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April 30, 2014

Mobile Payments Catches On

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 8:13 AM

Mobile Payment Apps are Boosting Payment Processors like Visa [Source: https://www.youtube.com/watch?v=SAl7HdytwxI]

Ah, the promise of the picture-phone. For the better part of the last half-century, telecoms firms dangled the technology before us and enticed us with the proposition that we could look into the eyes of everyone we chatted with on the telephone.

Although the technology has existed in one form or another for decades, it never really caught on. True, Internet chat services like Skype have probably come closer to fulfilling what the first inventors of the picture-phone envisioned. It was a great idea, wasn't it? So why didn't the market ever really warm up to it?

That's the question we're constantly asking ourselves whenever we hear the latest news about an electric-powered car or colonies on the moon. Great ideas, but none of us is ever the first in line. It's the same technological conundrum facing so-called mobile wallets.

Given the fact that we provide store layouts, inventory, and omni-channeling a lot of thought in our retail practice, we can't help but think that mobile payments is a great development. There's no doubt that in some parts of the world, consumers use their smart phone as they would a credit card or cash. But the simple fact of the matter is that in many of the developed markets, consumers have not been weaned off their credit cards or cash quite yet.

I read a report that cited research by Gartner that says worldwide, mobile payments reached $235 billion last year, up from $163 billion the year before. In North America, however, consumers spent $37 billion on mobile payment systems, up from $24 billion in 2012. The discrepancy is, I think, a testament that consumer behavior can be a tough nut to crack.

It also doesn't help that there are many different enterprises involved when it comes to making a mobile payment work. According to the report I read, the complexity involves the fact that these parties are in different industries and one transaction can sometimes involve banks, retailers, wireless companies, payment networks and even the companies that build the mobile wallets. So it's not exactly easy to get a merchant to sign up for a mobile payment system is he has to deal with all these different parties. That merchant is probably quite satisfied with his predictable credit card relationships or simply accepting cash.

One expert said that it's kind of like the chicken and the egg. A merchant will consider adding the various mobile payment systems to his retail outlet if there are enough customers who demand such technology. But getting enough customers on board means - you guessed it - having enough retail outlets that offer the mobile payment system. Frankly, I thought that the one place in the Western markets where mobile payments would take off like wildfire would be at Starbucks.

The coffee chain prides itself on rushing its innovations into practice ... on the rare occasion with disastrous results. But they're the ones who fully admit that the results can be less than stellar once in a while. The company reckons on average it's worth rushing innovations to the market because its income statements and balance sheets don't lie. They're a very profitable company, so they're sticking by their quirky formula for innovation.

It was in keeping with their quirky culture to rush innovations to market that Starbucks entered into an agreement with a major mobile payment system. But I keep seeing reports in the press (most that quote experts who are speaking on condition of anonymity) that say the partnership hasn't been the run-away success that both companies had planned. I say: Big deal. These disruptive innovations take time and I'm guessing that many Starbucks customers will soon be opting for mobile payments of their lattes quite soon. There's never an exact balance between a company's messy innovations/market disruptions and a careful, calculated movements in their markets.

On a related note, the regulatory environment cannot be ignored either.

One of the more interesting concepts around mobile payment systems is that where it's working well is where enterprises have collaborated. In Japan, for instance, one of the largest mobile carriers said it made the decision early on to share its mobile payments system with anyone or anything that wanted to use it. By creating one standard across the market, taxis, restaurants, stores, and even other mobile carriers were all speaking the same mobile language.

That's essentially what cash is - it's the same standard wherever you go. So by making mobile payments as standardized as cash, it's going to become popular with anyone wanting to pay on the fly.

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