Mobile Payments in Europe: State of Play and Future Outlook

 

In this interview Christian von Hammel-Bonten shares insights on how he sees mobile payments develop across Europe, from his key position as EVP at Wirecard AG, a technology and financial services payments company that is a leader in both acquiring and issuing business across the region and world-wide.

 

Christian thanks very much for your time today. Could you please give us some context of Wirecard and what you do?

Simply said, Wirecard is a global technology group that supports companies in accepting and issuing means of electronic payments. We offer services in all roles of the payment value chain: issuing, issuing processing, payment service provider, acquiring and acquiring processing. Group operating activities in our core business are structured into key target industries: Consumer Goods, Digital Products, Travel & Mobility and Telecommunications. The idea of these verticals is to understand needs of our clients and deliver focussed solutions. In my current role, I am in charge of the Telecommunications sector that includes all products & services related to mobile payments.

 

Europe has historically had the longest history with pursuit of mobile payments. From your experience over the years how has 2014-2015 differed?

In past years, NFC was always a topic that was discussed but had not seen solutions being commercially rolled out. This changed in 2014-2015. We’ve seen launches in mobile payments, with Wirecard involved as well. Bank activities have increased with cloud based payments involving Visa and MasterCard. On top of this, the launch of Apple Pay in the US and now announced for UK, has increased awareness and interest on the merchant and consumer side.

 

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Would you say that mobile payments is converging or diverging?

I believe we are at the early stage of Mobile Payment and as I look at the early activities in Fintech we’re at the beginning of a disruptive era. When we started Wirecard 16 years ago e-commerce was below 1% of retail sales, no one would have predicted the size of retail sales online today. Looking back I compare it with the trend relating to digital cards.

The activities and discussions focussed too much on the term mobile payment. It is digital payment that may be delivered through the mobile but other device types such as wearables may be equally promising. One thing that is clear is that the physical element, namely the plastic card, increasingly disappears – it will be transformed into another form factor, digitized credit credentials.

 

But how would we extract cash in that case?

In a number of European countries we observe initiatives that are resulting in cash fading out. Take Sweden, Denmark and UK for instance. In my opinion, cash will not ever disappear in the near future but the majority of payments you receive will increasingly be digital payments going forward.

 

What are some peculiarities you observe in Europe versus your other activities in other regions such as APAC, UAE and South Africa?

Developments in E-commerce across all these regions differ, and even within Europe, countries are at different levels of maturity. E-commerce in Europe as a whole is highly developed, as we enjoy high levels of mobile coverage of good quality. Infrastructure is essential, of course, for the success of digital payments. Communications infrastructure becomes the highway for retail stores and effective communication networks are a pre-requisite.

Another factor is payment culture in various countries. The use cases and consumer needs differ. If you look at Africa it’s not NFC mobile payments that is needed, rather it is mobile money because of the lack of banking infrastructure. Across APAC again it differs widely. In Singapore there is a high penetration of cards and terminals, but in nearby Philippines this may be completely different. Similarly you can compare Germany and UK on these parameters. In Germany ELV solves merchant problems and consumers still prefer cash.

Success in payments comes from understanding the needs of players in all parts of the ecosystem. Paying with a mobile device may not be needed as a tool for financial inclusion where we have well-developed banking infrastructure, but in Western countries and world-wide, crowd funding, P2P lending and other services are rising up to meet unique consumer and business needs.

M-Pesa recently launched in Romania possibly as they identified a larger proportion of under banked, largely based on cash. This may be a viable solution in the Romanian market but not suitable for UK or Germany. Although there is a short distance geographically between European countries, there can be big difference in payments.

 

Could you share some insights from your work on mobile wallets such as with the BASE Wallet, Deutsche Telekom MyWallet, Orange Cash and Vodafone SmartPass?

We see huge differences in European markets that cause different states of readiness. In UK we have markets ready for digital payments, but Germany is somewhat behind in this respect as payment culture is different.

A good way to understand this is to study the number of terminals and the number of cards in each European market, and trace the growth of contactless in POS. Apart from UK, Switzerland is also heavily contactless. In Spain too consumers have embraced contactless payments. In other countries we have to be patient until the necessary relevance is established on the consumer side.

So we have to be somewhat patient but no one contradicts that in a few years the majority of payments will be made digitally – with a smartphone, wearable or other digital form factor.

 

Is it digital natives who are installing these apps or others interested as well?

It is really both. The ones who adopt are generally people who have an affinity to the service, but also towards technology. If you use your mobile phone today only to make phone calls you’re not perhaps someone who would adopt mobile banking and mobile payments.

Generation Y use smartphones heavily and rely on mobile banking for managing family finances. We also see that males are more predominantly early adopters of the new services.

 

Would you say there is a growing importance of the mobile number in all of this?

Yes, Certainly. Like the email address is already more important today for your communication than your postal address is, the mobile number is already a personal identifier for many activities.

The mobile number has the potential to act as a proxy for many underlying financial services. Take for example P2P transfers. It is challenging to remember bank details, more so with IBAN, so the mobile number becomes a link to your bank details in successful solutions such as Pingit, Paym or MobilePay. Also, you don’t have to remember phone numbers as the phone book does this.

 

Do you see SEPA as an instrument for achieving more consistency in payments across Europe?

At first people took some time to be convinced but today SEPA Credit Transfer and SEPA Direct Debit simplifies things for people making payments across Europe. It is a future enabler for a number of bank services and if banks want to stay competitive they need this form of interoperability.

