Apple Pay will heat up European mobile payments battle, mobile operators must respond to stay relevant

With Apple Pay and other mobile wallets gaining momentum, it seems that mobile operators face increasing challenges in staying relevant in terms of our mobile money. After all, would you rather use a payments service from Apple or Vodafone?

A new report from IHS Technology highlights the very fact that Apple Pay and others are expanding internationally (even this week news broke that Apple Pay will launch in Canada later this year), but what can operators do, and are they even in the game?

Apple Pay and mobile wallets to conquer Europe?

The IHS report “Mobile operators must refine their mobile payments services in Western Europe” was written by analyst Siyun Zeng, and looks at the state of mobile payments so far in Western Europe, what mobile operators have done to date, and what they need to do to stay relevant.

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Here are some of the key points and analysis from the very timely report:

Operators must move fast now before Apple and Google extend their dominance in the mobile payments space in Europe. Consolidation continues in the US as major players including Samsung, Google and PayPal announced payment services to rival Apple Pay.

Europe will be the next combat zone — Visa is rolling out tokenization in Europe in April, which paves the way for Apple Pay. The UK market appears to be high on the list of target markets that Apple wants to expand into, but the banks are still concerned about security issues.

Mobile operators in Western Europe have launched 36 mobile wallet services across 15 countries as of January 2015. Most of these services are less than three years old and still in their nascent stage.

Western Europe is still a very fragmented market for mobile payments but contactless payments are gaining momentum. Nordic countries have the most successful non-NFC mobile payments products while the UK leads in the implementation of contactless payments.

The report highlights the fact that Western Europe is a very fragmented mobile payments market as a result of varied levels of consumer readiness, technology and infrastructure development, as well as financial environment and regulatory issues.

This means that adoption has been slow as operators are facing a number of challenges for their mobile payment services: hard-to-change consumer behaviour, lack of merchant acceptance, security concern and regulatory issues.

Existing services in Western Europe show that projects have failed due to the lack of solid use case and the difficulty in accommodating the interests of different players.

Mobile contactless payments will gain momentum in 2015

Mobile penetration and the growth of e-commerce have been driving the adoption of mobile wallets. The total smartphone installed base in Western Europe reached 331 million in 2014, with a 61% smartphone penetration rate.

The increasing number of NFC-capable POS terminals, growing consumer awareness, and new regulations have been catalysts for mobile payments in Western Europe.

Contactless infrastructure is getting ready. MasterCard has set 2020 as the deadline for all European merchants to adopt contactless payments at point-of-sale.

Keys to success in Western Europe’s mobile payments market

Operators must move fast now because of threat of Apple Pay and Google. Consolidation continues in the U.S. and Europe will be the next combat zone.

Operators must move fast now before Apple and Google extend their dominance in the mobile payments space in Europe.

Choose partners wisely. Operators with low market share can partner others to reach scale, but must be aware of the power struggles and financial issues that can result.

Establish a solid business case and address users’ specific needs which can’t be met by other payment methods such as credit cards. Use case should be straight forward and compelling.

Offer flexible connectivity and payment methods. Mobile operators must refine their mobile payments services in Western Europe. Mobile NFC itself is not a solution for existing customer problems. Offering flexible connectivity and payment methods enables players across multiple platforms to get on board.

Final words

We all know that mobile payments, and mobile banking, are highly desired by many consumers due to the convenience that it affords. Apple has certainly had a lot of high-profile exposure concerning Apple Pay, and traction so far in the US has been fairly good. Many iPhone users however, have not yet used the service, either because it’s not supported everywhere, or their apparent lack of interest.

The situation in Western Europe may mimic the situation in the US, where there are several competing mobile wallet and payment services, with no clear winner yet. Does there even need to be a ‘winner’, if the majority of people can choose their preferred method of payment using a smartphone, or even a wearable device?

The mobile operators would clearly love for subscribers to be using their own payments services, and take a cut of the fees. But for most consumers, the operators aren’t even part of the equation. So we come back to would you prefer to use a mobile payments service from Vodafone/O2/EE or Apple/Google/another. I know which I’d prefer…

SOURCE: IHS Technology