Concepts such as the digital wallet could leave banks playing a lesser role in transactions

With worldwide mobile payment transactions set to surpass $171.5 billion in 2012 – a 61.9 per cent increase from 2011 – banks are being criticised for their approach to adapting to this new market landscape. Some experts warn they could lose out on consumer business to non-traditional rivals.

While neither Bank of Ireland nor AIB would comment on the emerging threat posed by competition such as PayPal and other payment alternatives, Ciarán Kelly, financial services partner with PwC, says banks are displaying “a lack of awareness of the implications that digital payments are going to actually have” on their industry.

Such inaction could see the less regulatory-entrenched online payment options on the market take away business from the banks according to Kelly, who says “there are payment companies out there that may make the banks normal consumer function less relevant” over the next few years.

The issue of mobile payments is the focus of a Digital Marketing Institute (DMI) members’ event being held in PayPal’s Dublin offices today.

Speakers at The Future of Money will include DMI CEO Ian Dodson, who says the challenge for both banks and those offering online payment alternatives is to “catch up with the consumer” in terms of mobile flexibility.

Echoing Kelly’s point on the approach of banks towards mobile payments, Dodson says that banks are usually “at the slow end of the curve when it comes to adoption” of new technologies.

While Kelly says he doesn’t believe concepts such as the digital wallet will “leave banks in the dust”, they may find themselves playing less of a role in day-to-day transactions.

Kelly says that banks “will still stay involved” as transactions migrate to mobile devices, however “it will be a more B2B relationship than B2C – what I mean by that is that a company like PayPal will have a relationship with the bank and the customer will have a relationship with PayPal”.

By 2016, research giant Gartner projects that the mobile payment market will be worth $617 billion with 448 million users. Elsewhere, Visa predicts that by 2020 more than half of all the company’s transactions will be on a mobile.

This year, PayPal expects to process around $10 billion in mobile payments. Ahead of today’s DMI event at the company’s Dublin HQ, its vice-president of global operations for Europe, Middle East and Africa, Louise Phelan, says: “We’re all striving for the mobile customer. Could we all be doing better? Probably but there’s no blueprint to say this is how it works. This is innovation that will make a difference across the world.”

Mobile wallets and contactless payments, such as those available via certain debit cards or near-field communication-enabled mobile devices from Nokia, BlackBerry and Samsung, are becoming more widespread (figures indicate there are now 45 million contactless cards and 391,000 contactless-enabled payment terminals across Europe).

In addition, alternative payment solutions are hitting the mobile market such as Visa’s Personal Payments service which offers a secure way to send money to others using their mobile phone number rather than swapping account details.

Samee Zafar, a director with global financial services and payments consultancy Edgar Dunn Company, says that banks are “so traditionally risk-averse” that for the foreseeable future, mobile payment infrastructure investment may simply focus on smartphone apps and mobile-enabled websites.

Separating mobile payments into two sides – the first being remote payments from the device to anywhere in the world, the second using a smartphone to physically pay for an item using a near-field communication (NFC) chip linked to an account with a bank, credit-card company or online payment provider – Zafar says that when it comes to the latter, banks and credit card companies still hold the upper hand compared PayPal and other rivals.

“I’ve a lot of respect for Pay-Pal and companies like it but it’s seriously underestimating the challenge it has in that area of in-store transactions compared to banks and other card companies.”

Zafar adds that, until shop terminals are “hooked up to PayPal and other options like it” there won’t be a major revolution for in-store payments using mobile devices.

Yet Phelan is optimistic that PayPal can get a foothold in this space. “Mobile is where we’re trying to go because the reality is 99.9 per cent of people have mobile phones,” she says, adding, “Fifteen years ago in Ireland everything was in cash, no one touched credit cards. Things change, we have a ‘change journey’ to go on.”