The only thing missing is instant payments, and I hope this will come, European-wide. However banks are finding it difficult to set something like this up on their own. Really it should already have been made available across Europe, as UK already has Faster Payments. There are a number of banking innovations in the UK such as Pingit, Paym and Zapp (expected) and these are greatly facilitated by real time instant payments.

A good financial and payment infrastructure is crucial for supporting businesses and consumers. It is as important as a good road infrastructure and it is the prerequisite for innovative digital services.

 

Yes, I see how this could help to address some of the disruption to banks from FinTech, but also enable innovative new services from new entrants that compete with the banks. Speaking of this, Wirecard launched the Wirecard Smart Band based on HCE – could you please share a bit about your experience with HCE?

HCE or Cloud based payments has greatly increased the possibilities for banks, telecommunication companies and others to offer mobile payment services. In the past, almost all such projects depended on hardware-based elements such as the SIM and embedded secure elements (eSE). However, something that is hardware based has an owner who seeks control and finding collaborative models between all stakeholders delayed or prevented the launches of mobile payment solutions.

With HCE/Cloud-based payments however, such collaboration is less essential, which is its best advantage. Financial Services groups across Europe are looking closely at this technology. No solution I’ve seen is as convenient in being able to enrol users and deliver digital cards to them. Why should we buy gift cards in supermarkets, when we can just send them digitally and use gifted money through apps?

I believe the distribution of cards is about to change, and plastic cards will increasingly disappear as we have digital cards, and not just one each!

 

What does Wirecard do to help companies, say a UK-based retailer wanting to move on this opportunity?

Wirecard offers two different approaches. Firstly we help our partners to build up new card portfolios by issuing cards, irrelevant of the form factor as an issuing bank with licences for the SEPA region.

Secondly, we enable our partners to digitise their existing cards and it does not matter which NFC approach – SIM, eSE or HCE – clients prefer, we are technology-agnostic and support them all. So with respect to retailers, we enable them to issue digitized cards to their customers as part of their loyalty solution. This allows retailers to offer their customers a convenient and fast option for paying, in order to simplify overall checkout and at the same time leverage additional opportunities to engage with customers.

 

Do you also provide an app if clients don’t have one?

Yes, we have built a flexible, agile platform to cater to different environments. We offer to integrate through Software Development Kits (SDKs) with existing apps or we can provide a customized app.

All apps of our live solutions including Orange Cash and Vodafone SmartPass have been customized to meet the client’s branding and functional requirements.

 

What is the best path to interoperable mobile payments across the EU, for instance for a UK customer using a smartphone to pay in Spain, and what’s the outlook for 2015 and beyond?

Right now existing solutions are based on Visa and MasterCard specifications and may be used not just across Europe but also world-wide.

Your example is an interesting one, as travel is one of the biggest drivers for prepaid in the UK market. If you are going to Spain, instead of buying a card you can just go online, register and get your digital / virtual card, top-up and start to spend.

This is a good example of how we see the future of cards. Digitization started and progresses in many areas of our life and payment cards will be clearly affected as well. Short term we will see the first big success of a mobile payment solution with the launch of Apple Pay in UK in 2015. This will spur all activities around mobile payments in Europe and bring us closer to a world of digital cards and a cash-less society.

 

Thanks very much Christian, it has been very useful to gain your insights on mobile payments in Europe and I take this opportunity to wish you the very best for the future.


Wirecard AG_Christian von Hammel-BontenChristian von Hammel-Bonten is Executive Vice President Telecommunications at Wirecard AG. Christian has almost a decade of experience in the online payment industry. From 2002 until 2009 he was responsible for Project Management at Wirecard. Before returning to Wirecard in October 2011 Christian worked as Senior VP of Product Management for Clickandbuy, a company of Deutsche Telekom. In his current role Christian is responsible for the Telecommunications sector at Wirecard.

 


Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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The War of the Red Envelopes in the Year of the Goat

From the land that brought some of the most remarkable inventions in the world between 2000 BC and 200 BC, such as cast iron and the suspension bridge, the new frontier for modern day innovation in 2015 is Digital Money.

 

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There is a drama unfolding in China with continued strategies and lobbying between the top players – Alibaba, Tencent, Baidu, China UnionPay, the banks, the regulators and others. Like a jigsaw puzzle, each large group is assembling their “armies” – a number of different companies, groups of companies and partnerships that will help them obtain dominion over the fast evolving digital money market.

We will soon be in the midst of one of the greatest migrations in the world, as Chinese from around the world travel home to celebrate the Year of the Goat. While I wish my dear Chinese friends a wonderful New Year, I am keenly interested to see who will win the War of the Red Envelopes or 'Hong Bao' as it is called.

What is Hong Bao?

In China it is a very important tradition to gift money in red envelopes to children and younger members of your friends and family. The envelopes are red, as are most things associated with the Chinese New Year.

Last year, for the Chinese New Year, Tencent's WeChat (similar to WhatsApp) stole a march over Alipay by launching a viral and hugely enjoyable way to gift red envelopes electronically.

Tencent's WeChat got 5 million customers to send over 75 million red envelopes within 24 hours, through an electronic substitute for the centuries old tradition of Hong Bao.

This was just one in a string of digital money initiatives from the Internet Tech Giants of China. However it was highly significant in terms of gaining adoption for the WePay mobile wallet service.

What made Tencent's Hong Bao click?

In the year when the mobile internet overtook the PC internet in China, the market was just ripe for this service and Tencent pulled off a classic marketing promotion.

For me, the primary innovation was in the manner of embedding this into normal social interactions that had soared in popularity, not just in urban areas but across most of China.

