How card payments are failing the international mobile market
By Michael Tomlins, CEO, Infomedia
Grab, southeast Asia's leading ride-hailing company made headlines recently when it announced that it will be entering the fintech space.
The Singapore-based company currently dominates the regional market with 70 percent market share and a loyal customer base that global players like Uber struggle to rival. The announcement stated it will be moving beyond transport and enable users to pay for goods and services in shops and restaurants using GrabPay, the company's mobile wallet. Part of the motivation to launch GrabPay, according to the launch press release, was that the company had failed to find a suitable partner in Singapore to deliver the truly mobile payments service its customers demanded.
Grab's experience of a fragmented payments market reflects a much broader problem, and one the payments and mobile industry have barely started to address. Wallet solutions such as Singtel Dash are carrier specific and most countries have multiple large carriers, thus a merchant needs to integrate and manage each one to cover a territory. Alongside this, merchants are quickly realizing that if they rely on card-based payments they hit a new challenge: universal consumer mobile adoption on one hand and low credit and debit card use on the other.
In fact, Grab co-founder Hooi Ling Tan, pointed out that nine in 10 people in southeast Asia do not own a credit card and that 75 percent of its population is unbanked. This problem isn't limited to southeast Asia.
Globally, the reliance on card-payment methods is failing merchants and their ability to further monetize. Despite the fact that there are 5 billion phone owners globally, there are only 1.5 billion credit card owners. This difference highlights how a truly mobile payments solution offers an opportunity to create a global network five times larger than Visa or MasterCard. In doing so, carriers and payment providers would open up m-commerce for the huge sections of the population who are unbanked, creating amazing opportunities for merchants and brands.
That said, there has been a recognition of changing consumer behavior globally, which has led to several innovative developments that banks, merchants and especially mobile carriers in other parts of the world can learn from. A good example is the huge growth in the mobile payments ecosystem seen in Japan and China in the last 10 years, which has largely been driven by the rise of WeChat, Alipay and direct carrier billing. In China, mobile payments are now worth $5.5 trillion, roughly 50 times the size of mobile payment market in the US. In Japan, direct carrier billing now accounts for 50 percent of all online purchases.
One of the clear developments that has driven Japan to be the global leader in DCB adoption is the framework the carriers and regulators have set out to support its growth. Carriers in Japan have also worked to promote the use of DCB to consumers and merchants, particularly through partnerships with high profile brands, such as DOCOMO's work with Amazon. By offering access to new services, the carrier is delivering new products and brands to the consumer and driving conversion for the merchant.
The last year has seen an acceleration in the adoption of alternative payments by many of the world's leading digital brands, in an effort to adapt to changing consumer behavior and the varied development across the global market. But the barriers that prompted Grab to launch its own payment platform still need to be addressed, given that many businesses continue to struggle to drive monetisation on mobile. As companies like Amazon, Spotify and WWE are quickly realizing, true mobile payments such as direct carrier billing and credit-based systems, where customers pay their bill in cash or top up, can enable brands to monetize across multiple territories where banking penetration is low but mobile use is almost universal.
This recognition from the world's largest brands presents both an opportunity and a challenge.
In the current market, mobile operators are too fragmented to exploit the potential network of 5 billion users to enable a single point of access for merchants – thus Grab has had to build their own payments platform. As money becomes digital, those brands with customer reach will automatically become financial institutions. We've seen Uber launch a credit card, Facebook has launched P2P payments, and Grab has joined this trend. The payment industry is at risk of becoming disintermediated unless it starts to address the behavioral trends of customers.
Grab has been failed by failed by the payments sector, so it found its own solution.
Companies like Uber face these very same problems globally as they are too reliant on card as their primary payment method and are frustrated by the fragmented carrier payment options. Across the world, credit card and banking penetration is too low, yet in almost every region it remains the default payment method for m-commerce. Fundamentally, it is critical that the payments industry starts to look at incorporating alternative payment options into more traditional payment networks and platforms.
Carriers and regulators have a significant role to play to realize the growth opportunity offered by enabling a single point of connectivity. At the same time, the industry needs to drive better regulatory frameworks to govern the roll out of these new payment options to build customer trust and adoption.