BSG’s Business Development Executive, Lara McDougall, and Client Delivery Manager, Amanda Aliphon, shared the insights they have gained through their collective 15 years experience at BSG at the 4th annual Contactless Payments Conference. Lara and Amanda have, for much of their time at BSG, worked in the financial services sector, spending a number of years focused on cards and payments. Drawing on this experience for their presentation, they took delegates through some industry insights and emerging innovations, before focusing on what factors have necessitated a change of approach in the industry as well as some critical factors for success.
5. Cashless Payment Trends
• 365.6 billion transactions by 2013
• Growth - led by developing markets
• Growth has slowed in North America and Europe
Growth in Cashless
Payment Transactions
• Electronic and mobile payments are converging
• Expected growth of 60.8% per year up to 2015
GROWTH IN CASHLESS PAYMENT TRANSACTIONS
POPULARITY OF MOBILE AND ELECTRONIC PAYMENTS
• Debit Cards still most popular
• 2013 Growth: 13.4% for debit cards and 9.9% for
credit cards
GROWTH IN CARD USAGE
9. Merchant Drivers
Lower device
costs - merchant
can use their
own device
Lower
commission
costs
No need for a
Bank account
Customer centric
payment method
MERCHA
NT
DRIVERS
Cashless Payments
Trends
Emerging Payment
Innovations
Drivers for Change:
Customer Merchant
Critical Success
Factors
1
2
3
4
16. New concepts to appreciate
MVP
Build /
Measure
/ Learn
Pivot or
persevere
Customer
needs
Vanity
metrics
UVP
Confidence is
better than
hope
Failing is good – as
long as we do it quickly
and cheaply
New Customer demands
The need to address new or changing buyer and seller demands, unfulfilled by traditional offerings.
Provide alternatives for cash
In trying to provide convenience to customers there is a convergence of channels i.e.. physical, electronic, and mobile
High cost of in-house fraud & security management
Need for differentiation
understanding of the customer’s location, context and technology environment is required – in addition to a stated need
Need for new revenue streams
With the increasing use of mobile devices for payments organizations are focusing on providing customers with more convenience and a broader selection of products at prices regarded as competitive
South Africa in a transition phase towards a “cash-light” society
30-35% of retail payments are electronic and 60-65% are cash payments
Reserve banks estimate the cost to society of using cash to be about 1.5% of GDP. Electronic payments, however have proven to boost economic growth.
Need for flexibility & choice
Customers are demanding flexibility and choice, and are experimenting with alternative payment methods, such as social media payments
New Customer demands
The need to address new or changing buyer and seller demands, unfulfilled by traditional offerings.
Provide alternatives for cash
In trying to provide convenience to customers there is a convergence of channels i.e.. physical, electronic, and mobile
High cost of in-house fraud & security management
Need for differentiation
understanding of the customer’s location, context and technology environment is required – in addition to a stated need
Need for new revenue streams
With the increasing use of mobile devices for payments organizations are focusing on providing customers with more convenience and a broader selection of products at prices regarded as competitive
South Africa in a transition phase towards a “cash-light” society
30-35% of retail payments are electronic and 60-65% are cash payments
Reserve banks estimate the cost to society of using cash to be about 1.5% of GDP. Electronic payments, however have proven to boost economic growth.
Need for flexibility & choice
Customers are demanding flexibility and choice, and are experimenting with alternative payment methods, such as social media payments
* New delivery models, such as the use of APIs, as well as the reuse of existing platforms (for example, instant messaging, social media and Bitcoin blockchain) provide lower cost of entry and an ability to deliver need-based payment solutions to consumers and merchants/ small and midsize businesses (SMBs).
Non-traditional financial services providers, such as PayPal, are gaining market share by offering basic cash management services with different integration approaches that are a better fit for the financial supply chain needs of SMBs.
It is critical to stress that there is no such thing as a mobile payment industry or a mobile payment. What we are dealing with as an industry is the use of mobility (mobile devices, wireless networks, etc.) to create, augment and replace components of the payment value chain.