The second innovation was in offering an alternative means of paying by getting people to link in their bank accounts, something we may find commonplace in the West but was quite an achievement in China at that time. Of course, now WePay had customers with means of paying, not just for the New Year but as a strong base for all the various services they launched subsequently. In 2014, China became the largest online retail market in the world, and many of the transactions now take place using smartphones.

And of course last, but by no means least was the way that the giving of Hung Bao was turned into a game. As my dear friend Michelle Zou explained to me, it was great fun for her to send money this way as an element of suspense was introduced in the way the allocated money was shared out between the designated receivers of red envelopes.

How did Tencent build on this success?

Soon after the New Year Tencent established the Weixin Group on May 6, 2014 and rebranded to create Weixin Payment services.

Last month WePay’s WeBank became the first online private bank to launch in China. One step led to another and an important first step was their New Year Hung Bao service.

So what could we expect this Chinese New Year?

So what may competitor Alibaba do this year? Their recently created ANT Financial Services Group (that includes Alipay) is well poised to counter this success. Alibaba has many significant achievements as I've described in my previous posts, and the group is shortly to launch their own private online bank.

How will competitors stay in the centre of Chinese New Year celebrations? And will one of the many other new third party payment providers (our report out this week describes 264 licenses/extensions) also have some tricks up their sleeves.

We'll know soon enough, and it is bound to be interesting.

  • Have you tried the new Hung Bao services?
  • Has anyone outside China thought of doing this for the extensive communities around the world?
  • What innovations do you expect to happen this year?
  • Have you seen a mobile wallet that achieved similar traction to what Tencent managed last year? I believe such adoption rates are very hard to achieve.
  • Would you use electronic red envelopes, or must it be cash?

I would love to hear your thoughts!

 

viewport_china_2015 We are proud to announce that our latest Viewport “Digital Money in China 2015” has just been launched this week. Do drop me a line at contact@shiftthought.com to know more about this report that is not just relevant to those doing business in China but is a must-read for anyone interested in the fast evolving Fintech, Payments and Financial Services markets.

Check out our “Focus on China” posts created in honour of The Year of the Dog, Chinese New Year 2015. Happy New Year to all our valued Chinese customers and friends around the world!

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A deep dive into China’s innovations in Mobile Payments, Internet Finance and Banking

It is easy to write-off what is happening in a market far away from you, and to believe that somehow your services are not affected. After working on our latest in-depth study of the People’s Republic of China (PRC), I believe this would be a fallacy. If you are offering or intend to offer digital money services of any kind, you really need to be aware of what’s happening in the most populous country in the world, and now the largest online retail market. Here’s Why ..

chinaimageOn a trip to Beijing a few years ago I found myself on a main road trying to hail a cab in the evening at rush hour. After moving to several different locations and not succeeding I finally walked the long distance to my hotel and put this down to one of the most difficult travel experiences ever. Now, though, you can simply order and pay for a cab from your mobile phone, and this is just one of a set of highly convenient mobile payment services now available.

An immense change has taken place in mainland China over the last 5 years over which we have carried out in-depth studies of this market. This has positioned China as the largest online retail market in the world, and a leader in the use of Digital Money. Services started strongly on the Internet and have now gone mobile and offline, in contrast to a number of African countries that grew on the M-Pesa Kenya model.

A strong focus on innovation

Over 2014, the downturn in traditional sectors such as real estate and slower growth in exports resulted in Q3 2014 economic growth sliding to 7.3%, the lowest growth level since the global financial crisis. This prompted the China State Council to promote innovation especially in the MSME sector, with a new 40 billion yuan ($6.5 billion) venture capital (VC) investment announced in January 20154. To place this figure in context, since first launch of the VC program in 2009, just 9.1 billion yuan was allocated.

Shift Thought sees this as one more indicator of how China is reinventing it’s positioning in the global business value chain, and digital money services are an integral part of this plan. Several large IPOs are expected as the large Chinese banks continue to restructure and go public, with a reported 5 banks doing so since Oct 2013.

Over the past 4 months Shift Thought has completed an immersive study and analysis of the highly complex China financial services market, leading to the publication of our 380 page in-depth report on every aspect of money going digital in China, including details on regulation and sizing of the various different sub-markets. I share a few highlights in this blog, as the first in our “Focus on China Series”.

Historic changes in regulations

As the market has demonstrated a voracious appetite for the new services, regulators have struggled to stay in control and also safeguard the existing licensed players in the market. In rapid succession we’ve seen regulations that brought in new third party providers, online banks and agent banking. New regulations are imminent that will have wide ramifications for start-ups and existing players alike.

First online private banks

Last month we saw the launch of the first private online bank WeBank, and there are a number of other newly licensed banks about to launch. What is interesting is the strategic potential this creates for the category Shift Thought terms as the ’Internet Tech Giants (ITG)’ of China: including groups such as Alibaba, Tencent, Baidu and others. We see huge M&A activity and rebranding activities that are readying these groups for the next level of strategic expansion over 2015.

Internet Finance

With the rapid increase in the use of the Internet, especially through smart devices, the most important trend we saw in 2014 was the meteoric rise of Internet Finance including a range of online financial services such as online payment, crowd funding, P2P Lending and others. This prompted the banks to jointly issue limits on the amount that could be transferred to investment funds such as Alibaba’s Yuebao, with P2P regulations expected shortly.

Third party providers deepen services

In 2010 the PBC released regulations to allow third party non-bank providers of payment services. Since then over 264 licenses or extensions were granted to third party payment institutions, of which over 97 supported online payment and over 30 (including the 3 mobile network operators) have permission for mobile payment services. Favourable tax treatment for online transactions has further ignited this market.

