Consumers will take time to switch

The convergence of banking and technology is indeed irreversible, but it will take some time for consumers to make a significant switch to mobile phones as a payment device.

For many centuries, people bartered. They exchanged a good or service for another good or service. Then came paper money and it wasn't until 1950 that the plastic money was invented. It took another three decades for the chip cards to come in.

"I believe the convergence will take place. It's not a question of if, but it's a question of when and that when, in my view, could be about eight to ten years from now. If you look at the way the payment infrastructure has evolved, it took almost 350 years for paper money to be replaced or work along with cards. It's a long way away," Navneet Dave, head of cards at the National Bank of Abu Dhabi, said during the recent Cards Middle East forum in Dubai.

There are barriers that can hinder mobile payment innovations. For one, there is no specific business model in place and there are numerous stakeholders eyeing their share of the revenue pie.

"In the traditional classical card business model, the rules are very defined. There's the issuer of the card, the payment network, the consumer, and we all know how the revenue is shared. Think of a mobile business model, you've got more entities that come in — the mobile operator, the people that carry the network, the SIM card provider, the guys who develop the application and there are people who provide the infrastructure."

"Imagine the playing field where you have seven to eight stakeholders, each one wanting to take the share of the revenue and the consumer perhaps are not willing to pay; the merchants are not willing to pay, so where is the business model?," Dave asks.

Dave says the innovations demonstrated in other countries are only limited to small payments, adding that it will take a huge amount of capital to put the necessary infrastructure in place. Then there's consumer acceptance that needs to be taken into account.

"Eventually, people will start using it, but it will take a while. It's a new technology. Customers will adapt to it, but the overall size of the pie today is very small. I think usage of card still has a long way to go. People are still using cash. So, we've got to convert from cash to card, to begin with," Dave said.

"Also, the technology is not easy. SMS-based services are difficult to remember and text. To download applications, your handset may not be compatible. The banks are not giving the handsets for free and the carriers and the merchants' acceptance does not exist," he adds.

Louis Scotto, head of retail banking of Doha Bank, agrees that mobile payment mechanisms do require a huge investment, which can be the biggest obstacle to merchants and other stakeholders. "They can't use the same traditional terminals and those are not cheap, so it's going to take a while for the technology to catch up, to integrate into the terminals we have already and to get down to a price point where the banks or the merchants can make it affordable," Scotto tells Gulf News.