Mobile Payment – between commodity and individual interests

A few days ago it was announced that Samsung Pay, the mobile payment service of the South Korean technology manufacturer, will be launched in Germany at the end of October. Samsung has entered into a partnership with the FinTech bank Solaris and Visa and can thus bypass the local banks and savings banks. As a result, owners of a Samsung smartphone – with the exception of the Galaxy J and Galaxy M series or Smartwatch – will be able to pay at the physical point of sale (POS) in addition to the already established checkout solution for e-commerce. In addition to Apple Pay and Google Pay, another payment service with a potential of approx. 20 million end customers will be launched, which may have consequences for the business model and the still awaited digitalisation of the German debit card girocard run by the leading German banks and savings banks. This is underlined by the fact that the major international providers (GAFAs) seem to be mastering the tightrope act of merging an optimal user experience and different distribution channels, while efforts of national interest groups resemble more the timid training run over the safety net. In order to better assess the mentioned harmonisation as well as solutions in mobile payment, it is useful to classify them. For this reason, the first question to be answered is “What is mobile payment” or “How is mobile payment defined”?


What is now mobile payment?
To say it in advance, there is no single, all-encompassing definition for mobile payment. As the name implies, mobile payments are payments that are made via a consumer’s mobile device and do not involve cash nor physical debit or credit cards. Although it is possible to create vast numbers of categories with a granular classification, we have agreed on two main categories for the sake of simplicity. These are called Proximity Payments at POS and Remote Payments in E- and M-Commerce and represent all common use cases that are carried out on a mobile device. We speak of an “Omni-Channel payment method”, as these can be used at stationary retailers (Proximity Payment) and mobile or online (Remote Payment). As a synonym, mobile payment is also often used as “wallet payment”, as these e-wallets store corresponding payment data digitally, but can also contain additional applications such as loyalty, couponing, digital tickets or boarding passes.

Proximity or Wallet Payment is well known to many, especially through Apple Pay, Google Pay, PayPal Wallet and soon Samsung Pay. With this type of payment, a debit or credit card is (usually) digitised in order to use it on a mobile phone for payments. The contact between terminal and mobile phone triggers the payment with the digitised wallet. Google has been using “Host Card Emulation” (HCE) technology since the introduction of Android 4.4. The same applies to the less user-friendly but for the merchant cheaper adaptation of mobile payment, the digital girocard, as offered by the savings banks in the payment app “Mobile Payment”. Apple on the other hand controls the NFC interface with its own software. The required data is summarised and encrypted by the Secure Element. Once the digital card has been loaded into the wallet, the digital wallet can be used like a credit card at the physical POS as well as in e- and m-commerce. In addition to installation on the consumer device, all that is required for this is merchant acceptance and a contactless terminal. Especially the user-friendly payment process via touch or face ID has helped the services to spread in Germany.


Mobile payment with the smartphone: Various forms and providers
When goods and services are paid for via mobile devices in e-commerce and m-commerce, this is called remote payments, as in this case the Internet is the distribution channel. Mobile wallets such as Apple Pay, Google Pay, Samsung Pay or specialised apps can be used for in-app or app-to-app payments. The term app payment describes the provision of payment methods in the form of apps on smartphones. These can be applications which exclusively represent the functionality of the service offered or services which are connected to applications of third parties in order to enable payment functionality for them. A popular example in this context is PayPal, which is used both independently and in the checkout of different online providers.

Based on the number of different versions and the mass of different national and international providers and service providers, it is clear that mobile payment has not only existed since the introduction of Apple Pay. For this reason in particular, the question inevitably arises as to why it took so long for a fairly critical mass to make use of this technology. The answer can be summarised in one term – vested interests.


