Charmaine Oak, Practice Lead at Digital Money has just published a book – The Digital Money Game.
Given her level of experience and knowledge, we asked Charmaine what she thought about the payments market and what services will win – and lose.
BV: It seems as if everyone is getting into the payments game – from banks, to Telcos, payments providers, Google, Apple – who knows who else.
Which sector do you think has the best chance of winning – or perhaps better put, what does a winner need to provide to customers to win.
CO: This is a very interesting question and really is the crux of the book. It took me over 10 years to figure out some of the nuances I describe on the way to developing an answer to this.
Firstly, what it means to ‘win’ differs for each group and that is where the challenge begins. For a bank, it is important to save costs whilst retaining customers. For a player such as Google, success in payments enables the creation of a new revenue stream from marketing offers.
Banks and money transfer companies found it hard to reconcile their business model with that of Safaricom when M-Pesa started gaining traction. This is because mobile operators were able to make their business model work by factoring in reduction of the cost of airtime top-up and savings due to churn reduction. Today mobile operators find themselves disrupted in a similar fashion. The core business model for each kind of provider differs greatly. It is therefore possible for new entrants to take a very different approach to gaining market adoption. At the moment, payments constitute that magic ingredient that can enable the provider to acquire and retain customers across multiple channels.
Today the answer of who has the best chance of winning differs by geography. While in countries such as Indonesia and Poland consumers look to banks to provide them services, in many countries within Africa it is the mobile operators who are at the centre of the ecosystem. The short answer to the question ‘who will win?’ is that winners will be those providers who control context, standards and shared services. How they achieve such a position is something I look at in detail in the book.
With respect to what a winner needs to provide, it is not just what they provide to customers. Payments involve a minimum of two sides. We used to speak of consumers and merchants and indeed both of these must adapt for a provider to win. I now prefer to look at this process from each of the stakeholder perspectives. The stakeholder may be the government. They win by delivering the state benefits to those who need them with a minimum of ‘leakage’. When the government decides, both the end-consumer and the merchant will change their habits and their products respectively to embrace the new methods. In the book I go into the big questions from each of the key perspectives.
BV: What will not succeed in mobile payments – what are companies doing that they really should not do?
Mobile phones and smartphones in particular offer an exciting channel for interacting with consumers. However if providers take a very rigid approach there are a number of risks that they open themselves to. Take the example of the NFC vs HCE debate. Technologies are bound to move on. Meanwhile the size of the projects and investment needed into core infrastructure is quite substantial. It pays to be able to limit the possible damage to an ecosystem from such changes. When individual players are able to undertake projects with a broader vision and a modular approach it could help to minimise possible loss if things have moved in a different direction, by the time their projects are ready to deliver.
Another crucial error that mobile payments providers sometimes make is to try to ‘own’ the customer. In today’s fast-moving payments industry, this is unlikely to work, and might damage future chances for success. By cutting out the most appropriate partnerships to obtain complete control of the customer, providers can risk marginalising themselves and sacrificing one of the most valuable features customers look for – convenience.
The book begins with a discussion of some of the myths of digital money, and I think having those points clarified provides people with a broader palette to work with. I do not recommend larger projects, far from it – one must start small, but a realisation of the full picture guides companies towards creating appropriate architecture and a highly attractive business model. In the book I describe how the digital money approach helps, and how this helps companies avoid the pitfalls of this new multi-trillion dollar industry.
Author of The Digital Money Game