Without even knowing it, we pay a lot of different people through a number of different channels. Over the course of one day, you might mail a check to a utility provider, order a book off of Amazon, charge a cab fare to your credit card and buy a Coke out of a vending machine. Even the soundest spenders are impacted by the surprisingly complex universe of payments. Fortunately, an opportunity exists in mobile technology to revolutionize consumer payments.
With the far-reaching capabilities of today’s technology, all of the payments described above can be made through a smart phone. However, achieving such a solution on a large scale is a bit more complicated than plug-and-play. The payments landscape spans across multiple industries, touching telecom providers, banks, card companies, tech firms and others. This crowded space serves as an obvious barrier to widespread adoption of a common mobile payments platform. And after evaluating the value-add of each player, it’s not overly intuitive as to who stays and who goes.
The Playing Field
Being the traditional gatekeepers of one’s paycheck, banks are involved in a consumer’s payments by default. If I’m making a monthly rent payment or getting a friend back for movie tickets, those funds are coming straight out of my checking account. Unfortunately, banks have done little to facilitate mobile payments (or ‘proximity payments’ if made in-store), instead pouring their efforts into broader mobile banking initiatives. Successes in payments have been limited to mobile bill pay and peer-to-peer (P2P) fund transfer that typically involves the cumbersome exchange of bank account information.
Card companies like Visa and Mastercard are experts in payment technology by design and are kicking the tires on mobile payments at the point of sale (POS). The recent debuts of payWave and PayPass have turned your card swipe at 7-Eleven into a contactless tap through the use of Near Field Communication (NFC). Aside from looking cool, this feature won’t mean much until it’s your phone making the tap instead of your credit card (a tap is as good as a swipe if I have to bring my card either way). While many Android-powered devices boast NFC, Apple is yet to include the technology in the iPhone.
As you may have guessed, smart phone manufacturers like Apple and Samsung have a direct stake in the payments realm as technologies like NFC and QR codes are employed as payment transmitters. Equally involved are mobile network operators (MNOs) like AT&T and Verizon. No matter which technology is leveraged, these networks are destined to be hammered by mass data usage related to retrieval of account information, electronic receipting and location-based promotional offers. At the same time, MNOs will be asked to deliver adequate speed, quality and security as mobile payments become main stream.
With the evolution of technology has come a crossroads between financial services and mobile software. Cutting edge tech firms like PayPal, Google Wallet and Square are challenging banks’ value proposition as deposit takers and payment facilitators. In addition to storing funds and creating a payment medium, these firms are more than capable of supplying financial analytics and customer loyalty data through their mobile apps. The idea of a tech company holding your disposable wealth is not as strange you may think. Starbucks, a coffee company, generated over $2 billion in deposits onto its mobile app last year while more than 5,000 U.S. financial institutions managed less than $1 billion in deposits (per Brett King of Moven). Suddenly, that store loyalty app on your phone looks no different than a checking account at Chase.
The list of payment intermediaries goes on. Pseudo-banks like Moven look to provide a stepping stone to mobile exclusivity through the issuance of an NFC-enabled smart phone sticker and real-time analysis of spend at POS. Location-based startup SCVNGR launched LevelUp as a means of allowing consumers to pay by smart phone at retailers and receive loyalty credits in doing so. Other hybrid models worth investigating include: ISIS, Simple Bank, GoBank, Zapp and Clinkle.
In the highly fragmented state of payments, stakeholders are doing what’s best for them, leaving the mass without a comprehensive and widely-accepted solution. Perhaps the most frustrating aspect of slow mobile payments adoption in the U.S. is the fact that other economies, like those of the U.K. and even Kenya, are freely running with the technology. The movement will surely gain steam as banks fully embrace mobile and Apple installs NFC in its next iPhone. Until then, the playing field for payments shall remain overpopulated.