Online Payment market slows down after meteoric rise

Over the last 4 years along with massive growth, there has been stiff competition in the online payments market, with some of the providers already forced to close down. However the achievements have been phenomenal, leading to the creation of the largest online retail market in the world, and digital wallets transforming into mobile wallets.

The rise of O2O services

Both online payment and mobile payment grew strongly over 2014, with mobile payment substituting offline payment and new O2O services emerging that connect online and offline services in a manner that has been uniquely innovated in China. These O2O services allow consumers to find and use products online and offline in new ways that support their lifestyles and completely shake up the existing retail market, with strategic partnerships being formed to reposition and link retailers and online providers.

Financial inclusion

A key concern of senior Chinese Government, working with development groups this year has been for the 400 million unbanked/under-banked in China, and the 100 million under the poverty line residing largely in rural areas. Other underserved segments include migrant workers, MSMEs and unemployed workers, with recent lay-offs from state-owned enterprises (SEOs). We explore each of these segments at length, to look at the services now available to them and how these are changing – including domestic remittances, inward remittances, lending and branchless banking services.

Focus on rural areas

Some of the most interesting innovations we saw were those that are now going into rural areas, with the rapid spread of the mobile internet. In a manner that creates rich scenarios for The Digital Money Game as described in my recent book, providers are targeting multiple services over multiple channels in a bid to cement their market shares and create and grow new markets through their innovations. Our report details these innovations, such as a unique green telephone that has been adapted to support Point-of-Sale and banking transactions and was distributed free to rural households.

So why is this important to you?

This is not just important from the perspective of making an entry into the largest digital money market in the world – a feat not for the faint-hearted, I’m afraid.

As we saw Chinese goods flooding Western markets in the past, the new digital channels are enabled a new Chapter in Chinese export capabilities. We see a number of services already extending across South-East Asia. With the benefit of massive IPOs (such as Alibaba’s  $25 billion, the largest IPO of it’s kind ever), providers are readying themselves to travel further afield, and you may need to compete against these new services in the US and European markets and not just in Asia Pacific.

Digital Money in China 2015

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We are proud to announce the release of our globally unique report “Digital Money in China 2015”. This is essential reading for anyone who offers, or plans to offer any one the 32 key services we cover under Digital Money: including Online Payments, Mobile Payments, P2P Lending, Digital Banking, Remittances and more. Contact us today to look inside this report and learn more. Our team is ready to support you in your plans for China and elsewhere in the world. Drop us a line at contact@shiftthought.com to arrange for a call to discuss your unique requirements.

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Mobile Money in Zimbabwe– freely transfer money, in minutes not weeks!

 

As mobile penetration reached 106% , and effectively 60% of people in Zimbabwe now have access to mobile services, mobile operators have gone a step further. They now offer people safe and convenient ways to transfer money, pay for electricity and basic services and last but not least, add much needed top-up to their own mobile phones, or those of friends and family. Having helped people communicate, they’re now helping them transact and receive money from abroad, helping the country recover from the hyper inflation of 2008 and the loss of their currency.

 

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When the Zimbabwe dollar failed to recover in spite of multiple rebirths: ZWD in 1980, ZWN in 2006, ZWR in 2008, and it’s fourth incarnation of ZWL in 2009, foreign currency finally got legalised in January 2009 and the Zimbabwean dollar was abandoned by April 2009. It is difficult to imagine how a country of 14 million people quietly went about with “business as usual”, as less than 2 million had access to any kind of formal banking services.

In a country where every individual is an entrepreneur there was a gap for how they pay and get paid locally, regionally and internationally. Now new services are starting to fill the needs, but success for all the entrants can by no means be taken for granted.

 

Mobile money brings new hope

Now though, a transformation is under way as over 5 million people have found new ways to carry out daily transactions through a 10,000+ agent and merchant network of small stores that function as points for people to open accounts, deposit and withdraw cash and pay bills.

 

ecocashThe largest operator in the country, Econet Wireless, now has 3.5 million of their subscriber base using their EcoCash Mobile Money service, since it launched in September 2011. At the time, the other two operators had already launched similar services that failed to capture the market, so it was not clear whether they would succeed. Today though, they already handle over $4.5 billion worth of transactions, and a vibrant ecosystem of merchants and services has built up in a remarkably short time.

 

telecashThe second largest operator, Telecel (Orascom) had entered the market in December 2011 without much success, but just as Telecel closed down their service Skwama, Econet made a break through with their Ecocash service. So while it may have seemed like Telecel had an option, the reality is that mobile money is now a part of the core package subscribers expect in Zimbabwe. Early this year Telecel launched Telecash, and four months ago they launched a mobile money Android app for Telecash. This time with a promise of free transfers, free cash in and cash out have had the desired effect, with 600,000 users taking up the service and reported transaction levels of $17 million.

 

imageThe third operator Netone is also seeing better traction with their mobile money service One Wallet now supported through a 1,100 strong network, though active subscribers are still nearer to 200,000 than to their 750,000 target.

 

 

nettcashMobile operators are not the only active players. In May 2014 a service call NettCash launched with a unique contactless technology called Near Sound Data Transfer (NSDT), an additional API and promise of online payment. As of today it claims to have over 200,000 customers supported by 1052+ agents and merchants. Our Shift Thought knowledge base registers over 18 services from a variety of players, as the market grows to meet the needs of the people.

