Commentary

Growing Despite Itself: M-Payments May Exceed $1 Billion This Year In The U.S.

eMarketer reports this morning that even after reducing previous projections about the growth of proximity mobile payments in the U.S., that market still will exceed $1 billion this year. “Delays and adoption issues facing numerous mobile wallet initiatives, as well as a congested landscape of competing technologies, materially affect eMarketer’s outlook on mobile payment transaction values, which will not top $20 billion until 2016,” they write.

Most consumers who are using mobile payments are still just tinkering with small purchases like that Starbucks latte that seems to be the main example of successful uses of mobile wallets right now. Still banking on broader adoption across a wider range of habitual buying habits, eMarketer expects a major spike in activity occurring in 2016 -- bringing U.S. activity to more than $26 billion -- and then a massive increase in 2017 that brings the market up to more than $58 billion.

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All the usual caveats continue to apply in this mobile payment solution universe that is scrambling to convince us -- and itself -- that it has found a problem to solve. Any projected spike in the market is still dependent on broad adoption by retailers who need to retool many of their point-of-sale technologies. The constant and prolonged waiting for NFC technologies to proliferate and get tied to payment systems continues to be in a constant state of becoming -- and all of those alternative mobile payment systems that have emerged in the interim are driving pockets of activity, but perhaps hurting the market through clutter and confusion.

As many people have observed in recent years, the payments, handset, carrier, and retailer value chain necessary to make mobile payments work represents a confluence of conflicted interests that will take a long time to iron out. Pyramid Research just issued a very revealing research brief arguing that one key element in this chain -- the network operators themselves -- may not see a tremendous incentive to developing mobile payments. Worldwide, these systems make the most sense in developing countries where many people without standard banking services will use their phones as a primary form of transferring money. Carriers that have been a part of this ecosystem have realized numerous benefits, including the reduction in their customer churn rates.

But Pyramid goes on to say: “In developed markets, meanwhile, there is still no solid evidence that m-wallet services contribute to lower churn rates.” Asian carriers in Japan and South Korea have been pursuing mobile payments aggressively for a decade, and it took all of those years for these companies to see appreciable returns on that investment.

None of this is to say that mobile payments can’t -- and won’t be -- a powerful force. But the Pyramid research uses an excellent example of what it really takes for these systems to appeal to consumers and carriers alike -- a solution to a problem. It uses as an example the launch of SK Telecom’s T-Smart Pay mobile wallet in 2009. That offering allowed customers to store eight credit cards on their devices as well as 30 retail membership and loyalty cards and coupons. “This type of value proposition is designed to be sticky, since the customer will be reluctant to switch operators due to the hassle of transferring the data (where this is even possible) from one m-wallet to another,” the report says.

What is most revealing about the SK Telecom example is that creating a mobile wallet that truly serves the consumer with enough added value to make it worth the effort requires tremendous coordination among the relevant players. My guess is that consolidation of existing services like loyalty, m-coupons, and membership, along with payments, is the kind of thing that makes the case with the consumer in the end. But it requires that a host of competing services and entities agree to get along for the sake of the higher good of serving the customer. How often has that happened?  

1 comment about "Growing Despite Itself: M-Payments May Exceed $1 Billion This Year In The U.S.".
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  1. Jordan Greene from Mella Media, July 11, 2013 at 11:14 a.m.

    The "despite itself" is the key here. There will be a time when consumers think of their mobile device first for buying stuff, but there is a good amount of infrastructure that needs to be sorted out to get there. NFC is not one of them, for now. The iPhone 5 design, specifically, highlights this, as it would not permit an NFC chip to even work.

    Regarding the carriers, they missed their boat. In the mid-2000's they had a window where they could have gone head-to-head with Visa, Mastercard, and Amex. But they opted not to, and now are just facilitators and/or spectators.

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