In an interview at ITProPortal, Berg Insight CEO Johan Fagerberg says that at least right now, the actual number of people using mobile wallets outside of Starbucks is much smaller than the hype the digital press seems to be focusing on the phenomenon. “Mobile wallets that can be used at multiple merchants only had a few hundred thousand users in the region at the end of 2012,” he says.
I presume that Berg Insight is not counting loyalty cardholders like the iOS Passbook, which in most cases is helping to surface electronic tickets and loyalty cards rather than make payments. I would argue that this is a case where a mobile wallet is actually solving a problem in helping to aggregate electronic content, and virtual and real loyalty cards that are inconveniently scattered around our person or phone. And I am sure that there are companies in the mobile payments ecosystem that could take issue with some of Berg Insight numbers on this. The definition of mobile wallet is murky enough to argue this in a lot of ways. But I think that there is an essential truth here, that the mobile wallet phenomenon is something that is covered much more than it is actually used for now.
That is not to say that mobile wallets and mobile payments are not ultimately going to be a game changer. As Fagerberg points out, contenders like Google, Isis, MCX, PayPal, Square and LevelUp are all doing interesting things, but it won’t be until next year that we will start to see some impact from all of this. He sees the number of active mobile wallet users in the U.S. going up to 29 million in 2017 with in-store payments up to $44 billion. He does foresee a time when most of the operations of credit and debit cards will be transferred to mobile phones and ultimately be responsible for about 20% of the world's GDP. So that’s a pretty big prospect.
But here is the rub. The expansion of the mobile wallet model depends entirely on two questionable prospects. First you need all of the many moving and complicated pieces of the payment infrastructure to work together and give consumers the same kind of compatibility that they get already from their credit and debit cards. And in the U.S. especially, that has proven to be a very heavy lift. We're still waiting for this long-promised Isis project to get out of a regional beta. And all of these wonderful little startups that make great headlines in the tech press and that the mobile cheerleaders gush over are absolutely totally meaningless to the overwhelming majority of people with smartphones.
But the second piece is the most interesting and may be even more daunting. It’s the creative piece. Most mobile wallets are at best only incrementally adding value. All of these cute little mobile payment gadgets and apps have been fun to play with, but have they really made a compelling case yet that I have a problem they solve? Starbucks does address something that is less of a problem than an obvious convenience -- the ritual coffee run. But to my mind, and I have used this app to pay for coffee more than a dozen times, it is still more fun to use than it is actually very useful. So, I don’t need to fish around in my wallet -- the real leather one -- to find the Starbucks card. Okay, but that is about it.
I am happy to buy into the conventional wisdom that ultimately our phones will replace our credit cards, but this is more a leap of faith than conviction. There is that air of inevitability about all of this. But let’s remember that that air of inevitability started about seven years ago. And after all that time the main result for consumers -- or at least 7 million of them -- is a slightly faster coffee. Even with an infrastructure in place, and even with the highly fetishized NFC chip in more phones, those admittedly necessary elements to a mobile payment system still are not the main impediments. It is only when all of these technical pieces are in place that companies really have the opportunity to start making a compelling case to a mass-market that they have something better than a credit card for them.
The most revealing part to me about all of the public discussion of mobile payments is that almost all of it is placed within the context of how much this will change the payments industry. Business disruption is the narrative driving the story, not consumer benefit. The emphasis is on the credit card companies -- who will make the most money off of this -- the infrastructure, the uppity startups, and just the general fetish that surrounds mobile that seems to say it all has to go to our phones because we say so.
Just follow the rhetoric and you see where the big disconnect is. There is not enough serious discussion and exploration about how this will change consumers' lives for the better. When that conversation starts happening in a substantial way, then we will know that the mobile payments industry has really found the solution to its own problem -- communicating and creating a value proposition for consumers.