Inevitability of Mobile– Payment, Money, Wallet..: Trillion Dollar Industry with Concerns for Security, Privacy, Hacks…

Why use mobile payment?– It’s fast and easy– It’s fun– It works– It doesn’t seem like I’m spending real money– I don’t have a bank account or credit card…

Mobile payment, also referred to as m-payment, mobile money, mobile banking, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed via a mobile device. Mobile payment is an alternative payment method. Instead of paying with cash, check, or credit cards; consumers can use a mobile phone to pay for a wide range of services or hard goods…  

Mobile payment is being adopted all over the world in different ways. The combined market for all types of mobile payments is expected to reach more than US$600 billion, globally, by 2013, which would be double the figure of February, 2011. For example; PayPal alone processed US$4 billion in mobile transactions in 2011, up from US$750 million in 2010.

Most of PayPal’s growth, in this area, comes from facilitating purely mobile transactions. But perhaps the bigger battleground is the use of mobile devices to pay at physical ‘point of sale’ (POS) in stores, restaurants… Both Google and Apple have begun to develop mobile payment technologies, such as; ‘contactless payment solutions’– ‘near field communication’ (NFC): Google’s offering leverages its Android platform smartphones to allow users to pay for purchases and receive targeted ads and discount offers.

Apple has a number of patents, suggesting it sees iPhone developing into a ‘contactless payment solution’.  Then, there are third-party companies, such as; ‘Square’, which has made tremendous progress with its mobile dongle that allows smartphones to be used as card terminals. But the battle is just beginning. In the physical world there are three clear success factors that have not yet been adequately addressed. These are:

  • Value to consumers: Does the mobile payment mechanism offer the same or improved convenience as cards or cash? In the absence of a clear convenience benefit, adoption will have to be bought with discounts or loyalty points.
  • Value to merchants: Merchants have long disliked the high interchange fees charged by card issuers and merchant acquirers, but to date none of the mobile payment challengers has offered a solution that significantly undercuts this model.
  • Ubiquity: Promise of the mobile wallet is that you can leave your traditional wallet at home. This only works if you can use it everywhere – and we are a long, long way from that.

In the article The Fragmented Future of Mobile Payments by Rebecca Greenfield writes: The future of mobile payments is highly fragmented, making the promise of digital wallet on smartphones a lot less exciting. Having a phone act as a credit card makes things faster, more convenient and might even lead to more bargains. But, the way things are panning out, only people who meet specific smartphone, bank, and credit card company criteria can join in on the fun.

As of right now, Google’s mobile payment system only works on Sprint smartphones with Citi Bank Master Cards. For others, there’s Verizon, who has teamed up with T-Mobile and AT&T to work on its version– Isis, which will begin trials next year. Visa too, is apparently in the works for its own mobile payments system. Also,  don’t forget third parties like; Square, Venmo, ZipPay…, that allow users to pay using smartphones who have their ‘apps’.

These solutions can work as replacement for wallet system, and theoretically could work better than ‘Google Wallet’, but only if and when most specific locations accepts the third-party payment system. Thus, there are two types of fragmentation that are happening in mobile payments world: There are wallet payment systems, like Google Wallet, Visa…, where the service is only as useful as having the single credit card…

Then another fragmentation; occurs at the retailer level where only stores with compatible card readers can accept it; even with Google Wallet or third-party services. While the number of retailers accepting the solutions has grown, it won’t become a replacement until a majority of retailers offer them. Here it’s analogous to Netflix and streaming movies; their system is a nice supplement to ‘cable’, but it’s not a complete replacement… and the same idea can be applied to mobile payments…

Currently, all mobile payment services can only be used with specific credit cards, at specific retailers; but, it’s a supplement and not a complete replacement. So now, users have to load smorgasbord of mobile payment systems or apps or both; or settle for the current half-hearted solutions.

In the article Mobile Payment Security Concerns Put Brakes on M-Commerce Market by Christopher Brown writes:  A report from ‘Mobio Identity Systems’ says; that more than 90% of North Americans would make a mobile payment, if they knew it was secure. The survey of 1,085 people across the continent reveals that security is main reason why mobile payment has not grown as fast as expected.

