|Chris Dunne, payments services director at VocaLink|
The move “will be a game changer for mobile payments”, says Chris Dunne, payments services director at VocaLink, radically enhancing the interoperability of payment systems.
“Other mobile services rely on both sender and receiver to be in the same service – they are closed-loop systems,” says Dunne. “This database is supported by the largest banks in the UK, so it is much more likely that your intended recipient will be on the database and so they won’t have to do anything to receive the payment.”
VocaLink hopes the move will overcome the aversion people have to giving their bank details out online. While people are sometimes unsure what information fraudsters can use to hurt them, most people have no reservations about giving out their phone numbers.
The publication of the long-waited report on UK banking standards by Andrew Tyrie on Wednesday underscored the political appetite for current-account portability.
Dunne says VocaLink’s new initiative could also boost banking competition as it “could also lead to increasing portability between banks”.
Regular updates to the database will ensure it operates seamlessly, even if there is a change in the bank to which a phone number is associated, meaning payments will always arrive in the right place, he says.
While it is said people are more likely to get a divorce than change their bank account, this is driven more by the perceived difficulty of making the change than customer loyalty.
The evidence from other utilities that have been subjected to increased competition is that people will be more likely to change bank provider if it is made easier to do so.
Whether the database will be the catalyst that finally takes mobile payments into the mainstream remains to be seen, but the motives for using mobile payments are clear: convenience and speed, according to a recent research report by VocaLink, which surveyed 10,000 UK adults between the ages of 16 and 65.
PayPal Mobile is comfortably leading the market, with 64% of respondents who had used a mobile or a tablet to make a payment using that platform. Mobile banking apps came in second with 40%.
Take-up rates for mobile banking in the UK are still low, though the trend is growing fast. There was no substantial m-banking business in 2008, but by mid-2012 17% of customers were using mobile banking services, according to OFT consumer surveys.
This is despite the fact around 60% of those customers use online banking services via PCs or laptops.
Behind PayPal and the dedicated mobile banking apps are a scrum of other providers, all with similar levels of penetration – between 10% and 12%.
At the upper end of this range is contactless payment via smartphone, a relatively new phenomenon using NFC (near field communication) technology that works much like Transport for London’s Oyster card. Other contenders are SMS payments, Google Wallet, Barclays Pingit and QR Code payments.
Birth pains for mobile payments
Despite a plethora of options, these providers are still competing for a limited number of transactions: only around 6% of respondents had used a mobile phone to send money to friends or members of their family, and that was the single-biggest category of mobile payments usage.
The problem appears to be one of opportunity. Despite the range of options available, people evidently do not feel the right provider is in the market: while 5% of respondents said they had paid for parking via mobile – the second-biggest use for mobile payments – 30% said they would like to use this service.
The greatest aspiration was for the ability to pay for groceries via mobile phones, with 32% of those surveyed saying they would expect to use this service if it were more readily available.
And the biggest gap between actual usage and potential use of mobile payments was for the services of tradesmen. Only 2% of the population have used their mobile in this way, despite 80% of those surveyed indicating they would like to do so.
The key to closing this gap appears to be the banks improving their mobile banking platforms. More than a third (35%) of respondents said they were more likely to pay for items using their mobile phone if the service was provided by their bank.
Barclays and NatWest have gained the most traction with banking apps in the UK market, with 11% of those using mobile banking apps choosing each of those banks – with Lloyds close behind on 10%.
The problem is finding the balance between security and functionality, which still seems to be eluding the banks.
Security is the main concern holding back mobile payments: four out of 10 people indicated they do not want to input bank details on to a phone, while 35% worry about losing a phone that had been set up to make payments and 32% feel mobile payments are not secure.
This seems to explain people's desire to use bank systems to make payments.
“People trust banks when it comes to keeping their money safe because that is their job – it is both a perception and a reality,” says Chris Popple, head of digital for the retail bank at RBS. “We take security very seriously.
“But it shouldn’t have to be a trade off between simplicity and security, and banks need to keep pushing the boundaries to improve what we deliver on both.”
Yet while banks stand for security, they are not always the best at driving innovation, even when they have good ideas. “Banks are not always well placed to develop their own innovations,” says Julian Wakeham, investment banking partner at PwC.
“Some ideas need to be spun out into separate entities to make them profitable. If a bank comes up with a digital authentication system, how does it value that as an asset? It can’t charge its clients for that service, but if it spins the idea off into a new company, it will be able to make money on it.”
The answer is collaboration. Marcus Treacher, head of e-commerce for global payments and cash management at HSBC, says: “People want an end-to-end service from their banks, where their fingertip on the phone is essentially the same as touching the local branch, but the software behind that will increasingly be delivered by innovators like third-party software companies.
“Technology doesn’t necessarily need to be developed by our own IT departments.”
Collaboration will come not only between banks and technology companies but amongst the banks. “Swift’s standard universal network shows the huge efficiency of industry collaboration,” says Treacher.
“Car manufacturers use parts from all over the world, developed by other companies. That maximizes efficiency and reduces cost, and banks are moving in a similar direction.”