Future of Money


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There’s a major transformation happening between people and their relationships to their money, a transformation enabled by the arrival of mobile payments (mPayments). The magnitude of this change—and the disruption—will greatly impact consumers, banks, retailers, merchants and wireless carriers, among others, and will be felt across the globe.

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Future of Money

  1. 1. There’s a major transformation happening between people and their relationships to their money, a transformation enabled by the arrival of mobile payments (mPayments). The magnitude of this change—and the disruption—will greatly impact consumers, banks, retailers, merchants and wireless carriers, among others, and will be felt across the globe. The mPayment landscape is rapidly evolving, with many different players, technologies and alliances all fighting to assert their relevance and control between the consumer and the future of money. From entertainment and electronics to train tickets and travel services, there are virtually no limits to what consumers are using their phones to purchase. In fact, in Japan, it’s already a way of life: 7.6 million consumers have made a mobile purchase in a retail or convenience store, 3.2 million have made a purchase from a vending machine, 2.7 million have paid for public transport, 2.6 million have made a purchase in a grocery store and 1.5 million have paid a restaurant bill—all using their mobile phone instead of cash, card or check. And 47 million Japanese have adopted tap-and-go phones in the last three years. East Asians will continue to lead this market.1 It’s becoming clear that mPayments will radically change the way consumers spend. And in this new age of mPayments, retailers, financial institutions, technology companies and wireless providers will have the power to deliver it. Across the globe we will see different applications and implications of mPayment that will reflect regional needs. Below are 10 implications to be aware of. 1. mPayment solutions will fundamentally transform consumer relationships with money. The notion of making a deposit at a branch bank used to give people a sense that their money was being held in a physical place and a specific destination. But with the advent of mPayments and mobile wallets, as well as the emergence of unconventional banks like PayPal and Amazon, the perception of money, what it is and where it lives has changed from money at a physical location to money that can live anywhere, anytime, and is received, delivered and transacted through multiple venues, mechanisms and devices. There will be a paradigm shift in how money works, and how it’s perceived and used, and that will lead to the end of physical currency as we know it. Since the 1930s, the U.S. began a worldwide effort to end tying currency to gold. At that point in time, the notion of money became abstract. This shift continues today with the use of debit cards, credit cards, ATMs and pre-paid mPayment services 40 1 TREND REAL-TIME CONTROL MOBILE PAYMENTS: THE FUTURE OF MONEY Written by Perry Chan, Creative Director, Experience Innovation, New York Today, there are approximately 30 million NFC-enabled phones. By 2016, this number is expected to reach a staggering 700 million.2 1 IDTechEX (R&M), Feb 2011 2 Berg Insight (BGR) - http://www.bgr.com/2012/03/26/shipments-of-nfc-enabled-handsets-reached-30-million-units-in-2011/
  2. 2. that let consumers access money anytime, anywhere. Peoples’ perception of money is directly connected to trust—and trust is fundamental to peoples’ relationships with money and with whom they choose to do business with. 2. The meaning of credit cards, and the way they’re used, will be redefined. As the model of credit extension, acquisition and receiving changes, so does the role of credit card services. Consumers, in general, are sometimes ignorant on how to best use and manage credit. Credit cards, for many consumers, have just become another form of payment. mPayments and smartphones have the ability to educate customers on method of payment choices at the point-of-sale to select the right way to pay. For banks, mPayments and smartphones provide the ability to influence payment method choice at the point-of-sale versus trying to create brand recognition, loyalty, affinity, then “hope and pray” at the moment of truth. Retailers and banks may have to compete for customers’ payment options for every individual purchase. A smart delivery mechanism with a screen at the point-of-sale changes the game dramatically for both banks and customers. The emergence of credit card models will empower businesses and consumers more than ever before. With companies like Stripe and Square leapfrogging credit cards by making one-click payment available from our mobile devices, will this mean the end of credit cards? How will this impact card service brands? How will they redefine themselves and their connection to consumers? Payment terms will be completely redefined as financial institutions will have the power to personalize individual terms for every single purchase, for every single customer, in real time. And with the absence of credit cards, credit card marketing will have to evolve. 3. The customer’s relationship to money and commerce will move from singular moments to an “always-on” relationship. Paying for an item used to be simple: Add an item to your cart and pay at checkout. It used be clear: The role of a store was to put product in the hands of the consumer. It used to be easy: Drive store traffic, stock the shelves and accept payment. But digital experiences have created a new age of connected consumerism. When does “shopping” happen? When does “purchasing” happen? Consumers are buying products online but picking them up at the store. Or purchasing an item at a store but paying for it two days later with multiple payment methods, and with unconventional modes like PayPal credit or Bitcoin, or with micro-lending or “layaway plans.” 4. mPayments will cause a fundamental change in the retail store experience. Today and tomorrow, they will enable the “checkout” process to occur anywhere, whether in-aisle or at 1 TREND 41 home. As a result, mPayments will challenge, and redefine, long standing assumptions of how stores are designed with emphasis on product interaction. They will also drive retailers to learn new ways to connect brands with consumers through connected experiences like geo-fencing, mobile wayfinding, mobile checkout, augmented reality, endless aisle shopping and virtual try-on. Breakthrough innovations in mPayment services (and the digital wallet) will exploit the unique advantages of the retail store: • Environments that inspire, adapt, curate and evolve in real time, • Associates supported with tablet and mobile-based collaborative tools, • Intuitive account information and expert product information, • Products with interactively enhanced merchandising, augmented packaging and universal SKU and inventory access, and • Customers who are seamlessly connected with virtual and in-store data that can be mashed, customized and shared through personal, wired devices—while still shopping in the store. 