Touch and go for future of small change

Research seen exclusively by Marketing Week suggests that brands wishing to provide contactless payment services will need to form partnerships with the financial sector if they are going to win consumers’ trust. By Maeve Hosea

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Near-field communication technology which allows contactless payments is being embedded into mobile phones the world over. But are UK shoppers ready to use their handheld devices to pay for their goods? A new study suggests people are excited by the potential convenience but wary of which brands will offer the service.

The research, carried out by GfK in May 2011 with more than 8000 people globally, reveals that trust is the most important element in convincing people to use NFC. While 62% of consumers worldwide find the idea of mobile payments appealing, the levels of trust vary greatly by industry.

Financial brands, although much maligned in the UK for the economic crisis of the past few years, are trusted by 54% of British consumers to deliver a mobile payments service.

GfK mobile expert Ryan Garner explains: “Trust is going to drive adoption. Consumers default to financial services because they still do a very good job of managing people’s money.”

Within the financial world, high street banks have high levels of trust. Consumers feel they can be relied on to safely process payments and manage personal finances, and view the move to mobile payments as a natural next step.

BlackBerry
Virtual wallet: Smartphones can be used to pay for items at a growing number of outlets

Banks are the highest scoring when consumers are asked how assured they feel by different types of payment provider, with 24% of UK consumers saying they feel “very assured” by a bank and the other 30% feeling “fairly assured”.

Of the individual brands suggested to consumers, online financial brand PayPal scores highest for consumer consideration with 26% of people willing to consider making mobile payments through it. Visa follows with 19%, MasterCard at 15%, along with Lloyds TSB and Barclays at 12%.

Mobile and telecommunications brands, however, have significantly lower trust, with 30% prepared to put their trust in a mobile operator/carrier, 22% in a handset manufacturer and 23% in a smartphone operating system, such as Google’s Android. And just 13% feel “very assured” by a handset manufacturer and 15% by a mobile carrier. O2 would be considered by 9% of respondents to make mobile payments through, 7% would consider Nokia and just 6% would consider BlackBerry.

The research suggests that partnering with financial brands could help businesses in this category because only 22% of consumers would feel “very” or “extremely” assured using a mobile payment service provided by a network carrier. However, a service run in co-operation with a bank sees this figure rise to 30%.

“In the UK, financial brands hold the trust, so partnering with those brands allows that to be leveraged,” advises Garner. “Operators are the most trusted out of technology brands, and their trust and preference goes up dramatically if they partner with a financial brand.”

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The study suggests that if brands from different sectors team up to provide a mobile payments service, the best attributes of each area of service provision could be used to improve consumer appeal.

However, it is not yet clear whether these companies will be willing to team up to share the benefits or will want to “own” the payments area themselves. After all, NFC could provide a new, lucrative income stream.

Garner adds: “An interesting battle is going to take place over who owns that customer relationship if you own it, then it’s enormously valuable. If you can take a slice of every transaction, then you can get a lot of revenue.”

He continues: “NFC is a new outlet and Apple, Google and BlackBerry owner Research in Motion are all looking to enhance their ecosystems on smartphones and therefore what they can offer advertisers.”

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Global brands may also find that mobile payments will be accepted more easily in some areas than others. While 50% of UK consumers consider NFC to be either fairly, very or extremely appealing a figure comparable with the rest of Europe and the US interest is far higher in developing markets. In China, for example, 82% of consumers find mobile payments appealing, as do 73% of Brazilians.

Brands should also bear in mind that age or attitude can significantly affect interest in NFC. The preference for NFC is higher among 16to 24-year-olds (75%), innovators/early adopters (74%) and current smartphone owners (72%).

There is a subset of people 25% that is more tech-savvy, adopting this a lot quicker than the rest of global population, says Garner. “Smartphone users are already familiar with the idea of paying for content from providers such as iTunes with their mobile handsets,” he points out. “They are already using services like location linking up with apps and can almost see this happening with mobile payments as well.”

The research suggests that partnering with financial brands could help businesses in this category because only 22% of consumers would feel “very” or “extremely” assured using a mobile payment service provided by a network carrier

The future of mobile payments is not just about building trust, convenience and keeping the area simple enough for consumers to understand. Once the infrastructure is in place and security fears are allayed, the next step will be to harness the power of smartphones by integrating physical payments in the real world with the virtual world of the mobile ecosystem. Examples of key services that could be integrated with mobile payments are special offers and targeted promotions.

MasterCard group general manager for business development Ed Chandler highlights the work that his credit card brand is already doing on this in partnership with Google. The new Google Wallet will allow people with compatible mobile phones to pay for goods and services in shops with a simple wave of their hand.

“In the US that ecosystem is one that combines search, payment, couponing and rewards,” he explains. “So, you can walk by a smartpost, download an offer, go into a store such as Macy’s and tap to pay and redeem that offer at the same time.”

GfK’s Garner agrees that NFC will allow brands to get closer to their consumers in a way that has previously not been possible. “Once we start to get further down the line, newer iterations of the services will allow consumers to link transactional data to social services, allowing brands to target in a way they’ve never been able to do before,” he says.

