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.
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
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
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,
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
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
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
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
"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."
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
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."