Mobile Payments: Are there clear winners?

Mobile payments have been around for a few years but the topic had not had so much media coverage as it did when Apple announced Apple Pay, obviously. With so many articles about all kinds of new services ranging from the big caps such as Apple, Samsung, Google, etc., to mobile network operators, to start-ups such as iZettle, Klarna, etc., to parallel applications such as transport ticket payments, parking, etc., it is challenging to grasp the entire picture and make sense of it. So given the very complex landscape of mobile payments, who is really winning?

To recap recent developments, below is a brief outline of the main ones:

  • Following the launch of Apple Pay, Samsung followed suit and announced plans to launch its own service, dubbed Samsung Pay. We, at Northstream, expected this as per our 2015 prediction. Both Apple and Samsung will use Near Field Communication (NFC), an embedded secure element (eSE) and Host Card Emulation (HCE) to handle transactions.
  • Prior to that, Google had been busy polishing its HCE capabilities with the launch of Android 4.4 KitKat. With the acquisition of Softcard, Google also gained access to US mobile subscribers (and presumably the merchants).
  • Windows announced its plans to support both HCE- and SIM card-based solutions.
  • The social media platforms (e.g. Facebook, Snapchat, Twitter, etc.) have also announced their intention to join the party; some are already providing some sort of peer-to-peer payment service.
  • In the meantime, NXP, one of the largest vendors of NFC and eSE chipsets and smartcards (for all kinds of applications from contactless train/bus pass to office ID badges), released an integrated NFC/eSE chipset for general use by mobile device manufacturers. NXP has also been busy revamping its smartcard development cycle by enabling the digitisation of smartcards for many applications, including popular ticketing smartcard protocols such as MiFare.

Even with the super high-level summary above, one can certainly start to draw a less fuzzy picture of what is happening, who is benefitting and where it all might lead.

While the solutions advanced by the tech giants might have to go through a few iterations (for example, there are some reasons to believe that Apple Pay’s business model, in its current US form, might not be entirely suitable in the EU), one can fairly observe that mobile payments are shifting towards the Operating System (OS) realm; and in the future, they are expected to be available out of the box. Nevertheless, the OS landscape still remains fragmented, as eloquently elaborated in my colleague’s blog post. As most types of plastic cards such as bank/debit, loyalty, transport, ID badge, access pass, etc. become emulated in the OS environment, the influence of the major OS vendors is expected to increase, likely in the form of integrated multifunctional native applications instead of disparate third party applications.

Of the major solutions offered, almost all have chosen to digitise the plastic debit/credit cards. In other words, the digital strategies of the financial institutions have been boosted rather than substituted, though there are many new breeds of services that are seeking to bypass the banks.

If security worries associated with HCE (as enabled by an eSE) are proven to be manageable, the use of an eSE coupled with the tokenisation of critical transaction data could potentially become modus operandi. And if this were to be the case, chipset makers such as NXP and Oberthur Technologies (suppliers to Apple iPhone and Samsung Galaxy, respectively) will stand to gain. In my view, there is a high likelihood of this happening, considering that a more secure alternative to an eSE – the SIM card – has major drawbacks such as the lack of a simple method to deploy native applications and the complex nature of SIM based solutions (both technically and commercially).

I believe that while the big players seem poised to take a substantial slice of the mobile payments pie, there are a couple of localised or small-scale exceptions that will likely still be up for grabs. One is related to mobile operators who are very dominant in their market – Swisscom is one such operator; they have a large market share and have managed to open their payment platform to local banking institutions as well as to the other two Swiss operators. Essentially, Swisscom, through its strong market influence, has taken the lead and used an inclusive approach to reduce market fragmentation. The second exception is related to the “small transactions” segment (e.g. burger vans, flea market, etc.). The business model of the larger players such as Apple Pay is likely to be too expensive for this segment; I therefore believe that a simpler solution such as a plain peer-to-peer method will still have an opportunity to serve this segment.

Finally, for those stakeholders reading this blog and failing to identify themselves among the winners outlined above, the advances in mobile payments technology present potential new opportunities worth exploring. In my view, the next frontier of the global mobile digitisation trend is related to information monetisation, data intelligence and service/product contextualisation (personalised to the consumer). These aspects are yet to be fully exploited to facilitate and enhance the end-to-end purchasing cycle, of which a mobile payment is just a subset.

As always, we are happy to hear your views and are available for further discussions on this topic, please feel free to contact us.


Landry is a Senior Manager at Northstream

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