2014 has been an important year not only in mobile payments, but also other digital finance services. Contactless cards have really made a breakthrough in many countries in Europe and are coming to the US too. Apple Pay is a serious effort to get mobile payments to work and it has support from banks and credit card companies. Digital investing and lending services are growing and truly offer alternatives to banks in some countries, like in the UK.
It is hard to imagine we’ll see any major technology innovation breakthroughs in the digital and mobile payment services during the next 12 to 18 months. At the same time, however, we will certainly see a lot of development in this area, with the development more focused on point of sale terminals, user experience, service innovations, and especially establishing a critical mass of retailers, banks, cards, mobile devices and end users.
We can divide the developments into four key areas: 1) mobile and wireless payments, 2) digital services to lend, borrow, invest and transfer money, 3) digital banks, and 4) supporting services.
In the first, the market won’t only have mobile phones as payment devices; in practice, contactless cards are already competitors to mobile devices. There are already plans to install apps inside smart cards, which means a credit or debit card will have more functionality in the future.
Digital investing and lending services (e.g. p2p lending) herald changes to the traditional value chains of the finance sector and bypass non-value add middlemen. In the UK and US, p2p lending and crowdfunding are already a significant market, and it is emerging in Asia as well, subject to local regulatory developments. The same models are expanding to institutional investors and wealth management.
A next step of sorts in digital services is fully digital banks - in other words, banks in which all operations are planned and implemented in an online environment. Banking is very regulated and requires a strong balance sheet, but this would change the cost structure significantly.
The last area, supporting services, means services leveraging consumer data. All of these digital services generate a lot of data, and naturally all parties want to utilize it. But that data can really work for users to make services better and more relevant. In the end, a good user experience is key so that all these things can happen.
Jouko Ahvenainen is co-founder of Grow VC Group
Full disclosure: He is also a founder, partner and board member in several digital finance companies
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This article first appeared on Telecom Asia Vision 2015 Supplement December 2014 edition