Back in 2009 I remember feeling peeved that my bank was planning to get rid of cheques. What was I thinking??
Maybe I was annoyed by what I saw as more high-handed behaviour by the banks; I was probably feeling a bit nostalgic as well. But in reality I would have struggled to remember the last time I’d written a cheque. In fact I think I’m still using the same cheque book today that I had back then! They seem to last for years nowadays.
Although the banks have relented and given cheques a reprieve, the reasons people don’t use them much anymore are pretty obvious.
Internet banking has been around for a while now. And as our use of the internet has migrated from the desktop PC to the tablet and smartphone, so too have our banking habits. Surveys show that we prefer to use these mobile devices for internet shopping and e-commerce, rather than going through the rigmarole of firing up a computer. They’re simply more convenient.
But are we about to go one step further? Rather than just using our mobile devices to send payment instructions and look at our accounts, are they going to become the means of payment themselves – like an electronic cheque book?
The technology to do this isn’t that tricky. It’s certainly something that’s been talked about a lot over the years, but it’s just never got going. I think the reason for this is that there are a few big established players in the payment world, and lots of expensive, embedded infrastructure.
The big players like banks, payment clearing houses and credit card companies are hugely profitable businesses, so there’s not much incentive for them to rock the boat by coming up with a new system.
Kenya leads the way
Ironically, the emerging markets are well ahead of the developed world in using mobile payments – simply because there isn’t an embedded infrastructure that needs to be displaced. In parts of sub-Saharan Africa for example, most people have never had a bank account – but they do have a phone.
So the technology used to top up mobile phone credit has been adapted to allow cash to be loaded on phones. They become electronic wallets, and can make cash transfers to other mobiles. One of my Red Hot Penny Share tips is a leader in developing software in this field, and is also a major player in cross-border payments to mobiles. You can learn more about how small cap tech stocks are disrupting the banking industry in my latest report – click here to read it.
Probably the most successful example of mobile payments is Vodafone’s Kenyan network, Safaricom, which operates the m-pesa system. Simply because there is no cheap and easy alternative, m-pesa processes annual transactions equivalent to an astonishing 30% of Kenya’s GDP! People like using it, and Safaricom, which is part-owned by the Kenyan government, is a more trusted place to deposit money than the local banks.
In the West, though, we have got an incumbent payments infrastructure to overcome. But an immensely popular brand is rumoured to be launching a challenge.
Is Apple about to disrupt another industry?
Apple has recently signed partnerships with Visa, Mastercard and Amex to support its own payment system. It already has 800 million iTunes accounts with customer payment information, so consumers trust it with their money. And crucially, Apple wields huge power in the marketplace. So it’s better-placed than most to drive adoption of the mobile as a payments device and move it towards critical mass.
We will have the usual ballyhoo surrounding the launch of the iPhone 6 next week – and I’ll be watching closely for the news on mobile payments. This is a big industry ripe for disruption.
One final thought, however: trust is a crucial aspect of the whole payments, banking and financial system. So the news that several celebrities have had their Apple accounts hacked and compromising photos stolen isn’t very helpful in building confidence in a new mobile payments service. At the moment, it looks like this is a case of hackers guessing passwords and usernames, rather than a security breach.
But if payment by mobile is to take off, there are trust and cultural issues to overcome. If they can be, then in a few years’ time my cash and credit cards could end up in the same dusty drawer as my cheque book.