Consumer Value — Not Underlying Technology — Will be Top Driver For New Consumer Payments Tools
11 March, 2003
category: Contactless, Education, Financial
TowerGroup Research Outlines Lessons from Current Consumer Payments Market for
Financial Institutions, Mobile Operators
NEEDHAM, Mass., March 3 /PRNewswire/ – Electronic payments continue to
gain share at the expense of cash and checks in the U.S., a market that has
long-lagged other nations in the global shift from paper-based payments. New
TowerGroup research finds that as the percentage of electronic transactions
continues to increase, so does competition among new technologies to become
the dominant electronic payment mechanism for consumers at point of sale,
online or through mobile devices.
While credit and debit cards are today’s most common electronic payment
options, new devices will become increasingly prevalent – including those
that, unlike swiped magnetic strips, require no physical contact to activate a
payment.
But according to TowerGroup, whether the future of payments lies in cell
phones, “contactless” radio frequency keychain fobs, or chip-based smart cards
will largely depend on how effectively these methods can provide clear value
to the consumer. Research highlights include:
The global retail payments industry continues to shift gradually away from
cash and other paper-based payments in favor of electronic payments. In the
U.S. (more dependent on paper than any other leading economy), check-based
payments have fallen from 86% to 55% of the total volume of retail noncash
payments since 1979. Elsewhere in the world, check volumes have already been
converted to check guarantee (or debit) cards, while post-paid cards are
gaining significant traction.
In the next phase of this shift, TowerGroup expects convenient and cost-
effective macropayments (payments over the value of US$10) and high-value
micropayments (those between US$5 and $10) to expand further into new consumer
arenas, like movie theaters and fast-food restaurants. This move is already
visible in the introduction of stored value cards by chains like Starbucks,
and in the piloting of swipe and contactless cards at fast-food and
convenience store chains.
Over the longer-term, new products and services will be designed to tap
into the convenience of “noncontact” payment technologies, particularly those
that leverage the growing array of cell phones, PDAs and other mobile data
devices. Ultimately, consumers will be able to pay for a variety of Internet,
mobile and physical goods with a single contactless device – such as seen in
Korea today, where contactless payments for a range of items are linked into
customer-controlled alerts for special offers, loyalty program rewards and
mobile couponing.
While today’s relationships between credit card issuers and consumers will
not go away, the location and ownership of “virtual wallet” accounts will in
some cases shift to carriers and other non-standard issuers.
But TowerGroup also underscored that consumer value will be a critical
factor in adoption of new payment methods. At every point in the payments
evolution, success will be measured as much (if not more) on business model
and the ability to add tangible value over and above existing consumer payment
habits, as it will on an underlying technology infrastructure.
“Financial institutions, mobile network operations and other stakeholders
in the payments evolution must carefully consider the past lessons from this
market when implementing emerging payments solutions,” said Ed Kountz, a
senior analyst in the TowerGroup Emerging Technology Solutions practice and
author of the research. “The factors that influenced the growth of swipe-
based electronic payments to date will continue to play a role in the push
toward ‘noncontact’ convenience payments.”
Kountz noted that over the past two decades the payments market has
consistently moved toward convenience, user value and the cost-effective
delivery of services. “The primary drivers for emerging payments options are
analogous to those we’ve seen in the current payments marketplace. These
drivers include the cost of the payment mechanism for both consumers and
merchants, the convenience for a consumer versus his or her existing payments
habits, and finally, the use of brand affinity or loyalty tools like frequent
flier programs that enhance a consumer’s experience, while simultaneously
helping retailers better leverage data on consumer buying habits,” he said.
Two reports, titled “The Future of Retail Payments: Today’s Market and the
Impact on Emerging Payments Solutions” and “The Future of Payments: Where the
Rubber Meets the Road in Noncontract Payments Value” – and graphics – are
available for review by qualified members of the press. Press may also
request a complimentary pass to the TowerGroup 2003 Business and Technology
Conference: “Linking Technology, the Customer & the Bottom Line” April 30-May
2, 2003 in Boston, Massachusetts. See
http://www.towergroup.com/public/conf03/index.html.
About TowerGroup: TowerGroup -- now celebrating its 10th year -- is the
leading research and advisory company focused on the global financial services
industry. A respected source for trusted information and advice, TowerGroup
brings many of the world’s largest financial services, technology and
consulting firms a deeper understanding of the business and technology issues
impacting their organizations. Headquartered near Boston in Needham,
Massachusetts, and with offices in New York, London, and Kuala Lumpur,
TowerGroup serves a global client base. Visit TowerGroup online at
http://www.towergroup.com.
Contacts:
Anne Green
p. 212-455-8017
Faye Nikolaidis
p. 212-455-8078
[email protected]