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What are the Key Trends in Payment and Where we are at the Moment - Wallets

The word “Wallet” and “Mobile Wallets” are interchangeable for many, after all, the wallet we had up to now is also mobile. It has been a hot topic for a bit more than 5 years now, and the industry also transit from startup dominant to large players land grabbing, in 2017, as a year in which the big players has been defined and the ecosystem starts to flourish, it is particular interesting to have a look at the fundamentals of user adoption, what major players are working and what opportunities and threats there are.

What are the fundamentals of user adoption: 
- Cost: No Need to type in Data (e.g. Amazon Payment etc) and quickly switch among all the cards to find the one they would like to use, now that more people owes a smartphone than ever, using it to make payment because nature; it is more difficult to lose than cash and card; the concept of cost and convenience in here can be interchanged;- Trust (e.g. PayPal; Alipay): solutions allow users to "park" their money in a neutral place and instruct the release of money only after the goods are secured. While the seller is assured that if the goods are delivered, the payment will be deposited into their account. At the beginning of e-commerce payment (first in developed countries and now in developing countries), these solutions are crucial to open the market.- Benefit (e.g. ApplePay; WeChat Pay): it is, of course, not the very nature of the wallet to to provide any promotion but rather due to the sheer competition on the market. Neither convenience nor trust is a sustainable differentiator, benefit (e.g. saiving; gifts; points etc) is the only factor that can trigger adoption and secure usage;

The importance of the 3 fundamentals change as digital payment sector develops. In the beginning, trust was Top 1, wallets act as regulators to enable online trade; as it moves to offline, cost transcend to the main reason. The market gets crowded, and differentiation becomes needed, benefits then becomes important. 

There is no doubt that the trend will be growth. After all, wallet payment only represents less than 5% of the total digital payment volume, with the smartphone and NFC terminal growth, as well as mobile commerce popularity, wallet payment will definitely grow in both volume and value. Statistics from Statistia suggested that Mobile Wallet payment along will expect to grow from US$450 billion in 2015 to US$1,080 billion in 2019.

For some of the well-known names in the wallet industry, the world is just their oyster. Alipay user population jumped from 80 million in 2013 to 300 million in 2015. Paypal’s transaction volume increased with a CAGR of 23.25%, arriving at US$337 billion in 2015.

The movement of large players represents a similar yet different pattern from what had happened for credit card industry, and that of many other industries:

Raise of the Giants Outside Payment Sector: most of the common names in the wallet sector is not a financial institution: ApplePay, AndroidPay comes from the OS provider while WeChat pay originally come from social media. Alipay and PayPal are the only two that comes from payment industry while both comes from a spin off e-commerce players. The fact that these players owns the user makes consumer adoption cost lower comparing to a mobile payment startup or bank. 

Fast-forward Movement on the Late Joiners: initiatives of electronic payment in Africa and South Ease Asia countries has been a hot topic throughout the past few years. M-pesa transaction represent 50% of Kenya’s GDP; India launched Unified Payments Interface (UPI), a national mobile payment ecosystem. 

Eating, Drinking, On the Go: for most of the time, users are making small payments on restaurant, groceries, transportation and other small payments. The primary use cases for wallets are the same. As much as the total value of wallet payment looks, the majority is still used in the everyday routine spending such as dining, grocery shopping etc.

Collaboration with Big Names Running on Old Railings: It has been a while since the industry last talked about disintermediation. Neither Android Pay nor Apple Pay has plan to maintain a balance in the user wallet. With no threat of disintermediation, collaboration with traditional payment instruments increases as credit card issuers and wallets joint force in various marketing campaigns to the end users. 

Discrimination Towards Minorities: Debit Card, Prepaid card, Stored value cards, cheques are not accepted in many common wallets, making the payment method less popular. Moreover, it also discriminate the population that only have access to these method such as students, senior, low-waged people etc. These people will again lose out of the wave of mobile payment with no applicable funding source in the wallet. 

At the moment, digital wallets looks exactly the same as, sometimes worse than, our traditional wallets:
- Dump: it does not suggest us which card to use based on the merchant offers and the points we can accumulate; nor does it allows us to apply additional credit limit, find products we may like etc. Digital wallets are as dump as our plastic cards.
- Fragmented: and the experiences it offers are still fragmented, several years ago we had hoped that our loyalty cards and paper vouchers will all be transferred into the digital wallets but at the moment, they still clutter our purse. 
- Impersonal: even worse, as a fashionable young female, it is “BORING”!!! I love my Kate Spade wallet, it has places for my photos and my little key chain on it, guess what, a digital wallet won’t even let you change your theme color. 

With all the years talking about wallets, it seems that the world has not moved much to truly simplify the experience. With the old backhand issuing and settlement system in place and all the fragments of solutions an regulation constraints, 5 trends are expected: 

Card and Cash Remains an Important Means of Payment: Current wallets does not have some basic criteria needed to replace our card and cash, first, it does not work all the time, what if this merchant does not accept mobile; what if your phone runs out of battery etc. Wallets aren’t viable solutions to eliminate the need for credit cards or cash. It's just a convenience if you already if the merchant already accept it.

More Payment Instrument and Acceptance Points: with all the global credit card schema enabled in the wallets (Visa; MasterCard etc), the next in line will be the debit payment instrument and by enabling debit instruments, also expand the potential user base.  More merchants start to accept wallets on various channels, for brick-and-mortar, Apple Pay and Android Pay prevails as there is little system modification needed from the merchant while other wallets requires much more interface change and integration.

E-commerce and M-commerce Players Reluctant to Adopt Wallets. An offline merchant enjoys the convenience of little integration on Apple Pay and Android Pay and potential reduction of checkout time; but for e-tailers, nobody is queueing after their consumers at the checkout, on the contrary, wallets may slow consumers down with re-direct and 2-factor authentication. 

Payment Innovation as an Pillar of Strategic Investment: as markets where infrastructure in well developed countries becomes more crowded, wallet players started to expand towards less developed countries. Last year have seen the Wechat Pay launch in South Africa supported by Standard bank. M-Pesa and WeChat Pay tump as it requires little hardware beyond the mobile devices and in African countries in which traditional credit card infrastructure is not there, while for WeChat Pay, the additional appeal as part of the infrastructure investment approach China takes on building and maintaining relationship with African countries,

Cryptocurrencies Gets More Share on Closed Ecosystems and New Markets: cryptocurrencies certainly has the benefit of lower cost and better trust. In situations in which there is no existing players and the owner of the ecosystem has more control of setting rules (enterprise internal system etc), the ability for them to grab the market is much stronger.

Wether a trend is an opportunity or a threat really depend on where a company or individual is in the value chain. As the trend changes, an opportunity may become a threat or vise versa. The happen fact is that wallet industry is at its full speed and many exciting things will happen.


Apple Pay transactions totaled $10.9B in 2015, suffers growing pains, report says

Digital Wallets - 10 Mobile Payment System tot Take You There



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