Mobile Payments in Europe: Converging or Diverging?

Curious to understand where mobile payments has actually got to in Europe, I recently caught up with Christian von Hammel-Bonten, EVP at Wirecard AG, to gain insights from the recent launches Wirecard is involved in across Europe.

Things changed for NFC in 2014-2015 

As a region, Europe has arguably the longest history of pursuit of mobile payments, but in 2014-2015 things have changed. Trials and discussions have matured into commercially roll outs. Bank activities have increased with cloud based payments involving Visa and MasterCard. On top of this, the launch of Apple Pay in the US and now shortly in the UK, has increased awareness and interest for both merchants and consumers.

We are still at the early stage of Mobile Payments and early activities in Fintech indicate that we’re at the beginning of a disruptive era. Sixteen years ago E-Commerce was below 1% of retail sales and no one would have predicted the rapid growth and maturity from mobile payment to digital payment that may be delivered through a range of devices. One thing that is clear is that the plastic card will increasingly disappear as it is replaced by digitized credit credentials.

Of course lack of a plastic card raises the question of how we would extract cash, but this question is becoming less relevant in a number of European countries where cash is “fading out” - Denmark and UK for instance.

Success in payments comes from understanding payment culture and the needs of players in all parts of the ecosystem

Developments in E-commerce differ across all major world regions, and even within Europe, countries are at different levels of maturity. E-commerce in Europe as a whole is highly developed, as we enjoy high levels of mobile coverage of good quality, and communications network infrastructure has a critical role to play in service adoption. 

Another key factor is payment culture in various countries. The use cases and consumer needs differ. In Africa it is mobile money, rather than NFC mobile payments, because of the lack of banking infrastructure. Across Asia Pacific region again it differs widely, with high penetration of cards and terminals in Singapore but a different picture in nearby Philippines. Similarly, Germany and UK greatly differ, as in Germany ELV solves merchant problems and consumers still prefer cash.

Paying with a mobile device may not be needed as a tool for financial inclusion where we have well-developed banking infrastructure, but in Western countries and world-wide, crowd funding, P2P lending and other services are rising up to meet unique consumer and business needs. M-Pesa recently launched in Romania possibly as they identified a larger proportion of underbanked, largely based on cash but this may not be suitable for UK or Germany.

Although there is a short distance geographically between European countries, there can be big difference in how people choose to pay

In the work Wirecard is involved with on mobile wallets such as with the BASE Wallet, Deutsche Telekom MyWallet, Orange Cash and Vodafone SmartPass, they see huge differences in European markets that cause different states of readiness. In UK, the market seems ready for digital payments, but Germany is somewhat behind in this respect as payment culture differs.

A good way to understand this is to study the number of terminals and the number of cards in each European market, and trace the growth of contactless in POS. Apart from UK, Switzerland is also heavily contactless. In Spain too consumers have embraced contactless payments. In other countries we may have to be patient until the necessary relevance is established on the consumer side but in a few years the majority of payments are likely to be made digitally – with a smartphone, wearable or other digital form factor.

It is not just digital natives who are installing the apps

Early adopters are not just digital natives. They are people who have an affinity to the service, but also towards technology. If you use your mobile phone today only to make phone calls you’re not perhaps someone who would adopt mobile banking and mobile payments. Generation Y use smartphones heavily and rely on mobile banking for managing family finances. Currently across Europe males seem to be more predominantly early adopters of the new services.

The growing importance of our mobile number

Like the email address, your mobile number is already more important today for your communication than your postal address and has the potential to act as a proxy for many underlying financial services such as P2P transfers. It is challenging to remember bank details, more so with IBAN, so the mobile number becomes a link to your bank details in successful solutions such as Pingit, Paym or MobilePay - and you don’t have to remember phone numbers as the phone book does this.

SEPA will increasingly help to achieve more consistency in payments across Europe

At first it took time for people to be convinced but today SEPA Credit Transfer and SEPA Direct Debit simplifies things for people making payments across Europe. It is a future enabler for a number of bank services and if banks want to stay competitive they need this form of interoperability.

Europe-wide instant payments, is also the need of the hour, and really should already have been made available across Europe considering the success in UK, with Faster Payments. A number of banking innovations in UK such as Pingit, Paym and soon-to-launch Zapp are greatly facilitated by real time instant payments.

A good financial and payment infrastructure is crucial for supporting businesses and consumers, as important as a good road infrastructure and is the prerequisite for innovative digital services. 

Distribution of cards is about to change with HCE/Cloud Based Payments

HCE (Host Card Emulation) and Cloud based payments has greatly increased the possibilities for banks, telecommunication companies and others to offer mobile payment services. In the past, almost all such projects depended on hardware-based elements such as the SIM and embedded secure elements (eSE). However, something that is hardware based has an owner who could seek control.

The need for collaborative models between all stakeholders delayed or prevented the launches of mobile payment solutions so far. With HCE/Cloud-based payments however, such collaboration is less essential, which is its best advantage. Financial Services groups across Europe are now looking closely at this technology as it is more convenient to enrol users and deliver digital cards to them. Why should we buy gift cards in supermarkets, when we can just send them digitally and use gifted money through apps? The distribution of cards is about to change, and plastic cards will increasingly disappear as we each begin to hold multiple digital cards.

Interoperable mobile payments across Europe could fast become a reality

Right now a number of existing solutions are based on Visa and MasterCard specifications and may be used not just across Europe but also world-wide. Travel is one of the biggest drivers for prepaid in the UK market. A British tourist heading to Spain can just go online, register and get a digital / virtual card, top-up and start to spend – instead of procuring a physical card.

This is a good example of the future of cards. Digitization started and progresses in many areas of our life and payment cards will clearly be affected as well. Short term we are likely to see the first major mobile payment roll out starting with the launch of Apple Pay in UK in a few days. This is likely to spur a number of activities around mobile payments in Europe and bring us closer to a world of digital cards and a cash-less society.

In short we are likely to see more divergence, before the eventul convergence as both merchants and consumers vote on how they will pay going forward.

How do you see mobile payments progressing where you are? Do share your thoughts!