Whilethe flashy new technology from Apple Pay and Android Pay may grab the public'sattention as tech giants do battle for a slice of growing mobile wallets, thereal threat to banks and card companies currently dominating European paymentsmay come from the way technology meshes with regulatory change.
that it would roll out itsAndroid Pay feature in the U.K., allowing consumers to use their Androidsmartphones to pay at retailers equipped with the contactless payment terminalsalso used for contactless credit cards. Android Pay will compete against ApplePay, which launched in the U.K. in 2015, and Samsung Pay, which will becomeavailable later this year, for a mobile payment market that is currently tiny,but growing.
Payingwith a tap of a mobile phone and the touch of a fingerprint seems a far cryfrom older technology, but the apps involved merely hitch a ride on the back ofthe existing financial architecture rather than displace it. Users will loaddetails of their payment cards into their mobile wallets, so transactions are still made by firmssuch as MasterCard Inc.or Visa Inc. and themoney deducted from accounts held at high street banks.
Moreof a challenge to the market incumbents may come from upcoming changes toregulation governing payments within the EU, which are being updated to takeaccount of technological advances. A revised Payment Services Directive willmake it much easier for third-party providers to provide payment services,exposing companies like Visa and MasterCard whose business was built onproviding physical cards.
"Thathas probably got more of a disruption capability than what's going on withApple Pay and Android Pay," Mark O'Keefe, director of the Optimaconsultancy, said in an interview.
Underthe directive, which is set to be adopted soon by the EU Council of Ministersand will require EU countries to comply within two years, companies will haveto open up their systems to account information services and to payment initiativeservices.
Abig retailer, could, for example, provide a mobile app that automaticallysweeps money from a customer's bank account, bypassing Visa or MasterCardentirely, O'Keefe said, although he added that many retailers could also decidethis business is not worth their while. The card companies will be aware of thelooming threat, he said, noting that MasterCard is reportedly interested inbidding for VocaLink Ltd.,which controls a large portion of a different part of the U.K.'s paymentsinfrastructure via the Faster Payments Service and Bacs. VocaLink, owned by aconsortium of banks, handled 11 billion transactions with a value of £6trillion in 2015, including 90% of U.K. salaries, more than 70% of householdbills and almost all state benefits.
Itis not completely certain that the revised payments directive will beimplemented in the U.K., but if it is, the rules would still probably only makeit feasible for bigger companies or retailers to become payment serviceproviders, limiting competition to the card companies, which are also moving toadapt their own platforms to a more mobile world, David Bannister, an analystat Ovum, said in an interview.
Andcards aren't going anyway any time soon either. They are likely to be morewidely accepted than mobile apps for years to come, especially inoff-the-beaten-track places, are easier to carry and don't run out of batteries.
Sofar, mobile payment providers still have an uphill task convincing consumersthat using their phones to buy something is any more convenient or safe thanusing cards or cash. Even in countries with high acceptance of mobiletechnology and sophisticated retail networks uptake has been slow. In Sweden,where cash use fell to 22% of payments in 2014, mobile payments still onlyaccounted for 3% of the total, according to consultancy Arthur D Little, whichnonetheless sees the value of transactions almost doubling from the end of 2015to 2017 on a global level.
Ifcard companies run the risk of being squeezed out of mobile platformsaltogether, banks, too, could begin to find business bypassing them.
Mobileproviders such as Apple and Android will not only link their electronic walletsto bank accounts — they will also aim to harvest additional business includingthat from loyalty cards and store vouchers, sidelining the banks, Arthur DLittle's Julien Duvaud-Schelnast said in an interview.
"Theone thing the banks lose is the opportunity to leverage all the data that isgathered within the wallet and to monetize it with value-added services,"he said.
Banksin some countries have tried to offer their own mobile payment solutions, butthese have met with less success than their apps offering core banking servicesand money transfers.
"Banksare not technological players, and they are very risk-averse, so that doesn'treally combine well with combining mobile payment solutions,"Duvaud-Schelnast said.