Analysis suggests that Spain generates some of the highest volume and value of digital wallet transactions in the Western world, fuelled by consumer appetites for smartphone banking and e-commerce. And while online purchases accounted for just a fraction (7%) of total consumer retail sales in 2019, lockdown restrictions introduced to combat the Coronavirus pandemic in the first half of having driven increasing numbers of Spaniards to do more of their shopping online.
Widespread ownership of different client devices is likely to have pushed that trend. Almost all (94%) of Spaniards aged between 16 and 64 own smartphones according to GlobalWebIndex reports for the third quarter of 2019, slightly more than those who own desktop and laptop PCs (85%). But others also own both tablet devices (57% of 16-64yr olds) and games consoles (45%). The same age band spends an average of 5 hours and forty-one minutes using the Internet across all those devices, but around half of that time is spent on mobile devices specifically. Indeed 90% of all Internet users in the country browse the web via their smartphones.
Online activity is aided considerably by the widespread availability of fast Internet connections across Spain. The average fixed broadband download speed as measured by Ookla speed tests in January 2020 is 123Mbit/s. For the moment, equivalent mobile broadband capacity is a long way behind (average speeds are around 35Mbit/s), but they are fast catching up. Mobile download speeds increased almost 50% in 2019, as Spanish telcos and mobile network operators (MNOs) expanded the availability of fourth-generation (4G) network infrastructure across the country. Most (87%) mobile connections in Spain are now 3G/4G enabled estimates GSMA Intelligence, and 80% of accounts in the country are post-paid.
There are also plans to bring even faster fifth-generation (5G) networks online within the next few years. Many regions of Spain already have 5G coverage after Vodafone activated its network using the 3.5GHz frequency waveband in 21 cities as of May 2020. Proposed auctions of further 700MHz wireless spectrum were delayed for the duration of the Coronavirus lockdown restrictions but will take place later in 2020. That will leave both Telefónica Móviles and Orange España to launch their own commercial 5G infrastructure over the next couple of years, bringing lower latency, expanded coverage and increased reliability to the country’s mobile networks.
Mobile transactions driving e-commerce growth
While Spain’s e-commerce market currently lags those in other European countries (notably the UK, Germany and Italy), it is expanding at a faster rate. Statista’s market outlook e-commerce reports for 2019 suggest almost 35m Spaniards purchased consumer goods online in 2019, spending an average of US$520 per person to total US$18bn (up 1.7% over 2018). Amazon’s Spanish shopping site was the 5th most visited website in the fourth quarter of 2019, according to statistics compiled by Similarweb.
PPRO’s payment and e-commerce reports put business to consumer (B2C) e-commerce spend for last year at US$35.8bn, up 19% year on year and averaging US$1,447 per consumer. Even so, B2C e-commerce spend still accounted for only 7% of total retail expenditure in the country, leaving ample room for further growth which is likely to have seen additional impetus during Spain’s lockdown in the first half of 2020.
Of that US$35.8bn total, PPRO estimates that almost half of the transactions were conducted via a mobile device. GlobalWebIndex reports that over two thirds (69%) of Spaniards in the 16-64yr age category use shopping apps, and 44% banking apps, while a quarter used their mobile phone as a ticket or onboarding device or to transfer money to family and friends. Many (40%) also used their mobile device to make an online purchase in the third quarter of 2019, although slightly fewer than those that did so using their desktop or laptop PC (50%). App Annie ranked Amazon’s shopping app fifth in terms of monthly active users and 8th for downloads.
In its 2019 Global Payments Trends Report – Spain Country Insights, Investment bank JP Morgan concluded that mobile commerce in Spain is expanding at a faster rate of growth compared to other European countries. It puts the total value of mobile commerce transactions in 2018 at €11.5bn in 2018, forecast to grow at a compound annual growth rate (CAGR) of 22% through to 2021. More than half (52.6% or €6.1bn) of all Spanish mobile commerce transactions are made through apps estimated JP Morgan, with browser-based activity accounting for the remainder (€5.5bn).
Digital wallets funding cashless payments
The expansion of mobile commerce in Spain appears to have coincided with a parallel surge in the use of cashless payments to fund purchases. Statista’s market outlook for fintech puts the total number of people making some form of digitally enabled, or cashless, payment transaction at 38m in 2019, totalling over US$41bn (up 11% over 2018) and averaging US$1,088 per user. Statista also forecasts that the value of mobile POS payments conducted in Spain will grow from US$7.4bn in 2020 to US$32bn by 2024.
Increased adoption of online banking is a crucial element in driving that trend. According to the GSMA Intelligence Mobile Economy Europe 2018 report, around 30% of smartphone owners used their devices for online banking in 2018. World Bank global financial inclusion data suggests that two-thirds of Spaniards over the age of 15 make online transactions using their mobile phones. However, equivalent statistics were not collected for mobile money accounts. It also suggests that 94% have an account with a financial institution, and 54% a credit or debit card. That high level of bank account ownership is one reason why credit cards remain the most widely used payment method for e-commerce transactions, funding 49% of purchases estimates PPRO.