Particular interest as a brake on innovation
Originally, mobile payment was driven by the German mobile phone providers. With the introduction of premium SMS, they were able to charge for services such as the “Jamba Sparabo”, which lifted some mobile phone contracts and bills into the triple-digit range. Based on this logic, an attempt was also made to depict normal payment processes at the POS. To realise this, mobile phone providers had to cooperate with a regulated e-money institute and a credit card scheme as technology partners. For example, Vodafone and E-Plus used the e-money licence of the now insolvent payment processor Wirecard as well as payWave (Visa Card) and PayPass (Master Card) for technical processing. If there was interest in using the wallet inventory, the customer was sent a new SIM card (NFC-SIM). This card contained the Secure Element, which is still used today to secure sensitive credit card data. In addition, only mobile phones could be used, which were accepted and released by the telecommunications provider. Billing was done via the monthly mobile phone bill. Unfortunately, the product was not accepted by consumers, which led to the discontinuation of various initiatives. This may have been due to the self-positioning of the telcos in the value chain of the payment process, the low number of NFC-capable terminals due to the lack of non-contactless fees of the schemes, or the questionable selection of mobile phones offered. Only after the porting of the secure element to the phone device and the introduction of payment services by the manufacturers, including their marketing budgets, mobile payment gained attention. This, combined with customer-oriented processes from the beginning, simplified usage and the correct interpretation of the term omni-channel, has led to the introduction of mobile payment in many countries.


Paying by smartphone in Germany? A look at user behaviour
Only Germany took its time. A possible reason for this may be the often described phenomenon of the cash-loving society, but also the self-interest of German banks thatprefer to book the share of the interchange or merchant fees demanded by Apple to their own revenue accounts. This went well until the first German bank positioned itself as a pioneer and, with the launch of Apple Pay, entered the battle for the consumer.

In the meantime, it has become clear that the use of the mobile Internet is spreading through all generations in Germany. A study of the Postbank which was conducted before Corona reflects that smartphones have left all other mobile devices behind and are a constant companion of the people in this country. Almost 80 percent of citizens access the internet with their mobile phones, 71 percent via laptops and 58 and 47 percent respectively use desktop PCs and tablets when they want to access the internet. Even before the COVID19 pandemic, the younger customer segments were almost permanently online, and most of them used their smartphones. The lockdown due to Corona and the ongoing measures to restrict contact may have intensified this trend. This user behaviour also has an impact on mobile payment and according to the current Bitkom study, one third of German citizens state that they have used mobile payment by smartphone or smartwatch at least once. In the survey from 2016 this figure was only eight percent.


Catching up or already hung up?
The development of mobile payment in Germany shows that the customer acquisition as well as his interaction with an offered service is essential for survival. That German banks have also understood this becomes clear in the desperate attempt to position the current account as a core customer product. After possible implications of the PSD2 have long been incorrectly interpreted, it remains unanswered whether this is still realistic. It was only when other providers already conquered the market, dominated by banks’ own products that the self-confidence of the supposed top dogs diminished and a clear view of the actual situation became possible. The situation could be similar with the German payment market after the introduction of Samsung Pay. While the German banking industry is busy harmonising different interest groups and their respective payment methods to achieve a multi-channel-capable product and #DK may ultimately mutate from a phoenix to a paper tiger, 20 million consumers will be supplied by Samsung with a pre-installed app in the near future. In addition to customer-friendly onboarding via IBAN and qualified electronic signature, cross-channel payment for goods and services with a digital VISA card and an expenditure overview in the form of a KPI dashboard, this app also offers the possibility of creating sub-accounts and completing financing transactions. In this way, the payment service depicted by Solarisbank has the potential to take over all relevant interactions for the customer and reduce customer interaction with the main bank account to the monthly direct debit of the compensation payment. In this way, traditional German banks lose customers who, after a short confirmation of an acceptance contract, find themselves in the new customer portfolio of Solaris Bank AG. And all this is available for a bank-friendly revenue share based on the regulated interchange of 20 basis points. Samsung has understood that consumers find it difficult to deviate from a service once they have become accustomed to the amenities. It remains to be seen whether this will be accepted as a customer requirement and fact by the competing projects currently being implemented.