5. The arrival of mPayments will enable a new generation of real- time, insight-driven shopping and financial tools. mPayments will end the days of the uninformed and passive shopper before, during and after the point-of-sale, giving way to the “empowered” consumer. And a fundamental shift in consumer interaction will occur where each offering will be an experiential element that satisfies a desire for greater convenience and control. Additionally, it will give consumers unprecedented control of their finances, in relationship to their purchases, through real-time and integrated personal financial management. Imagine a customer purchasing a television set, and upon finalizing their payment method, sees a notification that says, “You’ve exceeded your vacation budget by $400. You may want to consider applying $200 towards loyalty points and $200 towards Facebook Credits.” Brands will also be able to individually deliver promotions, discounts and incentives customized and contextual to each individual customer. 6. There are a variety of hurdles for mPayment success, with user adoption being paramount. The ability to pay by phone will not guarantee success. Overcoming user adoption will require better inter-operability of systems and “ There is nothing more imaginary than a monetary system. The idea that we solemnly hand around printed slips of paper in exchange for food and water shows just how trusting and fond of patterned behavior we human beings are. So why not take the next step? Of course we’ll move to even more abstract representations of value.” –Susan Crawford, Harvard Professor, from the Pew Report on the Future of Money, April 17, 2012 REAL-TIME CONTROL 42
  3. 3. platforms, privacy and security, and government regulations. More over, there are approximately 2.5 billion un-banked adults globally, 17 million alone in the U.S. Also, not everyone has a mobile phone or a credit card. Other concerns include the potential susceptibility of NFC (near field communication) to hackers and market fragmentation. Lastly, mPayments must be as—if not more—convenient and secure than using cash and credit cards. 7. mPayments will enable a whole new class of merchants and services. From a fisherwoman in Kenya to the kid selling lemonade from his lemonade stand to the services industry, mPayments will make it possible for more people to participate in the economy-of-one, empowered by increased access to content, data and services anytime, anywhere and on their own terms. The days of mass pricing, terms and incentives are numbered. Increasingly, payment terms and services will be driven and dictated by independent merchants and individuals, either creating, delivering or demanding personalized messaging, pricing and other incentives. 8. The mPayment landscape is diverse, and success may come from a wide variety of players. For the moment, the players leading the charge are from the supply side. Companies like Google, V.me from Visa and PayPal, as well as joint ventures like ISIS, and the Merchant Customer Exchange (MCX), are all trying to vie for the lion’s share of this emerging opportunity. Based on some formidable challenges, the mobile payment market is likely to evolve along four different trajectories: Wait and see: Experimenting with limited services in specific markets. Fly solo: A visionary player with significant market power makes the required investment. Joint venture: Various businesses come together to provide payment solutions, share risks and rewards and develop harmonized and defined business models. Open federation: Players (financial services, carriers, merchants, handset makers, chip makers, application providers, trusted service providers and others) come together to form one standardized, altruistic platform to provide a portfolio of mobile payment services. It’s likely that no one player will emerge as the sole owner of the digital payment ecosystem. Instead, there will be several players, some emerging from joint ventures, technology companies, merchants, card services, remittance companies, traditional FS, government, carriers and others. 9. NFC technology will fuel mPayment growth, but mPayment success is not dependent on it. mPayment adoption is not about any specific technology. It’s about the experience of frictionless, cloud- and consumer-empowered commerce, in ways that make it more convenient, secure and productive than cash and credit cards are today. 1 TREND 43 According to a source from the Pew Report on the Future of Money on April 17, 2012, “The consumer cannot drive the move to NFC payments. The cost to build the infrastructure to support NFC is too large. Additionally, the security issues related to passing data using NFC outweigh the benefit of adopting this new technology. If NFC was able to be used by 85% of the population, and could displace a more costly form of payment it may have a chance to succeed, but the reality is that cash will always be in the economy, and bank-issued cards (debit and credit) provide too much profit from them to be displaced.” 10. mPayments will open up access to money transactions for the under- served—those without bank accounts, access to branches, smartphones and financial institutions. Already, payment services are underway for the un-banked and under-served in Africa, Afghanistan, Cambodia, the Middle East and other regions. Services like M-Pesa, launched in 2007 in Kenya, reports having 9.5 million subscribers using the service and made more than 405 billion Kenyan shillings worth of person-to-person transfers as of March 2010.3 It remains to be seen how the approximately 17 million un-banked adults in the U.S. will be addressed and served.4 With opportunities abound, significant hurdles such as trust, security, ingrained behaviors, addressing predator targeting and lending, and creating great experience design will be critical to success. And what about the cash customers? The pre-payers? The non-smartphone users? How will they be accounted for? And without checkout counters, cashiers or tellers, what happens to actual store and bank spaces? With no need for cash, will ATMs even exist? And what about your competitors? You may discover they are whom you least expect and where you least expect them. Are you ready for the revolution? 3 2011 KPMG Mobile Payments Outlook 4 FDIC National Survey of Un-banked and Under-banked Households, December 2009 REAL-TIME CONTROL