Mobile Payments Still Lack Clear Winner
A new report concludes that the mobile payments business is small but rapidly growing, with payment solutions linked to major card-based networks like Visa and MasterCard showing the most promise so far. By contrast, m-payments powered by near-field communication (NFC) technology are not expected to gain much traction this year.
The study, from JP Morgan, points to research from Gartner and McKinsey projecting that mobile payments volume worldwide will shoot up from $60 billion in 2012 to $545 billion by 2015. But the firm expects growth for the foreseeable future to come from technologies that plug into the existing payments infrastructure rather than try to bypass it.
To help clarify the confusing mobile payments market, the report breaks it down into three categories:
Mobile acceptance: Any solution that enables a merchant to accept card-based payments by converting a mobile device into a POS system.
Mobile wallets: Mobile applications that serve as a substitute for a traditional wallet and allow you to use your mobile device in lieu of swiping a card.
Mobile commerce: E-commerce conducted over a mobile device, covering all facets of facilitating a purchase via mobile device.
The report views mobile acceptance as the area offering the most immediate opportunity. It notes that an estimated 35 million casual merchants in the U.S. that currently don’t accept card-based payments could do so by converting a mobile phone or tablet into a card reader through a small device attachment.
This is where companies such as Square, PayPal, Intuit and PayAnywhere have stepped in with offerings aimed at small businesses and sole proprietors. Beyond a card-reader, they provide systems that may also bundle a tablet, cash drawer and printer to serve as a point-of-sale (POS) for a merchant.
At the high end, retailers such as Apple and Nordstrom are embracing mobile checkout through device-wielding sales staff to save customers from waiting on lines at traditional registers. Often, mobile checkout is a supplement to existing POS systems, including barcode readers.
When it comes to mobile wallets, the market has become especially crowded with startups and established players alike vying for supremacy. But the lack of common standards and wide acceptance has made it difficult for any one wallet solution to gain hold. However, JPMorgan favors QR-code based offerings like Apple’s Passport and LevelUp over those leveraging NFC (Google Wallet, Isis) -- at least through 2013.
A recent comScore study found the largest share of consumers (44%) preferred a wallet using a PIN or password, which is the approach PayPal has taken so far with the mobile wallet it began testing last year with retailers including Home Depot, Foot Locker and JCPenney.
M-commerce may have been overshadowed lately by the buzz around wallets and m-payments systems, but it remains a rapidly growing segment of a smaller base. It currently represents about 12% of total U.S. e-commerce sales, while e-commerce is about 10% of all retail sales.
"The obvious challenge facing mobile commerce is that the checkout process on a mobile device can be unwieldy, so simplified checkout without sacrificing security is a fundamental value proposition built into most mobile commerce models," states the “Payment Processing” report.
New technology providers trying to get in on the growth of m-commerce also have face a tough road in that popular e-commerce sites like Amazon, Apple and Priceline already have one- or two-click checkout built in because enough customers trust them to store their payment credentials.
Still, the study suggests there is still opportunity for vendors to simplify the mobile checkout process elsewhere. In that vein, it cites companies such as Braintree, Stripe and Authorize.net. Braintree, for example, developed the payment application behind location-based car service Uber, and LevelUp. “We look for more creative m-commerce functions to emerge, and benefit these integrators for years to come,” the report said