The Mobile Commerce Inflection Point
I’m convinced an inflection point of mobile commerce is upon us. Several catalysts are developing and 2016 is shaping up to be the year we may look back and reflect upon as the year our commerce, banking, and financial services went mobile.
One of the benchmark data points I research is share of mobile commerce as a percentage of e-commerce, both globally and in individual markets. Although e-commerce globally is still less than 10% of total retail sales, momentum is picking up and the evidence is mounting that mobile commerce is a key part. This has to do with the high percentage of mobile commerce in rapidly growing e-commerce markets like China where mobile commerce share of total e-commerce is 33%. China has surpassed the US with now just over 11% share of local retail transaction dollars coming from e-commerce. Both China and US are the largest markets in terms of dollars spent via e-commerce. But in the US, mobile share of e-commerce is less than 20%. In terms of dollar amounts, China easily has the largest market coming from m-commerce.
The shift has been slow for consumers to adjust their behavior to shop from their mobile devices vs. their PCs. The PC is still the market share leader when it comes to the device used to make an online transaction, but I am convinced this is all about to change and mobile payments will be the catalyst.
In October of this year, the US market will go through a massive overhaul of its retail payment terminals. Credit card issuers must move to a more secure chip-and-pin solution and retail outlets will comply with this shift due to a fraud liability change in process. What this new solution changes is the credit card companies will no longer be responsible for fraud charges and instead, the retailer or the bank will be responsible for fraud. This liability shift is at the core of massive change coming to US retail. As these terminals get upgraded, the vast majority will support NFC so Apple Pay, Android Pay, and others will be supported in the vast majority of US retail outlets. While mobile contactless card payments are currently less than 1%, I won’t be surprised if, by the end of 2016, they make up 10% of POS transactions in the US.
There is a similar shift happening in China mandated by the Chinese government. By the end of the year, most major Chinese retailers will support a new, more secure credit card solution which will also make many retailers upgrade their point of sale terminals. Here again, NFC will be included in these new terminals making the China retail environment ripe for contactless mobile transactions.
These two events, set to be completed by the end of 2015, will cause the inflection point for the shift from PC-based commerce to mobile-based commerce and may provide a boom for e-commerce at large. Once consumers become comfortable paying for things with their smartphones and realize it is inherently more secure to do so than paying with a credit card (especially in restaurant environments where your card is out of your sight) it will open the floodgates for consumers’ willingness and confidence to rely more on their mobile devices for commerce. I am convinced this will be the catalyst to propel not just mobile commerce but e-commerce in general to new heights.
There may be some interesting new opportunities around mobile commerce to emerge — in particular, I’m watching financial services. Once my smartphone becomes my primary payment mechanism and all my financial information is stored and managed on my device, then I’m not reliant on someone to issue me a plastic credit card to partake in their financial services. This could open up a fascinating new battleground in financial services once the credit card itself is replaced by the smartphone.
An example of this is AliPay in China. While UnionPay is the market share leader for physical card payments in China, AliPay is preferred and used by over 60% of Chinese consumers shopping regularly online. Once they can use their AliPay payment information to make payments at local retail using their smartphones, it gives Alibaba a way to compete in financial services in new ways. This is one reason why I believe Alibaba is looking to get into issuing credit to buyers based on analyzing their online purchases. The global arena for credit has been largely lacking in emerging markets and what I see coming together for mobile transactions both at physical retail and online will likely create new opportunities in this arena.
What I’ve concluded, as I look globally and put some of the puzzle pieces together, is the smartphone will be the catalyst to drive e-commerce to new heights. This shift to more consumer trust of smartphones as payment mechanisms will lead to more opportunity to compete in financial services and new banking paradigms as well. The smartphone has disrupted many industries and will continue to disrupt many more. It will be interesting to see if we add payments and banking to that list.