Intriguingly, at present, 80.5% of those questioned said they would consider mobile payments as an addition — rather than a replacement — to traditional payments; despite overwhelming interest in the technology regardless of age, sex, or country of residence. The mobile payment market has not grown as fast as expected, says Mobio, citing a ‘Generator Research’ report stating revenues in 2009 were $68 billion, although they are expected to rise, exponentially, to $633.4 billion by 2014. The report concludes: If the security concern can be eradicated, the m-payment market may finally reach its long-anticipated exponential growth. The main findings from the research are:

  • 94% of respondents would make a mobile payment if they knew it was secure.
  • 73% said security was the most important factor in making mobile payments, with 12.4% saying simplicity and 8.5% speed.
  • 51% of respondents have made one or more mobile payments within the past three months, and the most active group is aged 25-34 years.
  • 82% of respondents see themselves making a mobile payment within the next year. Those aged 18 years or less were most confident, with 88% saying yes.
  • Men were consistently more confident in using the technology than women across all questions posed.

In the article What is Future of Mobile Money? by Dan Rowinski  writes: Questions abound: When will mobile technology take over standard payment transactions? What will the new system look like? Pew Research teamed with Elon University and tackled the idea of– ‘the future of money’.  In a previous Pew survey found that 21% of mobile smartphone owners had used mobile banking services. Of those users, 90% checked their balance and recent purchase activities. Of ‘app’ users, 46% had purchased a mobile banking ‘app’ on  their mobile device. Only 12% of mobile smartphone owners have made payment with a mobile device. 

In the Pew and Elon report, based on a sample of 1,012 Internet experts and other users, they found that these results are likely to change; but, not as soon as many  mobile payment services providers would like. Many experts have said– mobile payment is a market in infancy, and that real noticeable change of user behavior is between two and three years away. Because it’s the time it will take to separate all options that are emerging for mobile payments, and determine which system(s) will emerge as dominant.

This aligns with responses to Pew’s questions to Internet experts on what ‘wallets might look like by 2020′.  Of Pew’s respondents, 65% agreed with the following statement: By 2020, most people will have embraced and adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards…

But, in contrast, it’s interesting that 33% agreed with the following statement: By 2020, payments through the use of mobile devices will not have gained a lot of traction as a method for transactions. The security implications raise too many concerns among consumers about the safety of their money. Cash and credit cards will still be dominant method of carrying out transactions in advanced countries…

There are many reasons, some are conflicting, that consumers will or will not adopt mobile payments in the next few years. Yet the conversion of money (currency) to transactional information, will continue. As Amber Case said in the Pew report: When credit cards arrived, checks did not disappear and neither did money. Some systems may emerge that use completely smart payments, but there will be other forms of payment available…

Money is becoming more invisible, more abstract, and consumers may remain nervous about exposing it to devices and systems that are not yet standardized, and whose security is constantly being questioned. But there’s too much money to be made by those who have already invested in mobile payments, and consumers will soon be ushered into a new era, nervous or not. Proven systems built on mobile connectivity and increasingly flexible means of exchange provide a tipping point in shift towards cashless society. The ability to replace cash with digital money transferred via mobile smartphone is one of the next big things for over a decade.

Proponents have for years been predicting widespread use of mobile payments for range of activities, e.g., transportation ticketing to buying Starbucks to entertainment venues… They posited that this would all first take off in technology-savvy European markets, probably led by partnerships between banks, IT firms, and mobile operators. What few recognized was that regulation and willingness of consumers to make the shift would be such a barrier; what even fewer experts saw was that serving ‘unbanked’ populations in Asia and Africa would be the catalyst for change.

The principle has been proved that innovation often occurs when– the need for change is greatest. Look to Asia and Africa, where there are few banks, poor physical infrastructure and rural population that are often dependent on remittances from other locations. In a survey conducted by University of California, it indicted that U.S. consumers would shy away from using handsets to pay for purchases, if it means giving up personal or data-tracking data. An attitude that mobile payment providers may find worrisome as they push out mobile and e-wallet technology to the masses within the next few years…

Beyond issues of consumer security and privacy, mobile payment must also deal with other obstacles for widespread adoption of mobile payment technology and that is; sheer number of mobile payment systems options will be overwhelming. However, as reluctant as consumers are; mobile payment is inevitable, and another step in the increasing digitization of money.

As economies move from gold-to-cash-to-numbers in bank accounts; money has become just another kind of information that can be moved and tracked by computers, and now mobile devices. It’s a shift that has profound effects on financial institutions, governments, consumers…

The future is about mobile– payment, banking, money, wallets… It’s successful in many countries… and, U.S. is actually lagging behind other economies, but it will happen… it’s just a question of when. ~Kagan