The Future of Mobile Payments: Will 5G speed up expansion?

With the Mobile World Congress (MWC) in Barcelona having just ended, one of the key focus is that 5G plans are being sped up.

The first 5G phones aren't due until 2019 (possibly mid-2019), and it might not be until 2020 that digital sales really start to take off. But carriers, infrastructure providers and chipmakers contending with top-line pressures all seem eager to commercialize the technology on a large scale as soon as it's technically feasible to do so.

It's no secret that 5G, which will rely in part on high-frequency mmWave spectrum, is much more demanding from an radio frequency (RF) technology perspective than 4G. Announcements and demos at MWC drove home both the challenges and opportunities this presents.

This may have significant impact on mobile payments and peripherals.

Mobile Payments in a nutshell

You're shopping at a store that has mobile payment readers at the register. Rather than reach for your wallet, you take out your phone and hold it a few inches away from the point-of-sale (POS) terminal. This device then automatically reads the payment information stored on the smart chip embedded in your card and then processes the transaction.

Each chip connects to an antenna, and POS terminals emit a high frequency radio wave that facilitates communication between the reader and the phone. When the mobile device is in range, a wireless communication protocol links the terminal and the phone, which exchange information and conduct a secure transaction.

The various popularly use systems at play so far are:

1. Mobile wallet - is generally a card connected to a mobile device which can be used to make e-and mobile commerce & POS payments. This is the model currently being used by Apple, Samsung and Google Pay.
2. Person-to-person or peer-to-peer (P2P) payment - Anyone using the wallet can pay anyone else using the same wallet – regardless of what bank they belong to – using any funding source attached. See
3. Mobile banking - any banking functionality which can include the above features plus banking balances and transaction history, bill payments and transfers, direct debits, applications for a new banking products, insights about your financial performance against your own targets and peers in the same income and spending cluster and much more....!

QR or NFC?

In the battle for mobile payments, currently 2 “main” types of technologies reign.

QR codes are cheaper and easier to set up. Virtually any smartphone can analyze a QR code, unlike NFC which requires the phone to have a NFC chip installed. QR codes can be printed on most surfaces and easily seen by users.

On the other hand, QR codes only allow for one way communication whereas NFC can communicate both ways between two devices or even rewrite the information on an NFC tag if permitted to do so. Businesses usually find this level of interaction more appealing, but the costs of NFC are higher than implementing QR codes.

What has really drawn organizations and companies to NFC over QR codes is the technology’s potential. The major advantage of NFC is its flexibility. Storing different types of information and changing it on a whim is possible without every creating a new NFC tag. The owner can simply overwrite the information currently on the tag and create new info, also with NFC technology, the user waves the phone near the NFC tag area and the information is transferred instantly. No need to open an app or wait for analysis. The tag and reader communicate with each other to complete complex transactions quickly and securely.

MasterCard's 2016 decision to enable banks to add an in-store payments element to their mobile banking app for NFC-ready Android smartphones has rekindled an industry argument about what works best for financial institutions and proximity mobile payments.

Globally, Google just has redesigned and relaunched Google Wallet app for sending and requesting money, now called Google Pay Send, existing Android Pay users will get updated over the course of the next few days.

Here in Asia, UnionPay International extended its UnionPay QuickPass QR code mobile payment service to Hong Kong and Singapore, where the first merchants providing this new service are three stores of Colourmix at Causeway Bay, Hong Kong and two stores of BreadTalk in VivoCity and Marina Bay Financial Centre, Singapore. Next, UnionPay mobile QuickPass QR code payment will be introduced in the travel destinations favored by Chinese tourists, including Thailand, Indonesia and Australia.

The new service supports NFC contactless payment with UnionPay chip cards, smartphones and wearable devices. Outside mainland China, mobile QuickPass is now accepted at about 500,000 POS terminals across Hong Kong, Macau, Taiwan, Singapore, Malaysia, Australia, Canada, Russia, the UAE, etc.

In Japan where 65% of payments are settled by cash, Mizuho Financial Group, Mitsubishi UFJ Financial Group, and Sumitomo Mitsui Financial Group have come together to make a push for QR based mobile payments, sitting next to rivals like Line Pay and NTT Docomo.

Spending with your Global Wallets

The global digital transaction market is expected to reach USD 5.5trn by 2023.

According to a 2017 report by Allied Market Research, the global mobile payments market is estimated to reach nearly $3.4 billion by 2022, with a compound annual growth rate of 33.4 percent from 2016 to 2022. A new study from Juniper Research predicts and expected to surpass 1 trillion USD in 2019, according to Statista.

