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Due to Covid-19, more and more Swiss pay with their smartphones. It is still open which provider will prevail. It will only be a temporary victory anyway, as new technologies are likely to turn the market upside down.
The Twint payment system developed in Switzerland is widely known in this country, although until now it has been limited to domestic transactions.
The Swiss love their smartphones: they spend several hours with them every day. Until recently, they rarely used their favorite device to make payments. Either they thought it was too unsafe or they didn’t even know how to do it. Many also assumed that the serving staff at the particular restaurant would prefer to accept coins and bills, and they remained loyal to cash.
Spend money “in one swipe”
But since 2019, more and more customers have been paying with their smartphone, as can be seen in the latest “Swiss Payment Monitor”. 6% of transactions and 4% of billing were processed via mobile phone, double the previous year. One of the effects, for example, is that motorists increasingly use their mobile phones to power parking meters and more and more train customers use the SBB app (see annex). In a self-assessment, more and more people say they sometimes use mobile payment options at checkout (36%) or online (48%).
And that doesn’t even include Covid-19 – statements from wholesalers and farm shops suggest that cash has continued to lose ground. Surveys carried out by the comparative service Comparis or the electronic media interest group after the outbreak of the pandemic concluded that more mobile payments are made than at the beginning of the year.
The numbers from industry leader Twint speak for themselves: The company had around 2 million customers at the beginning of the year, and since then, according to CEO Markus Kilb, between 80,000 and 100,000 customers have joined them each month. . Around ten million transactions were settled through Twint in August, as many as in all of 2018. The increases should affect all areas, in addition to peer-to-peer payments, for which Twint was known, also online payments and especially transactions. Cash registers.
What is “mobile payment”?
A large number of payment technologies and solutions that are processed through smartphones can be combined as “mobile payment”. This includes transfers through the Twint app, but also payments at the checkout or online that are made with Apple Pay, Google Pay, or Samsung Pay. With these solutions, customers must store a payment card, while Twint is linked directly to the account. Many other tech companies are working on their own systems. Watchmaker Swatch and wearable fitness equipment providers Garmin and Fitbit also offer payment solutions on some of their devices, but these are not widely used yet. The SBB and Zalando applications are also important in this country.
Samsung also writes that the use of its own payment solution, Samsung Pay, has increased significantly since the emergence of Covid-19. The company does not report exact figures; The same applies to the American company Apple.
The fronts fell apart
In recent years, provider Twint, which is owned by six of the largest Swiss national banks, and financial services provider Six Group, and especially Apple, have fought hard with each other. Subsequently, the Competition Commission (Weko) has dealt with the payments market on several occasions: at the end of 2018, it negotiated an agreement according to which Apple cannot automatically bypass the Twint application on its iPhones and start Apple Pay if a user connects your smartphone to a payment system. The terminal stops.
Since 2018, Comco has also been investigating whether, among other things, banks have agreed to have Twint boycott Apple Pay and Samsung Pay and thereby give their payment apps perks. There is still no verdict on this.
However, banks’ resistance to Apple Pay has meanwhile collapsed. Almost all of them support the payment solutions of smartphone manufacturers today or want to do so in the near future. Only Postfinance still refuses. Compared to “NZZ am Sonntag”, CEO Hansruedi Köng recently spoke of the lack of a basis for negotiations and the terrible conditions at Apple.
Tobias Trütsch, an economist at the University of St. Gallen and co-author of the “Swiss Payment Monitor”, attributes the blindness of banks to oligopolistic competition in Switzerland. Seven credit card issuers divide the market. Initially, introducing Apple Pay did not seem attractive to these providers, as they had to cede much of their margin to the technology group.
But for a single card company, it’s worth working together, for example, to win over die-hard Apple fans. Cornèr Bank and Bonuscard began offering Apple Pay in 2016. As a result, a certain herd instinct set in, says Trütsch.