 

The banks awaken

Now that the people have voted with their feet and regularly visit conveniently located agents, banks are anxious to get a slice of the newly established market. Econet owned Steward Bank supports Telecash, but a few days back launched their own new AllSave Bank Account that is supported at some of the Telecash agents. This low cost account is expected to help to deepen the customer relationship, with loans and other services. As seen in Pakistan, I expect this could result in the other mobile operators looking around for a suitable bank to acquire, to match the business models that Econet can now aspire to.

 

Agent networks: To share or not to share?

The new battleground is the agent network. As the pressure mounts to enrol customers, there has been a reluctance to share agents. This recently resulted in a directive from the Reserve Bank of Zimbabwe to discourage exclusivity of agents. However an interoperable agent network may raise as many questions as it solves and I see a need for new processes and compliance structures that are likely to gain focus in 2015.

 

Remittances made easy

Now that domestic money transfer has been conquered, the providers are turning their attention to the $1.9 billion formal remittances (equal amount of informal?) that are sent into the country. There has been concern as this declined markedly by 15% from $2.1 billion in 2012 to $1.8 billion in 2013. The main send countries include South Africa, UK, Canada, Australia and the United States.

If these transfers can be used to fund mobile money wallets and use digital money for daily transactions, that would help the fledgling services to thrive and grow. UK-based WorldRemit  offers an internet-based money transfer service from UK, from where an estimated 600,000 diaspora send money home to Zimbabwe. Telecel has partnered with UK based Mukuru.com for remittances from South Africa, from where an estimated 2 million migrants send money home. And certainly, Econet is well placed to address the opportunity for regional remittances, thanks to their presence across neighbouring countries in Africa.

 

Online payments – at last!

The vibrant mobile money market is injecting life into other parts of the economy.  In June 2014 card based transactions increased in value by a whopping 21% over the previous month, to reach $361 million. MasterCard recently announced a partnership with EcoNet to offer debit cards for EcoCash Accounts. Mobile and Internet transactions together have risen to $388 million, with electronic payments bringing in a new era of accountability and hope for the country.

 

The future of mobile money in Zimbabwe – will it mature into digital money in 2015?

What happens next depends on whether the Zimbabwe ecosystem is able to make that difficult transition to non-cash payments, merchant payments and retail payments. As the agent network grows, the small stores must fully embrace the services and find their businesses succeeding due to this. The country must go a long way to strengthen the building blocks and weaken the real enemy, cash and this means that all will need to pull in the same direction.

But underlying all this progress is one building block that must not be forgotten. Zimswitch provides the rails that allow for instant funds transfer and also supports mobile and online payment services. These underlying enablers need to be strengthened and connected into the vast developing digital economy – regional and global.

Though this is hard at first, Shift Thought research in markets around the world show that if everyone in the ecosystem starts to believe from their hearts that the success of one money service does not mean the failure of another, more people start to embrace the services and the whole market grows. I believe we have much to look forward to with the march of digital money in Zimbabwe, not just for Zimbabweans or even Africans, but for the future of payments around the world.

 


Charmaine Oak

Practice Lead, Digital Money

Email   : contact@shiftthought.com

 

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

Join me on Twitter @ShiftThoughtDM and The Digital Money Group on LinkedIn

 


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A navigation guide into one of the most complex markets for Digital Money in the world

 

Focus on India Series : Having recently completed our in-market analysis of the emerging payments market in India, I’m confident in saying the country represents one of the world’s most complex, yet promising, battlefields for digital money. India is poised on the brink of a huge economic transformation and making money digital is a crucial part of the solution.

 

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Digital money has a tremendous future in India, and I see a convergence of several factors that combine to create an unstoppable wave. Yet for this country of over a billion people, of which May 2014 World Bank estimates show 179.6 million live below the poverty line, money is going digital in a variety of ways and the savvy providers need to recognise this in order to make their business models work.

 

 

 

India’s Demographic Dividend

Even when services are designed to appeal to the under-banked, providers cannot take their eyes off India’s rapidly growing, massive and youthful middle class. Even if one assumes only 30% of the population of India’s population of 1.2 billion is reachable, this is still a sizable 360 million, considerably larger than the 5.4 million population of Singapore and 7 million of Hong Kong, for instance. By 2015, India’s middle class is expected to be in excess of 267 million. What is more interesting is the trajectory, as the size of the middle class (monthly household income ₹ 20,000-100,000)  was a mere 25 million in 1996.

 

Precipitating Factors

I grew up in India, travelled around the country for the introduction of MICR and worked with RBI, SBI and several banks in India to help computerise different areas of banking, in my early work at Wipro and my own company Visionix. More recently I have personally visited the country to attempt to implement financial services since 2006. It was, to say the least, a test of endurance. However, many recent developments favour payments going non-cash and give me cause to believe that 2015 will be an important year for India.

Firstly, mobile penetration is remarkable and is aided by the September release of budget Android One smartphones that appeal to a highly price-sensitive market.

Secondly, a highly thrifty, large population desperately needs convenient ways to save and spend.

And, last but not least is the will of the government. The recent meeting between Mark Zuckerberg and Prime Minister Narendra Modi highlights the opportunity that digitally connecting remote villages presents to businesses around the world from a wide variety of perspectives.

 

Evidence on the ground

The cash-centric Indian economy is at last moving towards non-cash payments. By end of September 2014 more than 53 million new bank accounts were added in India to disburse benefits and social security to recipients. This is one example of initiatives from the Modi government, strongly backed by the Reserve Bank of India led by Governor Raghuram Rajan.

India’s US$4 billion e-commerce market is set to soar to US$20 billion by 2020.2 E-commerce is being driven by cheap handsets and mobile data plans that enable consumers to buy from their increasingly smart mobile devices.

