Retailers, Tech Firms and Financial Services Providers: It’s Time to Shape the Future of Mobile Payments — Are You Ready?

By Gordon Tucker, Managing Director, Technology, Media and Communications Industry Leader; Rick Childs, Managing Director, Consumer Products and Services Industry Leader; and Jason Goldberg, Director, Financial Services Business Performance Improvement

 

The global mobile payments market is projected to reach US$780 billion by the end of 2017, according to research firm TrendForce. That figure seems impressive until you consider that the ability to pay for goods and services with a mobile device has been a reality for years. It’s been nearly a decade since Starbucks, one of the biggest mobile payments success stories to date, launched its app and rewards program. And recent research by the Mobile Economic Forum found that one-fifth of global consumers have made a mobile payment in-store. Given the exponential growth in smart device innovation and adoption over the past decade and consumers’ inherent desire for convenience and speed when making a purchase, it is logical to think that the mobile channel would dominate as the avenue for payments by now. It’s where we’re headed, to be sure. But some formidable obstacles have been impeding the growth of the industry, such as:

  • Persistent concerns about fraud, privacy and security: Even though most consumers are aware of “digital wallets” — apps on smartphones that store credit card information and facilitate mobile payments — many remain wary of the risks. Fraud has been a problem, with weak authentication practices and identity theft at the root of many incidents — including those involving well-known brands like Apple Pay and Samsung Pay.

Consumers also worry about how companies are collecting and using data, including purchasing history and even geolocation. How and if that sensitive information is being protected from hackers is yet another concern. Tokenization helps to secure valuable transaction data, but data stored in digital wallets or merchants’ payment systems may still be vulnerable. Also, new entrants to the market may lack the security sophistication needed to protect sensitive data from compromise.

  • Bad timing: When solutions like Apple Pay, Google Wallet and Android Pay were being rolled out by mobile manufacturers and tech providers a few years ago, EMV chip card technology was also hitting the market. Retailers were initially confused, and frustrated, about whether to adopt mobile payments or EMV chip card technology. Most prioritized the latter. Now, adoption of that technology is near-universal in retail, even though EMV chip card transactions are slower than mobile payments or even traditional credit card payments.
  • Lack of a consistent experience: Merchants of all types have been racing to launch their own digital wallets. But it is unlikely that many will achieve long-term success with their ventures because consumers are already overwhelmed by choice in the market. Plus, these offerings are diverse, which means the mobile payments experience for consumers also varies. That works against efforts by retailers, and the mobile payments industry to engage consumers and convince them to pay with their smart devices at every opportunity. And there’s another ingredient for mobile payments success that not all retailers can capture: A key reason that apps from brands like Starbucks, Taco Bell and Dominos are so popular is that consumers do business with these retailers frequently — sometimes daily.
  • The fact that old habits die hard: One more dynamic that’s working against mobile payment adoption is the simple fact that it’s still easier and faster, in most cases, for consumers to pay for goods and services with cash, debit card or credit card. They’re comfortable with these methods, so they’re in no hurry to change. And many businesses that offer mobile payment options fail to do enough to incentivize consumers to make the switch — for example, they don’t provide compelling rewards to customers who use their app frequently.

A Growing Swell of Expectations From Consumers

The picture is not all bleak. There are other strong trends in motion that will help to drive mobile payments innovation as well as consumer adoption and use of these solutions. Here are some of the dynamics to watch:

  • New shopping trends will help mobile payments grow — a lot. Showrooming — where consumers examine merchandise in a traditional brick-and-mortar retail store or another offline setting and then buy it online, sometimes at a lower price — is just one example. It’s a retail experience that’s made for mobile — and it’s expanding as large e-commerce players like Amazon and Microsoft get in the game. Retailers can use mobile payment apps to incentivize shoppers to buy items in the store by offering discounts, special rewards or free delivery.
  • Mobile shopping apps are becoming more experiential for consumers. The core purpose of a mobile payment service is to facilitate transactions, of course, but that’s not enough to engage a consumer. Mobile shopping apps are evolving to help customers discover and research products before they are at the store and then help them locate those products while they’re in the store. These apps can also store shoppers’ receipts, gift cards and shopping lists; present discounts and coupons; enable comparison shopping; make the checkout process simple and fast, and more. Look for customer loyalty programs to evolve, as well; for instance, using data insights, a retailer could offer individualized incentives to mobile shoppers and reward them for specific behaviors.
  • A friction-free experience is becoming an expectation, fast. Mobile payments success hinges on creating a simple, seamless, value-adding and branded customer experience. Leading players in the person-to-person (P2P) payments space are setting the standard for the frictionless consumer experience — and winning over mobile-minded millennials. Recent research from Bank of America found that 62 percent of millennials use a P2P service.

Entrants in the P2P space are also focusing on the back end, trying to simplify operations and bake in security wherever possible without undermining the consumer experience. Good infrastructure that supports a secure and seamless customer experience is essential to the future of mobile payments. In the coming months on the blog, we’ll be exploring topics that retailers, technology companies and financial services providers, specifically, should consider when developing their mobile payments strategy. These topics include operational effectiveness, risk and compliance issues, technology strategy, and security and data privacy. Each of the industries mentioned above has an important role to play in helping to shape the evolution of the mobile payments industry. It will be through their collaboration, cooperation and innovation that the mobile payments experience can become what businesses and consumers alike envision it can — and should — be.

