Agile, innovative and eager to offset losses from other segments of their business, telcos are starting to take the lead in mobile payments’ growth. Sara Perria asks Vodafone’s group head of mobile wallet services & NFC, Mark Ritzmann, what strategies the telco has in place
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The mobile and NFC revolution has been talked about for many years. But now discussion is finally beginning to turn to action. And as many predicted, it is the telecoms industry that is taking the lead. Besides tapping into largely unbanked emerging economies, telcos are eager to find alternative sources of revenue in established economies such as Europe, where traditional channels are suffering the impact of regulations and users’ reduced purchasing power.
Is the future of mobile payments in the hands of the telcos, in striking opposition to banks that are hampered by heavy legacy systems and regulation?
Vodafone Italia, for example, has become the latest European carrier to begin a NFC-based mobile trial in Milan, ahead of a nationwide roll-out in 2013.
Vodafone’s group head of mobile wallet services & NFC, Mark Ritzmann, offer his view on the company’s strategy.
EPI: Why do you think the time has come to invest in mobile payments?
MR: The difference is that for a very long time we had the chicken-and-egg problem, a vicious circle. Merchants said: ‘NFC could be interesting but there are no customers with the devices. Ask the customers first, and then we will equip our cash system’. Customers, on the other hand, were not interested in NFC because merchants were not equipped for it. Indeed, up to last year a lot of people talked about NFC communication, but it was not happening. If we are looking at what’s happening now, instead, we are seeing a rollout of NFC in all major European markets, with nearly all big acquirers in Europe able to rollout NFC readers; technology providers have equipped their devices with NFC; we are also seeing a strong impact on terminals and, if we look at the merchants’ side, more and more devices have NFC communication as a feature. So the market really went up and that’s why we believe that it is now the right time to push the market.
EPI: Do you mean that you cannot wait until there is a demand, you have to create it?
MR: I think that, on the one side, you need to create demand because this is an innovation – something new that customers need to learn about. And I believe mobile network operators are best positioned to do so: we have a lot of customers that come to our stores to buy handsets and, by offering them the mobile wallet, we have the possibility to show them this new technology. So yes, I believe that we need to create a market but, on the other hand, there is growing awareness among customers that something is happening: there are people writing about it and people see others paying with the handset and quickly. I believe that this will also create significant demand and the good thing is that all major mobile operators in Europe and in the US are pushing for that, and this will create a huge momentum.
EPI: What is Vodafone strategy to create this demand?
MR: We want to replace the physical wallet step by step. The NFC communication is the right and promising technology to do so. If we want to do this we need to make sure that we create a platform which enables the lead industry players to replace plastic.
That is why we believe we need to partner: so that, in the future, public transport companies or ticketing companies will be able to provide that service on our platform to their customers.
Now we offer clients the wallet service and, at the same time, we are working together with industry players like the banks. If we get these banks in our wallet it is a very simple step for the customers to choose this option. NFC has also a lot of advantages for the merchant: you can do not only payment transactions, but also loyalty or couponing transactions, generating a vital interest in the new system for the merchant.
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By GlobalDataEPI: The advantage for service providers is clear. But what is the advantage for the customer?
MR: The first thing is the convenience of the system. Take the loyalty or couponing cards: you would have all on your handset, without the need to search for the right coupon, as the system automatically recognises it. The issue that customers have with couponing today is that they may not have the right coupon with them, or the coupon becomes outdated or they don’t collect it because it is not very convenient.
In the future, you will be able to have the right coupon at the right place at the right time. Another advantage could be the purchase of tickets: today, if you want to go to a soccer game, you have to buy the ticket a few days in advance. You have to order them and they are sent to you by post, which takes a few days. In the future you will be able to buy a ticket half an hour before and it will be loaded on your device and then accepted without any further delay. I believe there are also several security advantages for customers.
EPI: But people don’t perceive mobile payments as being particularly safe.
MR: That is a really important point: customers usually need education because obviously, if we create digital copies of a plastic card, some customers might be scared. However, there are several reasons why a mobile wallet is more secure than plastic and I think this is just something that we need to explain to customers and customers need to learn to trust it. If you think about it, at the beginning of mobile phones, people were also afraid that mobile phones were bad for their health and stuff like that. So, from my perspective, it is a proven fact that it is a much more secure system than the physical wallet as well, but customers need some education.
EPI: That is easy to say, but how would you explain to a user that the mobile is a secure payment device?
