile money, and we see a lot of policies around mobile money even in the wholesale space. It is one of the services we offer."

Wholesale messaging firm Infobip launched a mobile payments division, Centili, in 2012 to prepare for the oncoming boom in the sector. Centili harnesses direct mobile billing technology (carrier billing) which enables mobile payments by charging the user’s prepaid or post-paid mobile account.

By using direct relationships with mobile operators, Centili opens a way to disrupt the payments space by enabling merchants to easily monetise their services without the need for a credit card.

Centili CEO Stefan Kostic says: "There’s no doubt that the mobile payments sector is heavily impacting operators. After all, operators are an intrinsic part of making mobile payments a success, providing the backbone for this technology, handling traffic, and bridging the gap between consumer and retailer when it comes to actually processing payments – often via a payments partner.

"When you look at it this way, the payments provider and operator relationship is a symbiotic one, while the relationship between them and the retailer is more transactional. Operators rarely have their own payments platforms in place since it requires dedicated resources, expertise, and management. Essentially, retailers are reaping the end-user benefits and operators are providing the payments backbone, but it is payments providers that are tackling the challenges faced by the industry and providing the support and expertise needed for traffic management and improving user experience.

"That’s why operators often choose to partner with payments providers to run their payments systems as a white-label solution or as a service."

Staying secure

Security is one of the most important concerns for retailers, and a challenge that wholesale operators face when supporting the mobile money services.

According to a 2015 mobile payment security study of more than 900 cybersecurity professionals, nearly half said mobile payments are not secure and carry significant security risks. 87% of respondents said they expect the number of data breaches linked to mobile payments to surge over the next year. The ISACA report warns factors such as use of public wifi on payment-enabled devices, use of lost/stolen devices, and phishing were among the most serious concerns. Though threats to the supporting wholesale network was much lower on the list than ones concerning the handset, making sure the right protections are in place is still vital to wholesalers looking to support mobile payments.

One example is SS7 firewall protection, which is used to protect mobile services. Dr. Rolf Nafziger, SVP of the International Wholesale Business Unit at Deutsche Telekom, said integrating the German operator’s SS7 firewall was key to its wholesale-as-a-service offering.

"The SS7 firewall is really one of our key products here. It first came from an internal need as we saw our mobile services needed more protection. So it was for our customers’ needs but we also recognised that there was a need as a wholesale service for the market.

"We installed it and then saw the benefits of the service for the wholesale market and started looking into how to scale it up to other carriers that can benefit from the same platform. It didn’t take a long time and is something that we did in a timely framework of 6-12 months. As soon as it was developed for our network, we just needed to create the interfaces and started building carrier relationships to sell outside of the group."

"Security plays a vital role for mobile payments but, contrary to popular belief, it isn’t restricted to the network level. Balancing the number of end-user interactions needed for identification, authentication, and authorisation, poses a challenge for both payment providers and operators when it comes to building trust and driving conversions, and that needs to happen on both the mobile network and a payment provider’s system. Keeping these processes secured is why it’s all the more important that payment providers manage payment flows," says Kostic.

Centili’s CEO adds:  "Operators can also face the challenge of bad debt. When it comes to Carrier Billing, this can happen when a post-paid user purchases something and doesn’t pay their phone bill at the end of the month. It’s a problem for everyone in the ecosystem, as operators look to recoup losses by reducing the pay-out percentage on bad debt, which then hits the pocket of merchants and retailers." 

Topics: Mobile, mobile payment, Capacity media, wholesale telecoms