The cost of being number two

Mobile payments beat cards in cash economies
June 1, 2018
Bienvenido, Alejandro!
June 7, 2018

For Auka, it’s the current generation of payments, but for most bankers it would be looked upon as next gen. I’m talking about mobile payments. The kind of mobile payments where people simply download an app, add their card or connect to a bank account and start to send money to each other via mobile phone numbers. It’s instant, it’s easy and it also works with all kinds of merchants, representing a fundamental change in the way people and businesses pay and get paid.

So is this Visa? Is it MasterCard? Is it NFC? Is it Apple Pay? (Is it a bird, is it a plane?)

No! It’s basically AliPay – but it’s coming from banks.

In the Nordics and for that matter in the US with Venmo and in China with AliPay and WeChat Pay, it’s already transformed the market.

The proof exists. This is not the next generation of payments and commerce. It’s the current way, except it hasn’t been launched everywhere just yet.

You want my advice? Get on with it.

Forget about international standards. Forget about collaboration and slow moving decisions trying to unify markets and players. If Alipay waited for everyone to agree and collaborate they would not have become the dominant player. They wouldn’t now be featured on the top 20 list of most valuable and asset management financial services corporations in the world.

Likewise, Danske Bank and DNB (Denmark and Norway’s leading retail banks) wouldn’t have reached their unique and dominant position with their mobile payment initiatives if they’d waited for a bank standard and collaborative model. They tried that as well as the NFC wallets based on ‘the same as their neighbor’ and saw they did nothing to their business or people’s habits – so they killed them!

What these banks did was to define their own standard. Basically a clone of AliPay, for their own market, and launching it to bring a new Payments experience to everyone in the country.

Did it work? Oh yes!

Vipps, the mobile payment scheme in Norway now has more than 60% population wide adoption. Mobilepay in Denmark is sitting even higher at about 75%.

This is not a novel bank app, it’s a nationwide tool, that everyone uses daily. You may have read about Alipay’s massive success and how they are transforming payments and business in China, but the adoption rate of the bank owned schemes per capita in the Nordics are even higher!

So, from this we can conclude that in every market there will only be one dominant winner. How can we be so certain? Because it’s already happened in several markets from the Nordics to China. If it did not happen in a market where someone tried, they did not follow the blueprint. Pingit from Barclays in the UK is a great example. They started out well, then they did not follow through for long enough or with enough marketing. You have to reach the saturation point and build both sides, both consumers and merchants. If you stop too early or don’t invest enough, of course it will die out.

I won’t talk too much about the playbook and go to market strategy needed – for that we have a super talented team who can help you (yeah, that’s an ad for our services, click here if interested). But I will tell you about the cost of NOT doing the right thing.

So, in Denmark, when Danske Bank launched Mobilepay, the other banks were taken by surprise. Needless to say, they didn’t like that Mobilepay addressed the whole market, grew fast and, in fact, blocked the other banks. Now we know the true value of this channel as customers use Mobilepay much more than their mobile banking app. Mobilepay basically stole the customers eyeballs from their current bank relationship.

What was the cost?

I can’t give you an exact number, but 71 institutions in Denmark decided to fight Mobilepay and joined forces. Even with 22,000 merchants and almost 900,000 users and after extreme marketing and subsidising, the Swipp service had to close. After spending millions, the financial institutions outside of MobilePay had to lick their wounds, accept the cost and kindly asked to join MobilePay. The cost for joining is not public, but Danske Bank didn’t let their competitors in without serving them some hefty fees.

Then we have Vipps. Same story. Norwegian banks were furious and efforts were made to compete. Eventually DNB banked a net profit in their last quarter in 2017 of 754 million NOK (about 75m EUR). Net profit.

So, it’s costly to be number two. This kind of story will happen all over the world – we’ll see it very clearly in Europe where banks will be pushed by PSD2 competition for the digital channel.

If you’d like to chat about how to ensure you can be number one and not number two, get in touch.