Growth in Cashless Payment Transactions
The total non-cash volume was expected to reach 365.6 billion transactions by 2013
Cashless transaction growth is led by developing markets like Central Europe, the Middle East, Africa and Asia
Growth slowed in North America and Europe mainly due to slow economic recovery in these regions
There is huge potential for investment and innovation in this space
Popularity of Mobile and Electronic Payments
The distinction between these two types of cashless payments is gradually shrinking with customers making use of mobile devices to transact electronically
Mobile payments = mobile device is used as a payment method not just a channel to send the payment instruction
Electronic payment = Payment made over the internet for e commerce activities
Mobile payments is expected to grow by 60.8% each year up to 2015
This sector’s growth is mainly attributed to; technological advances, innovation and increased smartphone and internet penetration
Non banks (Pay pal) are expected to grow faster than banks in this space
Near Field Communication still has a low adoption rate which is expected to keep on declining
Decommissioning Cheque Cards
Lower banking interchange rates on cheque cards have reduced the profitability of these cards
As a result there is a shift to move towards debit cards to replace the existing cheque card structures
Developing Markets Boosting Infrastructure
Developing markets were responsible for 25% of the cashless transactions in 2012
Developing countries are increasingly focussing on upgrading infrastructure and creating initiatives to boost cashless transactions
Examples in China of initiatives are: Union Pay and Alipay
It is expected that China will surpass leading non cash markets like North America and the Eurozone (one in five people using mobile banking lives in China) within the next five years mainly due to the existing low penetration and the increase in cashless initiatives
Hidden/Unreported Payment Growth
There is a lack of reporting standards for Electronic and Mobile payments resulting in incorrect statistical data around the market segment that these methods claim (unreported payment niches)
This poses a significant market risk as it leads to incorrect analysis and predictions of market size and segment, used to determine future payment strategies
Examples of this are:
Closed loop retail cards: Features similar to a debit card with no credit rating cheques
Virtual currency: Bitcoin reached 60 000 transactions per day during 2013
Prepaid mobile wallets: Statistics do not show the transactions once the money is loaded onto the wallet
Payment aggregators: Merchant can accept transfers without a merchant account with any bank or card association
Worker remittances: Money is transferred through private payment networks and not recorded in the open payment network space
Success Stories:
Banking
Absa’s CashSend – Launched late 2008
This system allows users to send money to any recipient from their account and the cell phone banking application.
Since its launch in late 2008 up to 2011, Absa CashSend exceeded R500m in transactions
25% of customers send money to themselves
CashSend has proved particularly popular at ATMs near University campuses
Telecommunications
M-PESA (Kenya) - In March 2007, the leading cell phone company in Kenya, Safaricom launched M‐PESA,
M-PESA was an SMS‐based money transfer system that allowed individuals to send and withdraw funds using their cell phone.
M‐PESA has grown rapidly, reaching by 2010 approximately 38% of Kenya’s adult population.
By 2012, a stock of about 17 million M-PESA accounts had been registered in Kenya
Retail
e-Bucks – rewards programme launched October 2000
e-Bucks Rewards quickly established itself as South Africa's leading rewards programme
In February 2003 e-Bucks Rewards had become a profitable business eight months ahead of forecast
A key measure of a reward programmes’ success is the conversion rate of rewards into spending
It notches up a conversion rate of over 80%/month compared with a norm of 60%-70% in developed markets
Failed Implementations:
Banking
Get Cash and Emergency Cash - NatWest and The Royal Bank of Scotland launched these in 2012.
These enabled users to request an amount of cash using their mobile banking application, which would then generate a 6-digit pin to be entered at an ATM.
The simplicity and also the vulnerability of the system stood in the fact that any user could withdraw money from the bank knowing only that 6 digit PIN number
Telecommunications
M-PESA – launched in 2010 by Vodacom & Nedbank
There were estimated to be more than 13 million "economically active" people without a bank account during that period
Vodacom projected that it would sign up 10 million users in the following three years from the launch in 2010
By May 2011, it had registered approximately 100,000 customers
The gap between expectations for M-PESA's performance and its actual performance can be partly attributed to differences between the Kenyan and South African markets i.e. the banking regulations
Lack of education and product understanding also hindered efforts in the initial roll out of the product
A tough regulatory environment with regards to customer registration and the acquisition of outlets also compounded the company's troubles
Due to varying backgrounds in Africa’s different regional economies, innovation and the implementation of such innovation should not be generalised, but rather customised to suit regional and local needs
Retail
Gift cards
Advancing Mobile Technology
Mobile technology is getting better and better, bringing in newer functionality and newer ways of interacting online. More goods and services are also available online, meaning more organisations have an online and mobile store options. With the shopping experience getting better, customers are demanding simpler and more convenient payment methods
Simplicity
With better technology, comes better use of existing technology such as QR Codes and NFC. The user is able to load their card details onto their phone to create a Mobile Wallet. Payments can then be made with corresponding merchants removing the need to swipe from the customer side.
Convenience
Payment processes / checkout has been lengthy thus far due to the need to capture card and confirm details. Various organisations have created “Wallet” functionality that then allows customers to again upload card details. Future payments are then debited from the “wallet” based on secure authentication of the user on the respective site making the shopping experience quicker and easier.
SnapScan, which was developed by a Stellenbosch start up, won MTN Business’s 2013 App of the Year award
Merchants can make use of their own mobile devices e.g. Tablets to set up and accept payments from customers. This means they avoid the high costs associated with running traditional payment mechanisms such as POS devices
Merchants are not required to have or create a bank account when making use of applications such as SnapScan or PayPal.
