The Future of Mobile Payments 2012


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There is hardly a topic that currently generates and receives as much hype as mobile payments. But crucially activity should not be taken as progress. We think that the reigning confusion around the topic will dampen early adoption of m-payments.

At the moment retailers are trying to differentiate between the overinflated hype and the real opportunity. There is also confusion about already available mobile payments solutions, with digital and mobile NFC wallets coexisting with QR-drive payment solutions, contact-less cards and direct-carrier billing systems.

For retailers, limited consumer adoption of mobile payments and high merchant service charges do not justify the move towards mobile and digital payments – yet.

But retailers need to prepare now for the changes the smartphone revolution will bring. We think that the entire shopping experience is going to be profoundly re-shaped by smart devices, as on-line and off-line retailing are merging into “universal commerce”. Successful payment solutions need to be conceived for this new ‘universal commerce’ from the outset and be imbedded in the wider loyalty strategies, the free instore Wi-Fi offer, click & collect, mobile couponing, promotions and so on.

Most of the activity around mobile payments in recent years has focused on technologies rather than on viable go-to-market strategies. Of all technologies Near Field Communication (NFC) has the largest momentum behind it, backed by Mobile Network Operators (MNOs), many financial institutions, card operators and Google. We foresee several problems due to the complex ecosystem of stakeholders that prevent mass adoption of NFC-mobile payments solutions. But arguably the main obstacle for NFC is that the leading smartphone manufacturer, Apple, has not yet adopted NFC for its devices. Instead, Apple has upgraded its Bluetooth offering to Bluetooth Low Energy (BLE) on its entire portfolio of mobile and computer devices. Whether BLE will play a role on m-payments or not remains to be seen, but the technology is in many ways superior to current NFC offerings and can enable new features in m-payments such as long-distance check-outs.

While NFC still has the largest momentum behind it, it is clearly losing steam. Payments incumbents are embracing NFC because it simply represents an update of their delivery format rather than a threat to their business model. Innovators are instead focusing on solutions that can be launched into the market right away and we think there is nothing more ubiquitous and ready-to-use available today than the cloud.

Both the telecom and financial industries are anxious to avoid being cut out of the profitable mobile payments business by payments disruptors and tech companies such as PayPal, Google, Amazon or Apple and companies that are yet to see the light of day. Incumbents in the payment industry and carriers do not want to lose the lucrative fees that should come with the mass adoption of mobile payments solutions.

All players in the payments value chain aim to position their mobile payment solutions at the central stage of the coming payments revolution. But there will not be enough room for all, although in the short to medium term we think many solutions and business models will coexist.

We think that cloud-based payment solutions will produce the largest number of value benefits for retailers and consumers. Mass adoption of NFC payments or any other contact-less technology-driven mobile payment will take years, as it will require massive hardware upgrades by both consumers and retailers. In contrast cloud based payments can gain mass adoption overnight, as cloud based payment solutions will arrive in the form of mobile apps, be they digital wallets or mobile retailer apps.

Currently there are many disruptive companies focusing on QR codes and augmented reality capabilities delivering mobile payments.

The shift from fixed networks such as traditional cards to the digital world and the cloud opens up opportunities for new players to develop more cost-effective alternatives than cards and their intricate interchange fee revenue model. We predict that business models offering lower merchant fees, leveraging on new payment instruments such as those proposed by the start-up Dwolla, will radically transform retailers’ current reluctance to mobile payments.

Looking ahead, the mobile payments’ ecosystem is increasingly complex. This means, that retailers need to adapt to an ever changing and hybrid ecosystem, in which current payment platforms will coexist with mobile and digital commerce.

We think that retailers should look to mobile payments as an integral part of their mobile strategies. We believe that retailers should embrace the smartphone revolution. This does not mean retailers have to jump on every new development in the mobile payment space, but rather that they should be open, flexible and ready to do so at any time. Mobile and digital payments will change the way retailers engage with their customers.

Cloud-based digital wallets and retailers’ proprietory payment solutions can easily co-exist with retailers’ current payment infrastructure at little added cost.

We believe that the latest Wal-Mart/Target initiative around the m-payment topic in the US could point to one future scenario, where retailers come together to offer a new mobile payment system in order to gain scale and critical mass among consumers quickly and cut out all other operators. We are not sure whether such joined efforts will succeed but nevertheless we think retailers should play an active role in the mobile payments revolution and do not leave all innovation in the hands of financial institutions and MNOs. Not only do mobile and digital payments offer retailers a unique opportunity to engage with their customers in new ways but crucially they will also reduce the cost of accepting electronic payments.

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