 

Born Digital Money

As in Africa, mobile money is poised to strongly support financial inclusion goals. But there is more.

In my book “The Digital Money Game” I describe how people expect a whole package of services across online, mobile, social and local situations, creating a multitrillion-dollar industry worldwide. India’s market is a perfect example and consumers are demanding convergent financial services from the start, as opposed to the mobile-centric services that took off in Africa.

This requires, for instance, the ability to provide a service not just using mobile phones but through multiple channels and the ability to offer not just one service but many. Our research this year confirmed that this is needed to compete in emerging markets, and India is a prime example.

 

Reaching previously unreachable markets

Underpinning the non-cash transformation is Aadhaar, the world’s largest biometrics project that goes across all segments of the population. This paves the way for middle-class consumers to make payments to their domestic help, for instance, while also using their new wallets to pay for higher-value airline tickets, goods and services. The rise of mobile Internet access aided by smartphone penetration is bringing young and highly connected shoppers online and is creating conditions for prepaid and digital wallets to thrive.

India’s 1.25 billion people are spread across 29 states and seven union territories and, as a consequence, the complexity of the market has been likened to that of all the European markets put together. Marketing in this highly fragmented environment is challenging due to differences in regulations, income, religion and culture and, notably, the lack of government-issued identification. With just 58% of Indians registered at birth, it’s no wonder that India is the largest user of cash among all emerging countries. With little to no ability to verify their identities, unsurprisingly, just 48% of people have access to bank accounts and traditional payment cards.

 

The emergence of Cash-on-Delivery (COD)

Around 20% of Indians have Internet access, so online sales have only just begun to grow, but the opportunity is immense, particularly as consumers look for ways to digitize cash. So far Indian consumers have not given up their reliance on cash to shop online. Instead, cash-on-delivery (COD)—a uniquely Indian phenomenon—has penetrated many urban markets. This involves consumers ordering online and paying for the goods when they’re delivered, generally at home. Flipkart popularized this convenient way for consumers to shop online with confidence and without plastic cards, and the company has been rewarded with wave after wave of investment.

 

In pursuit of Cash-before-delivery

But launching truly digital money services requires that players connect the dots between the online and mobile worlds and the offline world. As the Indian e-commerce market matures, COD is giving way to CBD (cash-before-delivery). COD has caused some problems for e-commerce merchants because many consumers refuse to accept items on delivery, after the initial flush of an impulse buy has faded. To meet the demand of merchants and to fit into the increasingly mobile-centric consumer lifestyle of Indian consumers, mobile wallets and prepaid payment instruments have flooded the Indian market and challenged the prevailing COD model.

 

Connecting the dots

Our studies show that global e-commerce companies are busily pursuing their strategies to enter this nascent market and rub shoulders with the home-grown services, both categories of players must be mindful of competition from outside their immediate vision.

For e-commerce players, digital money solutions that incorporate CBD will be critical. The race is on between Amazon, Flipkart and Snapdeal. So far Amazon, which recently invested US$2 billion in India, spent this Diwali in hot pursuit of Flipkart consumers. Meanwhile Flipkart shut its payment gateway Payzippy within a year of launch and its recent acquisition, Ngpay, is expected to provide the next platform for its attempt to extend into digital money.

As what we term as a new “nationalised liberalisation” emerges and global players ramp up investment, taking advantage of new ease of doing business in India, Shift Thought offers a range of consulting services, research and portal access that offer timely and vital knowledge on how to navigate the still murky waters of building new brands in India.

 

Shift Thought offers a Navigation Guide

Recently released Shift Thought research explains why and how e-commerce strategies must evolve to compete in the new digital money industry. Our report provides facts and figures not just on the mobile wallet services that have been launched—and the unique way in which prepaid services are taking off—but on the whole set of services we term digital money. I believe that is the game that global providers will need to get right to capture the new opportunities presented by the Indian market.

Our Digital Money in India 2014 Viewport released this month explains how the competitive landscape is unfolding in India, with case studies of how providers are creating unique solutions, and this article is part of our Focus on India Series through which we share highlights of our research.

Whether you are interested in taking up the challenge of entering the market, or simply wanting to know more about what’s happening, just drop us a line today at contact@shiftthought.com and we will be delighted to talk you through some of the key trends that affect you and the various options available through which we can help.

 

Join us to discuss this further and add your valuable comments at my post on LinkedIn

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Some parts of the blog have been published in my blog “India’s E-Commerce Boom Paves Way for Digital Money” on PAYbefore Op-Ed. 

 


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Increasingly large businesses forming in China to serve the needs of increasingly smaller businesses

 

After Alibaba successfully floated a record-breaking $25 billion IPO one of it’s first initiatives is consolidation of a number of its financial services initiative under an umbrella private bank set up in China. The business is to focus on serving the needs of small businesses. MSME business is a largely unserved and promising area, but how will large groups such as Alibaba balance innovation as they scale to address this segment?

 

 

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While a lot of focus has been rightly given to the unbanked and the under-banked, I believe not enough has been done to address the needs of businesses that have are growing increasingly smaller and have distinctive requirements. When Square brought out the Square reader in 2011 it opened the floodgates to a whole new set of MPOS services and rapidly commoditised that market. Yet businesses such as my own struggle to effectively take small payments in multiple currencies without the help of a massive organisation behind us with dedicated functions for this. Alipay spotted this opportunity and grew very rapidly, supporting such businesses in acquiring payments and managing the complexities that innovative entrepreneurs in China faced.

