With Forrester estimating that US mobile payments will reach US$90 billion by 2017* – a 48percent compound annual growth rate from 2012 volumes – bankers are keenly tracking the fragmented field of mobile payment providers. But it’s too early to pick a victor among the competing camps of merchant-led and consumer-led initiatives.
In the fast-evolving mobile payments ecosystem, rivals jockeying for position include mobile operators, banks and credit card networks, tech giants such as PayPal and Google, and start-ups like Square and Dwolla, all testing a dizzying array of remote or proximity mobile payment services.
Reflecting on this chaotic landscape, Denée Carrington, Senior Analyst at Forrester Research, opines that, “Those that deliver value, convenience, and a clearly better alternative for both merchants and consumers will thrive as mobile payment adoption accelerates.”
We share this viewpoint and hold to our premise that both merchant and consumer-led initiatives must meet three key criteria to dominate the mobile payments battleground:
- Value to consumers
- Value to retailers
However at the moment, there is no clear leader on all three fronts. First, ubiquity seems out of reach, since no form of mobile payment yet exists that allows users to abandon their traditional wallet. Second, mobile payments challengers appear to be making uneven strides to win the hearts of merchants or consumers, but not necessarily both.
On one hand, PayPal, Square and Groupon have recognized the linchpin role of merchants. They’ve wooed small-scale street vendors and food truck operators with mobile card payment processing while also courting the mega retailers. For instance, Square and Starbucks teamed up to introduce QR Code-based payments in 7,000 locations, while PayPal’s own in-store payment platform has spread to 18,000 US retailers, and will gain momentum through an alliance with point-of-sale terminal provider NCR.
Such merchant-led initiatives may deliver transaction ease for retailers and potentially invaluable Big Data consumer intelligence, but they have yet to demonstrate compelling added value to the customer experience, critical in order to spark groundswell public interest and bring merchants onside.
The range of consumer-driven initiatives is far more complex and disjointed. While a variety of innovative, customer-friendly payment choices have emerged, such as Isis to Google Wallet, there is still no clearly defined profile of the target user or consumer demand.
The advantage will likely continue to evolve, as major retailers including Wal-Mart, Target and 7-Eleven have partnered under the name MCX to create their own open mobile payments network. And don’t forget that Apple is still the largest holder of credit card accounts through its iTunes platform, as well as the second largest smartphone maker.
For bank sector spectators, while no clear winner has surfaced – even among the advanced merchant-led programs – this is the time to lay the groundwork for a payments strategy. With a close eye on the dueling competitors, and measured investments to deeply understand client behaviors and priorities, retail banks can ready themselves to capitalize on a mobile payments wave that is expected to hit hard and fast.
* Forrester Research, “US Mobile Payments Forecast, 2013 to 2017.