JP Morgan calculates that 43% of mobile e-commerce transactions in 2018 were funded by credit/debit cards (and particularly credit cards as consumer borrowing in Spain remains high). But the investment bank also notes a late surge in the use of digital wallets, which accounted for almost 28% of completed e-commerce transactions in 2018. World Bank estimates that electronic wallets (eWallets) accounted for 22% of e-commerce transactions in 2019, ahead of both cash (11%) and bank transfers (13%). Such is the rate of adoption, and JP Morgan is forecasting that digital wallets may equal the volume and value of card-based online payments by 2021.
Specialist eWallets and banks dominate mobile payment provision
A strong line up of digital wallet and mobile money providers have emerged in Spain over the past five years. However, for the moment, activity is dominated by large global players. Comscore’s Global Digital Payments tracker ranks the top three mobile contactless payment tools in Spain by user penetration as Google Pay, Samsung Pay and Apple Pay, for example.
Elsewhere Bizum was launched by 27 Spanish banks in 2016 as a way to allow customers to make quick, easy payments to each other by linking their phone numbers and email addresses to their bank accounts, with the express aim of helping to build a P2P payments community that could compete with rival technology from the big tech companies. Yet Bizum only recently introduced the ability to conduct e-commerce payments in 2019, having signed up over 300 Spanish e-commerce merchants as of 30 January 2020 (it will adopt QR codes later this year).
By the end of 2019, Bizum management reported the service had signed up 6.25m users, with 80% having performed at least one transaction on the platform in the fourth quarter of 2019. The average value of payments has fallen from €52 in 2017 to €46 in 2019 as subscribers pay for a larger volume of lower-cost goods and services (typically dinners, gifts, digital service subscriptions, travel and rent). And this year  Bizum expects to support 180m transactions, up from 60m in 2019.
Other Spanish banks offer eWallets of their own including BBVA wallet, an app for Android and iOS devices that enables customers to pay for products and services using their smartphone by linking it to their credit and debit accounts. CaixaBank Pay is another example that allows customers to withdraw money from ATMs and pay for goods and services at POS terminals via NFC transactions. The company has also partnered peer to peer mobile payment system – Ealia to allow inter-account bank transfers through the mobile phone numbers and email addresses.
Elsewhere Santander Wallet also uses NFC on Android and iOS devices to enable mobile POS payments, as well as inter-account bank transfers based on secure smartphone address books, with similar eWallets on offer from Banco Sabadell, ICICI Bank and ING Direct.
Though Spain’s MNOs launched mobile payment services of their own at an early stage, they have seen mixed success. Orange launched Orange Cash in partnership with MasterCard back in 2014, initially as a contactless rechargeable pre-paid card that could be used to fund payments in retail stores and withdraw cash from MasterCard ATMs. An accompanying mobile app allowed users to transfer money to other Orange Cash subscribers, conduct online transactions and top up their accounts. The telco subsequently launched its own Orange Bank mobile app late last year, allowing customers to fund purchases through integration with Apple Pay and Google Pay.
Telefónica Digital and RIM trialled an eWallet for BlackBerry in Spain as far back as 2011. Two years later they partnered with local banks La Caixa and Santander to provide digital wallet and P2P mobile payment services, both of which appear to have been discontinued. More recently the telco moved into online financial services with the launch of Movistar Money, a consumer loans service, in 2017. And after first launching in 2013, Vodafone decided to gradually phase out its Vodafone Wallet before discontinuing the service in June 2018 citing low customer take-up.
DCB integration to aid physical purchases
Telcos can still play a pivotal role in the evolution of Spain’s mobile payments market; however, given their control over the networks and smartphones that end-users harness to conduct online transactions. They can help e-commerce merchants reach a wider audience through their large subscriber bases and encourage higher levels of consumer spending by making it quick and easy for buyers to complete purchases through direct carrier billing (DCB) relationships.
The Spanish Ministry of the Economy confirmed that carrier billing would be exempt from the European Union (EU) Payment Services Directive (PSD2) Strong Customer Authentication (SCA) fraud prevention requirements as far back as 2018. That means that merchants processing payments via DCB will not have to introduce additional authentication protocols that could complicate and delay transaction completion, and in turn, lead to increased levels of purchase abandonment and customer drop-out rates.
In its Carrier Billing Forecast 2019-2024 report, research company Ovum estimates that the value of transactions conducted through DCB will grow from US$49bn last year to US$79bn by 2024, pushed in no small part by sales of low price physical goods and services allowed by the PSD2 exemption. Movistar Spain already allows mobile subscribers to pay for applications, video games and digital content subscriptions through DCB. Further integration with eWallets could help telcos expand that customer experience to purchases of physical goods processed both online and at POS terminals in retail stores.
There is little doubt that COVID-19 restrictions have encouraged more consumers to shop online, and that has presented a prime opportunity for mobile wallets to demonstrate their ease of use, security features and convenience. Even when the immediate dangers of Coronavirus have passed, ongoing concerns around sanitary best practice should continue to boost all forms of contactless payment adoption. Online merchants and eWallet providers alike should be ready to rapidly scale up their business accordingly, and consider working with third-party payment service providers like DOCOMO Digital to help them partner with MNOs at scale.