What is a Mobile Payment Anyway?
A somewhat rhetorical question, but every day there are new startups, alliances and technology announcements about the next generation of mobile payments: most recently, NFC enabled phones. The problem with mobile payments is that everyone has a different definition of what constitutes a mobile payment! This is complicated by different geographic expectations, mobile users’ experiences, payment systems, regulations and the relative strength of mobile telecom versus banking infrastructures. Not all scenarios are workable in all geographies.
When developing a mobile payments strategy, the first objective is to recognize the different forms of mobile payment interactions. In other words, who are the payers and the receivers, and what are their usage requirements. A recent white paper co-written by Microsoft and M-Com, a premier mobile payments company with worldwide solution offerings, defines four basic mobile payment use cases - each of which can be split into more complex examples:
1. Pay to Biller
2. Pay to Person
3. Pay to Merchants (and other remote commercial entities)
4. Pay to Retailers at Point of Sale (POS), including transportation etc
In the UK there is a well-known idiom, "horses for courses." In essence, this means that what is right for one scenario may not be right for another. The same is true for a mobile payments solution. Each scenario above (even when offered in the same country) likely demands a different model of interaction based on the needs of the payer and the payee at the time of payment.
NFC Payments - Build it and They Will Come?
So this brings me to the recent spate of announcements heralding in the NFC device era. I think Aaron McPherson at IDC Financial Insights summed up the issues for the US very well in a recent blog. Enabling devices is a step in the right direction for some mobile payment scenarios but widespread adoption in the US is still some way off. My 'feet on the street' evidence to support this is based on the local store of a national office supply company that installed contactless POS devices about three years ago. Payments geek that I am, I often ask a cashier how many times people pay with a contactless card. Usually the answer is ‘handfuls’. That's not in a day, or a week - but ever! The reality is that contactless payment technology in one form or another has existed for several years, but technical capability doesn't automatically drive adoption.
Now - that situation applies to the US, but the rest of the world is of course a little different. NFC and the concept of contactless and phone-based transactions have been very successful in parts of Asia. I also believe that NFC transactions at POS from mobile phones will become mainstream in the US, but not for quite some time. The US consumer market is notoriously slow to adopt new payment mechanisms (debit cards, direct debits, chip-based cards) where technology capability was never the issue. Ultimately there needs to be a compelling value proposition to use a phone over a card (NFC, chip, or mag stripe) before we’ll ever see mass adoption. Even then, we must not forget that the mobile payment experience needs to cover all the use cases to be of true value to payers and receivers. Ideally, the mobile experience will become consistent and seamless – regardless of payer/payee scenario. That’s what it will take for mainstream replacement of that plastic rectangle in our wallets.