The payment war has just begun

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Kære læser. Artiklen her er en del af det engelske magasin Copenhagen Fintech. Indholdet er udformet på engelsk, da det også henvender sig til en udenlandsk læserskare, som deltager på eventen Money2020, hvor Berlingske Media er mediapartner. Magasinet er udformet af Berlingske Medias kommercielle redaktion i samarbejde med Copenhagen Fintech. God læselyst.

This article is part of the commercial publication 'Copenhagen Fintech'. Click here to view all articles

Two national rivals − Nets and Danske Bank − are fighting to gain the favour of consumers with their new mobile payments solutions. But the national battle may just be
a foretaste of what’s to come.

Denmark became a pioneer in electronic payment systems with the introduction of the national payment card, Dankort, in April, 1983. Back then, it was one of the very few forms of payments, but fast forward to today, and there are countless alternatives with more to come. The launch of the Dankort mobile app this spring marks the beginning of a war between national and international payment providers. It is still unclear who will win − besides, perhaps, the consumers.

Mobile Dankort versus MobilePay
Unlike in 1983, the new Dankort app has a competitor called MobilePay, an app introduced in May, 2013 by Denmark's biggest bank, Danske Bank. In 2012, the bank had left Swipp, a cooperation between the leading Danish financial institutions, for a mobile payment solution, because it felt Swipp was too slow to react against a new threat in the form of a mobile payment service introduced by the big telecommunication companies in Denmark. MobilePay became a big success and when Nordea, another big Nordic bank with a strong presence in Denmark, announced in October, 2016 that it would leave Swipp to join MobilePay, the remaining banks in Swipp followed suit quickly.

MobilePay excluded from 65 percent of Danish retail
All major Danish banks have now decided to support MobilePay, so you would think that it is destined to be the mobile payment solution. Well, you’d better think again. Despite the success of MobilePay, two of the biggest retailers in Denmark, Coop and Danish Supermarket, have decided not to accept payments through MobilePay. That's around 65 percent of the Danish retail market excluding MobilePay. Why exclude a payment solution which around 3.3 million Danes have in their pocket?

Even though MobilePay is used a lot to transfer money between individuals and smaller businesses, its widespread usage has not spread to the shops.

“It's too difficult to pay with MobilePay in shops. Compared to a contactless Mastercard or Dankort, it is too cumbersome to get the mobile out, unlock it, start the MobilePay app, enter the PIN and swipe the amount,” says Jan Damsgaard, professor at Copenhagen Business School, who follows the payment industry closely.

The shoppers normally use their – often contactless − Dankort or international cards, he adds.

Mark Wraa-Hansen, Director of Mobilepay, Danske Bank

The need for black screen payment
Contactless is key to the mobile payment kingdom.

“The challenge is to make black screen payment work,” Damsgaard explains referring to the ability to use smartphones as contactless cards without the need to unlock a mobile, start an app, enter a PIN and so on. Most new smartphones have the required Near Field Communication (NFC) chip that makes contactless payment possible, but there's a caveat when it comes to iPhones. Although iPhones have NFC chips, they are reserved to Apple's own ApplePay which has not been introduced in Denmark yet.

Nets, the owner of the Dankort system, introduced a contactless wallet in February through the smaller banks organized in the Bokis cooperation and a beta version of a Dankort app with contactless technology was introduced late April. The competition for the contactless mobile payment market was on. Also in April, MobilePay released a contactless smartphone solution for both Android and iPhone.

Similarly to the Dankort app, the MobilePay for iPhone will not be using NFC for contactless payment, but will rely on Bluetooth.

Jan Damsgaard, professor, Copenhagen Business School

Who is going to win?
MobilePay’s contactless smartphone solution was only available in the retail chain KIWI when it was introduced, but the rest of the retail chains in the Dagrofa-concern will follow. At the time of writing, the two most important retailers, Coop and Danish Supermarket, were still betting on the Dankort app, but it is too early to call the winner.

Transaction costs and terminals
Contactless is not the only factor determining whether the mobile Dankort or MobilePay will be the prevailing mobile payment solution in Denmark. There's also the question of transaction costs. When Danish Supermarket announced it would not support MobilePay in its shops, it argued that MobilePay transactions were too costly compared to what the shops have to pay for Dankort transactions.

Perhaps as a response, Danske Bank lowered its prices in April, so the highest fee for a transaction is now 0.75 kroner instead of 5.

Jan Damsgaard, professor, Copenhagen Business School

»It is the customers that will decide. In the end, retailers will accept whatever the customers want to use as payment.«

The beasts: Apple, Google and Facebook
The unfolding battle for the Danish payment market is fascinating, but it reaches truly epic dimensions when players from the global payment world are added to the narrative.

“The Great Nordic Payment War has just started. The skirmishes between Swipp, Nets and MobilePay are far from being over,” Damsgaard says, and points to the global IT companies such as Apple, Google and Facebook which are leveraging their user bases of many hundreds of millions to enter the payment sector. ApplePay and Android Pay are already in use in the UK and Facebook has recently got a money service license for Europe.

“Apple, Facebook and Google are in a strong position to offer payment services. The compelling side of their solution is that it is free. They don't earn money through the actual transactions − their revenue comes from their relationship with the users. Consumers aren’t charged for payments and the retail sector will have to pay less in order to receive payment via their solutions,” Damsgaard adds.

Who will win?
With the coming Payment Service Directive (PSD2) there will also be more minor players in the market, so it is difficult to predict the winners.

“It is the customers that will decide. In the end, retailers will accept whatever the customers want to use as payment,” Damsgaard concludes.


This article is part of the commercial publication 'Copenhagen Fintech'. Click here to view all articles