MR: We are using a secure element on our SIM card, we are not offering something in the cloud. All the mobile payments and bills and so on, are authenticated by the SIM card. What we are basically doing is use the chip in the SIM to replace the chip in the plastic card and this is certified by the financial industry, by Visa, MasterCard and so on.
I believe the biggest advantage of having a mobile wallet is that, if you lose your wallet, it takes on average 45 hours until you realise that your wallet is lost. If you lose your phone it takes you an average of one hour. And time is something that is really important when it comes to fraud. So you are much faster and you don’t have to call each and every card supplier, each and every bank you have. In the world of mobile wallets you will need to call us and ask us to ensure that all these cards are blocked and that’s a convenience and a speed factor. Last but not least, there is another big convenient factor, namely that once you have lost your handset you can have a new one and have the wallet reinstalled again without calling every card supplier. But I agree that we need to explain this to customers and it will definitely take some time, like with every innovation.
EPI: What are you planning to do to convince customers?
MR: We will train our sales personnel; we will find ways to communicate to the customers the advantages of the mobile wallet and how to use it.
EPI: Do you believe that loyalty programmes and rewards are a decisive factor in convincing users to adopt m-payments?
MR: I think they are an important factor. If you look at credit card schemes, most of them have a loyalty complement, and of course loyalty creates loyalty and creates incentives for customers to use it. I also believe that this industry can take off without loyalty, because it is highly attractive in itself and when we show customers how it works, they are really curious about it and they like it. It is not absolutely necessary, but by including loyalty complements and propositions you can increase the speed of take up.
EPI: Is the market developing quicker or slower than you anticipated?
MR: I believe at the moment it is developing in line with expectations. This year everybody is getting prepared, and that next year it will really take off. The financial industry is about security, about standards and it just takes a while for new technologies to be adopted. Look at the magnetic strip for example, or at when chip and pin was introduced in the eighties: you still had the magnetic strip on the card and the reason for that is that it takes some time until merchants adopt it. The exchange rate at the point of sale is not fast, that’s why I think that, although the NFC market could take off in the next couple of years, it will be a while before there is no longer a physical wallet.
EPI: Which markets are you looking at in the first instance?
MR: European countries, because here NFC communication will be rolled out first. We have some big markets in Europe and we will definitely target them, but I cannot disclose the details.
EPI: What kind of problems does a telco experience when it enters the financial services sector? What is your relationship with the banking industry like?
MR: There is a challenge whenever you are doing something for other industries, but it means that you learn a lot and that you experience a lot. For example, when you are certifying a SIM card for a financial industry, it is obviously something new for us, and something we have to learn about. Obviously, these new industries are stepping into areas such as mobiles, where they have to learn. Different industries meet each other and that is a challenge in which both sides need to learn.
EPI: Were some banks a bit suspicious at the beginning?
MR: No, I would not say they were suspicious. Although there is always a degree of suspicion, there is always a question of ‘who is a friend and who is a foe?’ at the beginning. But banks have realised pretty soon that we want to co-operate with them. I would say there is a degree of curiosity and banks want to see a huge opportunity in NFC communications as a mean to replace cash.
EPI: Maybe it is the other way round – that you forced them to be more interested in NFC at the risk of losing this market.
MR: In the industry there are some players that are faster and want to do more innovative stuff, and there are others which do not. This is the same in every industry. What we know is that in all countries we have banks who are highly interested in what is happening, and they want to participate. I think this is a very good starting point.
EPI: Are you seeing revenue from your pilot programmes, or are you just at an investment stage?
MR: We have not effectively launched a product yet, we are at an investment stage. In Italy we have launched a prepaid card and there are some revenues coming in, but the launch was at the beginning of the year. It is developing as we expected, but it will become more interesting when we have the SIM-based communications.
EPI: When do you estimate SIM-based payments will be in common usage?
MR: I believe that next year it will take off. A lot of wallets will be launched and I believe that you will see a lot of people paying with handsets next year. I’m not saying that it will be half of the population next year, but it won’t take twenty years either to become of widespread use. Once you see people doing it, people will very quickly demand it. If you’re queuing and you see people paying with their handset while you’re still using cash, it generate an emotional reason, creating a ‘hockey stick’ effect.
EPI: What about regulation: do you believe that mobile payments actually need specific regulation?
MR: To be honest I haven’t made my mind up, I don’t have an educated opinion on that. I can’t imagine why there should be reasons for regulation on top of ‘plastic’ regulation, but that doesn’t mean that there might not be a reason.
There is already a lot of regulation in financial services and I believe that regulation is something good – There are areas where it makes sense.
