Exclusive interview with Patrick Desmarès, Secretary General, Efma

In Brief:

The upcoming Mobile and advanced payments, conference & exhibition will focus on...improving the customer experience and how banks can use mobile payments to form a closer, more personal relationship through their own and through key partnerships.

The leading area for mobile payments in Europe is …NFC and contactless technology opportunities

If NFC is to prevail, will merchants have to change all their terminals? This depends on the existing terminal’s capabilities, but without NFC service providers paying the upfront costs of the infrastructure to manage such smartphone-based retail applications these services could go the way of previous alternative-payment schemes that only succeeded in alienating merchants.

Cash will...continue to fight its ongoing battle with mobile payments for a while yet however as more and more financial institutions adopt advanced payments it will eventually prevail as the key way to reduce the use of cash and its associated costs.

Since payments are a two-sided market, what will this mean for merchants? Partnerships, partnerships, partnerships. And a good revenue agreement!

Three real cool initiatives in the mobile space are ….the connected card, e-wallets and new emerging revenue streams and partnerships through new intelligent technology ie smarthomes, smart cars and converged media.

Consumers have good reason to trust NFC-based mobile payments because... banks, technology companies, telecoms operations and retailers are all working towards making them as safe as possible. It is the future and needs to be built on solid ground!

First of all, it would be interesting to provide our readers with some background information on Efma – its membership, agenda and the vision behind the events it organizes, such as the upcoming Mobile and advanced payments, conference & exhibition which will take place in Paris 25 – 26 September 2012. How does Efma position itself in the global (mobile) financial services market?

Patrick Desmarès: Efma promotes innovation in retail finance in Europe by fostering debate and discussion among the main players involved in change. Formed in 1971, Efma comprises 2,450 different brands in financial services worldwide today, including 80% of the largest European banking groups. Through regular events, publications, and its comprehensive website, the association provides retail financial service professionals with answers to their questions about the main issues at stake in their business, including multiple distribution strategies, the customer approach, CRM, product and service marketing and improving profitability.

Over the last two years we’ve seen mobile gain a lot of momentum - it has gone from a niche business to mainstream. Everyone recognises its importance. However, the traditional business case doesnt allow for the intangible benefits that mobile delivers. So why is mobile so important? The growth in demand is strong across the globe. Africa has had a success story with M-Pesa but this represents a small amount of the overall anticipated growth. Europe represents the second biggest market and opportunities clearly exist here.

The emerging market story is compelling for banks. We haven’t seen the explosion of growth that many predicted in the short term, but this reflects the challenge of working with regulations. Partnerships and co-operation is a solution: non-financial organisations will struggle without understanding the regulations. The potential of this approach is yet to be fully unlocked. Looking at mobile applications and the numbers involved, there are billions of downloads and trillions of texts sent each year.

The upcoming Mobile and advanced payments, conference & exhibition takes place under the heading “Staying close to customers in the new mobile payments space”. Given the fact that the world of commerce is now fully embracing mobile technologies – with the mobile phone expected to replace the wallet in customers’ pocket - what is your vision on the emerging mobile payments ecosystem? Where are we now, how is innovation taking place and where are we headed next?

Patrick Desmarès: The mobile technology required to revolutionise payments already exists. However, the challenge now is converting technological possibility into market capability, for example, how to create and deliver a mobile payments solution that customers and merchants will embrace. The challenge is far from easy. Payments ecosystems can vary greatly around the world. Of course, in developing countries, the most compelling mobile payments opportunities are banking the unbanked and digitising cash. (Over 90% of transactions worldwide are still cash-based). In the more developed, wealthier markets, where cashless transactions are already the norm, the big opportunity is revolutionising the buying experience. Mobile payments isn’t about how you are going to pay, but what you are going to buy and where.

A report released by McKinsey & Company and Efma at the end of 2011 found that banks were quite optimistic about the potential of mobile financial services. What is the role you envisage for banks in this space? What are the main types of mobile financial services banks could offer to their customers?

Patrick Desmarès: Mobile has the potential to revolutionize the customer experience in personal financial services, and although banks across Europe are mobilising to respond to the growing mobile opportunity, non-banking organisations are leading the mobile revolution. It is important that banks grasp this chance to build a more personal relationship with customers through the mobile experience. This is where their focus and role must be. The key applications and services I see are often free applications that facilitate a range of new payment options, including cross-border remittances and peer-to-peer payments. There is also the question of growth beyond just mobile in the form of tablets and apps across multiple platforms.

What are the main characteristics of banks that make them suited to occupy a top position within the emerging mobile payments ecosystem?

Patrick Desmarès: Banks have a great deal of expertise which makes mobile banking and payments a very real opportunity for growth. Banks have in-depth knowledge of licenses, infrastructure and regulatory compliance. They have the ability to facilitate foreign exchange, clearing, and settlements. Many banks already have an established brand and presence within key customer segments and geographic areas, and existing relationships with key merchants poised to connect mobile with the customer.

How would you characterise the global mobile payments space? What are some of its current key features and what major challenges is this m-payments ecosystem facing?

