Samee Zafar Trends in digital commerce
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This document summarizes trends in digital commerce based on a presentation by Samee Zafar of Edgar, Dunn & Company. It discusses the transition from physical to digital payments as new technologies like mobile devices and digital wallets emerge. It also examines how these innovations could impact existing payment systems and the players involved, including the potential for non-traditional players to drive growth in digital payments. Regulatory intervention in payment economics is also discussed as a potential hurdle for innovation.
Samee Zafar Trends in digital commerce
- 1. Trends in Digital Commerce Samee Zafar, Director Sofia 24 October 2014
- 2. Global Financial Services & Payments Samee Zafar samee.zafar@edgardunn.com 2 EDGAR, DUNN & COMPANY (EDC) is an independent global financial services and payments consultancy. Founded in 1978, the firm is widely regarded as a trusted advisor to its clients, providing a full range of strategy consulting services, expertise and market insight. The financial services and payments industries are increasingly cross-border and global enterprises EDC leverages its global footprint and 30+ years of experience to facilitate development and implementation of successful strategies for our clients that satisfy both their market-specific and global needs Today we serve clients in more than 45 countries on six continents from eight locations worldwide Experts in Digital Commerce Consulting
- 3. 3 From Atoms to Bits (this) book is made of "unwieldy atoms" that will probably be replaced by a digital copy by the time anyone reads it Nicholas Negroponte 1995
- 4. 4 Digital Transformation Computing Communications Digital Transformation
- 5. Old technologies… 1,10 1,12 1,14 1,16 1,18 1,20 1,22 1,24 1,26 1,28 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fixed-telephone subscriptions Source: KPCB; World bank data; Google public data 2,00 3,00 4,00 5,00 6,00 7,00 8,00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mobile-cellular subscriptions 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Billions Fixed wired broadband 1,00 1,50 2,00 2,50 3,00 3,50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Billions Individuals using the Internet … being replaced by new
- 6. Quicker Path to Critical Mass 38 years Telephone Television Internet IPod Within ten years: IPhone Facebook Android Payments initiated by mobile devices will outnumber transactions initiated by plastic cards 50 billion devices will be connected to the web – up from 5 billion today Angry Birds 35 days More recently 13 years 4 years 3 years 2 years 2 years 1 year ? To reach 50 million users
- 7. Digital Disruptors Host Pays 3% Guest Pays 6-12% Source: Provider websites 7
- 8. Payments Innovation Physical Digital 1950 1960 1970 1980 1990 2000 2010 2020 Cloud computing 8
- 9. The Enhanced Payments Landscape 9
- 10. Beyond Transaction Facilitation Source: American Express 2011 Confidential 10
- 11. & 11 Remittances, Personal & Bill Payments Point of Sale mPOS / Acceptance $ Remote Payments – Digital Goods* Remote Payments – Physical Goods Loyalty & Incentives Social Commerce / Virtual Currencies Customer Data Source: EDC; Forbes.com and other sites * Including in-app payments; carrier billing MOBILE / DIGITAL WALLETS Digital Commerce Matrix
- 12. Bringing it all together P2P/Money Transfer Payment Method Financial Management Coupons Comparison Shopping Tickets/Passes Loyalty Rewards $ Convenience Through Service Aggregation 12
- 13. The current favourite Confidential 13
- 15. New technologies show promise Examples of beacons Confidential 15 Beacons: significant potential for retailers Description: low-cost device based on BLE (Bluetooth Low Energy) technology Why is it considering as significant? Does not affect current payment infrastructure Can directly increase sales and influence customer behaviour at point-of-sale Enable location-specific services such as indoor navigation, advertisement delivery, couponing, payments, file transfer, etc. Current status: need to be further assessed to understand full potential 1 2 3 4 Navigate Check-in indoors /receive coupons Proximity marketing Frictionless payments
- 16. Biometrics - making a comeback Examples of initiatives Confidential 16 Biometrics payments: some potential but significant concerns Description: use of biological data to authenticate a client and authorise a transaction Why is it considering as significant? Different types : fingerprint, palm vein sensors, iris, voice Uniqueness of biological data for each individual leads to strong security Potential to enable frictionless payments Current status Different initiatives like Brazilian Bradesco bank (palm vein sensors) or National Security in France (fingerprint) Significant concerns regarding the use of biological data
- 17. So .. What will be the impact on payment systems? 17 Merchant Acquirer Card Issuer Payment Company Card Payment System (payment charged to payment card) Merchants Consumers Merchant’s Bank Consumer’s Bank ACH / Retail Banks ACH Payment System (payment charged to bank account)
- 18. Existing leaders will have to innovate or become pure infrastructure providers Merchant Acquirer Card Issuer Payment Company Merchants Consumers Merchant’s Bank Consumer’s Bank 18 ACH / Retail Banks Wallets TSM’s MNO’s Social Commerce Alternative Players Gateways / PSPs Device Providers Digital Content Managers Disruptors Social Networks Terminal / mPOS Providers “Apple”
- 19. 19 Payment economics and regulatory intervention – a hurdle? Source: EDC Analysis (2013); Reserve Bank of Australia (2013); Mercator Advisory Group (2007) Note 1: See graph on declining MSC in appendix The Australian experience In 2002, the Reserve Bank of Australia intervened in the payment card markets to reduce interchange fees¹ for banks operating in its domestic market, impacting the issuers’ interchange revenue With the decrease in revenue stream of interchange, issuers have made some strong alterations to their account terms in Australia Issuers increased credit card related fees following the regulation as a way to counter balance the losses in interchange revenues $61 $98 $40 $85 $140 $80 0 50 100 150 Average Reward Card Annual Fee Average Gold Reward Card Annual Fee Average Fee Revenue on Bank-Issued Personal Credit Card Accounts 2002 2006 + 43% + 40% + 100% Source: Mercator Advisory Group (2007) Confidential Aus$
- 20. Innovators with a clear advantage Confidential 20 91% 70% 81% 82% 91% 72% 74% 76% 77% 82% 85% 0% 20% 40% 60% 80% 100% Merchant and merchant initiatives Emerging alternative players Banks and financial institutions Web-related companies Card networks / payment schemes Established alternative players 2014 2012 Players most likely to drive the growth of digital payments Source: EDC Advanced Payment Survey 2014 Examples No data available for 2012
- 21. © 2012 Edgar, Dunn & Company 21 Edgar, Dunn & Company Candlewick House 120 Cannon Street London EC4N 6AS Tel +44 207 283 1114 Mobile +44 7825 027 526 Fax +44 207 283 1007 samee.zafar@edgardunn.com Samee Zafar Director Thank You