The Future of Payments
The Future of Payments
The Future of Payments
Monica Adractas
Dan Ewing
Kausik Rajgopal
McKinsey on Payments
June 2011
or chip cards (with which consumers are already comfortable) is marginal, and hardly
sufficient to induce a meaningful shift in behavior. On the other hand, in unsecured
consumer credit, new entrants such as Ferratum Group and Wonga in Europe have
seen success in providing consumers with
immediate and convenient access to microloans through online and mobile channels, despite higher interest rates.
The Canadian market offers an elegant controlled experiment in added value. Canadas
debit card system, Interac Direct Payment,
has historically been a zero-interchange system that charges consumers based on usage.
By contrast, credit card interchange rates in
Canada are higher, similar to those seen in
the U.S. Despite the cost differential, credit
card acceptance in Canada significantly exceeds that for debit cards. Merchants seem
to find enough added value in credit cards to
offset the cost of interchange fees.
It is generally advantageous
for developers of new payments
systems to target niche market
segments, where acquisition
costs are lower, before driving for
broad penetration.
Marker 3: Penetrate niche segments first
It is generally advantageous for developers
of new payments systems to target niche
market segments, where acquisition costs
are lower, before driving for broad penetration. Grandiose attempts to transform the
global payments industry will likely lead to
slow (and occasionally spectacular) failure.
Globally, more than 400 payments start-ups
came and went during the dot-com boom 10
years ago; fewer than five managed to survive. The most recognized of these is PayPal,
which early on grew by tethering itself to the
e-commerce giant eBay, for whom a unique
payment mode with superior risk management was critically important to its success.
In fact, PayPal displaced eBays own payment solution, eventually becoming the
McKinsey on Payments
June 2011
Exhibit 1
Hybrid online-mobile
payments are
emerging as a
fast-growing
payment option for
purchasing digital
offerings
Overview
Advantages
No registration required
Exhibit 2
Walmart is
reshaping prepaid
card pricing
Broad impact
American Express,
Green Dot, and
nFinanSe recently
lowered and simplified
their fees
McKinsey on Payments
Exhibit 3
Adjacent profit
pools let players
discount payments
economics
June 2011
Pre-purchase
Purchase
decision
process
How
m-commerce
can change
buyer
behavior
Compare
merchants
Decision-making
Transaction
Post-purchase
Contact
merchant
Finalize
decision
Make
payment
Review
promptly
Build
loyalty
Generate
demand
Identify
merchants
Enhances
merchants
ability to
target and
personalize
marketing
communications
Consumers
can do
local
searches
anytime
Review
apps help
users to
find best
local
merchants
Ability to
contact
merchants
for store
locations,
hours,
directions,
etc.
Can
compare
prices,
obtain peer
advice and
browse
competitor
offerings
Pay via
mobile
device
Ability to
immediately
send
reviews and
location to
users
social
networks
Can trigger
couponing
and other
loyalty
programs
Sign up for
specific
deals and
receive
coupons
based on
triggers (e.g.,
location)
Find nearby
stores with
product and
compare
prices
Read
reviews to
find the
best
merchant
out of all
local
options
Use Google
Local to get
business
information
Use product
barcodes to
find nearby
sellers,
compare
prices
Pay
restaurant
bill without
waiting for
server
Share
comments
about local
venues
Postpurchase
offer
redemption
linked
directly to
bankcard
Examples
Use Google
Maps to
map route
Publish and
read reviews