Karen Webster Sizes Up the Rapidly Changing World of Mobile Payments

Let’s play a little game after you’ve read all of these recent announcements.

“Starting This Summer, the Isis Mobile Wallet Will Be Available to More Than 100 Million U.S. Card Holders” (ISIS announcement with BarclayCard, JPMC, Capital One)

“[The Visa and Vodaphone mobile wallet] has the potential to transform the way that people pay and are paid the world over.” (Visa/Vodafone mobile wallet announcement at MWC 2012)

“Google Wallet has announced that 22 of the largest U.S. retail chains support its initiative, which enables consumers to make purchases by tapping their Android smartphone at 300,000-plus MasterCard PayPass-enabled merchant terminals.” (Google Wallet)

“We are exploring potential solutions that would help us to deliver the fastest, most secure mobile-payment experience possible for our customers.” (New retailer-centric mobile payments scheme)

“Home Depot has decided to bring the revolutionary POS technology to nearly all of its 2,000 stores in the US. It’s the first time in recent memory that a major retail chain has allowed a way to pay at the register that doesn’t actually require customers to have a physical product (whether it’s a credit card, a mobile phone, or a dollar bill).” (PayPal mobile wallet debut at Home Depot).

“Apple is clearly running a semi-sandboxed experiment inside selected retail stores. The experiment? Allowing customers to buy physical goods using Apple’s own virtual currency system (iTunes).” (Apple Easy Pay Trial)

“Serve, the digital payment and commerce platform from American Express, debuted a Facebook application that allows users to send, receive, and request money without leaving the social network” (Serve and mobile wallet via Facebook)

“Card Case is an example of the grace that Dorsey believes defines Square, a company he hopes will radically transform the generally unmagical burden of exchanging money for goods and services. The app, designed as a visual homage to the fashion house Hermès, can also show you your payment history, what’s for sale in-store, and nearby places that take Square.” (Fast Company writing about Square)

Here are the rules of the game:

• For one point, to what are all of these announcements (made since the start of the year) referring?

• For ten points, what major players are missing from these announcements?

• For one hundred points, what’s the same about most of these announcements?

• And, for 64 thousand points, who’s likely to gain the most traction and win?

Let’s see how you did.

If you answered the first question with “mobile wallets” then score a point! (And if you didn’t, don’t admit that to anyone…)

If you answered the second question with Amazon and Facebook, add 10 points to your score.

If you answered the third question with, “All but three don’t rely on NFC to enable payments (Apple, AmEx, and PayPal),” then add 100 more to your score.

Now, before we see whether you can add 64 thousand points to your score, we need to first discuss just how many winners there will be and why.

Everyone quoted above, plus probably at least a hundred more, all want to win and are working very hard to capture market share. Just about every day there is a new announcement about a mobile wallet something or other. The Mobile World Congress last week in Barcelona was mobile wallet announcement central where we had the long-awaited ISIS debut, along with announcements from just about every mobile operator, network and mobile wallet start up.

Then, on Friday — well timed, I’m sure to hit at the tail end of all of this mobile wallet euphoria — was the retailer coalition. Their announcement basically dissed everyone in favor of “something different.” The strategy, I suppose, was to appear stealth, but its complete absence of substance made it too cute by half. No, we don’t have a technology and we’ll work with anyone, but “it” has to be better and safer than what exists now. To that point, there’s not a whole lot of experience to draw from; mobile wallets are mere babies in the payments lifecycle. Sure sounds like a strategy to me – but maybe one that is less about mobile wallets and more about shaking down the fees from the card networks and future mobile wallet providers.

But I digress. Let’s get back to the discussion of the mobile wallet winners. It will come down to, I think, how many mobile wallets people will want to have which is a function of: how easy they are to use; how convenient they are to access; and how many merchants will accept them.

My hypothesis is that, in spite of the fact that people, today, technically, have multiple accounts registered for payment (e.g. iTunes, Amazon, PayPal), most people by and large think of themselves as having one wallet. Most of those wallets are leather and they hold a bunch of stuff, including cards, cash and ID. If you were to ask anyone today if they would like to carry around two or three or ten leather wallets, my guess is that most people would look at you as if you had lost your mind. They’d say they’d rather consolidate everything into a single wallet that could comfortably hold the cards they wanted, and those they liked to use at the places they liked to shop. I would say this would be true even for women who carry purses that could hold multiple wallets, and like buying a lot of fancy leather accessories.

So, will the mobile environment make the answer to the “how many wallets are you willing to carry” question be any different? That depends on how you define the wallet — or, more correctly, how consumers will define their mobile wallets.

One answer is that the mobile wallet is the mobile phone so the phone literally becomes the digital substitute for the leather wallet. The many individual payments apps that can be downloaded on that phone are the digital analogs to the plastic cards that are carried around today in the leather wallet, even if they have more functionality and give the consumer the choice of switching between payment types. This new mobile form factor makes it tons easier for people to have and use many different payment types at many different merchants. As I have written previously, Starbucks has shown us the power (and profitability) of having an easy-to-use, single-purpose payment app – a stored value app that can be used only at Starbucks. The mobile phone makes it easy to now carry around multiple store card apps just like that since the fat wallet syndrome is a non-issue in cyberspace.

But I don’t think that most people will think of those apps as wallets. They’ll think of them as payments apps to be used at a particular merchant, just like the store cards they carry around now.

