Mass adoption of smartphones tipping point for explosion in mobile payments technology, says Deloitte

A new report, The future of exchanging value - Uncovering new ways of spending, by professional services firm Deloitte explores how conventional payments infrastructure is changing with the emergence of a new generation of payments solutions using technology to interact and transact with people.

The explosion of new technology and virtual currencies is changing where, when and how people and business exchange value says the report, which predicts that the winning organisations will be those that look beyond traditional payments platforms and consider simplifying consumers’ purchases by having the right payments solutions available at the right place and at the right time.

Professor Ian Harper, Partner in Deloitte Access Economics and co-author of the report, explained that established payments platforms will continue to play an important role in the short to medium term, and new clearance and settlement solutions largely work within conventional payments systems and regulation.

“The start-up technology companies, which are giving organisations new settlement options, do have the potential to affect payments that are currently outside the legislated monopolies managed by central banks, like the Reserve Bank of Australia. However, the shift in consumer behaviour will be gradual, due to the need for consumers to develop a level of trust with alternative payments methods.

“This includes trust in the payments solutions, trust in the stewardship of the organisation that operates the actual payments solution and trust in the regulatory environment that the solution operates within,” added Harper.

Peter Williams, Chief Edge Officer of Centre for the Edge Australia and fellow co-author, said it is all about the changing ways consumers are buying things, primarily driven by the explosion in mobile payments technology and the availability and accessibility of that technology.

“Today’s consumers are more mobile in their transactions and now have a wealth of options available regarding where, when and how they make purchasing decisions. The balance of power has shifted from the traditional retailer to the consumer and the success of online retail trailblazed this. Technology such as Square, Google Wallet and PayPal Instore gives consumers real-time transactions with immediate payments clearance. These technologies are the leading the way due to speed, comfort and convenience of exchange.

“The buying process is now simpler and cheaper, so consumers can transact more efficiently. This has been driven by the successful uptake of the smartphone. Consumers are accessing product and service information from around the world and then securing the best purchasing deals available for them,” he said.

The report also demonstrates that, while the future of payments is uncertain, the availability of internet connectivity and the mass adoption of smartphones may affect the payments industry and incumbent payments providers risk being left behind.

Key highlights from the report

• Technology is the focus of most modern payments solutions.
• There is a need to simplify the customer’s purchase by ensuring the right payments solution is available at the right time and in the right place.
• Payments need to be instantaneous and broad-reaching; consumers can be transacting in the aisle of a store or at the store’s till.
• Ubiquitous internet connectivity and the mass adoption of smartphones will mean the payments industry will shift with potential to leave behind the existing payments providers.
• Successful payments solutions may work well in their home country, but may not succeed when moved to a new market; for example, M-Pesa, a branchless banking service supporting microfinance activities in Africa, delivered a niche and valuable service to its target market but did not succeed outside of Africa due to different infrastructure, regulatory requirements and demand.
• Interactions with customers are moving online and into virtual contexts. Transactions may move into virtual spaces using social media services as a platform to exchange value.
• Value can be denoted in more than a sovereign currency. Acceptance of complementary currencies which are mandated by the owners of social networks may build momentum, subject always to regulatory approvals.
• The buying process could become simpler using non-traditional payments mechanisms such as gift cards or frequent flyer miles, again subject to regulatory oversight and approval.
• Retailers need to develop new business processes and risk models to support the practicalities of accepting and managing the new payments platforms and processes.