The study found that mobile spend is currently concentrated in China and East Asia owing to the success of Alipay and WeChat. Just imagine 229.7 billion messages were sent via wechat over Chinese New Year from 15 to 20 Feb 2018 . That is 38.3 billion messages per day. On top of that, there are more Chinese tourists spending more money, 65% of whom already have used mobile payments to transact and who want to use mobile payments when they’re traveling. From January to October last year, Chinese government statistics showed that mobile payment transactions in China amounted to 81 trillion yuan (USD12.8 trillion).

In India, both Ant Financial and Tencent have bought into the Indian mobile payments market, which is enjoying rapid growth under new regulation. Ant Financial and Alibaba invested up to $900 million in PayTM, as well as sharing staff and technical expertise. The result: PayTM has grown from 5 million to around 200 million users in just the last few years.

Indonesia was the fastest-growing m-commerce market in the world in 2016, the report shows expanding 155% from January 2016 to January 2017.

Some of this growth may be due to the release in 2015 of BBM Pay's Instant Mobile Payments. The popular BBM chat app has over 55 million users in Indonesia and continues to develop.

The new report by the UN-based Better Than Cash Alliance contains key lessons to help other countries include more people in the economy by transitioning from cash to digital payments.

This shift could increase GDP across developing economies by 6% by 2025, adding US$3.7 trillion and 95 million jobs, according to a McKinsey Global Institute report.

National Bank of Canada (NBC) acquired a 22% stake in Myanmar-based mobile payments firm ONGO for an undisclosed sum. ONGO is the consumer facing brand of Ronoc Asia, a subsidiary of the emerging markets investment business Ronoc. It offers retailer payments solutions, payroll programs and direct to consumer services leveraging payments technology.

Over in Africa, The volume of cashless transactions grew by 13% per annum between 2014 and 2016, driven by the improved availability, reliability, and security of electronic channels. This make Africa the world’s second-fastest-growing payments market after Asia-Pacific; Africa also has the second-highest revenue per cashless transaction according to McKinsey.

In the UK, the supermarket sector has been an important driver in the uptake of digital wallets, accounting for 59% of all in-store mobile transactions as time-poor shoppers grab groceries on the go. Pubs, bars and restaurants make up a further 12.5% of the total spend.

E-LAI-SEE over CNY

In 2018, Octopus Cards, which launched e-lai see services for its smartphone app “O! ePay” last week. Other popular P2P payment services that offer digital lai see options include Tencent’s WeChat and Alipay, launched by the Alibaba Group.

During the Lunar New Year holiday in 2016, 516 million people gave and accepted 32 billion digital red packets on WeChat, according to Tencent. According to Ant Financial Services, an affiliate of e-commerce giant Alibaba Group, more than 100 million Alipay users participated in a promotional campaign under which the payment service provider would give away a lai see worth a total 200 million yuan for the Lunar New Year of 2017.

5G, Mobile Payments & Security

As the mobile payments ecosystem develops further, more opportunities for innovation will arise and we will see increased usage of the mobile phone. Dealing with security and the perception of security is key to enable mobile payments adoption as this is typically the number one barrier for mobile payments adoption.

Unlike their plastic card predecessors, smartphones are essentially more accessible to hackers and fraudsters than are offline plastic cards. And unlike the chips in smartcards, the software on smartphones is open to inspection and vulnerable to attack, especially when the phone is rooted.

Adding to the challenge, is the sheer number of entities embedded in the mobile payment ecosystem. This volume directly adds to the complexity of its overall security architecture and correspondingly, to its growing number of potential points of vulnerability. OEMs, MNOs, chip makers, security service providers and OS and software developers all have unique needs and vested interests that may at times be in conflict, undermining the end-to-end security of the system.

While next-generation wireless networks will figure prominently in tech companies’ bright, shiny plans for interconnected digital devices, with superfast 5G systems being the glue that holds it all together. It is finally the year that the technology gets deployed. The tech in the hands of retailers that will drive adoption, deepen the merchant-customer relationship as everyone comes up with more creative ways to attract and retain consumers.

For the moment, the impact of mobile capabilities has been much smaller in the corporate and wholesale payments sector, reflecting greater concerns around security and the need for more complex information to accompany transactions. But with the infiltration of smartphones into the payments world only expected to increase, this provides a viable opportunity for banks to adapt and consider solutions that cater to multi-device demands.

The distinctions we make between physical point of sale, e-commerce and mobile commerce will blur, and the digital wallets will play a part in a consumer being able to pay anywhere, anytime, worldwide. Most of that is simply extending existing systems into the mobile wallet - many consumers will want to have that as an available option. Payment companies will need to evolve and we will see an expansion and innovation of the ecosystem, with refined ways of using new technology to solve old problems, now even faster with 5G.

I’m passionate about everything digital. If you share this enthusiasm I’m happy to connect. The views, analysis and opinions reflected here are mine.