As you trickle back from your vacation destinations and return to strategic planning sessions, it is important to ponder where the mobile financial services industry is moving – and make sure that your company’s plans for 2014 will take you in that direction. What moves should your company make (or not make) to ensure that you stay ahead of the curve? Our team pulled together some of the biggest trends that will dominate this year, and what they mean for MFS stakeholders.
1. Mobile Becomes ‘Mobility’
When financial services were first offered via mobile channels, the novelty was the mobile device itself. But as everyday items become increasingly connected, the mobile device itself is gradually fading in importance. Rather, more emphasis is being place on ubiquitous accessibility of financial services, regardless of the device used. Whether accessed via computers, mobile phones or even smart watches, the value of MFS is more and more based on the concept of ‘mobility.’ In 2014, we will likely see more MFS offerings that can be seamlessly accessed via many different devices.
ReadWrite goes so far as to suggest that the “concept of ‘mobile’ will die” in 2014. Although this prediction is a bit extreme, the sentiment behind it is right on target. Mobile is increasingly becoming the status quo, and we are already seeing a shift in language from ‘mobile financial services’ to the more all-encompassing ‘digital financial services.’ Karen Webster of PYMNTS has predicted that these prefixes will soon be dropped altogether and ‘mobile will just be how things are done in payments and commerce.’
What This Means for 2014 Plans: Mobile financial services providers need to think beyond the mobile device and consider the user experience across multiple devices. The key to adoption will be enabling ubiquitous accessibility, and meeting the user at the precise time and place in which they want to use the service.
*2. ‘Do Or Die’ Year for NFC *
2014 will be the year that NFC either takes off or fails, and the odds are currently favoring the latter. NFC-based payment platforms continue to fumble globally, and other solutions are rapidly gaining ground. In the past year, we witnessed the rise of promising alternatives to NFC, such as the use of BLE technology to enable seamless and secure transactions. We have also seen the increasing popularity of other contactless authentication technologies, such as secure visual codes and sound-based transactions.
In contrast to emergent alternatives, NFC requires significant hardware investment on the part of operators, merchants and consumers. In contexts where payments already work relatively smoothly, solutions that require new hardware are at a comparative disadvantage. Cloud-based solutions, on the other hand, do not tie merchants down to a specific devices or operators. Rather, they enable flexible, tailored solutions that can precisely fit merchant needs. Webster argues, similarly to our first point, that “the future of payments isn’t about devices: it’s about the software that enables commerce across a variety of environments.” NFC is the antithesis of this trend, as it depends on hardware and thus is more likely to become outdated as new hardware emerges.
Our prediction is not an unfounded, pie-in-the-sky belief, but rather one that is based on examples of failed NFC projects littering the 2013 mobile payments landscape. During the last year, we saw Capital One pulling out of the sinking Isis mobile wallet pilot, and Google Wallet repositioning its product to move away from NFC.
But while NFC seems poised on the brink of failure, it still has at least one advantage over cloud-based alternatives. Namely, NFC enables ‘card-present’ transactions via mobile devices, as payments are conducted via a secure element embedded in the device. These transactions are considered more secure by credit card companies, and thus are processed in a way that is slightly less expensive for merchants. Cloud-based solutions, on the other hand, are usually considered to be more at risk of fraud and thus are more expensive to process.
Another key factor in the NFC debate is the expected shift to EMV in the US. Proponents of NFC have long argued that merchants will need to invest in new EMV-compliant point-of-sale systems over the coming years, and thus the hardware concerns will be null. As it stands now, the expected date of the liability shift to US merchants is October 2015, and thus merchants will need EMV-compliant machines by this date or they will take on the risk of counterfeit fraud themselves. However, rumors have swirled over a potential delay of this deadline, and concerns have been raised regarding the security of EMV for digital transactions. If the liability shift is pushed back, or even cancelled altogether, a major hole would be punched in the argument for NFC adoption.
