Consumer adoption of mobile payments will deliver wide-ranging benefits for the UK economy, according to a new report published today by the Centre for Economic and Business Research (Cebr).
The study, commissioned by Zapp, predicts that 20 million adults will use their mobiles to pay for goods and services by the end of the decade, with the value of purchases tripling from current levels to £14.2bn in 2018. The figure is even higher when all mobile transactions are included (such as bank to bank transfers) at £18.1bn, according to VocaLink data. By 2020, mobile payments will represent 1.4% of total consumer spending. The report highlights four key areas where it is expected mobile payments will benefit consumers, businesses and the Exchequer:
1. Reducing fraud – Some forms of mobile payment will help reduce fraud in the UK economy. Fraud losses on plastic cards stood at £388 million last year, with £68 million of these losses from cards lost, stolen, or intercepted in the post. Card ID theft also led to £32 million of fraud losses. The report argues that secure mobile (and other) payment systems requiring PIN identification have the potential to reduce this type of fraud significantly, alongside declining use of cash – as many as one in 36 £1 coins in circulation are estimated to be counterfeit.
2. Lower transaction costs – The report concludes that cash is the most expensive mainstream form of payment – once costs such as store count, preparation and transaction errors are factored in – at 2.8% of cash takings. The transaction cost of debit and credit cards amounted to 1.1% of total plastic card takings –the average for credit cards is likely to be higher than this, while the average for debit cards is likely to be lower than this. New payment methods that offer accuracy, speed and security and low merchant costs have the potential to significantly lower transaction costs. Shifting away from cash and card payments can thus help businesses reduce costs. The rise of mobile phone payment will help facilitate this shift.
3. Putting consumers in control – Over a quarter of UK consumers incurred an overdraft charge in 2012. The greater transparency offered by mobile phone payments, which can allow instant bank account balance checking, should leave many consumers better informed and able to avoid tipping over the edge of their authorised limits, the report argues. Furthermore, the uptake of mobile payment by small businesses has the potential to move the ‘cash in hand’ economy over to mobile payments due to the increased convenience it offers. This will help reduce the “tax gap” in the economy – the difference between tax collected and the tax that should be collected. With the tax gap estimated to cost the exchequer as much as £32 billion per year on the latest estimates, mobile payments could therefore provide a substantial boost to government finances by improving transparency of earnings.
4. Reducing cashflow issues – By offering instant settlement, new payment methods such as mobile payment should provide some respite for the many businesses in the UK struggling with cashflow issues. The report highlights that just under a quarter (24%) of businesses in the UK reported late payments from customers to be a greater challenge than a year ago in Q3 2013. This share is even greater when looking at private small and medium-sized enterprises (SMEs), where the share stood at 28% in Q3 2013. This compares with just 14% for UK-listed companies.
Douglas McWilliams, Executive Chairman, Cebr, said, “It’s clear that the UK economy stands to benefit in multiple ways from the widespread adoption by consumers of mobile payments. But for the full potential to be unlocked, consumers need to be reassured that mobile payments are hassle-free, safe, secure and widely accepted. That will require strong cooperation across the financial services, retail and payment industries.”
Peter Keenan, Chief Executive of Zapp, said, “The report’s findings are fascinating as they’re the first to take a holistic view of the economic impact of mobile payments. It is easy to become fixated simply on the monetary value of payments that will be made over mobiles – this report shows there are much wider benefits to consumers, businesses, and the Exchequer. At Zapp, we’re building a comprehensive alliance of financial institutions, retailers and merchant acquirers and we’re confident that as a result we will play a major role in unlocking these benefits when we launch to consumers in 2014.”