Money 20/20, Day 3: Get the View From the Inside With Today’s Podcasts

Blockchain, globalization, digitization, cybersecurity, fintech, new customer demands, and more. Money 20/20, the largest global financial industry event focused on payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology, takes place Oct. 23-26. Once again, Protiviti is proud to be an exhibitor sponsor and speaker at the event.
We will be posting daily dispatches from the event’s sessions, starting Sunday, here and on Twitter. Subscribe and follow us for current commentary, insights and reactions from industry experts as the event unfolds.

 

Ed Page, Managing Director, Technology Consulting for Financial Services, on IT Trends (6:08 minutes)

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Nirav Shah, Director, Risk and Compliance, on Regulating Fintech (3:03 minutes)

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Nirav Shah, Director, Risk and Compliance, on Good vs. Bad Innovation (4:46 mnutes)

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Robert Ferguson, Senior Manager, Business Performance Improvement, on Customer Stickiness (3:21 minutes)

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Money 20/20: Protiviti Experts Share Their Views on Hot Topics in Day 2

Blockchain, globalization, digitization, cybersecurity, fintech, new customer demands, and more. Money 20/20, the largest global financial industry event focused on payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology, takes place Oct. 23-26. Once again, Protiviti is proud to be an exhibitor sponsor and speaker at the event.
We will be posting daily dispatches from the event’s sessions, starting Sunday, here and on Twitter. Subscribe and follow us for current commentary, insights and reactions from industry experts as the event unfolds.

 

In Day 2 of Money 20/20, Kevin Donahue talks with two Protiviti experts who share their views on some of the hot topics discussed at the conference today. Tyrone Canaday, Managing Director in Protiviti’s IT Consulting practice, discusses open API – the open platform technology used by fintech firms to speed up innovation, increase speed to market and facilitate the shift from branch to digital.

In the second segment, Atul Garg, Managing Director in Protiviti’s Business Performance Improvement practice, outlines the dichotomy between traditional and fintech banking firms, and the conversations needed to achieve the convergence desired by both of these groups.

Listen to their thoughts and share these conversations by accessing them on Twitter, here and here.

 

Fintech Faultline: Customer Experience Versus Security and Fraud

Blockchain, globalization, digitization, cybersecurity, fintech, new customer demands, and more. Money 20/20, the largest global financial industry event focused on payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology, gets underway this weekend (Oct. 23-26). Once again, Protiviti is proud to be an exhibitor sponsor and speaker at the event.
We will be posting daily dispatches from the event’s sessions, starting Sunday, here and on Twitter. Subscribe and follow us for current commentary, insights and reactions from industry experts as the event unfolds.

 

jason-goldbergBy Jason Goldberg, Director
Financial Services Business Performance Improvement

 

 

Financial technology, or fintech, firms are disrupting the financial services industry with their nimble structure and innovative payment, banking and wealth management services. Unburdened by legacy core systems, regulatory scrutiny and complex processes, emerging fintech companies innovate from day one, creating optimal customer experiences that are difficult for traditional financial institutions to match.

New entrants are significantly improving the customer experience in the person-to-person (P2P) payment sector, for example, by allowing transfer of funds with just a couple of taps on a smartphone. Despite the popularity of these payment apps, however, there is growing concern from consumers and regulators that some emerging fintech firms, in their haste to get ahead of their more-established competition, may not have focused enough on security and privacy controls.

We examine this dichotomy in a new Protiviti paper, Balancing Customer Experience with Security and Fraud Controls. But I wanted to whet your appetite with a small example.

A governing dynamic long known to established financial institutions is that success (or failure) brings regulatory scrutiny. The Consumer Financial Protection Bureau (CFPB) sent a strong signal earlier this year when it levied a $100,000 fine against a fintech company for failing to employ reasonable and appropriate measures to protect consumer data from unauthorized access, and for not encrypting some sensitive personal information. While the monetary value of the fine was not significant, it was an overture for other fintech firms to be more mindful of their practices.

This example should serve as a lesson for traditional financial institutions as they seek to partner with emerging fintech companies or emulate some of the more successful practices of these tech-savvy upstarts. The lesson is that innovation needs to be balanced with security, fraud, risk and compliance requirements from the earliest design phases of any technology transformation project.

Control functions such as risk, compliance and security are perceived to have an adversarial relationship with innovators, who sometimes sidestep compliance in favor of speed to market. And yet, it is critical to embed these checks and balances from the earliest planning stages of product design. The key is finding a balance between the two.

Despite their inexperience, emerging fintech companies may have an easier time of this, because of a cultural bias against silos and for collaboration. Traditional financial institutions may need to work harder to break down established mindsets and find security and compliance people who think more like innovators.

That’s really the crux of the matter. As traditional financial institutions seek to transform to answer customer demands around nimble and innovative experiences, it is important for them to remember that the transformation also requires changes to organizational mindset, processes and, of course, technology. A holistic focus on customer experience, with a balanced and integrated (not layered) security and fraud approach, will drive powerful customer relationships. Customers and the security of their transactions are at the heart of the financial services industry and, in that regard at least, established players still have the advantage.