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WASHINGTON OUTLOOK | Transaction World Magazine | July 2014

Reaching for the Wallet: The Ubiquitous Emergence of Mobile Payment Technology and the Obstacles Along the Way

by Jim Romeo


   Some 200 million consumers shop at Amazon.com and it’s not just for books. The Internet giant is a supermarket from everything from popcorn to pup tents and a wide range of goods and services imaginable. And if all goes well, Amazon will be launching a smart phone of its own to capitalize on its own rich data and the convenience and price in an Amazon purchase experience. This may pave the way for mobile payments as the ecommerce giant stands strong, like others in its class, as a force to be reckoned with in the mobile wallet market.
   In today’s go-go world of payment technology, mobile wallets facilitate easy payments from a smart device. Their momentum and popularity are expected to surge with further development of mobile technology. While the mobile wallet hasn’t been as much of a boom as once expected, there’s plenty of room for their usage to grow. Who capitalizes on such growth could depend on the organic database of followers already ingrained in the ecommerce giants of our day.
   Large enterprises such as Apple, Amazon, Google and PayPal have an innate advantage in their established customer database. Apple has some 800 million iTunes accounts and overshadows Amazon’s account base by about a four to one ratio. It seems that a large base of payment accounts already established from years of purchases and customer allegiance leaves little for an emerging mobile wallet developer to strive for.

   “Apple has an impressive number of payment accounts, about $800M, and it has leveraged those accounts to get consumers to pay for its own Apple products and services,” said Erin Fonte, shareholder and payments lawyer, with the law firm Cox Smith. “But consumers also use iTunes accounts to buy other goods and services via the Apple platforms and mobile apps. Apple’s importance as an app platform and store cannot be overlooked, either -- it is currently facilitating lots of payments and revenue to app developers as well. But really, in a payments law practice like mine, you have to make the distinction between payments in the ecommerce space and payments in the mobile space.”
    Fonte said that Amazon and PayPal are leaders in ecommerce transactions -- they are huge internet commerce success stories and platforms. 
   “Amazon is the leader for online commerce, while PayPal, though they started as a way to facilitate payments on eBay, really became an ecommerce payment account that was portable,” she said. “If you have your payment info in PayPal, then any website or merchant that accepts PayPal is someone you can transact with.”
    The big hurdle, Fonte said is for both ecommerce and mobile-only payment platforms and services, is how to extend into brick-and-mortar payments. “Anywhere commerce” as she calls it must be ubiquitous via the web and mobile, replacing replace physical, plastic cards with another form of payment at the physical point-of-sale.
   Others feel there is still plenty of room to grow. The world is a big place; anywhere commerce means anywhere. Many parts of the world have yet to be touched with the adoption of mobile wallets.
    According to Gartner, consumers spent over $235 billion through mobile payments last year, up from about $163 billion the previous year. In North America, consumers spent about $37 billion through mobile t   ransactions in 2013, up from $24 billion the year before.
“It is absolutely possible that other mobile app developers can compete against big players such as Apple,” said John Rountree, principal, The Cambridge Group in Chicago. “But this is still an emerging area of demand in the US. So while some players have more clear first-mover advantage, the vast majority of the game is yet to be played. Clearly there are more traditional banks and payment companies that are already in the mix, and have the ability to leverage their strengths in merchant relationships and transaction networks, which are under direct attack from mobile wallet plays. And particularly if you look internationally, not just at the US, where smartphone penetration is even higher, you see a more vibrant mix of players in this space, including traditional banks and retailers, and telecom providers.”
   When it comes to payments and mobile wallets, there is what is commonly referred to as the “dual platform conundrum,” explained Jason Hogg, professor of management at Cornell University’s Johnson Graduate School of Management. “You need ubiquitous acceptance with merchants for there to be customer utility for the payment solution, but merchants want to know there is a critical mass of customers before adopting a new solution. Through their core business models, the companies you mention have already solved for one side of the equation, the customer, which is quite frankly the more difficult to solve. By having large customer ecosystems, the online giants have great market power to drive away from plastic into new form factors, such as mobile.”
   The consulting firm Accenture believes the dual or cross-platform mobile application is at an all time high. It enables the customer to continue with their Internet experience on any platform, stationary or mobile. The more hooked consumers come on the lifestyle, the more potential for market development their will be. The most fertile years for mobile wallets, may be yet to come.
   According to Hoag, over time, as the physical infrastructure at retail changes to EMV, QR, chip, etc., the online giants will be better and better positioned. And many hold the patents on mobile payments and control not only the wallet, but are vertically integrated all the way down to the device into the consumer’s hand.
   “If they can develop proprietary solutions that facilitate and provide value in the transactions that occur between consumers and merchants, then yes,” said professor Hogg. “That said, I don’t believe going toe-to-toe is sustainable, but rather, there will be a consolidation of the solutions where the larger players scoop up the app developers that have truly differentiated services and offerings.”
   Hogg adds that cross-ecosystem facilitation and the ability to seamlessly use one wallet solution across multiple platforms or retailers. Arrangements, similar to how network-sharing arrangements with ATMs and mobile carriers work, will need to be implemented so that consumers don’t have to have a dozen wallets to facilitate their transaction needs.
   The mobile wallet race is on. It should progress with competition from big box retailers and others who are ready to take on the ecommerce giants.
   “The key to winning the mobile wallet race is ubiquity,” said Erin Forte, “and ubiquity requires merchant acceptance. And big, successful brick-and-mortar retailers do not want to turn their customer data over to Google or Apple just to have another company slice and dice it and sell it back to them.”

Jim Romeo is a regular contributor to Transaction World Magazine and is a freelance writer based in Chesapeake, Virginia who specializes in business and technology. Visit his website at www.JimRomeo.net