Capgemini/RBS: m-payments revolution – Jean Lassignardie/Simon Newstead

The growth in global non-cash payments volumes is continuing at a healthy pace, with the most rapid expansion occurring in developing markets. Data suggests that this will continue, despite ongoing weakness in economic growth and stresses in the eurozone, according to the 'World Payments Report 2012' ('WPR 2012') from Capgemini, RBS and Efma.

Industry experts say that mobile payments (m-payments) in particular are growing rapidly, with vast potential for accelerated future growth (Figure 1). To capture the potential of m-payments and the overall payments growth opportunity, customer-centric innovation can be a key enabler.

"Mobile payments are growing rapidly, with vast potential for accelerated future growth."

Customer-centric innovation is now being recognised by banks as the means to not only retain customers, but also to attract them. In the 'WPR 2012', two thirds of banking executives worldwide said customer retention and acquisition were their top two considerations in driving innovation (Figure 2).

As the number of m-payment schemes rises - especially due to the surging use of smartphones - opportunities for customer-centric innovation abound, offering possibilities for banks in developed and developing markets; for example, the emergence of application stores like Apple's App Store and Google's Android Market have proven to be a game-changer for the mobile ecosystem by making mobile apps far more visible and accessible to consumers.

In developed markets, once near-field communication (NFC)-enabled e-wallets are launched, m-payments are expected to surge. In developing economies, m-payment growth is largely driven by huge populations of unbanked consumers who can access payment services options through mobile devices.

Innovation and regulation's symbiotic relationship

Customer-centric innovation is key to leveraging growth opportunities in m-payments. But this innovation also can be encouraged or constrained by regulation.

The 'WPR 2012' - revisiting a key theme of the 'WPR 2011' - looked again at the wide and ever-growing range of key regulatory and industry initiatives (KRIIs) that are shaping the payments landscape. This year's research included an online survey and personal-interview responses from over 50 payments executives, and focused specifically on the effect of KRIIs on innovation.

According to the report, certain KRIIs have great potential for substantive change in the payments landscape in ways that are highly visible to the customer. Initiatives around contactless cards/NFC offer a prime example. An increasing number of smartphones are being equipped with NFC technology, suggesting that the payments infrastructure will need to further evolve to handle this emerging form of transaction. Numerous NFC innovations are already being piloted by bank and non-bank players, including Google, MasterCard and Visa.

"According to WPR 2012, KRIIs have great potential for substantive change in the payments landscape."

In practice, though, certain KRIIs create more direct value than others for customers, and payment services providers (PSPs) can leverage those KRIIs that most affect users to enhance customer satisfaction; for example, mobile payments enable users to execute payments anywhere and at any time.

While many current initiatives are focused on developing smartphone platforms, the next stage will centre on enabling other mobile devices with payment capabilities, helping to increase adoption and boosting the ability of emerging-economy populations to access the financial services system; however, mobile payments also have a substantial impact on payments processing by PSPs, so innovation requires significant commitment and evolution.

Good examples of KRIIs that enhance customer satisfaction are e-Government in India and several Middle East countries, and the EU's Digital Agenda. The principal behind e-Government is to maximise the social and economic potential of information and communication technology to inform and provide services to citizens and businesses. e-Government has potential impact on payment services users (PSUs) and payment processors, and will be driven by increased access to broadband and mobile technology.

Digital Agenda mainly tries to tap the vast potential represented by growth in online services.
Ultimately, payments industry transformation is likely to be driven fastest and farthest by those KRIIs that have direct innovation objectives, and provide mutual benefits to PSPs and PSUs. 'Quick-win' opportunities for innovation hinge on those KRIIs that have a tangible impact on users and a beneficial (or at least manageable) effect on processors.

m-payments as a greenfield opportunity

There's no doubt that the m-payment growth trend will continue to expand, as evidenced in the findings of the 'WPR 2012'. The report found that the number of mobile payments worldwide is likely to surpass 141 million in 2011, a 38.2% increase from 2010, but that number would still represent a mere 2.1% of all mobile users, showing the vast potential for additional growth. It is predicted in the report that m-payments will reach 17 billion by 2013, driven primarily through customer loyalty, retention and acquisition.

"e-Government has potential impact on payment services users."

Widespread innovation in customer-focused m-payment solutions, especially by non-banks, is rising to meet growing demand. With these markets growing so rapidly, there is a mounting need for central banks to make sure reliable market data is being collected and monitored with the same rigour for emerging payment channels as for legacy instruments.

Banks can provide a single view of the customer that many competing non-banks currently don't have or will take time and investment to build because they can leverage their existing platforms. Additionally, banks may look to non-bank partners to further innovate and collaborate on specific niche, customer-focused propositions.

Many bank executives acknowledge that the objective of payment innovation goes beyond direct financial returns. One executive interviewed for the 'WPR 2012' noted that, "Clients are the main driver to innovate, asking for consistency in offerings and simple, single contracts, and a consistent experience across countries.

That innovation is essentially a value proposition with a business case. It doesn't need to be a new product; it can be a new combination of products. But as banks compete with similar products, innovation is going to be a key differentiator".

To compete with non-banks, retain customers, and enhance customer experience and satisfaction, banks will need to continue to pursue an agenda that keeps an eye towards innovation and looks to leverage the opportunities presented by new customer demands. Innovation in m-payments is emblematic of the broader imperative for PSPs, which is to provide payments solutions that customers need, in the form they need them, via the channels they prefer, in an accessible and user-friendly mode.

Figure 1. Number of global m-payments transactions (billion), 2009-13F.
Figure 2. Key drivers of and barriers to innovation in payments by banks (% of respondents).
Jean Lassignardie is corporate vice-president, and chief sales and marketing officer for Capgemini.
Simon Newstead is MD of market and business strategy, financial institutions global transaction devices for RBS.