 

In China there is now a new trend towards the formation of private banks. Alibaba has recently received a license from CBRC, as one of three recently established private banks. This development stems from the Communist Party of China pledge in November 2013 to increase the competition in the Chinese banking sector.

 

Now Alibaba’s Ant Financial Services Group (rebranded this month from Ant Small and Micro Financial Services Company) will bring together it’s diverse financial services businesses, focussed on the huge opportunity from businesses that are growing progressively small. These include:

  • Alipay, their main payments service provider
  • Yu’e Bao, a money market fund
  • Zhao Cai Bao, a financial services platform
  • Ant Micro, a micro-loan provider
  • Huarui: Shanghai-based newly formed private bank addressed as MyBank but English name still pending

Alibaba helps companies in the US find and use the services of really small merchants in China, and caters to their needs for payments, escrow services, P2P lending and more.

Along with 249 other businesses (from across sectors and including China Mobile), Alipay received a license as a payments service provider. It has initially focussed on adding mobile and offline channels to it’s popular Alipay online digital wallet. Now it is pulling ahead of the pack with it’s own bank MYBank, and consolidation of six different businesses that will together focus on the MSME Opportunity.

 

To my mind this raises a number of questions that we answer in our Digital Money in China and other recent reports:

  • Will Alibaba succeed to keeping the dynamism that allowed it to grow, as it grows into such a large business, and how will it cope with the responsibilities of being a bank and still adapting and growing to meet the unique requirements of MSMEs?
  • So far China had one private bank, China Minsheng Bank. Alibaba’s main competitor Tencent has also set up a banke, Webank. Which of the other 248+ recently licensed PSPs are likely to follow suit, and how will being a bank help or hinder them?
  • As Chinese companies increasingly go international, how can global brands be protected? In Europe MyBank has just been investing heavily in setting itself up as a pan-European initiative. MYBank is not yet finalised as the English name that will be used by Alibaba, but are there sufficient deterrents to prevent it from using this existing brand name? I see this as yet another example of how consumers may be confused as they seek to use services from increasingly global players.
  • Where does this leave PayPal as it leaves the protection of EBay and must compete with the likes of Alibaba and Tencent?
  • And most important of all, perhaps – are the needs of increasingly small businesses best met by increasingly large conglomerates, rather than community co-ops and MFI institutions as in the past?

Will Open-to-SMEs continue to be Alibaba’s Open Sesame?

 

For more about developments in China see: Disruptions in Digital Payments in China - What does this mean for you?

Contact us at contact@shiftthought.com for details on our Digital Money in China Viewport and other recent research.

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E-Commerce in Thailand – Building a unique Omni-Channel Retail Experience

 

Today I am delighted to be speaking to Parin Songpracha (PS), who has been an important change agent in the Thailand payments scene. For the last 7 years, as Head of E-Commerce at 7-Eleven, Parin led important transformational changes to enable e-commerce and an omni-channel retail experience. Parin remains an advisor at 7-Eleven for E-Commerce, as this month he undertakes a new challenge as Director of eCommerce at DHL. He paints a picture of how people pay in Thailand, how this is changing and the key drivers for this change.

 

Parin, thank you for your time today. I am excited to hear your story. As a pioneer in the e-commerce scene in Thailand, could you please give us some background about your role and your achievements?

 

My journey in e-Commerce started in 2008 when I founded the e-Commerce business for 7-Eleven, starting from scratch. At the time I looked at the unique needs that people faced and designed solutions that used the ubiquitous 7-Eleven stores.

Today I continue to hold key roles in promoting e-Commerce in Thailand at the Thailand e-Commerce Association (THECA) since 2008 and the Thai Webmaster Association (TWA) since 2010. At THECA I am in charge of cross-border collaboration between Thailand and E-Commerce Associations in other ASEAN countries. We hope to launch an ASEAN Association next year.

 

How do people pay in Thailand? How have you seen this changing, and what are the needs addressed?

 

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ShopAt7.com is the 7-Eleven e-Commerce portal. This barcode payment on mobile is currently being implemented, with an expected time to market of the next 2 months. This is part of a journey that we began in 2009, and it has helped to transform the way people pay in Thailand.

The main needs regarding online payment stem from the fact that there is a low card penetration in Thailand. So firstly, as there is just about 12% card penetration this makes it difficult for shoppers. Secondly customers face a problem with transport and infrastructure that makes it hard to collect goods from far off places. Shipping to home addresses is very costly for merchants as well.

At 7-Eleven we were able to introduce a major innovation to let people pay online. Having selected their items, they now receive an SMS that they can use in-store to make payments. This unique SMS-based payment service was introduced by us as far back as 2009. At the time I visited other countries to look at Best Practice. Other 7-Eleven stores, including those in Japan had not yet started supporting the features we designed into our Thailand stores.

At the time we had roughly 3,500 stores nationwide (today we have around 8000). We offered free in-store pick up delivery and this made us very successful in e-commerce. This year we’ve achieved break-even and we expect profits next year.

From an external point of view, since 2011 the daily deals business such as Groupon further changed payments. Rocket Internet’s Lazada group has invested heavily in transforming and expanding e-commerce in Thailand.

 

How did you make changes to allow people to pay in 7-Eleven stores?

 

Green Building

 

I looked at how people pay card statements by coming into store with paper bills. The problem is they may forget to bring the bill and then payment gets delayed. How could we improve bill payments in store? I had the idea of using the mobile phone. But the code was too long at 32 digits. We first had to reduce this to 16 digits. We then made changes to ensure that both the store manager and the customers became fully comfortable with the new method of payment.

