By Tarek El-Yafi
When it comes to embracing innovation in payments, Asia seems to be leading the way.
China launched its Internet Banking Payment System in 2010, and India launched its Immediate Payment Service the same year. In contrast, the United States’ Real-Time Payments initiative only started in 2017. If we look at China’s payments landscape in the last decade, the transformation is remarkable. In 2011, mobile payments accounted for just 3% of transactions in China. By 2018, they represented around 83%. Today, this is estimated to be as high as 95%.
Instant payments have many advantages. First, there are significant cost benefits. Mobile or instant payments are often free or nearly free — processing varies from 0-0.3% — compared to the 3-4% fees that it typically costs merchants to leverage credit card schemes. While cash may seem cheap, the myriad “soft costs” of managing cash actually make it a deceptively expensive option, widely estimated at over 5%. Arguably, there are cost savings of more than 90% by moving to these payment methods.
Mobile and instant payments can also be extremely convenient, especially when they leverage existing and familiar infrastructure, as they do in China where WeChat and AliPay are the biggest players. Accompanying this is a perception of security — 98% of users in China believe payments made through these platforms are safe.
And yet, adoption of mobile payments linked to instant payment schemes in the U.S. remains far behind Asia. The U.S. has a well-established and mature payments landscape, but this poses a challenge. With a deep-seated reliance on checks, cash and credit cards, persuading businesses to move away from the familiar — even with the potential advantages that have already been covered — is not straightforward. As treasury and finance professionals, we have an opportunity to demonstrate that transforming the payment experience can represent a competitive and major cost-saving advantage.
By creating a mobile payments experience that uses smart APIs and a seamless interface to instant payment schemes (including instant ACH or Zelle), the act of making a payment can be fun, user-friendly, an opportunity to open a new client base and a point of differentiation. Mobile or instant payments can also be linked to loyalty or rewards programs, replicating some of the factors that make credit cards so appealing.
While awareness of mobile payments in the U.S. is solid, particularly amongst millennials, a substantial mindset shift is needed to persuade consumers to fully switch to providers like Venmo, GooglePay, SamsungPay or ApplePay. Although adoption levels in Asia are way ahead, this is a rapidly evolving sector with a clear forward-looking trajectory. As mobile payments grow in popularity in the U.S., there are many lessons we can learn from other markets who have already fully embraced the mobile payments revolution.
Join us for more in this AFP 2021 session, “Join the Payment Revolution and Reduce 90% of Your Card Acquisition Fees!”, along with speakers from Amazon, Facebook and Standard Chartered. Check out all the sessions on the AFP 2021 SESSION EXPLORER and register for the conference HERE.