Mobile payments – New Zealand moving from cashless to walletless

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Mobile payments – New Zealand moving from cashless to walletless

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Mobile payments – New Zealand moving from cashless to walletless
Mobile payments – New Zealand moving from cashless to walletless

­­­­The New Zealand payments ecosystem has seen considerable disruption in the last decade with new technologies, innovations and new industry players changing the way we pay.

In particular, contactless payments has laid the foundation for mobile payments with consumers increasingly looking to ditch their cards and wallets in favour of digital wallets or mobile payment apps.

Key Takeaways

  • Based on Venture Insights’ latest consumer mobile survey, nearly 23% of respondents use their smartphones at least once a week to pay for a product or service, indicating a growing interest towards digital wallets and mobile payments apps.
  • About 62% of those who use their smartphones to pay used their Bank’s payment app. Apple Pay comes in second with 19% of users, Android Pay with 13% and Samsung Pay with 6%.
  • The use of Apple Pay, Android Pay and Samsung Pay is highest in the 18-24 age demographic with 52.7% of respondents using at least one of the three.
  • Based on incomes, our survey results indicate that Bank payments app usage is almost always inversely related to income i.e. higher the income = lower the usage of Bank payments apps.
  • However, 50% of respondents said that they have never used their mobile to pay for products and services. We believe this is an opportunity for payment apps to create greater awareness around the benefits and convenience of mobile payments and increase adoption.
  • With more than NZ$1.2bn revenue at stake, the overall payments industry in New Zealand is ripe for disruption. While mobile payments are still growing, increasing adoption of payment apps is only a matter of time as more than 1/3rd of Kiwis believe that New Zealand will be a cashless economy by 2028.

Introduction

The financial services industry has always connected customers by converting one person’s savings into another’s loan.  However, technology is enabling customers to connect directly without the need for financial intermediaries. While disruption has been slow to impact financial services, this is now rapidly changing. Disruption, enabled by technology, is removing traditional barriers to entry and enabling new entrants to take on financial services firms by unbundling their product suite and offering superior products and customer experiences.

Payments has emerged as one of the key areas of disruption with the shift from physical to electronic payments seeing an ever-expanding range of payment methods replacing cash. From mobile banking and contactless cards, to phone payments and bespoke apps, the payment landscape is undergoing a quiet revolution.

Within this context, Venture Insights conducted a short survey on the current usage of mobile banking and payment apps in New Zealand. In this report, we discuss the results of the survey and its implications for the payments ecosystem in New Zealand.

Note: The survey was conducted in October 2018 and was composed of a sample size of 1,007 respondents in New Zealand.

Trending towards a cashless society

Every statistic regarding the use of money is pointing towards a steady decline in cash transactions, and a rise in cashless methods, predominately credit card based. In New Zealand, over 2/3rds of customers say that they do not carry cash as digital payment methods increase in popularity[1]. Business owners expect New Zealand to be cashless by 2028 and more than one in three customers (36%) predict that New Zealand will be cashless within 10 years, while a further 42% believe it will take 20 years[2]. Furthermore, only 3% of small and medium businesses said that all their transactions are still in cash. It is not surprising then that Reserve Bank of New Zealand, deputy governor, Geoff Bascand acknowledged in 2015 that New Zealand's "new" banknotes could be the last ones designed for the central bank[3].

Figure 1. Most popular payment methods in New Zealand (July 2018)

SOURCE: MYOB NZ Survey July 2018

Data for other countries is less consistent, with different sources quoting different values for how much cash is used for payments. However, the general consensus is that small, wealthy nations such as Sweden and Singapore lead the way when it comes to high percentage of cashless use, followed by developed nations such as the US and Australia. These large developed nations are reaching a tipping point, where any further rise in cashless payments will ensure that the rate at which cash will be phased out will increase and ultimately cashless will become the norm for almost all transactions.

The way we pay – are mobile payments the future?

For customers, the ability to send and receive payments and to safely store their savings has always been the cornerstone of their banking relationship. Traditionally banks have used the lure of payments services and safekeeping of cash as a lead in for selling other more complex and profitable products to customers. However, the increasingly high usage of digital is having an unprecedented impact on the way we make and receive payments and store our savings. Customers are increasingly using mobile payment solutions to transact both online and in physical stores. We have seen a number of disruptive services (Google Wallet, Apple Pay, Square, PayPal) in recent years that enable consumers to not only securely store their savings and credit card details but also to make frictionless payments with the tap of a screen. Interestingly, the majority of these disruptions have modified front-end processes while leaving the underlying payments infrastructure untouched.