Customers have advanced mobile technology with is meant to make their lives easier. Companies are taking advantage of this by creating applications that make the best use of that technology putting pressure on merchants to facilitate methods for alternative payments. Banks are responding by accommodating both sides e.g. Standard Bank partnering with SnapScan to enable this type of payment
Trust
Gartner research shows that banks are trusted as payment providers. They have built this trust in part via the repeat usage of their services, which, in turn, creates an ability to demonstrate that they can deal with a fraud occurrence and by providing visibility on liquidity through a growing number of channels.
Financial Inclusion
is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society
The increase in financial inclusion in Africa provides the “unbanked” with access to the formal financial system and services such as savings, payments, transfers, credit and insurance
Providing real-time capability
Data availability, enrichment, and correlation
Leverage established strengths and reputation in security and customer insight
Providing security/mitigating the risk of fraud
Improving ease of commerce/transactions for customers
Providing flexibility
Improving speed of transactions
Strong enabling environments are vital to the long-term success of cashless payments
Regulation should not be complex, but conducive to the creation of a favourable environment for private investors as innovation stems mainly from the private sector
This does not imply that regulation has to be lax, but for regulators to ‘walk’ with market evolution agents (banks, mobile service providers, etc.) to create a more enabling environment in the development of a less cash-dependent economy
Given the payment trends discussed, the key drivers and the case studies analysed, it is clear that we’re not always sure whether our great idea is the right thing to do and we’re also not 100% confident that things will work out the way we expect.
But because of the fast-changing environment and need for innovative solutions which will allow us to remain competitive, we will proceed with our grand plan even though at times we often don’t know enough about whether we will truly be successful.
How many of us have been on a piece of work where it was either stopped because we didn’t do enough investigation up-front or the importance of the initiative seemed to dwindle over time? In my own experience this has happened on numerous projects I have been involved in where the convenience to customers was seriously overestimated or their security concerns were underestimated. This has almost always affected the success and take-up of the product and completely invalidated the Business Plan we created so diligently upfront.
Having been through this, we know that we don’t know everything
So why do we pretend it’s not the case!
We give ourselves a false sense of confidence through stats, research, focus groups etc
We are not our customers!
So why do we decide on their behalf!
We need to work with them to understand their needs, as they may not know what these are either
This approach takes too long
It doesn’t manage investment in line with confidence
There has to be a better way! Good news...there is
If we all know that we don't have all the answers, why are we surprised that we get things wrong?
Rather embrace failing, but fail quickly, cheaply, and constructively...
To be realistic and open
We don’t know everything
We must embrace this attitude, embrace testing things out, and celebrate getting to points of knowing – then we can make decisions one way or the other
Obviously we want to do great things
But we must do so with confidence
Remember: beauty is in the eye of the beholder, so success can only be measured by how successful our customers believe we are!
So We have to stop guessing
Guesswork is stressful, it’s risky, and it’s mostly wrong!
Changes to slide:
4 steps with Build – measure – learn picture in the middle:
Is the problem worth solving?
Have we created a solution that solves it?
Will people pay for it?
Can you scale it viably and make a profit?
Take out diagram at top right and remove extra arrows and business models canvas pics
The “lean start-up,” favours experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.
It introduces concepts such as “minimum viable product” and “pivoting”
A MVP has just those core features that allow the product to be deployed to early adopters for testing, typically the product with the highest return on investment over risk.
Pivoting involves making adjustments to solutions aligned to customer needs
The emphasis is on nimbleness and speed, rapidly assembling a minimum viable product and immediately getting customer feedback to validate the approach. Using this to revise assumptions, we can start the cycle over again, testing redesigned offerings and making further small adjustments (iterations) or more substantive ones (pivots) to ideas that aren’t working – Build, Measure and Learn.
4 key questions need to be solved to ensure success:
Is the problem worth solving? Let’s test it
Have we created a solution that solves it? Get feedback from early adopters
Will people pay for it?
Can you scale it viably and make a profit?
We need to get out of the building and ask customers and users to test the ideas upfront so that we can know whether to persevere or pivot before proceeding to the next step
Vanity metrics are things like registered users, downloads, and raw pageviews. They are easily manipulated, and do not necessarily correlate to the numbers that really matter: active users, engagement, the cost of getting new customers, and ultimately revenues and profits.
Some examples we would be used to in payments:
App downloads vs active users of app
Cards issued vs transactions performed
Number of bank accounts you have versus number you are actually using
Build-Measure-Learn
Being flexible to adjust the solution based on customer feedback
Unique value proposition
Even if we can answer the 4 key questions with confidence, what makes us unique and sets us apart from someone or something else
4 key questions need to be solved to ensure success:
Is the problem worth solving? Let’s test it
Have we created a solution that solves it? Get feedback from early adopters
Will people pay for it?
Can you scale it viably and make a profit?
How is our product different to other ones in the market
Failing is good as long as we do it quickly and cheaply
Checklist in conclusion:
Be prepared to fail and expect to do so
Include customers in all steps
Have enough research data to make a start
Build the smallest thing you need to get real feedback
Validate ideas to set direction: pivot or persevere
Once the problem is validated and the solution and market fit is confirmed, scale with confidence