Most of PayPal's growth in this area comes from facilitating purely mobile transactions i.e. the merchant is mobile as well. Perhaps the bigger battleground though is the use of mobile devices to pay at physical point of sale (POS) in stores, restaurants and transit points.
Both Google and Apple have begun to develop contactless payment solutions. Google’s offering leverages its Android platform smartphones to allow users to pay for purchases and receive targeted adverts and discount offers. Apple has lodged a number of patents, suggesting it sees the iPhone developing into a contactless payment solution.
Square has also made tremendous progress with its mobile “dongle” which allows smartphones to be used as card terminals. Just 13 months after launch it is already handling US$11 million of transactions per day. And the company is now providing a consumer app solution in the shape of Square Cardcase that allows customers to pay without even taking their phone out of their pocket.
But the battle is far from won. In the physical world there are three clear success factors that have not yet been adequately addressed. These are:
- Value to consumers: Does the mobile payment mechanism offer the same or improved convenience as cards or cash? In the absence of a clear convenience benefit, adoption will have to be bought with discounts or loyalty points.
- Value to merchants: Merchants have long disliked the high interchange fees charged by card issuers and merchant acquirers, but to date none of the mobile payment challengers has offered a solution that significantly undercuts this model.
- Ubiquity: the promise of the mobile wallet is that you can leave your traditional wallet at home. This only works if you can use it everywhere – and we are a long, long way from that.
The battles ahead should be intense and fascinating. The really exciting part, however, is that ultimately, consumers should be the winners.
By David Hodgkinson, Principal Advisor in the UK