It doesn’t have to be a loss of business for the card issuer. Working with technology providers can have a volume effect. So if, thanks to Apple Pay, customers pay more with their credit cards overall, publishers can benefit as well, although they have to give up a big chunk of the pie.
More than one can win
Tech giants Twint aren’t digging the water yet. The Swiss company has the advantage that its application is already known in this country and is compatible with all banks. For direct payments to friends, Twint is easy to use, free, and quite popular. Furthermore, the solution is directly linked to the account and is Swiss. Many Swiss were not overly confident of foreign tech companies when it came to financial matters, says Trütsch, referring to the survey conducted as part of the “Payment Monitor.” Plus, Apple Pay is, technically speaking, just a more elegant way to pay with your own card.
Kilb says that many customers would prefer to have one payment app for all channels. And this app wants to be Twint. Twint is constantly trying to get important partners on board to be present in as many ecosystems as possible. You can deposit your Supercard, pay for the parking meter with Twint or donate money with it. The role models are Alipay and WeChat Pay, the payment solutions of two major Chinese companies that have been widely accepted in China, especially thanks to their integration into these ecosystems.
Twint cannot be used for international payments yet, a downside. It is true that the company manages an association together with eleven other national suppliers in Europe with the aim of making payment systems compatible. There are still some technological, regulatory and business problems to solve, says Anton Stadelmann, Head of Customers and Products at Twint. Therefore, a time for the launch has not yet been defined.
Twint is likely to feel the strongest mobile competition in the box – because Apple and Samsung use their near-field communication interface, or NFC, their payment solutions are very easy to use here. Instead, Twint allows users to scan a QR code, which takes a bit more time.
There are limits to earnings
The EU competition authority has been investigating since June whether Apple is abusing a strong market position by keeping competition away from the iPhone’s NFC interface. But the first question that arises is how the relevant market is defined: Are all digital means of payment in open competition or only mobile payments at the point of sale? The more defined this market, the less likely it is that Apple was guilty of a crime. Either way, it will be a long time before the EU makes a decision. By then, a technology other than NFC might have established itself.
With a strong market position in Switzerland, Twint would have more room for price increases, but this could generate resistance from distributors. In early March, Digitec-Galaxus, Switzerland’s second-largest online retailer, noisily backed away from Twint; Until today it is not possible to pay with Twint in the store.
The dispute was unusually open, but ultimately belongs to the game that is also popular in the scramble for credit card fees: The more sales a retailer generates, the better terms they want (and can) secure. From a tactical point of view, it can sometimes make sense to run away from the negotiating table. In principle, both parties still have an incentive to work together. But the episode already begs the question of how profitable Twint can be without turning to new competitors.
The other competitor
Does there have to be only one winner? In the Swiss market for mobile payment solutions, there should definitely be room for multiple providers. Apple Pay will tend to remain a niche product for Apple lovers, says Trütsch. Others have more confidence in technology companies.
At the moment, the most powerful competitors of mobile payment are still plastic cards and 20-part Nötli. The use of cash decreased slightly in 2019, but this trend has probably accelerated due to Corona. But a hard core of cash payers of perhaps a fifth are betting on paper and metal francs. They are unlikely to move voluntarily.
However, many Swiss are also paying more and more with plastic money. Debit cards in particular are very popular in this country: it was only during the pandemic that some customers learned to appreciate the fact that they can use them to make contactless payments; this feature is becoming more popular. Today, more and more banks are launching the latest generation of debit cards, which can also be used to pay for online purchases. That is attractive.
Twint will hardly be able to establish a stable monopoly anyway, because the payments landscape will continue to change. “The struggle for means of payment will eventually become obsolete because ‘transparent payment’ will prevail,” says Trütsch. The idea: In the future, the payment process should be fully integrated into the purchase and no longer an independent act. This should work for in-app purchases, online, or in stores without sales staff, as they are already widespread in China and have already been tested in this country.
In the final stage, you no longer need a smartphone to identify yourself and approve the payment. And the cards of payment service providers are being shuffled.
