Younger consumers who grew up using digital devices will be the main drivers behind mobile payments using NFC technology.
- Published: 31/08/2011 at 12:00 AM
- Newspaper section: Business
Someday soon, consumers will use their smartphones to buy a car as well as receive special low-interest financing on the deal thanks to remote mobile payment services.
From Google to Starbucks to grocery stores, NFC-enabled mobile phones will soon allow users to pay by swiping their smartphones.
Mobile payments – the so-called “mobile wallet” – are a growing option, and customers with smartphones will take the service to the next level by accessing financial services digitally.
Rapid demographic changes pushing the “digital native” subgroup – those who grew up using digital technology – to the fore are causing a paradigm shift in retail banking including everything from conventional branches to mobile phones.
“By 2015, mobile phones will have become the primary banking channel, followed by the internet, ATMs, call centres and branches,” said Brett King, author of the best-seller Bank 2.0: How Customer Behaviour and Technology Will Change the Future of Financial Services.
“Bank branches will no longer be the core service centres for customers.”
He said banks will continuously reduce the extent of office operations until they become more for back-end services.
On the other hand, telecom operators and mobile application developers will be the new “front end” interfacing with customers.
Mr King said the banking industry will switch to more digital products and services, similar to the evolution from hard copy to digital books.
“Over the next 10 or 15 years, the distribution model in the banking industry will become more diversified and fragmented,” he said.
Banks will have to adapt to changing customer behaviour, particularly among younger generations who increasingly are turning away from the old paper-based banking system to digital channels instead.
“The biggest challenge for banks will no longer be the market or financial risk. Instead, it will be how to offer services that provide more relevant and connected services to customers,” he said.
Speaking at a recent conference in Singapore hosted by the software firm SAS, Mr King said banks’ mobile banking services are limited largely to basic balance checks.
But this means banks have been missing out on opportunities to sell cross-services and seek new revenue.
For instance, customers will in the future be able to buy a car using their mobiles to make payment, with the bank simply deducting the amount from the appropriate account.
“It will not be impossible in the near future to see people transfer money using the numbers of receiver’s mobile without having to know the bank account details,” said Mr King.
He said near field communication (NFC) technology will turn smartphones into mobile wallets, boosting mobile banking payments in turn.
Shoppers with credit or debit information stored in their NFC-embedded smartphones will pay for purchases by waving the handset past a card reader or tapping it.
Mr King said central ID repositories or even biometrics could be used for fraud prevention.
Many global players have started jumping on the NFC mobile payment bandwagon including PayPal, Google Wallet, payment system provider Verifone and credit card issuers Visa and MasterCard.
“In the Asia-Pacific, more than 2 billion mobile users still have no bank account. That’s a significant number for the technology to tap into potentially,” said Mr King.
He said Thailand should begin with a prepaid phone and debit card account as primary tools for mobile payments.
The global research firm Gartner Inc said the number of mobile payment users worldwide is expected to reach 141 million this year, up by 38.2% from last year.
The value of mobile payments will amount to US$86.1 billion, up by 76% from last year.
“We believe mass-market adoption of NFC payments is at least four years away,” Sandy Shen, Gartner’s research director, told the seminar.
“The biggest challenge is the need to change consumers’ behaviour by convincing them to pay through mobile phones instead of with cash or cards.”
John Stefanac, Qualcomm’s president for Southeast Asia and the Asia-Pacific, said NFC technology promises a new wave of innovation for mobile operators and vendors in this region.
It will offer valuable opportunities to play a central role in mobile payments and commerce, he said.
However, adoption of the technology remains in its infancy due to the complexity of multiplayer agreements involved.
Mobile operators looking to capitalise on the mobile payment market are waiting for more users with NFC-enabled smartphones.
Pratthana Leelapanang, assistance vice-president for value-added service of Advanced Info Service, acknowledged that mobile payment is an emerging trend.
To reach mass adoption, NFC smartphones will have make up at least 20-30% of the units in service, he said.
Mobile payment is popular now in Japan, South Korea and Hong Kong.
But while NFC technology deducts amounts straight from customers’ bank accounts, the mobile system still used in most places involves topping up a SIM card, then sending an SMS and maybe following more steps.
Mr Pratthana said NFC in Thailand will initially focus on niche segments, with mobile payments made in small amounts for everyday products such as coffee or mass-transit fare.
Utai Khumkong, True Corporation’s deputy director for mobile internet convergence, agreed that mobile payments are starting to gain momentum but said the number of NFC-supported phones remains limited.