Mobile Payment Quo Vadis?

It’s fintech. In Germany as well as in Switzerland. Many initiatives and start-ups are emerging. There is even more talk about it. In small Switzerland, various larger companies are trying their hand at mobile payment apps and even though I find such motivation and action commendable, I think the solutions shown are aiming nowhere. Here is why.

(Reading time 4 minutes)

The problem

Paying is still a hassle. No matter what means of payment. It takes too long, is usually complicated and expensive. Alternately for the customer or the provider or, as in the case of cash, for both. Card payments were the first milestone in making payment easier. In the meantime, the majority of technology is available to make things much simpler.

But the financial sector has so far failed to get off the ground. The comfortable mix of cozy, existing revenue streams and the deterrent investment volume and paradigm shift that a serious new solution would entail is too strong.

Example Switzerland

And so the companies set about being innovative. In the case of UBS (and Zürcher Kantonalbank), for example, this means Paymit: An app that makes it possible to send money between friends. Use case: We order pizzas between colleagues, one of us pays the delivery service and then has to get the money back from the others somehow. This is where Paymit comes in by enabling free bank transfers via the app. Low limits ensure that I can really only use it to pay the pizza bills.

Another solution is called Twint and was launched by the Swiss Postbank (Postfinance). I can use this app to pay in stores, but they must have a special beacon to accept the payment. This means that the stores have to be equipped with equipment. And so the Twint website then gives me a handy overview of all the stores where I can pay.

So instead of me as a consumer having to worry less about paying, there is even more work because I have to choose the stores. At least I can set the app with sufficient limits so that I can pay my daily expenses. If there were enough stores and if I always stayed in Switzerland.

Retailer Migros once again in a pioneering role

In my opinion, however, Migrosbank plays a pioneering role. Its app, MobilePay P2P, offers the same functionality as Paymit, but can also be used for credit card-free payments in online stores. If I am a Migrosbank customer, I can also use the appropriate limits. In addition, the Migros payment system has now also been integrated into the Migros Retail app. This means I can pay for my purchases at the Migros POS using the app. That’s already pretty good. Nevertheless, I think it will be difficult for Migros MobilePay to establish itself, as it does not (yet) include any other banks. Nevertheless, there is a good chance that Migros will be able to compete in the mobile payment market in the medium term. Leveraging an existing user base with a clear use case is one of the key points for entering the market. Migros has this in Switzerland.

Nobody is afraid of Apple Pay. But they should be.

I make no secret of it: I think ApplePay is the most exciting product Apple has launched since the iPhone. It’s simple, fast and available everywhere. Available everywhere? Yes, it is. Every POS terminal that can process NFC-based payments can also process Apple Pay.

Inspired by Erich Althaus’ tweet:

@alainveuve Since when does Apple Pay work in CH? Local or brand-related apps = lower transaction costs.

– Erich from noline.ch (@noline_ch) September 3, 2015

I’ve paid a few times myself with Apple Pay in the last few days. I recorded the following video with my team colleague in a village store in the countryside near Basel in Switzerland. It shows me buying her chewing gum with my iPhone:

Payment was also possible last week in Amsterdam, Frankfurt and Helsinki. All in countries that do not yet officially have Apple Pay. How does it work? Quite simply, you switch your iTunes account to the US (or UK) locale and enter an American (or British) credit card.

The sales clerk’s comment when I asked if I could carry out the payment experiment was also amusing: “Yes, of course. Anything is fine with me, as long as it’s quick and the “slip of paper” (the confirmation receipt) comes out.”

Technically all there

The infrastructure for making Apple Pay payments is very widespread in Europe. Countries with a traditional affinity for credit cards, such as Denmark, have a high prevalence of payment terminals that work with NFC. New terminals are almost exclusively supplied with NFC. MasterCard is even making NFC mandatory in Germany from 2018.

Why so slow Apple?

Some representatives of the financial sector feel confirmed by the rather slow spread (i.e. launch in the respective countries) of Apple Pay that market entry is not so easy. And yes, of course it is not that easy. But Apple simply has the best prerequisites. For one thing, it has a huge user base, 30% of whom are just waiting to be able to pay more easily.

On the other hand, the technology to process payments is already available in many places around the world at the POS. And then there is Apple Wallet, which makes the payment process as simple as possible. No additional app to install, no login, no credit to top up, no limits, no nothing. It’s simply less complicated than paying with cash. And that, dear banks, is how it should be.

“No big-bang rollout” is pretty clever

It is quite logical that Apple is not rolling out its Apple Pay globally in one fell swoop: nobody wants the huge load that a big bang launch would bring with it on such a system. Trust and security are everything in the payment sector. That’s why you should do everything you can to introduce a solution as smoothly as possible. That’s what Apple is doing right now.

USA as a test market?

That’s why they chose the USA as a relatively small market. Because what most people don’t know is that although the USA is probably at the forefront when it comes to credit card payments, it is still in its infancy when it comes to contactless payment. POS in Europe, which was also an early adopter of PIN-based payments, are already equipped with a large proportion of NFC technology. Sooner or later, the acid test for Apple Pay will take place outside Europe.

End-of-life care for credit card companies

Another reason why it was probably easier to launch in the US is that they wanted to have a few financial institutions on board. Apple could have easily founded its own bank, but they didn’t want to make an enemy of the entire industry.

On the one hand, the cooperation with credit card institutions and banks had created indirect access to the customer’s current account and thus secured the reach to the user base from the outset. On the other hand, it is also quite clear that sooner or later the credit card will no longer be needed in this chain. Consumer loans such as those offered by credit cards are popular and will continue to exist, but these loans could just as easily come from Apple itself in the medium term.

And so the credit card companies seem to me a bit like cattle that are led straight to the slaughterhouse with the promise of particularly lush green pastures. I don’t really want to mourn them. They had a very long time to address the issue, but didn’t actually do anything and now have to be shown up by a computer manufacturer from California. They are not alone in this, but it was a development that was completely foreseeable.

Wolf in sheep’s clothing

For the time being, Apple is being tolerant and emphasizing how important cooperation with the financial sector is. It is at the moment. But as soon as the customer relationships are in place and many people simply pay with Apple Pay, this will gradually change. And for the representatives of the financial sector, it will feel like the wolf taking off its sheep’s clothing. Apple is simply doing its homework in this industry: using new technology and a new concept to reduce process costs and simplify the transaction for the customer. This is not right or wrong, but a universal law in terms of how we use technology.

Switzerland and Germany

Apple is keeping quiet about the launch dates for the individual countries. The UK was launched recently. As of the publication of this article, I have not received an answer from Apple regarding launch dates. I don’t really expect one either.

One thing is clear, it won’t be too much longer. Until then, the Tapits, Paymits and mobile P2Ps can still enjoy their app download successes. After that, the market for mobile payment solutions will gain momentum. I very much hope that they will be able to ride this wave. Unfortunately, I doubt it just as much. I think for good reason.