How will the mobile payment space shape in the years to come…

Interesting question, an answer to which almost every payment company associated with the mobile space is trying to answer.
Here are some thoughts on how the playing field may shape out in the near future from the players point of view, rather than any specific infrastructure or hardware point of view.

Mobile Carriers
The notion that the payment space would be controlled by the mobile carriers, is out the door. This could have been true in the SMS era where security was a concern and mobile carrier had a part to play, certainly is not applicable any longer.

Mobile carriers have can certainly serve as a launch partner, but even in this day and age, carrier exclusivity with a payment system would be looked down upon. It makes no business sense in the long run for a payments space company to have any sort of exclusivity with a mobile carrier for the long haul.

The only short-haul advantage is traction, and that too seems to be a losing argument (proposition) when you look at the playing field and how new ventures being rolled out are neutral to the idea of an exclusive tie-in with a carrier. This was different a few years ago with product launches like that of Apple, etc, but the market dynamics are very much against any sort of exclusivity.

In short, carriers have missed out.

Their only advantage today remains their customer numbers, and it would be a very hard sell for a carrier to convince a payments company that tying up with them has an inherent market advantage and revenue value (in the long run).

The tables have turned. Carriers are now themselves looking how they can provide a service to companies in the payments space (not an easy sell mind you).

Big Names in the Payments Space
Large payment space companies, read: Visa, Mastercard, American Express, PayPal, AliPay, etc. have all based their solution which by-passes the infrastructure as a mandatory part of a roll-out mechanism. The common denominator for these large companies is not the carrier by any way or means, but the underlying application that they need to run on a mobile device (i.e. the mobile OS and apps).

Five to ten years ago, it was assumed that some sort of inter-dependency would be in play with the carrier. Fast forward to present day, that is no longer true, and the common denominator is no longer the infrastructure, but the OS, vendor acceptance, traction with users and connectivity to other payment systems (for purposes of loading and off-loading money).

The mega players it seems have all discovered one thing for sure, it will not be easy being a dominant player in this field. The game changing equation introduces a few elements of surprise, namely:

  • Competition from the likes of Google, Apple, Amazon, Facebook and Microsoft (a threat vector that simply cannot be ignored)
  • P2P payment systems like PayPal and AliPay (in the case of the latter, you have to read up on the traction and user base AliPay is accquriing on a daily basis. Mind boggling numbers).
  • Regional or domesticated payment systems: For example, in Kenya M-PESA is a dominating payment system, and in Pakistan, it is EasyPaisa, in Philippines it is G-Cash. Breaking into these markets as a competitor may not be the easiest thing to do, however, partnering up with them, would make a lot of business sense (if you an digest revenue sharing).
  • Banks are not sitting idle either. At the end, your money is parked in a bank account, and banks (with their large acquiring networks, and connectivity to merchants/businesses and individuals) pose a serious barrier to entry
  • Local Regulators: Banking and financial regulators see additional payments systems as a nightmare for reporting and proper correlation of funds being channeled. In countries like India, Thailand, Vietnam, UAE, Saudi Arabia, etc. the regulators are very careful (read: extreme inertia required to move into their market), when it comes to acceptance and granting rights to an external payment systems.

Banks
Banks are eyeing the mobile payment space very acutely. The biggest advantage banks have, are that they are the regulated custodian of money. Be this on the on-load side (loading or debiting payments) or off-loading (crediting payments). Any system where the money stays out of the banking circle represents a threat to the banks (hence a very strong lobby exists with the financial regulators to ensure that banks cannot be by-passed).

Banks are not oblivious to the growing segment of P2P andP2B payments that is slowly but surely growing in numbers. Most banks simply do not have the bandwidth or the reach to roll-out their own payment systems. Hasn’t happened in the previous years – I cannot think of a single banking payment product that is somewhat global and exists outside an immediate banking network or geographic region.

What will happen as far as banks and mobile payments is concerned? Banks will either partner up with the traditional players (Visa, Mastercard, etc.) and their regional mobile carriers to have a trifecta win or lose out.

Very few banks will actually experiment with new (mobile) payment providers as their main horse. Another possible alliance banks see, which they already have a working relationship with is with MSB (Money Service Bureau) businesses like Western Union, Moneygram (see below).

Western Union, Moneygram, Xoom, Et. Al.
The money transfer businesses are also not standing still. They are alreadyactively using the mobile space to facilitate their payments using the mobile phone. Their next venture (or goal) is to be able to route it completely over the mobile network. Do note, in some instances like Easy Paisa (Pakistan), M-PESA (Kenya) G-Cash (Philippines) this is already happening.

The latter step above, can shape out as follows:

  • MSB businesses are using the banks to be able to on-load / off-load money on to their (MSB’s platform)
  • Use the mobile carriers to facilitiate the payments (acknowledgment, rates, transaction status, etc.)

These players have a unique ability to become big in the mobile payment space because of the following factors:

  • They operate in almost all the countries (just the feedback and intelligence they have on the local market’s financial system, regulators and money statistics is an advantage as it is).
  • They have experience / working-relationship in interacting with the local regulators (DFIs), mobile carriers and banks
  • They represent a very significant branch of money (payments) business cycle that cannot be ignored
  • They representa a perfect platform to launch pilots from in different geographic regions and then be able to roll-out services globally (based on the results of the pilot)
  • Mobile carriers are already interfacing with WU, Moneygram, etc. so further roll-outs or enhancement in the payment system, ought not to be a problem.
  • With banks utilizing branchless banking for the non-banked, likes of WU, Moneygram, etc. represent an ideal platform in being able to channel remittance money from one city to another, over the mobile network.

Individual Mobile Payments Companies
There are 1000s of small payment companies (small with respect to the market share they can capitalize on realistically speaking) who are already deploying very innovative solutions in the mobile payment space. Companies like Square & Swipe which have just jettisoned based on a very simple yet novel idea. They are certainly disrupting the mobile payments space whilst at the same time, working with the banks, Visa/Mastercard, etc.

Any of these smaller companies, have in themselves the potential to be become the solution of choice for the larger players. For example, imagine if Google were to acquire Square and go global with it. What would happen? In my opinion, it is this segment, these small companies from where we will truly see our emerging mobile payment space and the innovations in it. I say this because of the fact, they are more tuned to the ground realities and are much more flexible when it comes to adapting their business models to the ever changing landscape.

There is an imminent threat that the ideas of these small companies would bestolen (for lack of a better word), amplified with one of the larger carriers and rolled out.

In conclusion, it seems everyone is vying at this lucrative segment. Some will get acquired, some will go out-of-business, many will just plain quit. Most will stay and try to rough it out, go back to the drawing board many times over. Each vying for its own geographic territory and/or niche and game plan (read: business model).

The players are plenty and the market size plentiful.

The LOTR one ring to rule them all law will not apply here. You will not see any one player become the de facto mobile payment system in the world. That will just not happen, the market dynamics are against such an idea and equilibrium.

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