Patrick Desmarès: Globally, almost all the industries within the ecosystem are benefiting from the connected devices and ubiquity of broadband networks. This is taking the m-payments ecosystem away from just banking towards new vertical sectors – security, health, retail, utility, transportation, entertainment, and others. The key challenge for banks and all players will be to build the right partnerships and agree the right revenue sharing model. Banks are also facing increasing levels of competition from powerful alternative platforms such as Amazon, Google, Facebook and PayPal who are offering new payment and deposit propositions.

What will be some of the main themes / topics that will be covered by plenaries and workshops during the upcoming Mobile and advanced payments, conference & exhibition?

Patrick Desmarès: We have been working steadily on our September summit – ‘Mobile and Advanced Payments conference exhibition’ (Sept 25-26th in Paris) and I am very pleased to announce the current programme. We will provide an update as we continue to refine the programme and announce more speakers. As you know, our conferences are deep in content and high on participation – this year we also have an event ‘App’ so we are building our own multi-platform communication offer as well! We aim to bring together some of the leading thinkers and doers from around the world to brainstorm the future of mobile. Whilst 2011 was the year of figuring what the opportunities are in the new connected era, 2012 is now about on how to monetise those opportunities. That is one of the key themes of our event plus the emphasis on new growth strategies from NFC, e-wallets, deepening the customer experience to drive loyalty and emerging mobile payments growth within the underbanked sector. We have some excellent speakers from Visa, Paypal, Rabobank, Deutsche Bank, Vodafone, Nokia, Citibank, Barclaycard, Tesco Stores to name a few.

The emergence of the so-called alternative payment services providers such as PayPal and Google and their appetite to establish a solid presence in the mobile payments space could be a problem for banks. One concern for banks would thus be the possibility that such players will diminish their role in the payments value chain. How would you see this scenario playing out? Are banks safe or should they worry about being disintermediated?

Patrick Desmarès: This is perhaps one of the most interesting and dynamic topics. Basically, everyone in the e-payments ecosystem starts with what devices you are going to put out, what kind of promotions, what capabilities, what applications, and then work out the micro segmentation of the customers. What is interesting is that retailers such as Tesco are offering financial services. In addition, Google has made mobile money platforms a strategic priority, and intends to be a leader in mobile commerce. Customer expectations are being driven by the ease of information access and interaction capabilities offered by smartphones and devices such as tablets. Banks need to forge connections with retailers, for payments services as well as m-commerce opportunities, to keep pace.

This trend is particularly notable in emerging markets such as India, China and across Africa, where land-based communications infrastructures are poor and a widespread leap to mobile occurred. Nobody would say banks are safe, but those who are grasping the mobile payments opportunity will reap big rewards and grow market share.

Looking at m-payments strictly from the perspective of financial services providers (banks), would you say mobile payments are likely to be seen as a continued opportunity to reduce the use of cash and its associated costs?

Patrick Desmarès: Cash is primarily used for small purchases and contactless payments are meant specifically for small purchases. I think it will be 3-5 years before the infrastructure and pricing is in place to make any real dent in cash usage and I still believe that. I suppose that one could start a “cash threat” list by adding mobile P2P transfers to contactless payments. P2P transfers are an extremely useful tool and are already in place in much of the world – and not just via PayPal.

Conversely, are banks likely to include m-payments in their offerings purely to fight against being disintermediated by third-party providers?

Patrick Desmarès: Fortune favours the brave but that doesn’t mean banks will build a loss-leading proposition to gain or maintain market share. Banks should continue to recognise the potential in areas, such as remittances or prepaid products, can confidently avoid being disintermediated by embracing innovation, as long as they keep an equal eye on the mobile payments market as well. So the message is to keep building core strengths, partner with key emerging players and build a strong mobile proposition – simultaneously. The opportunity presented to banks by m-payments is about getting closer to the customer and building transaction volumes. Those who know their consumer -- everything about that consumer and what the consumers preferences are – will win. Very often that is why big retailers like Wal-Mart, Tesco, Carrefour and Amazon present such a threat.

In your opinion, what are some of the main trends that are likely to impact the mobile payments business in 2012 and beyond?

Patrick Desmarès: You need to examine the key drivers for mobile payments and much of this will be about personalisation combined with social media as a core communications tool. Contactless mobile will reach a tipping point in retail payments. Other advanced payments platforms such as tablet PCs with financial apps will become pervasive and ubiquitous. There will also be an increased need to understand your customer, to gain consumer insight and to manage the huge amount of data and communication which a converged and mobile banking world will produce for banks.

As far as the adoption of m-payments by consumers is concerned, where do you think the main challenges come from? In your opinion, how far are consumers willing to trust their mobile phones for financial transactions / payments?

Patrick Desmarès: Customer education is a prime barrier to adoption. You just need to look back at online banking a few years ago and the concerns have pretty much been removed. I think other uses for example NFC can be used to make everyday interactions like access to buildings, transport, not just for payments and these make transactions fast and simple. So once NFC is used for other everyday needs, then, the customer will trust the technology more.