It is hard to avoid the massive industry push for mobile payments in the trade press currently. Companies in ecommerce like Amazon and Intuit, telecom operators like Sprint, and of course a whole host of financial services companies like Visa, and Amex, are making moves – and as expected Google who seem to have a hand in everything these days. So why are they doing this? The reasons go far beyond a clip of transactions.
1. A chance of capturing offline retail revenue
The basic reason, transaction revenue, is of course important. US card processing fees paid by merchants in 2009 totalled $62.1 bn, and mobile payments would extend this and presumably reduce cash transactions and possibly capture another $5 to $20 billion in processing revenue in 8 years time depending on the growth rate and devices capable of doing mobile payments (source: Nilson Report) . The technology and complexity involved in rolling out mobile payments means that non-financial players can interject themselves in the transaction stream as well, which intensifies the battle. Today, ecommerce stands at about 10% of retail revenue (in the US), and with mobile payments, digitally focused transaction players now stand to capture a massive offline retail market which, as an example, in the US stands at more than $4 trillion in revenue (Source: US Census Bureau).
2. Positioning to capture data, data, and more data
As any mobile network operator can tell you, they proudly hold a database of information that although it may not match that of Facebook, tells you a lot about people and their spending patterns. They know what phones you have owned, how often you call, how often you surf the web on your phone and where you are at any given point in time. Now you could argue that few mobile operators have managed to do much with this data, but some are starting to get it, and they certainly know the power of owning it. Any company who sits at the core infrastructure will at least be able to own all or part of spending patterns of consumers. This is of course massive, and hence why “data giants” like Google and even Facebook want to be involved in payments. Data can be captured at many points, and this is now become quite the battleground in many markets.
3. Playing the enabler role
In a survey by consulting firm Edgar, Dunn & Company, payment professionals across the globe were asked what the most important payment technologies were in the next 5 years:
As both 1 and 3 are related to paying with your mobile, it highlights how the industry sees mobile payments as such a key focus area. They are keenly aware that having the power of recognizing the consumer every time they make a payment coupled with the ability to communicate with that consumer before, during and after the point of purchase is extremely powerful. It will no doubt unleash a slew of innovative services designed to increase purchases, or consumer loyalty, unleash social shopping in the real world, all the while protecting the consumer interests. Having a position in the middle as an enabler allows you to understand what is going on, and potentially profit from the innovation of others – or allow you to stay on top of things in order to better your customer value propositions.
The future is so bright,…
Who will be winners and losers here? Typical financial players certainly have more experience on the financial transaction end, and as many researcher point out, swiping is the easy part, and the new kids in town may find payments to be quite difficult. The lack of standards and battle between different camps probably means that the full consumer adoption and roll-out will take longer than it would if this was for instance managed by central banks in each markets, but in the end, it will definitely be the consumers that stand out as winners, as a lot of what is convenient about online commerce now comes to a shop near you. Benefits go far beyond quicker check-outs, as comparison shopping, offers, and personalized shopping experiences can get delivered to you once you enter or pass a store. There will be a period with a chicken and egg problem, but as handset with embedded payment technology roll-out, and merchants sign up, you will see nice adoption curves as those experienced (by seemingly always leading in mobile) Japan:
Of course, there are those that say what happens in markets like Japan do not necessarily transfer to the west. The graph below from Morgan Stanley should dis-spell that myth:
The future looks bright indeed….
Disclaimer: The views expressed on this post are mine and do not reflect the views of any clients or companies I am currently working for or have worked for.