Which payment mode will you use in the future?
While mobile-based payment methods will gain traction in the coming months, the traditional ways using credit and debit cards will not come down.
How do you make most of your purchases—via cash, card, smartcard or mobile phone? The past decade has seen dramatic changes in payment options. Though cash is still the most popular type of payment in Asia, accounting for nearly 60% of payment volume in 2011, it has declined from 80% in 2001. The non-cash payment market has expanded across the globe and traditional methods like cheques are on a decline. The card payment market is growing and is the third largest worldwide. The rapid strides in technology, globalisation, and consumer preferences for safety and spontaneity have led to the creation of a robust electronic payment market.
So which method of payment are you likely to use a couple of years from now? In addition to card-based payment, pathbreaking developments, such as contactless payments, are expected to become big. Here are some trends that are expected to shape the payment market in the next few years.
• Contactless payment cards: Have you used the metro in Delhi or Bangalore? If yes, you will recognise this payment method, which uses contactless cards for fare collection. Such cards are based on the concept of near field communication (NFC). This is a short-range, high-frequency wireless communication technology, which enables the exchange of data between devices at a distance of about 10 cm. Contactless cards only need to be waved near the card reader without having to swipe them, ensuring more convenience for customers.
This automated fare collection is also being used by the Indian Railways. Now, retailers are encouraging contactless payments as it helps avoid long queues and saves them the bother of keeping small change.
According to a Datamonitor report on payment cards in India, which was published in January this year, contactless payments represent a $216.5 billion market in the country, with convenience stores offering the biggest opportunity for such payments.
• Contactless payment using mobile phones: Mobile phones based on the NFC technology and with inbuilt contactless chips are also being used for making contactless payments. The phone is placed near the card reader (it can support both the card and mobile handset) to initiate the payment. Though its usage is in the nascent stage, handset manufacturers have begun to realise its potential and nearly 50 million NFC-enabled phones were produced in 2011.
This payment method is making slow progress across the world because it requires massive support infrastructure and stakeholders, and its success will be driven by the increase in the number of contactless payment readers and NFCenabled mobile handsets. In India, Citibank launched a 26-week pilot for mobile contactless payment in Bangalore in July 2009, partnering with Vodafone and Nokia. Despite the success of the program, the adoption of this payment mode has been slow as the readers and chip-enabled mobile handsets are not being produced on a mass scale.
• Peer to peer (P2P) payment via mobile: In this payment method, mobile phones are used to transfer funds from one account to another person’s account and also to pay for products and services. This mode has just started to catch on in India due to the ease of usage, security and promptness. Airtel Money was launched in 2011 to help consumers transfer money to others’ bank accounts and also to make a variety of utility bill payments. It can be used on any mobile phone as you don’t need GPRS to access this service. You can register for it by dialling *404# or at an authorised Airtel Money retailer. (see Use phone to move funds, April 9-15, 2012).
• Prepaid and gift cards: Prepaid cards are provided by leading financial services organisations, including Visa, MasterCard and Amex, while gift cards are offered by financial services as well as retailers and etailers. These cards can be gifted to friends and family on occasions such as Christmas and Diwali.
Payment through prepaid cards has been growing steadily and issuers are focusing on broad consumer segments as these are seen as an effective way of controlling expenditure. The people who can’t get credit cards can benefit from it. In India, the size of prepaid gift card market was pegged at $404 million in 2011 with a growth rate of 30%.
• Cash on delivery: The reluctance of people to use cards online has led ecommerce players to devise this method. In India, a majority of the leading players, such as Flipkart, Infibeam, MakeMyTrip, Yatra and Rediff, attribute nearly half of their sales to cash on delivery.
• Cloud-based mobile payment: Mobile payment players are vying with each other to provide more value to their customers that go beyond ensuring the basic contactless capabilities. The latest innovation is a cloud-based mobile payment system that allows consumers to order and pay in advance from their mobile apps and bypass the queue in restaurants, hair salons, dry cleaners and coffee shops. Players are
thus seeking to enhance not just the
payment experience but the entire shopping experience.
• QR code-based mobile payment: This payment method gives users a personal QR code on their mobile devices to pay at merchant locations. The QR code is linked to a credit or debit card in the user’s account and replaces the card in the payment process.
• Google wallet: It enables payments via mobile phones without needing to carry a physical transaction card. Though this payment mode is not available in India currently, it can be used for both in-store and online payments. The in-store payments require users to tap an NFC-enabled smartphone on to a reader device at the retailer’s outlet. Online payment using Google Wallet can be made on merchant sites that support Google Checkout.
While trends indicate mobile payments will gain significant traction in the coming months, the traditional ways of payment via credit cards and debit cards will not come down significantly.
Madhusudan Narayana Murthy ET120528
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