BI Intelligence has combed top trade publications and analyst reports to create our top 10 list of the trends that will shape digital payments in 2014. These are the predictions that either came up again and again, or that echoed our own analysis and data.
Here are the developments in the payments space to look out for:
1. NFC will die. Consumers will ultimately decide whether NFC will become popular, and so far the technology isn’t proving compelling enough to spur widespread adoption. NFC allows a smartphone to communicate with a payment terminal at a physical store, via a brief tap. This allows for “walletless,” or phone-powered payments. But tap-and-pay phone transactions aren’t much more convenient than cash and credit cards. “Instead of swiping or using a PIN pad, they’re tapping. How is that really better? How is that changing your life? People don’t want that,” says PayPal President David Marcus. We agree with Marcus: 2014 will be the year that NFC goes away as a real factor in the debate over the future of payments. Although it will carve out a role in some markets where it’s already influential, such as China and South Korea. (See our report: “Mobile Is The Future Of Payments — Here’s How Much Runway There Is For Growth.“)
2. Bluetooth Low Energy will conquer retail. BLE is the NFC rival that really will revolutionise payments and commerce in 2014. The Bluetooth Low Energy communications frequency has a range of up to 50 meters and can be used for a host of applications including payments, peer-to-peer fund transfers, as well as notifications and offers as part of in-store loyalty and marketing campaigns. In a recent report, we discussed how beacons, which serve as BLE transmitters, can help create indoor communication systems for these purposes. From the perspective of the consumer, the technology is superior to NFC because it doesn’t require close proximity for payments, and BLE-powered payments can happen nearly automatically — for example, as a consumer exits a store with their merchandise. This means that it can be more convenient than plastic credit cards, or cash. Bluetooth Low Energy is on over 200 million iOS devices already in conjunction with Apple’s iBeacon platform, and many Android devices also support it. (See our report: “
Beacons: What They Are, How They Work, And Why Apple’s iBeacon Technology Is Ahead Of The Pack.”)
3. Bitcoin hype will die down, and more will use it for what it was meant for — a means of global exchange. Bitcoin is not going to lose its volatility in the next year. The wild price oscillations will continue. So will the convoluted and technical debates about what it is and whether it’s a harebrained scheme or not. But one thing will change: People will no longer talk just about Bitcoin’s price, and they’ll start to see it for what it was always meant to be: an online instrument for powering transactions and moving value. The infrastructure for bitcoin payments will grow more sophisticated, and platforms will proliferate that will eliminate transaction risk when two parties transact in bitcoins. So, individuals and businesses will be able to transact in bitcoins across the globe without worrying that the value will collapse before they can exchange it for another currency. It will become more common — though not yet mainstream — for e-commerce and physical retailers to accept bitcoins at point-of-sale.
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4. Amazon will try to make friends with offline retailers, and offer them a payments platform.Late in 2013, Amazon reportedly acquired GoPago, a provider of mobile payments apps and compatible point-of-sale retail software. With the acquisition, it looks like Amazon may be planning to expand its payments offerings into the world of bricks-and-mortar retail. We think there is a good chance Amazon will release a competitively-priced payments solution targeted at bricks-and-mortar retailers sometime in the next year. Why would bricks-and-mortar retailers sign on for anything from Amazon, which is hardly the best friend of offline retail? Amazon may offer them insights into consumer behaviour and shopping habits, or rock-bottom credit card-processing fees. After all, undercutting the competition on price terms — even at the cost of short-term profitability — has always been Amazon’s way.
5. The payments industry will consolidate and mature at a rapid pace, with a bevy of acquisitions and a handful of IPOs, including Square’s.The initial disruption in online and offline payments has already taken place. We expect to see tons of acquisitions — of consumer-facing services and business-to-business players — as the biggest players in the space scoop up talent from across the industry. Possible acquisition targets include Stripe, Dwolla, LevelUp, Bill.com, and many others.
6. Carrier billing is going to explode in emerging markets. One of the biggest problems facing consumers in emerging markets is that they can’t get access to credit or credit cards. Direct carrier billing solves this problem by allowing mobile users to add purchases to their mobile bills. Credit card companies aren’t ready to move into many of these low-income markets yet, so carriers can get away with playing their role as payments networks and taking a big slice of revenue from developers who integrate carrier billing into their apps. Demand and lack of competition in these markets is going to lead to a bonanza, and big carriers in developed markets would be wise to increase their exposure to markets where carrier billing might take off.
7. Square will sputter as it tries to grow its point-of-sale market share and cross into e-commerce.Square is in no small part responsible for the disruption that is taking place in the offline payments space, and its success has largely grown out of powering transactions for small and medium-sized retailers with its software and simple hardware that transform tablets and phones into mobile cash registers. But competition is building for offline point-of-sale payments and gaining further POS market share will be an uphill battle. With Square Market, Square has also entered the already competitive e-commerce space. The company will struggle to achieve the same level of growth as it has achieved in prior years. Still, as we mentioned before, it will IPO before year’s end.
8. The mobile wallet is going to be dramatically reconceived. Only 11% of people in the United States have used a mobile wallet, according to Forrester. We define a mobile wallet as an app or mobile site that collects a consumer’s payment information and credit card numbers and helps them transact offline and online. Lots of wallet apps are nice from a design perspective, but there just isn’t a very compelling reason to use them. Credit cards are still easier. In other words, there’s a “convenience parity” problem. Mobile wallets have to become at least as convenient as credit cards and cash before they take the place of either. We think mobile wallets will succeed if they reinvent themselves as all-in-one apps that will integrate all of a consumer’s shopping and finance needs into one place: rewards and loyalty programs, tickets and boarding passes, wish lists, spending trackers, personal budgeting programs, etc. One early example of this approach is Bluebird, an app-based debit card and personal finance platform created jointly by Wal-Mart and American Express.
9. Retail banks will also compete for mobile and online audiences with beefed up personal banking apps. The move toward mobile-mediated shopping and finance is altering the relationship between retail banks and their customers. In particular, the relationship is increasingly taking place online and on mobile rather than in physical banks. In order to differentiate themselves from competitors, banks will become interested in offering apps that go beyond just simply checking your balance, paying your credit card, and remote check deposit. They will try to build all-in-one multi-device payments and finance platforms similar to the mobile wallets described above. Why is this important? Because banks are not immune from disruption and disintermediation. Already, software-based startups like Simple are creating interfaces that basically act as a new layer between banks and their customers. (See our report: “
The Mobile Banking Horse Race Has Only Just Begun, Here’s How It’s Shaping Up.”)
10. Mobile commerce will account for a third of holiday shopping in 2014. Mobile commerce accounted for around 20% of e-commerce sales during the Black Friday weekend this year. As retailers release and improve their mobile apps, and tablets proliferate, we expect that mobile commerce is not only going to grow, but accelerate. Next holiday season we think one in every three dollars spent on online retail purchases will come through mobile devices. (See our report: “Retailers Are Driving Huge Increases In Mobile Shopping And Buying — This Is How.”)
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Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
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