The Fine Line: collaboration vs. competition in mobile payments

Philippe Eschenmoser is head of business consulting at SIX Payment Services

Following the news that Polish banks will work together on establishing a common mobile payment infrastructure, European banks should learn from the Polish market, writes Philippe Eschenmoser, head of business consulting at SIX Payment Services.

Last month came the announcement that in Poland rival banks are coming together on a collaborative project to encourage mobile payments. Alior Bank, Bank Millennium, Bank Zachodni WBK, BRE Bank, ING Bank and PKO Bank Polski intend to build a common infrastructure which is open to all market participants, including other banks. Comprising of standard authorisation and settlement, the system will support abilities such as 4G mobile banking and mobile shopping.

In many industries working with the enemy would be frowned upon – few businesses can succeed while supporting their main competitors. Yet these six Polish banks have realised that collaboration is the way forward if mobile payments are to rise from their currently fragmented state to become a mainstream payment method.

A fragmented market

Smartphone uptake has soared in recent years, in part encouraged by how easy it is it is to carry out everyday tasks from a portable handset. For example, research from the Nielson Mobile Consumer shows that sending emails, engaging on social media and online browsing are some of the most common ways that consumers are engaging with their smartphones in the UK. Why is it then that so far uptake of the mobile wallet has been somewhat sluggish? For example, last month Gartner was forced to revise down its predictions for the growth of mobile payments in the coming years, after uptake in 2012 was slower than expected. Given the ready availability of the technology to support mobile money, why aren’t consumers using this technology yet?

It has been frequently cited that the sheer number of different players in the mobile payments space is one of the key barriers to its growth. With so many banks offering a variety of different solutions, with varying degrees of sophistication, there is a huge amount of confusion in the mobile banking and payments marketplace. Add to that the fact that alternative financial players and mobile network operators are also increasingly attempting to break into the mobile arena, it is unsurprising that consumers are left puzzled about where to turn, with many choosing to stick to what they know best  – cash and card.

Collaborate to innovate

While other European market players continue to clamber over one another to claim their slice of the payments pie, these six Polish banks have established that spending money on developing individual innovative mobile banking offerings is a waste, especially while customers continue to ignore them. With a standardised system across the board, customers will have more clarity about what’s on offer and will feel more comfortable about embracing such technologies. Banks will still be able to maintain their individuality, and subsequently their competitive edge, as each bank will use the same mobile banking platform but then add its own features.

What’s more, there is strength in numbers. Working together in this way to build a collaborative and cohesive standard, the banks are hoping to reach 70% of banking customers in Poland, according to estimates provided by Bank Zachodni WBK. BRE Bank says it will bring four million BRE customers to mobile payments.

Lessons for the UK

Not only is this model brave and innovative, but it is also potentially industry-defining. Banks across Europe are coming to appreciate that the mobile payments market is theirs to own. Despite the flexibility of up-coming challenger banks and new financial service players, recent research from PwC highlights that 61% of customers trust their traditional banks with mobile payments over the unknown newcomers. The fact is that security remains a major concern for consumers when considering mobile payments, therefore well-established, trusted banks have the potential to be the real winners in the mobile race.

Building an industry-wide and secure solution for mobile payments could be the best way to alleviate customer fears about new technology. What’s more banks already have the benefit of both a large customer base and significant marketing clout; consequently following the example of the Polish banks and working together could be the push they need to take the industry lead.

While we know that markets across Europe do differ, it is clear that the quiet introduction of mobile payments has so far failed to excite customers, especially in countries such as the UK and Holland. This is why it may just take the efforts of a huge initiative, such as the Polish example, for the technology to create waves in the market. The Polish market has made the acknowledgement that consumer knowledge of mobile payment technology is not enough. Customers already trust banks with their money – so bank collaboration may just be the final piece of the mobile payment puzzle.