Key drivers of mobile payments

  • Moore’s law and democratisation of tech innovation – Smartphone penetration in New Zealand has increased from 48 in 2013 to 70% in 2015[4] and is estimated to be 90% by 2018[5]. Add Moore’s law to this and we will see that the massive change in mobile computing power has powered innovative disruptions in the mobile wallet and payments space;
  • Continuing digital transformation of good and services – The rapid advancements in technology is leading to a convergence of the offline and online worlds. Customers are increasingly using the digital route to transact and make payments even if they are purchasing from an offline channel. Disruptive payment solutions that are faster, more convenient and frictionless are increasingly adopted as a result;
  • Familiarity and social acceptance – The majority of the proponents of mobile wallets have been early adopters of apps and services which are complementary to mobile payment apps (eg Users of eBay are familiar with PayPal and hence will be comfortable to use it for mobile payments apart from using it for ecommerce transactions). Equally, we see users getting comfortable with messaging apps and hence are receptive to using them as mobile wallets; and
  • Leveraging the internet as the backbone for a payments ecosystem – While new entrants in the mobile payments space are leveraging the worldwide web as the backbone for their mobile payment solutions, the incumbents are spending millions every year on upgrading legacy technology infrastructure – most of which is not comparable with the disruptive alternatives.

Mirror, mirror on the wall, which is the most popular mobile payments app of them all?

Our survey results indicate that a majority of customers in New Zealand prefer to use their Bank apps as the preferred choice for making mobile payments. More than 62% of survey respondents indicated that they use their Bank’s payment app as their primary mobile payments app. Apple Pay came in second with about 19% of respondents selecting it as their primary payments app. It is interesting to note that Apple Pay, Android Pay and Samsung Pay – all launched in the past two years in New Zealand now account for a little more than 1/3rd of mobile payments usage according to our survey.

Figure 2. Which payment app do you mainly use?

SOURCE: Venture Insights NZ Consumer Mobile Survey, October 2018, n=1,007

Demographic breakdown of payments app usage

Our survey results indicate that Bank payments app usage is lowest in the 18-24 age demographic and highest in the 55+ age demographic. Consequently, the use of Apple Pay is highest in the 18-24 age demographic while that of Android Pay is highest in the 25-34 age demographic.

Figure 3. Demographic breakdown of payments app usage – by age

SOURCE: Venture Insights NZ Consumer Mobile Survey, October 2018, n=1,007

Based on incomes, our survey results indicate that Bank payments app usage is mostly inversely related to income i.e. higher the income = lower the usage of Bank payments apps.

Figure 4. Demographic breakdown of payments app usage – by income

SOURCE: Venture Insights NZ Consumer Mobile Survey, October 2018, n=1,007

Frequency of usage

Our survey results show that nearly 23% of respondents use their mobile to pay for products and services at least on a once a week. Less than 10% of respondents use their mobile to pay on monthly basis while half the respondents said that they have never used their mobile to pay for product and services.

Figure 5. Mobile payments – frequency of usage

SOURCE: Venture Insights NZ Consumer Mobile Survey, October 2018, n=1,007

For most consumers, mobile payments offer greater convenience than carrying a traditional wallet with multiple credit and debit cards. However, using a mobile payments app comes with its own set of risks with security being one of the key inhibitors for the adoption of mobile payments. The rising incidence of viruses and malware affecting smartphones and the risk of lost or stolen devices is likely to be playing on consumers’ minds when it comes to increasing their usage of mobile payment apps. We also believe this is an opportunity for payment app providers to create greater awareness around the benefits and convenience of mobile payments and potentially increase adoption.

New Zealand – cashless first, mobile payments next?

Cards are by far the most frequently used way to pay in New Zealand. Customers in New Zealand made 337 card transactions per capita (almost 1 a day) in contrast with electronic payments, which were the next most popular way to pay, at 69 transactions per capita in 2017[6]. The total value of transactions by cards in New Zealand is about NZ$6bn to NZ$7bn per month and growing. On average the issuing bank makes 1.5% of every transaction. This translates into an annual revenue potential of about NZ$1.2bn, certainly large enough for non-bank players to be interested. While the mobile wallet and payments space may still be nascent, the above trends bode well for the growth of mobile wallet and payments systems.

The New Zealand payments ecosystem has seen considerable disruption in the last decade with new technologies, innovations and new industry players changing the way we pay. In particular, the introduction of contactless payments has driven the rise of electronic payments in the low value or small transactions spending category.

In addition, the rise of contactless payments has laid the foundation for mobile payments with consumers increasingly looking to ditch their cards and wallets in favour of digital wallets or mobile payment solutions.

We believe mobile wallets and payments are set to transform the way we pay for things. Payment methods have been evolving over time from cash to checks to credit and debit cards to online banking and eventually to mobile wallets. Mobile wallets by market size may be small for now, but the potential to replace how we pay for things makes it a compelling enough space to be in.

[1] astercard NZ research

[2] MYOB NZ Survey 2018

[3] Stuff.co.nz

[4] Research NZ

[5] Frost and Sullivan

[6] Payments NZ