Prognosticators don’t do well in payments. Change happens more slowly than these pundits predict. And even when they learn this they still underestimate how slowly things change. Take cash. People have been predicting the death of cash since about the minute the baby general-purpose payment card was spanked on the bottom in 1950. Yet the most recent Federal Reserve Bank of Boston survey of consumers found that cash use is on the increase—and that’s in the US, a highly developed economy, where we’ve had cards the longest of anyone.
Of course we’ve been hearing about how everyone’s going to be paying with mobile phones, any day now, for about a decade. By waving, of course, because merchants are going to have NFC readers and phone makers are going to have NFC chips. Those who’ve heard me talk about this know that I’ve been a great skeptic of mobile payments happening quickly in the US.
So you might think that there’s an imposter writing the rest of this piece and making this assertion: 2012 is the point of inflection for mobile payments where the future will be much different than the past. The next few years will see speedy adoption in the US as mobile payments becomes mainstream for consumers and merchants.
This will all happen differently than anyone has forecasted.
I focused on the possibility that we were passing through an inflection point for mobile payments a couple of weeks ago when I realized that I had completed every single transaction that day on my iPhone. Now a couple of things you should know before I go on. It was a Sunday and I lead a pretty boring life. I got up and paid for my morning newspapers at the Charles Street Market in Boston with LevelUp ($9.50 for the NYTimes, the Boston Globe and the Financial Times). I went to Starbucks and paid $2.08 for my coffee using the Starbucks card app on my phone. I got car service using my Uber app.
During the week, my most common purchases are the newspaper, my coffee at Starbucks, and my lunch at a place called Delicato. I can, and usually do, make all these purchases using my mobile phone.
There aren’t any statistics on how many people are doing this. My guess is that while it is still pretty small it is significant and is growing quickly. Lots of people have gotten accustomed to paying with their mobile phones at Starbucks and more and more are doing it with services like LevelUp and Uber. Importantly, it is a lot more common than it was a couple of years ago. Things have changed.
So why could 2012 be an inflection point?
To begin with we have a critical mass of people who use smartphones. As of January 2012, according to comScore, 101.3 million people had a smartphone. About 80 million of those phones were iPhones or Android phones that support these new mobile payment methods. People fall in love with these phones and have gotten used to using them for lots and lots of things. And experimenting with them.
Then the NFC hysteria ended. Entrepreneurs realized that all this talk about the inevitability of NFC was bunk. They followed the hacker ethos and focused on things you could actually get into the market now. Starbucks, SCVNGR’s LevelUp, Square’s Card Case, and others have adopted QR codes for now. That’s inexpensive for merchants to install.
Entrepreneurs also figured out that the last thing you wanted to do—and needed to do—was go talk to mobile carriers. The solutions that are getting traction don’t involve getting permission from the mobile carriers, banks, or the card networks. These businesses can spend time making their applications slick rather than spending time in conference rooms with lawyers and execs who can’t seem to get out of their own way.
Solutions like LevelUp have gotten a lot of traction quickly. There are now more than 200 locations in the Boston area that take it. About 4,000 people have used it at Sebastian’s Café around the corner from me. Yes, these numbers reflect an absolutely minute fraction of physical commerce but it is a pretty good start.
I don’t know whether any of these mobile payment solutions, or ones similar to them, will survive for long. At most inflection points involving creative destruction the market is flooded with hundreds of alternatives only a few of which survive. What these solutions are doing though is getting consumers and merchants used to paying with their mobile phones.
What’s remarkable about this is that despite all the press releases, pilots, powerpoint presentations and general hoopla from the big guys—you know who they are—they are barely a factor for most people. Oh, I did see Google Wallet at the checkout at Duane Reade in Manhattan last week. If only I had a Sprint Android phone I might have used it.
These mobile payments entrepreneurs might just get the market primed for Isis, Google, Visa, and others to come in and take over. Or one or more of them might be what most smart phone users fall in love with when it comes to mobile payments. The 23-year old founder of SCVNGR even has his sights on killing off interchange fees and the card networks as we know them. I’m going to pass on predicting the outcome. For now.