Opportunity as mobile payments show huge growth

There is a plethora of different technologies and standards used in a globally fragmented market, with big regional differences.

Probably the biggest difference is between developed and emerging markets. For developed markets, the benefits are based around convenience, with customers able to make faster transactions, together with reduced transaction costs for retailers – mobile payments are generally cheaper than existing chip-and-pin transactions.

In developing markets, adopting mobile payments can leapfrog older technologies and there are big advantages in terms of quality of life:

• Financial inclusion: In developing economies, there are an estimated 2.5bn people without a bank account. As the number of phones rises and access to mobile banking increases, there are huge opportunities to increase micropayments, as well as welfare payments through cost--effective mobile banking.,

• Productivity gains: Mobile banking can yield other benefits such as reducing the need to travel to a bank for rural customers, and minimising the need to carry cash, and making it easier and cheaper to receive and send money through global remittances (people who have emigrated sending money back home) – a market worth an estimated $414bn per year.

The shift resulting from the rapidly increasing use of mobile payments affects handset manufacturers, retailers and financial institutions, as well as mobile network operators, technology companies and point-of-sale terminal manufacturers.

Within the technology companies, the software firms– those that develop the applications to enable mobile payments securely – are the most interesting. Mobile payments can also potentially increase revenues for mobile operators. The clear leader in emerging markets is Safaricom Ltd – a Kenyan-listed mobile operator in East Africa, but difficult to gain exposure to. Other companies with exposure to markets include Millicom, MTN and China Mobile.

There are, however, risks to the massive rise in adoption of mobile payments:

• Push-back from customers or merchants is most likely to come from a lack of convenience. Mobile payments need to be quicker than other methods – and cheaper for merchants.

• Any perception that it is not safe due to fraudulent transactions or theft of personal details will limit greater adoption.

Mike Appleby is SRI analyst at Alliance Trust Investments