The other main improvement was in pickup. Once people order and pay in-store, goods are available for collection within 1-2 days in the Bangkok area, 4-5 days in the more remote areas, and up to 9 days for very remote islands.

 

That is a very inspiring story of innovation Parin! So what are now some of the main opportunities in the market?

I think the challenge is in bringing in innovations in stages. At first people require some hand-holding. After a few years they want the ability to do it themselves. This is how we have built and designed services, and I continue to think of ways to improve on how we do e-commerce here.

 

With the recent announcement of Apple Pay, how has E-Money and contactless payments progressed in Thailand and what have been some of the challenges?

True Money did support contactless payments through a mobile phone trial but so far proximity mobile payments have not really taken off. However, the launch of Apple Pay has made people very interested in NFC again. Although Apple does not have a large share of the market, they have the higher income big-spenders.

The low card penetration remains a problem. While direct bank payments are a solution, refunds for that method of payment take time. Imagine when a person buys an item such as an iPhone from a store and for some reason faces an issue and must ask for a refund. This could take as long as 49 days. Meanwhile he does not have the amount available to go to another store and make the purchase.

 

What are some of the main changes you expect to introduce in your role at DHL over 2015?

When we started I mentioned the logistics problem in reaching goods to people. DHL is very well positioned to support the growing number of businesses that wish to go online. We can support them for multiple solutions and I am very excited to be part of this major transformation over the next years.

 

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Thanks very much for this insightful interview Parin. I take this opportunity to congratulate you on your achievements and wish you the very best for your new role! I greatly look forward to trying out both the mobile payment and e-commerce services when I am next in beautiful Thailand!

 


parinParin Songpracha is currently Director eCommerce at DHL Thailand. Parin is an e-Commerce and Omni-channel expert from the largest retailer in Thailand. He plays a leading role in the development of E-Commerce in Thailand and in the larger ASEAN region.

Parin has a key role in promoting e-Commerce in Thailand at the Thailand e-Commerce Association (THECA) since 2008 and the Thai Webmaster Association (TWA) since 2010.

 

 


Have you got an interesting story to share about the difference you and your company are making to the way people pay around the world? If so do drop us a line at contact@shiftthought.com .

 

Charmaine Oak is Practice Lead, Digital Money  at Shift Thought

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

 

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Online payments and ecommerce in India

India’s ecommerce market is set to soar to USD 20 billion by 2020 (1), with growth generated, mainly, by the use of smartphones.

 

The USD 4 billion ecommerce is being driven by cheap handsets and mobile data plans that allow consumers to buy from their mobile devices. As we say at Shift Thought, India’s payments market is 'Born Digital Money', and this demands convergent payment services of the variety we describe in our Digital Money in India 2014 Viewport, which reflects our recent market studies in India, and from which this analysis is taken.

I had the opportunity to share my opinion on the direction of the e-commerce market with The Paypers, the Netherlands-based leading independent source of news and intelligence for professionals in the global payment community.

Click here to read the whole Expert Opinion published on 19th September 2014.

 

 

Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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http://www.linkedin.com/in/charmaineoak

Join us to explore ideas at The Digital Money Group on LinkedIn

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The Digital Money Game– a multi-trillion dollar industry emerges

 

DMGCover

I have great pleasure in announcing the launch of my new book, The Digital Money Game. I describe the multi-trillion dollar emerging industry I term “Digital Money” from the perspective of very many different industries. It is not just meant for payment experts in large organisations, but for anyone who wants to understand how people pay, and how this is changing in each part of the world.

 

The penetration of mobile phones and smartphones is transforming the way in which consumers interact with brands and greatly facilitates a move towards non-cash payments around the world. To play the game properly though, one needs to understand the changes in a much wider set of fundamentals - identity, security, authentication, regulations, technologies and more, so as to create appropriate vision that goes across channels, services and market segments. That way you have a more effective roadmap with respect to new entrants, and a better chance that what you plan now will still be relevant when your projects go live. I share more about why I wrote The Digital Money Game here.

 

The book is based on Shift Thought research in markets around the world, and my interviews with experts from all the different industries that now participate in payments and financial services. I did my first set of interviews in July 2011. Four years later, the wisdom that they, and countless others shared with me has helped to shape this book. This is the first book in The Digital Money Series and we are currently working on others in the series.

Since then I have learnt so much from so many conversations that unfortunately it is impossible to thank each one of you by name – I hope you will recognize your contributions when you read the book!

 

The book is designed to help you to spot opportunities and gain confidence and insights to channel your work in a way that benefits you, and the markets you serve. It addresses multiple functional areas and levels: Chief Executives, Technologists, Business Development, Market Development and Product Development executives from Banking, Cards, Money Transfer, Telecoms, Payments, Technology, Retail, and Venture Financing Industries.

The digital money approach described in this book can help you create products and services that are secure, convenient and empowering to a whole range of consumers and merchants, across a variety of channels. The goal is to create a shift in thinking – from merely addressing the new opportunity provided by mobile phones, to launching holistic services that build solid brands.

 

My book is available on Amazon stores around the world, priced in local currency and immediately accessible as an  Amazon Kindle download that works across Kindle for PC and a host of commonly used devices. In case it says “Pricing information not available” just look to the right of the screen to select the Amazon site in your country.

In the first 2 days that the book has been available I am delighted to say that it has already been bought from many countries around the world. Thank you so very much for your support and kind words.

 

Have you bought my book? I would love to have your feedback and can direct you to further resources that may be of interest. Do drop me a line at contact@shiftthought.com.

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