written by Alain Veuve MD, Switzerland
Mobile payment – where is it headed?
Mobile payment – where is it headed?
06.10.2015
About author Alain Veuve Alain Veuve MD, Switzerland

It’s Fintech. In Germany and in Switzerland. Many initiatives and startups are currently emerging, but there’s still more talk than action. In tiny Switzerland there are several larger companies trying their hand at mobile payment apps. And, even though I laud their motivation and efforts, I think that up until now the solutions miss the mark. Here’s why.

The issue

Paying for something is tedious, regardless of payment method. It takes too long and is too complicated and expensive – sometimes for the customer, sometimes for the vendor, sometimes for both – as is the case with cash payments. Payment by card represented a first milestone in simplifying the process. Nowadays, technology has progressed to such a degree that a far more extensive simplification would be possible.

Yet the financial industry has been reluctant to pick up the pace. Vendors and service providers are too comfortable with existing revenue streams, and the high investment volume as well as the paradigm shift that would be necessary to create a truly new solution present high hurdles for progress.

Switzerland as an example

And so companies are trying to innovate. For example, in the case of UBS (and the Zürcher Kantonalbank) the result is Paymit. An app that enables friends and acquaintances to transfer smaller sums among each other – for example, when colleagues order pizzas together, one person pays and the delivery service has to somehow get their money from the other customers. Paymit makes it possible by enabling a free bank transfer using the app. Low limits ensure that all I can really do with the app is to pay my pizza bill.

Another solution is called Twint, introduced by the Swiss Postbank (Postfinance). Even though I can pay in stores with this app, these stores must have access to a special beacon in order to accept payment. In other words, the stores have to be furnished with special equipment. Consequently, there is an extremely manageable overview on the Twint page, listing the stores in which I can pay .

Instead of me, the consumer, having less issues with the payment process, I have more work. After all, I have to actually choose the stores. At least I can make sure that the app is furnished with an appropriate enough limit so that I can use it to pay my daily expenses. Provided there were enough stores and I would always stay in Switzerland.

Retailer Migros once again the role model

However, in my opinion there is a pioneer in this field: Migrosbank. Its app MobilePay P2P offers functionality similar to that of Paymit, but can also be used for payment in online shops without the use of a credit card. If I’m a Migrosbank customer then appropriate – and realistic – limits can be used. The payment system has also been integrated into the Migros retail app; customers can use the app to pay at the Migros POS. This is pretty good already. Nevertheless, I think it will be pretty difficult for Migros MobilePay to establish itself, since no other banks are (yet) involved in the system. Despite this caveat, the opportunity exists for Migros to become a credible player in the mobile payment market in the intermediate term. Taking advantage of an existing user base together with a clear-cut use case is one of the keys to making inroads into the market. And Migros has that in spades in Switzerland.

Nobody is afraid of Apple Pay – but people should be

I make no bones about it: Apple Pay is the most exciting Apple product since the iPhone was first introduced. Apple Pay is quick, simple and available everywhere. Available everywhere? Yes, it is. Every POS terminal with NFC capabilities can process Apple Pay.

Recently, I used Apple Pay to pay for items in various European cities, including Amsterdam, Frankfurt and Helsinki – all of which are countries that don’t yet officially accept Apple Pay. How does it work? Simple, all you need to do is change your regional iTunes account setting to the US or UK and register a US or UK credit card.

I found the comment by one of the shop assistants quite amusing. When I asked her whether I could try my payment experiment in her store, she answered: “Sure, Everything is fine with me, as long as it happens fast and the slip of paper (receipt) comes out.”

Technically, everything is in place

The infrastructure to use Apple Pay is widespread throughout Europe. Countries that have a traditional affinity for credit cards, such as Denmark, have a large number of payment terminals already using NFC. New terminals are delivered almost exclusively with NFC technology. MasterCard is even exerting pressure to change entirely to the NFC standard by 2018 in Germany.

Why is Apple so slow?

Many in the financial sector view the rather slow market penetration (i.e. the launch in individual countries) of Apple Pay as confirmation that introducing a product into the market isn’t easy. This if of course correct, but Apple still is the player most likely to succeed. For one, the company has a huge user base and many of Apple’s users (perhaps as much as 30 percent) can’t wait until the payment process becomes much easier than it is today.

Secondly, the technology necessary for processing payments globally is available at the POS in many locations already. And there is Apple Wallet, which makes the payment process as simple as possible. No additional app to install, no need to login, no need to preload credit, no limits, no anything. It’s simply easier to use than cash. Dear banks, this is how it should be.

Not having a “Big Bang Rollout” is pretty clever

That Apple isn’t launching Apple Pay globally in one fell swoop seems pretty logical. No one wants to burden such a system with the gigantic load a big-bang launch would entail. In payment, trust and security are coin of the realm. Therefore, everything should be done so that a solution can be launched as smoothly as possible. And that is exactly what Apple is doing right now.

US as test market?

For that reason, Apple chose the relatively small US market. For, what most people don’t realize, the US – though a frontrunner in all things credit card – is behind the curve when it comes to contactless payment. The POS stations in Europe (which placed its bets on PIN-based payment early on) are, for the most part, already equipped with NFC technology. The litmus test for Apple, therefore, will sooner or later take place outside of Europe.

Terminal care for credit card companies

Another reason why it was probably much simpler to start in the US, is that Apple wanted to have some financial institutes on board. The company could have just as easily founded its own bank, but didn’t want to make enemies of the entire industry.

Thus, Apple is now playing for time. On the one hand, the cooperation with credit card institutions and banks paved the way for indirect access to the customer’s checking account, thus ensuring adequate reach to the user base from the outset. On the other hand it’s very clear that sooner or later the credit card will no longer be needed in this process. Consumer credits as offered by credit cards are popular and will continue to exist, but in the mid-term there is no reason why they shouldn’t come directly from Apple itself.

And so the credit card companies give me the impression somewhat akin to cattle that let themselves be led to the slaughterhouse merely by the promise of perpetually green pastures. I don’t really want to grieve for them. They had a very long time to take charge of the issue, but really didn’t do anything and now must face having to let a California-based computer vendor show them how to do it right. In this they aren’t alone, but it was a development that was entirely foreseeable.

A wolf in sheep’s clothing?

Here Apple is, at least for the moment, tolerant and emphasizes how important the cooperation with the financial sector is. This does indeed apply. This will gradually change, however, as soon as  customer relationships are established and many people simply pay with Apple Pay. For representatives of the financial sector this will feel like the wolf is taking off its sheep’s clothing. All that Apple is doing, though, is its homework in this area – lowering process costs with new technology and a new concept and simplifying the transaction for the customer. This is neither right nor wrong, it’s a universal truism regarding the way in which we use technology.

Switzerland and Germany

Apple is circumspect when it comes to launch dates for individual countries. UK was launched recently. Until the publication of this article, I have received no response from Apple regarding my inquiry regarding launch dates. I don’t really expect one.

It is clear, however, that it won’t take much longer. Until that time, the Tapits, Paymits and Mobile P2Ps can cheer their download success. After that, the market for mobile payment solutions will pick up steam. I hope that you will be able to surf this wave. Unfortunately, I have serious misgivings regarding this issue. And I think I have every reason to.