What This Means for 2014 Plans: Mobile financial services stakeholders will need to re-think solutions that are tied to hardware. Though NFC is currently perceived to be more secure than alternative solutions, we are likely to see the emergence of cloud-based commerce platforms that are increasingly secure and can thus compete with NFC. Platforms that are dependent upon NFC will need to watch these emergent trends carefully and possibly readjust their strategies moving forward. In 2014, we will see a definitive answer to the question – ‘is NFC dead?’
3. Brick-And-Mortar Retail 2.0
The old narrative was that the rise of digital commerce would lead to the inevitable decline of brick-and-mortar retail. Consumers would increasingly fulfill their shopping needs from their computers or mobile devices, opting for the convenience of shopping from home (even in pajamas!). Showrooming was, and still is to an extent, the bane of retailers’ existence, with shoppers checking out products in stores but opting to purchase them at a lower cost from online retailers.
There is no doubt that e-commerce is on the rise globally, from developing economies to emerging markets. Holiday shopping trends showed increasing interest in mobile and online purchasing, as we wrote about in this article. But brick-and-mortar retailers are increasingly innovating new ways to compete, from introducing multi-channel shopping options to creating interactive and highly-customized in-store experiences.
In the fight for survival, customization is one path forward for brick-and-mortar retailers. They will need to leverage consumer data, from shopping habits to geo-location, to make interactions with consumers more relevant and timely. These strategies can be empowered by new technologies such as bluetooth low-energy (BLE) solutions that drive customized deals and offers directly to consumers. The PayPal Beacon, for instance, offers an open API that enables retailers to design tailored experiences for their customers.
MFS stakeholders are increasingly looking at ways to address merchant needs for data-driven mobile commerce solutions, and this will prove a key market over the coming year. Spurring adoption will require that platforms are easy to use for both consumers and merchants, and that they add value beyond the transaction itself. In markets where the payment experience is already relatively frictionless, simply recreating physical wallets in digital form will no longer suffice. Rather, successful solutions will take advantage of the unique traits of the digital wallet in order to add value for users.
What This Means for 2014 Plans: There will continue to be consumer demand for physical retailers, but the in-store experience will not look as it does right now and the lines between offline and online retail will become increasingly blurred. Accordingly, successful retailers will need to innovate in order to survive, creating solutions that enable shoppers to buy anywhere they want, whenever they want. MFS stakeholders may see their role shift, from merely enabling transactions to creating holistic consumer experiences.
4. Payments Become ‘Invisible’
In 2014, we will increasingly see payments become invisible, with more emphasis on the consumer experience surrounding the transaction. Uber, the mobile on-demand car service, epitomizes this trend. Rather than spending the car ride fumbling around for change to pay the driver, users can simply get into the car, tell the driver their address and let the app do the rest. The minor annoyances of payments, from adding a tip to signing a receipt, are removed from the equation.
According to Uber CEO Travis Kalanick, Uber’s users have gotten used to this seamlessness, and “simply expect our service as a baseline at this point.” Other services will need to similarly step up to the plate and ensure that the transaction is secondary to the user’s overall experience. This New York Times article explains why Uber is so disruptive: “Uber didn’t change anything about the nature of cars or how they’re driven. It just figures out how to use data and technology to make what was out there work much more efficiently.” This offers critical lessons for disruption other industries. The key is innovating ways to eliminate inefficiencies in existing systems, making the merchant and consumer experiences more seamless.
What This Means for 2014 Plans:**Don’t try to fix what isn’t broken. In contexts where payments themselves are already easy, disruption will come from enhancing the user experience around the transaction. This year will see companies trying to identify inefficiencies in existing merchant-user interactions, and designing platforms that address them. The key to MFS success will be designing an improved consumer experience, not merely shifting transactions to the mobile device.
5. Digital Tools Will Cause Drop in Remittance Costs
The cost of sending international remittances declined significantly over the past year, and we expect this trend to continue throughout the next. According to World Bank research, the total cost of sending remittances at the end of 2013 was 8.58 percent, down from the previous quarter and a historic low. The rising popularity of digital remittance tools is likely to drive these prices down even further, as they bypass expensive money transfer services and enable a more direct flow of money across borders.
