It pains me to say that 2013 will likely go down as an underachieving year for mobile payments in the U.S. Visionaries that anticipated physical wallet extinction have been disappointed by the fragmented efforts to connect consumers and merchants via mobile. However, interest in the technology has seemingly ticked upward this summer, led by big investment in payment apps by retailers and quick service restaurants (QSRs).
Mobile solutions that use QR codes to conduct in-store transactions have been the popular choice amongst payment pioneers, rather than the more advanced near field communication (NFC) technology. While consumers aren’t screaming for alternatives to plastic, industry leaders know that value-add features such as digital receipting and location-based promotion could eventually pave the way to widespread adoption of mobile pay. The most ambitious stakeholders to-date may not be who you’d expect.
It’s still early in the ballgame but, as of now, the clear leaders in the mobile payments movement are not payment intermediaries, but rather the merchants themselves. With the uncertainty around which third-party wallet solution consumers will gravitate toward, merchants have taken it upon themselves to develop proprietary payments apps. So far, loyalty apps supplied by retailers have proven to be the only solutions that present consumers with direct value-add.
From a merchant-perspective, this independent payments strategy is a step in the right direction. Rather than committing to a specific wallet solution, Starbucks committed to a payment technology in QR codes. This way, the coffee provider was able to get the ball rolling with mobile while maintaining the latitude to accept other QR-enabled wallets as they become popular amongst consumers. Other retailers and QSRs have kicked the tires on this strategy and are primed to reap the benefits.
Somewhere in the Middle: Tech and Card Companies
As the mobile point-of-sale (mPOS) space becomes increasingly saturated with card readers, more payment processors like Verifone and Intuit will follow Square’s lead and invest in digital wallet solutions as a way of bridging the plastic-heavy present with the mobile-driven future. One of the originals in the payments space, PayPal has been unique in sticking to its cloud-based roots and truthfully has only given up ground as an in-store payment intermediary since the rise of investment in mobile.
The mixed success is shared by Google and its NFC-based wallet that has seen poor adoption since its launch in 2011. Rival Apple’s presence in payments has been nonexistent, though there is speculation that this could soon change. Experts are bullish on the use of Apple’s Passbook app in payments, which has had success centralizing airline tickets and loyalty cards. A laggard right now, Apple could fly to the top of the market if it can use Passbook to successfully aggregate financial information, retail rewards and spend analytics.
The sense of urgency around mobile at card companies like Visa and Mastercard is at an all-time high. Once the kings of financial technology, the credit card giants know that their space is being invaded by up-and-coming payment processors, Square and PayPal. With the approaching deadline for merchants to meet EMV standards in their POS terminals, now is an opportune time for card companies to sell store owners on mobile payment technologies.
Card companies have taken a united approach to mobile pay, developing solutions that are card brand agnostic. Mastercard in particular has ramped up its mobile efforts through the marketing of its MasterPass solution, which is compatible with Visa, Discover and Amex-branded cards. One value proposition sure to be talked up by card companies is security, which has served as a barricade to consumers’ embrace of mobile payments thus far.
Laggards: Banks and Telecom Providers
With core depository functions at the forefront of their mobile agendas, banks have put payments initiatives on the backburner – at least those other than mobile bill pay. Many banks aren’t even sure if the payments arena is their space to play, instead allowing card companies to chase after what they do best. After all, there are much better avenues for banks to generate fee income in the mobile universe than payments.
The area of payments where banks may be able to make a dent is peer-to-peer (P2P), though efforts to securely transmit account information across banks are still a work-in-progress. The alliance between Chase, Bank of America and Wells Fargo (deemed ‘ClearXchange’) has been, in short, a bust. Sticking to P2P limits banks’ stake on the merchant side, where card companies have traditionally called the shots. By investing exclusively in P2P initiatives, banks can zero in on a single stakeholder, rather than catering to both consumers and merchants.
Like banks, mobile network operators (MNOs) have become utilities in nature and thus have been slow to invest in cutting edge technology like mobile payments. Of course, providing access to cellular and data networks is the core business of MNOs, not playing a clearinghouse role in financial transactions. But after seeing the success that telecom provider Safaricom has had with its M-PESA payment solution in Africa, it’s not unreasonable for U.S.-based MNOs to want a piece of what’s destined to be a multi-billion dollar market.
Enter Isis, the telecom industry’s only true attempt at breaking into the mobile payments mix. The NFC-based solution is backed by leading MNOs, AT&T, Verizon and T-Mobile, and is expected to be made available to smartphone owners later this year. Like PayPass and Google Wallet, Isis requires widespread support of NFC, a nuisance to some merchants that are slow to invest in new POS terminals. Given the time and funds poured into Isis’ rollout, it may be a do-or-die scenario for the telecom consortium.
Merchants have reason to be excited about their self-made success in payments thus far. Not only have they avoided pre-maturely committing themselves to third-party payment processors in the interim but may have also avoided doing so indefinitely if the merchant-backed MCX wallet gains traction in the retail world later this year. But, look for companies like Apple and Mastercard to try and disrupt this initiative with their own digital wallet solutions that integrate with retail apps.
The rise of some stakeholders must be matched with the drowning out of others. With such competition at the physical POS, I look for banks to drop out of the retail and QSR conversation entirely. I also envision a single payment processor emerging as a consumer favorite sooner or later – and my money is on Square. Telcos may become nonfactors and dark horses like Apple could become industry leaders overnight; all a part of the frustratingly slow, yet exciting mobile payments movement.