Last year some $6.7 trillion was channeled through credit cards managed by the networks. Throw in debit and prepaid cards and the number exceeds $15 trillion. Such sums explain why so many firms, from telecoms companies to retailers and start-ups such as Square, are determined to transform the way people pay for things. Some foresee a post-plastic world that will put a dent in card giants’ earnings. But the payment networks are not going to let that happen without a fight.
But even if plastic cards eventually go the way of vinyl records, card networks should still prosper because they too are investing heavily in new technology and have several built-in advantages. Visa for instance is betting its member banks can help it to narrow the gap with rivals like PayPal, (part of eBay with 117m active users thanks in part to its use on the auction site). Visa has just piloted beta-testing in America of V.me, a “digital wallet” that holds multiple payment cards in a virtual repository. Instead of providing their personal details and card numbers to pay for stuff online, customers just enter a username and a password. Over 50 financial institutions are supporting the launch of V.me, which accepts non-Visa cards in its wallet, too. MasterCard and others are also touting digital wallets, some of which can hold digital coupons and tickets as well as card details.
In the short term new technology is actually boosting usage of plastic. Smartphone apps often require users to enter their card details to pay for services. Firms such as Square and PayPal have developed tiny card readers that plug into smartphones and allow small traders using their software to accept payments cheaply. Emerging payments technologies at MasterCard, reckons such developments have added 1.2m new businesses over the past 12 months to the card firms’ list of merchants.
Before long all of these wallets are likely to end up on mobile phones, which can be used to buy things in stores and other places. This is where firms such as Square, which has developed its own elegant and easy-to-use mobile wallet, and Google have been focusing plenty of energy. Thus a shake-out is expected that leaves only a few wallet providers standing. Thanks to their trusted brands, big budgets and payments savvy, one or more card companies will be among them. However, the big daddies cannot sit easy as rival digital wallets could promote alternatives to credit and debit cards, including stored-value cards and direct bank-account-to-bank-account payments. Big retailers in America have clubbed together to create their own digital wallet and are likely to prompt users to choose the payment options that are cheapest for the chains, by offering them incentives like coupons.
Card networks are also taking stakes in innovative firms to keep an eye on potentially disruptive technologies. Visa owns part of Square, which recently struck a deal with Starbucks to make its mobile-payment service available in 7,000 of the coffee chain’s outlets in America. Visa has also invested in Monitise, a mobile-banking specialist. American Express, for its part, has set up a $100m digital-commerce fund, one of whose investments is in iZettle, a Square-like firm based in Sweden. So far few have tried to create new payments systems from scratch. Those that have toyed with the idea, such as ISIS, a consortium of telecoms companies in America, have concluded it is far too costly and painful to deal with regulators, set up anti-fraud systems and so forth. (Last year all four big US card networks joined ISIS.) Fears about the security of new-fangled payment systems also play into the hands of established card firms.
Digital wallets will make the trade-offs between various payment options clearer to consumers and reckons this will force card networks to up their game. The last major innovation in the payments space was more than 60 years ago when the charge card was created and ever since, there have been very, very few innovations. Some in the payments world might quibble with that but one thing they can all agree on is that the spread of mobile payments will bring many more customers. In the current scenario even while 85% of commerce still involves cash and cheques – As mobile purchases take off, more of this activity will move online.
The biggest prize of all lies in emerging markets, where a lack of financial infrastructure is hastening the rise of phone-based payments systems such as M-Pesa, which serves Kenya and several other markets. Visa has snapped up Fundamo, which specialises in payment services for the unbanked and underbanked in emerging markets; MasterCard has set up a joint venture called Wanda with Telefónica, a Spanish telecoms firm, which aims to boost mobile payments across Latin America. The payments world is changing fast but the card firms are not about to let rivals swipe their business.
Adapted from a Economist Report
Reserve Bank of India has increased the amount that users can store in their m-wallet (mobile wallet) to Rs 50,000 from current Rs 5000. It has also relaxed the daily transaction limit for this growing segment from Rs.1000 per day to Rs.5000 per day. This brings semi closed m-wallets on par with the other semi-closed prepaid instruments.A semi closed prepaid wallet allows loading of money into a payment instrument, but cannot be used to withdraw money.Semi-closed wallet are prepaid payment instruments that are redeemable at a group of clearly-identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder. Essentially, what this implies is that operator subscribers cannot use the ‘currency’ to buy talk time (RBI has mandated that the prepaid currency needs to be kept separate from talk time currency).
The move has come after intense lobbying from banks and other stakeholders like mobile operators, who argued that Rs 5,000 transaction limit is too little to let the m-wallet system grow.Through a notification, RBI has announced the move attributing it to “the potential of such mobile-based prepaid instruments for promoting non-cash based transactions and the interest evinced by non-bank (like Mobile operators) entities in promoting these products”. With this change, the mobile based prepaid payment instruments are being brought on par with other prepaid services, like Itz Cash, Done Card, Beam, Oxigen etc.
RBI, however has set two conditions,on the Mobile wallet transactions:
- These wallets cannot be purchased or reloaded against airtime/talktime. However, they can be used to buy recharges
- These wallets can only be used to allow purchase of goods and services, not person to person transfer of value.
The success of the m-wallet system in the country can be judged by the fact that of the 39 banks, that were granted approval for mobile banking, 34 banks have launched the mobile banking services.On an average, 6.8 lakh transactions amounting to 61 crore in a month are settled through this channel (data point for the month of February 2011 courtesy The Mobile Indian).
As the number of cell phone users is many times more than the number of bank accounts, m-wallets can serve the purpose of enhancing the reach of banking to large sections of the country. M-wallets can also facilitate payment of utility bills including water, electricity, telephone, insurance premiums, cooking gas, etc. But the biggest advantage of mobile banking is that it cuts down on cost of providing banking related services to the customers. For telecom companies as well as banks, mobile banking is the surest way to achieve growth.
Leading mobile operators Bharti Airtel, Vodafone and Idea have tied up with SBI, ICICI Bank and Axis Bank respectively to offer such facilities to their subscribers.