We wrote previously about some of the most promising digital remittance providers, from Xoom in San Francisco to Azimo in London, both of which strive to drive down consumer fees, offer new delivery channels and expand into untapped markets by leveraging digital technology. As regulatory issues continue to pose a challenge to traditional remittance providers, these alternative channels will likely continue to grow.
One interesting trend that is likely to emerge of the next year is the convergence of international remittances and digital currencies. A wave of new companies, with examples including Nairobi-based Kipochi and Bitpesa, enable users to send and receive funds via the Bitcoin network. Kipochi co-founder Pelle Braendgaard anticipates that the platform will appeal to members of the African diaspora who want to send and receive remittances in an affordable and safe way. While some have expressed concerns about the risks associated with the volatile digital currency, we are likely to see innovators develop ways to mitigate this risk and leverage digital currencies (whether Bitcoin, or another “Coin”) to create more seamless international money transfers.
What This Means for 2014 Plans*: *If your company is in the international money transfer industry, ignoring digital channels is no longer an option. Nimble and innovative startups are entering this space, and existing players will need to innovate or be left behind. Regulations are likely to pose the biggest challenges to emergent actors, but consumer demand for more affordable, direct remittance services will lead to a shift in the industry.
6. Renewed Emphasis on Security
While mobile payments solutions often prove more secure than using debit or credit cards, many consumers still perceive paying via mobile devices to be less secure. Research conducted by the US Federal Reserve showed that 38 percent of respondent do not use mobile payments because they are concerned about the security of mobile payments. But are these concerns simply perceptions, or are they based on reality? How are these platforms equally or more secure than existing payment methods?
Answering these questions is particularly important on the heels of the massive Target security breach, which shook many consumers confidence in digital payments. While the breach impacted only those using debit and credit cards at the point-of-sale, the potential impact on consumer trust was immense. With regards to MFS, the breach could either serve to push consumer towards mobile (because they want an alternative to card payments), or away (because mobile is generally perceived as even less secure than cards).
What This Means for 2014 Plans: MFS stakeholders need to place more emphasis on communicating the security of their products or services to potential users, in order to build consumer confidence and spur adoption.
7. The Role of Virtual Currencies Will Be Defined
Over the past year, emergent virtual currencies have raised more questions than they have answers. Bitcoin, for instance, has been the center of a huge media and investment frenzy, but its precise role in the future of financial services is yet to be defined. What we do know is that it has brought the concept of virtual currencies into the public imagination and spurred debate among consumers, merchants and regulators.
In 2014, we are likely to see a proliferation of players in the virtual currencies space, as companies look to capitalize on this trend. Already, a range of Bitcoin alternatives have emerged, from Litecoin to Worldcoin, and this is only the beginning. As these players continue to emerge, more questions will arise. Where will Bitcoin and its alternatives fit into existing financial systems? Will the true value of Bitcoin be in its novelty as a currency, or rather as a technology that eliminates the friction in global value transfer? How will the increasing regulatory debate surrounding virtual currencies transform their role? Will countries opt to foster the development of similar technology, rather than fight against it?
These questions will be increasingly pondered and answered over the coming year, with a much clearer picture of the future of virtual currencies emerging by the end of the year. Some have speculated that Bitcoin will collapse in 2014, but we don’t expect this to be the case. Rather, we think its purpose will become better defined and perhaps spur the emergence of a wave of similar and improved platforms (just as MySpace paved the way for its more popular younger sibling, Facebook).
What This Means for 2014 Plans: Do not discount virtual currencies just yet. While Bitcoin may not become a mainstream currency anytime soon, and designing Bitcoin-dependent platforms might be shortsighted, virtual currencies certainly have the potential to transform the way value is transferred globally.
While many questions remain as to what 2014 will hold for MFS, it is certain to be a transformative year for our industry. What do you think will be the biggest trends in MFS this year? Share your ideas with us in the comments section below.
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