Mobile and contactless payment is coming everywhere. How does the market landscape look like? And where is the market going?

What is Contactless Payment?

Contactless payment systems are based on credit / debit cards, smart cards, or devices (such as smartphones), that use RFID (Radio Frequency Identification) or NFC (Near Field Communication) technology for making secure payments.

For example, a debit card may have an embedded chip and antenna and those are used in communication between the contactless card reader at the point of sale to make payments by just touching the reader with the card. Contactless payments can only be made in very close physical proximity, they cannot be used online for internet payments. Usually there is a 20-25€ limit or contactless payment. More expensive purchases have to be confirmed with PIN for security reasons.

Mutiple brands and companies offer contactless payments systems. Typically banks offer NFC-enabled debit and credit cards with built-in capability and that is already a default option in most of the countries for new cards. Also, internet service providers, such as Alibaba, Apple, Google, and Amazon offer their own mobile and online systems supporting contactless payments.

Mobile Wallet and Payments?

There are also fully digital payments solutions that do not have an own physical infrastructure (e.g. payment cards). These solutions can be support multiple banks/credit card vendors or they are provided by one bank only. Typically, user either saves his or her credit card details in the payment app or transfers money to the payment app wallet (e-wallet).

Mobile wallet app running on a NFC-enabled smartphone can be used for contactless payment at point of sale. This is why one can already use e.g. Google Wallet in many countries with existing NFC-enabled point of sale terminals. Apple Pay works technically similar way but the business model is tightly coordinated by Apple.

One example of e-wallet is Amazon Pay that also have a smartphone app. Worlds most biggest mobile wallets are Chinese Alipay and WeChat. Chinese payment methods have also started to grow in Europe because of popular Chinese internet stores and Chinese tourism. Asia-Pacific region is leading mobile wallet usage globally (below yStats data).

Mobile wallet user penetration 2016

In some markets (Nordics, Germany and Netherlands) online bank payments (systems provided by local banks) are already widely used online and bank will bring their own apps and APIs for merchants to boost those payment methods also on mobile.

PSD2 and Payments in Europe

In Europe, the market will see some change as a result of PSD2. It is estimated (Payers Report, see below) that more payments will be made via SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) systems (online and mobile use). If PSD2-driven online bank SEPA transfers (online and mobile) grow that might have impact on card payments volumes, especially in the Nordics and Germany.

In Africa most people still do not have a bank account and it is likely that mobile banking will be the dominant form of banking.  In Kenya, local Vodafone-owned Safaricom has been providing mobile money M-PESA, and those are likely to be growing (in Kenya 20% of its GDP is moved via digital money!).

More banks will bring their own mobile & online payment options available to compete with credit card vendors and older internet payment providers, such as PayPal. There will be more local bank consortium driven wallets and online payments solutions like LyfPay in France, PayByBank in the UK, and Siirto in Finland.

Trends in Other Major Markets

Apple Pay, Android Pay, Amazon Pay and other mobile and/or internet wallets are growing. These global services are challenging local players and force banks to compete with their own e-wallets and solutions (e.g. Paylib in France). See below Statista´s estimate of global mobile payments value 2015-2019.

The US market is shows signs of moving away from the tradional card payments when new mobile wallets are growing. Chinese WeChat and Alipay are dominating in China and growing also abroad, they are now the biggest mobile wallets in the world. WeChat says they have 600 million users and Alipay has reported 450 million users (early 2017). China was last year 50 times larger market for mobile payments than the US!

India is huge market and major part of its population is currently non-banked or under-banked. India started ambitious plan to boost digitalization by providing a digital identification, Aadhaar, to almost every citizen during 2016. Aadhaar was is now planned to be augmented by India Stack, which has APIs for electronic KYC, electronic money transfer and digital signatures. This infrastructure might be boosting significantly India´s mobile and digital banking.

Globally, mobile and online payment market will take share from physical cards steadily. Forrester estimated May 2017 that mobile payments will grow from 52 billion euros in 2016 to 148 billion euros by 2021, and that is just for Western Europe!

We are living exciting times!


Read more / background material:

See here interactive summary done by Boston Consulting Group on global payment markets.

For more detailed insight on e-wallets, you might want to read The Payers 2017 Payment Methods Report.

World Economic Forum acticle on Chinese mobile payments market.

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