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 Kohli Ventures
28 September 2014

Mobile payments: empowering the consumer

Tej Kohli, from Kohli Ventures argues that mobile payments are not ‘the next big thing’ – it is already here.

Wallets and credit card holders will soon be things of the past.

Whether purchasing cinema tickets, jumping on the Tube or even buying an international flight, the world’s consumers are changing how they pay for the goods and services they want. The statistics are impressive: mobile payments are expected to grow by 60.8% annually from 2011 to 2015, totalling more than 47 billion transactions [World Payments Report]. In 2013 alone, PayPal processed more than $27 billion in mobile payments in 2013, around 15 percent of total payment volumes [Forbes]. It is clear to see that mobile payments are rapidly becoming the norm for any consumer longing for a simpler purchasing process.

The UK has been quick to adopt mobile payments, and is ranked No.1 for total m-commerce spending in 2014 [Mobile Payments Today]. This rapid up-take can be attributed in part to technological advancements, such as faster internet speeds, increased computing power and the arrival of Near Field Communication (NFC), but m-commerce has also thrived in light of the growing popularity of smartphones in the UK and other developed markets. Euromonitor estimates on a per capita basis that UK consumers will spend £500 ($824) on mobile payments in 2014, with almost 80% coming from purchases made on tablets, rather than mobile phones [ibid]. Tablet devices tend to be particularly favoured by wealthier, more developed markets, with the likes of the UK, USA, Australia, the Netherlands and Denmark showing the greatest tablet-driven m-commerce per capita spend in 2014 [ibid].

As is often the case with the adoption of new technologies, m-commerce has been met with resistance by even the most developed markets.

A recent EY survey of 6,000 consumers across 12 countries revealed that USA-based consumers were most reluctant to adopt mobile payments, with 57% of respondents saying they have no intention of using mobile payments to transfer money – the highest of all the countries surveyed. It is difficult to say why this might be the case, but with 134 million smartphone units shipping to the USA in 2014 [Euromonitor], smartphones continue to be one of the largest focal points of all of consumer electronics in the US. With this in mind, one would expect the sentiments towards mobile payments to improve amongst US consumers over the next few years.

It’s a different picture for emerging markets, however. The take-up of location-based mobile payments has been highest in China and India [EY Report], two developing countries that a combined population of over two billion people. Furthermore, Kenya is an example of a country that is a world-leader when it comes to mobile payments; paying for a taxi using your mobile phone is easier in Nairobi than it is in New York [Economist]. The success of m-commerce in Kenya and similar countries has come about in light of exceptionally expensive alternative payment methods, as well as the m-commerce industry not having to overcome too many regulatory hurdles.

Emerging markets, particularly in Africa, have developed infrastructure in a different way to European and North American markets – many people do not have access to traditional banks and financial institutions – allowing mobile payments to become the norm for the vast majority of the population.

In countries with generally poor infrastructure, and few villages and towns connected with landline telephone cables, mobile payments and electronic transfers offer the perfect solution to save people time and free them to do other, more productive activities instead.

The advent of mobile payments has enabled the consumer to seize control of the payments process. As banking and payments apps become more sophisticated, brands and payments companies will compete to engage with the consumer across all parts of his/her financial life. The increased competitive landscape will, with any luck, keep prices down and improve the consumer’s experience during the purchasing process. Whilst some may regard mobile payments to be a disruptive force in the capitalist landscape, the reality is that the way consumers are interacting with financial institutions is changing, and for the better.