The micropayments market is set to grow rapidly in Europe according to a study by Frost & Sullivan. Overall, cash payments are decreasing in the region, and though they still remain the preferred means of payment, the emergence of micropayment solutions and products is fuelling the shift to digital money. In fact, defining a single direction for the European market, optimising fee structure and risk management, and enhancing end-user experience will surely boost the use of prepaid, online and contactless solutions for small payments.
The study shows that the growth of micropayments solutions will be driven by the usage of pre-paid, contactless, and mobile payment solutions. The analysis determines that use of contactless payment cards systems in Europe is expected to increase at a compound annual growth rate (CAGR) of 28.7% from 2011 to 2017. Likewise, with the massive adoption of smartphones and increasing penetration of tablets in Europe, mobile commerce will record a CAGR of 10.6% between 2011 and 2018.
The shift to digital money has a substantial benefit for banks and governments alike. In Europe, the cost of handling cash is high. The European Payment Council (EPC) is working on ways to improve processes and reduce the total cost. “The process of production, transportation, protection and destruction of cash is complex and expensive, and with only 30 per cent of the produced money in circulation, governments are looking to optimise the national cost of cash,” said Frost & Sullivan ICT Global Program Director Jean-Noel Georges. “The economic crisis has also forced governments to streamline tax collection and fight against shadow markets through the use of electronic money and associated Web services.”
Moving away from cash, however, comes with many challenges attached. The preference for cash payment among the older generation of users, issues with the business model and lack of infrastructure as well as a clear marketing message have pegged back market growth in the short term.
Consumers have shown varying degrees of readiness to adopt contactless cards. Frost & Sullivan believes that education on the user and merchant sides, with a strong focus on the security features of contactless technologies, will help to popularise the usage of contactless cards, and potentially, of contactless-based mobile payments.
As of now, the future of prepaid cards and prepaid mobile solutions seems brighter. “Turning cash into electronic funds in a stored value account is currently the best approach,” noted Georges. “A flexible solution, which includes issuing a prepaid mobile payment account where customers can load the money through peer-to-peer transfers, cash deposits or bank cards and then use the prepaid value with merchants, will encourage non-cash payments.”
Lastly, cloud-based mobile payments are also expected to contribute to the expansion of the micropayments market. “Cloud-based m-payments, in principle, are an extension of the traditional online commerce market. However, we believe that as cloud-based m-payment matures, and its awareness among consumers and merchants increases, the solution will play an important role for the in-store payments and micropayments markets,” said Georges.
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