“Some consumers may reject that because that’s not how they want their data to be used. But others will adopt,” he predicts. “Brands need something that goes beyond just payments because chip and PIN already works, so they must enhance the benefits.”

With 36% of UK consumers still adamant that they would never use their handsets to pay for items, the widespread adoption of social mobile payments may be some way away. But if brands can overcome the issues of trust first of all, they may well open up consumers’ minds and wallets to the potential of NFC.

The Frontline: We ask marketers on the frontline whether our ’trends’ research matches their experience on the ground

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Ed Chandler

Group general manager, business development, MasterCard

It is interesting to see the consumer perceptions revealed in this research because contactless transactions are as safe as any card payment. We work with solution provider Proxama on our NFC application. You get the same benefits as you would on any MasterCard transaction. There is an incorrect perception that you can walk by a contactless reader and it can take money from your card that’s not the way it works.

Our research tells us that consumers will want a physical card as a back-up for some time, but we see a lot of adoption building in the market. There has been an exponential growth in contactless transaction recently because it is fast, simple and convenient. McDonald’s has just turned on the system across its 1,200 UK restaurants. We are also seeing a number of other ’tipping points’, such as Boots in Canary Wharf, London.

From a mobile point of view, many handset manufacturers have announced that models being launched this year and next will be NFC-enabled, which will help to accelerate the adoption.

Our own research tells us a different story regarding the idea that it is young people who are most likely to adopt this technology. Smartphone adoption is quite balanced across the population and is being driven by the affluent as much as the youth. This is about busy people who just want their lives to be a little bit simpler to save those few extra seconds when they tap and go.

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Simon Wallwork

Marketing manager at Subway

For Subway, the key benefits of mobile payments are speed and convenience. As part of our efforts to improve the customer experience, we have installed Barclaycard NFC terminals in all of our stores across the UK and Ireland because we feel that this technology offers a faster lunchtime transaction for time-strapped consumers.

But this is only the beginning. There are massive opportunities for retailers to integrate mobile payment with location-based services. Our new partnership with O2 Media’s location-based texting service means that consumers we have targeted can redeem vouchers by scanning their smartphones or tablet devices in Subway stores.

In terms of an issue of consumer trust over mobile payments as referred to in this research, I think the consumer is not yet aware that this technology is available. As soon as customers have the option of paying for their lunch at Subway by swiping their iPhone and having the cost added to their monthly O2 bill or taken off their prepay allowance, they’ll all be over that fear. We’ll help drive that adoption through our in-store and digital channels.

If you’d asked consumers 20 years ago whether they would want to play games on their mobile phone, they would have thought you were crazy. It took an innovative brand to get the product out there for it to be adopted. Mobile payment is going to be one of the great convergence technologies. Consumers will embrace this technology when they realise they can leave their wallet and keys behind. I think it will become mainstream in the UK within five years if the big brands get behind it.

The research shows that certain groups show higher level of appeal for mobile payments. This is one of the reasons we chose to adopt NFC terminals in all our stores. Younger consumers and early adopters dominate the make-up of our customer base, so the opportunity here is immense.

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Tom Gregory

Head of digital payments at Barclaycard

We knew that developing trust from day one was vital if we were to allay genuine concerns from consumers on the security features of contactless mobile phones.

We felt that the best way to do this was by partnering with a mobile phone operator. Such a partnership has allowed us and Orange to play to our strengths, while both our histories in innovating within our own markets complemented each other. As a result, this research validates our own customer research and insight.

GfK’s assertions on consumer take-up and comfort with contactless mobile also finds resonance here. It comes as no surprise that consumers in the Far East are more comfortable with the idea, given that it has been a feature of the retail environments in Japan and South Korea for years.

Nevertheless, we believe we’re in a good place to see strong growth in the UK, given that we already have a significant number of retailers with contactless terminals installed Starbucks and McDonald’s are the latest and we are beginning to see traction in new sectors, particularly transport and travel, along with greater geographical coverage.

It is important to recognise that the NFC-enabled phone we launched in May this year is just the first step, and we will be working with partners to bring other handsets to market that will appeal to early adopters of new technologies.

All of this activity will be supported by marketing, including the updated television ads that we relaunched in early June, and point-of-sale material, which will tell shoppers where they can use the technology.

Despite all this activity, we believe the partnership model will continue to be vital in persuading consumers that this is a safe, convenient technology.

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Claire Maslen

Head of near-field communications at O2

I have been working on the adoption of NFC at O2 since 2007 and we are really excited about it. In that time, we have done lots of trials and looked at plenty of customer insight. Now we have got to a point where we are working on commercial services and getting ready for launch later this year.

I think there is a difference between asking people for opinions in a research environment and doing a customer insight where you are giving people the opportunity to use it. You get different results. But what this research has summarised is really important in terms of how no one player can control the advent of NFC. It truly is about bringing an ecosystem together with different partnerships.

Banks have core functionality they can bring to NFC, as do mobile operators. If I am a consumer, no mobile operator is going to tell me who I can and can’t have a financial relationship with.

When we think about launching the O2 Wallet, we have made it very clear that we will embrace this philosophy of an “open wallet”. We have our own financial products but the O2 Money Card is just one of the cards a consumer might have in a physical wallet. A mobile wallet should replicate and emulate that reality as much as possible.

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