Viewpoint: Finding the Genius in Mobile Payments

By James Wester, IDC Financial Insights

The putative topic for this piece is to highlight “genius” in mobile payments. But as a longtime booster of mobile payments, I have to admit something: It has become increasingly difficult to be a mobile payments booster of late. Or, maybe the converse of that statement is more precise: It has become easier to be a mobile payments skeptic.

That’s not to say that “mobile payments”—defined broadly to include any number of possible use cases from contactless payments at the POS to mobile commerce—won’t eventually happen. They absolutely will. The available technologies that will make payments simpler, cheaper and seamless, and will therefore drive mobile payments, aren’t going away.

Consumers are becoming more mobile. That trend isn’t reversing itself any time soon. Merchants will continue to look to services that can move the transaction away from single-purpose devices like POS terminals and into the cloud. That trend, based as it is on lowering costs and improving the customer experience, is here to stay. And “big data” is fast-becoming a usable technology that merchants can use to make the transaction less about the funds moving back and forth and more about the information shared at the point of sale. Those technologies, in various combinations, will continue to move mobile payments forward.

My skepticism, therefore, isn’t about mobile payments in general. Instead, it’s a bit of a reaction to many current mobile payments players—startups and legacy players alike—that seem to have forgotten, or may have never known, what mobile payments success will take. It’s difficult not to be skeptical when mobile payments startups receive multimillion-dollar rounds of venture capital and are heralded as disruptive before they’ve even launched.

Payments is a hard business to succeed in. It’s about massive volumes, near instant speeds and tiny margins. The major players measure their transaction volumes in trillions, their transaction speeds in microseconds and their profits in basis points. There is little room for error and if mobile payments are to move forward, companies and solutions need to be evaluated in a hype-free environment, one that ignores how much money companies have raised and looks at whether they can compete in the payments environment. Skepticism about mobile payments these days is not only warranted, it’s healthy.

The good news for mobile payments boosters is that even the most skeptical observer of the market landscape can find some encouraging signs. Payments is chock-full of smart people and innovative companies, so spotting genius isn’t all that hard. In general, the mobile payments genius spotter needs to look at these general areas:

• Smart partnerships are becoming the norm. If the past few years of payment innovation have taught us anything, it’s that no one company, provider or player can hope to own the entire payment process. There are too many steps that need to be done correctly, securely, consistently and instantly for one provider to handle. (And that doesn’t even address the regulatory hurdles that prevent companies in one highly regulated space, like telecommunications, from competing in another highly regulated space, like financial services.) Instead of trying to own the process, smart players are finding partners that can fill in the gaps in their offerings.

  Obvious pairings between wireless carriers and card brands are just the beginning of this partnership process. Some inspired partnerships include Walmart and American Express offering the Bluebird product to the unbanked. (American Express has expanded that initial partnership to other retailers and, consequently, expanded its Serve product’s reach.) With more than a million consumers now signed up for Bluebird, Walmart is bolstering its financial services offerings with another strong brand—American Express. And American Express now can reach customers who might not have considered using its product.

• Smart investments are still going to good companies. Admittedly, it might be too easy to dismiss some of the more eye-popping investments in startups, such as Clinkle; after all, it’s possible a Clinkle may come to market with a truly amazing product. It’s also not entirely fair to assume that mobile payments investment is the result of uninformed exuberance. Venture firms are no doubt just as thorough in researching mobile payments startups as they are in evaluating any other companies.

  Thus, proponents of mobile payments can take heart that investment dollars are still flowing into the market, even if some investments may seem inexplicable. Other examples in the past year include companies like Dwolla and TabbedOut receiving multiple million-dollar rounds. PayNearMe received a $20 million round in February. These are companies that have been working on their products for several years, and additional investment shows a growing confidence not only in these companies but in the mobile payments space in general.

• Smart technologies still are being developed. At one point not so very long ago, it was assumed near field communication (NFC) along with a Secure Element (SE) would underlie the mobile payments revolution. The initial push was for companies to control that SE and thus “own” the customer. When it became clear that mobile network operators would have an advantage in provisioning that SE, that model quickly fell apart and providers began searching for new ways to make payments happen using other technologies.

  Enter Bluetooth low energy (BLE) and host card emulation (HCE). While neither technology is widely deployed yet (naysayers might say the same for NFC!), the development of solutions from Apple and PayPal integrating BLE and HCE on Android phones, demonstrates just how fluid mobile payments is. There is no set technology yet and that’s actually a good thing. It shows that if there is an impediment to providers in bringing solutions to market, a technology fix will be found. (So don’t expect BLE and HCE to be the last technology developments either.)

Mobile payments remains an exciting area, possibly the most exciting area in financial technology. It is the point where our growing online presence meets the real world of brick-and-mortar commerce. And even with a healthy dose of skepticism, the potential from that combination is huge. Given time, it will change everything from banking to shopping to paying bills. I think I’ll stay a booster.

James Wester is the global payments research director for IDC Financial Insights and previously was the founding editor of Mobile Payments Today. He has more than 17 years of experience developing, implementing and managing a broad range of marketing and strategy initiatives for technology and payments companies. James can be reached at [email protected].

In Viewpoints, prepaid and emerging payments professionals share their perspectives on the industry. Paybefore  endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.

This Viewpoint appeared in the Spring 2014 edition of Pay Magazine.