My definition of a wallet is a container that holds a bunch of different payment options that can be used at many merchants – cash, checks, cards – and I think that most people would agree. If you also agree, it means that single use apps like Starbucks aren’t wallets, they are apps which people today refer to as wallets (thus contributing to the confusion over mobile wallets). One of my colleagues has the Starbucks and LevelUp apps (a new mobile payment method available in Boston) on his iPhone and the iPhone is for all intents and purposes his mobile wallet. Those individual apps aren’t wallets, they are apps inside of his new digtal wallet, the iPhone. My guess is that he’ll probably add more of those sorts of apps, but not a lot more.

The mobile wallet as I have just described it (the phone) will make it possible to have multiple — even, in theory, hundreds — of such apps. It would make merchants really happy since they like it a lot more when people use their store cards (hence their motivation behind their own mobile payment network). But that doesn’t necessarily mean that people will want and/or use all of them. Just as in the leather world, people have a lot of cards (on average 7) but use only a few (like 2). Mobile may make it easier for more payments apps to “fit” into the wallet, but it doesn’t mean people will use them or want to have them. And having another icon on your phone isn’t costless—it takes more time finding the apps you want. Over time, people will reduce icon clutter on their phones and just have the payment types that generally use.

Moving on. Another answer to the wallet question is that the mobile wallet is actually a container that lives in the cloud or on a phone, that is accessed via the mobile phone, and that aggregates and makes easily accessible several frequently used payment tender types. That’s the PayPal and Square models (cloud-based) and what Google, ISIS, AmEx/Serve, Visa, MasterCard and many more are all pursuing too. Of the group, PayPal is the farthest along – 100M+ consumers with accounts ready to transact at the point of sale and merchant traction is starting to happen. Its cloud-based approach has given it a running head start – like 12 years of a running head start – with fewer moving parts to manage. Cloud-based wallets, like PayPal’s and Square’s, will integrate lots of other things too, such as loyalty programs, financial management tools, shopping assistants and so forth. Square’s Card Case is designed to recreate the experience of putting your purchases on “account” never producing cards or even showing the phone. The identification of the Card Case customer and authentication is done in the cloud, and via a “geo-fencing” feature that recognizes customers with Card Case accounts as they enter the merchant’s store. In all of these cases mobile wallets function more or less as an acceptance mark which, to be useful to consumers and merchant, means that these wallets must be accepted beyond just a single merchant.

If mobile wallets, a.k.a. new acceptance devices, are defined as these cloud-or phone-based containers, lots of other questions naturally arise.

The first is, how many are merchants going to be willing to accept them? The answer to that question depends on how costly it is to add another mobile wallet to the POS system but my guess is that it is going to be costly enough that only a few wallets will get traction with merchants.

The second is, how many are consumers going to be willing to use? My guess is this isn’t going to be any different than the physical wallet in the end and that consumers will have a handful.

The third is, how many mobile wallets are going to get enough traction with consumers and merchants, and solve the chicken and egg problem quickly enough so that they can survive long term? If you agree with my answer to the first two questions the answer is NOT MANY.

The fourth question is whether the existing payment networks will be wallets, simply, as they are with PayPal, just a choice within a wallets, or simply payment apps on a mobile that only allow the consumer to use their network card. I’m less sure on my answer to this one but my guess is that the networks will either survive as payment apps on the mobile phone (like the Starbucks store card) or that consumers will decide what they really want is a multi-tender type wallet with lots of functionality in which case the payment networks will become a much less interesting business. Unless that is decided soon, and the business model questions related to this for the networks are thorny, PayPal will have had a long lead time in plowing the multiple tender type ground and consumers might not see enough value to move away from that wallet to something new. (Square is aiming for the same target but in a slightly different way.They’re hoping to build and ignite a merchant and consumer network around using IP-enabled devices to create a personal experience in store, an invisible payments experience and a prompt to try other merchants who can match that experience.)

Then, there’s Facebook. Facebook could redefine the mobile wallet even more differently since its core asset is Facebook Credits, which is more of a currency than a mobile payments application. To put this in perspective, the Facebook Credits experience is more like what you do when you travel to a different country and need to buy that country’s currency to transact there – you simply use your native currency to buy it and then use that currency to transact in that country. Facebook Credits is no different – you basically use existing currency (accessed via existing payment methods) to buy a new currency (Facebook Credits) that are accepted at a country you want to visit (the merchant). Today those merchants are digital goods/games, by and large, but tomorrow who knows. It is also easier for merchants to accept Facebook Credits than add a new acceptance mark to their POS. Sure, there is the “currency conversion” that happens on the back end to “convert” Credits to the dollars attached to a payment type, but it is likely a much easier lift than adding a new acceptance mark. The Facebook wallet would become the currency used at the point of sale, with the details of how those currencies are “exchanged” being handled in the background. Facebook in this scenario, could have the equivalent of a software-enabled smart euro. (Sound interesting? Read the full take on Facebook’s possible “smart currency” at

So, back to the 64 thousand point question. Who will win and get traction? The game is very early. And as they say, never make predictions you don’t think you’ll outlive. But you need to look at consumer and merchant behavior together to predict the outcome. I’m not going to put money yet on the winners (some of whom may not even have been born yet). But I am going to lay down a wager that consumers will have only a handful of icons on their phones that connect to a single-tender type (payment app) or a wallet (multi tender types) and that merchants accept payment with mobile only for a few of these icons. The notion of a thousand wallets is unrealistic for the same reason that there aren’t thousands of payments networks: merchants and consumers don’t want them.

So, now it’s your turn. What’s your answer to win 64 thousand points?



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