I participated on two panels in the 4th annual Mobile Contactless Forum held in San Fran last week (April 3-4). The agenda, speakers and turnout was really great. I thought I’d share some of my takeaways wrapped around some of my own remarks at the conference.
Don’t be misguided by the Fed.
It’s not what you think. I’m referring to the 2009 Federal Reserve Report on Consumer Payments Usage that says that consumers don’t want to use their mobile phones to pay for stuff. I totally love the Federal Reserve Emerging Payments guys and know many of them well. The work that they do is awesome. But the survey result on consumers interest in mobile payments is really OLD and, unfortunately, is helping some rationalize all of the reasons why mobile payments is too early, consumers don’t trust it and it hasn’t added any real value to payments since cards work so well today. Sure, cards do work well today, and will work well tomorrow and for probably the next decade or more. But quoting a 2009 report using data that was collected in 2009 - three years ago now is like making judgments about the viability of the internet from a report published in 1996 using 1994 data to understand what happening in 1996, let alone to project forward 3 to 5 years. Even that doesn’t capture how quickly things are moving in the mobile space and therefore the danger of using even 2 year old data to understand what’s happening today. The diffusion of mobile devices, the application of mobile to IP enabled devices and the ease at which entrepreneurs can leverage existing payments infrastructure to innovate around the mobile is moving the payments industry along at lightning speed. For reasons I’ll get to in a minute, using that data as a reason to slow things down on the mobile front would be like deciding not to go into e-commerce in 1996.
Back to the survey for a minute. In 2009 there was one and only one way that mobile payments was being discussed and described to consumers: NFC-enabled devices being tapped onto POS terminals. So, not surprising that the results are the results reported. Asking those same consumers those same questions today using that same context and the results would likely be the same. In fact, it was just reported that less than 2% of all merchant locations in the US are NFC enabled. The chances of having an NFC enabled phone near an NFC terminal are not unlike the odds of winning the lottery ... possible, but very difficult and not at all likely. Kind of a bummer of a statement to make at a mobile contactless conference, but ...
The Fed Survey on Consumer Payments for 2011 is coming out later this year, and it will be interesting to see what it says about mobile payments and how it has changed if at all. But, if you really want to know how people feel about mobile payments and using their phone to enable mobile commerce, I wouldn’t wait for the survey. I’d just look around you at the people with smartphones and how they are using them. And then figure out how you can play before you are outplayed. More on this later.
Mobile Payments by Any Other Name...
There is a lot of confusion over what is meant by the term “mobile payments.” People in the industry use the term to mean a variety of different things. Mobile payments and mobile commerce are often used interchangeably and that is how the confusion perpetuates. There was a lot of back and forth over that at the conference itself.
Mobile payments is defined by many as using the phone to pay - so using the phone at the point of sale to make a purchase. Although that isn’t happening much using NFC phones and terminals it is using bar codes and apps that facilitate that. I know that people are sick of hearing this example, but 4 million Starbucks customers can’t be wrong. A lesser known, but probably not for long, example is LevelUp and its bar code enabled payments/loyalty scheme that enables local merchants to accept payment via bar code. Then there’s Pay by Square and PayPal that are enabling payments via mobile in ways we’ve discussed many times. Paydient is another venture that is enabling payment via QR code. Its solution is white labeled by merchants as is its wallet which aggregates offers from a variety of sources. Uber, my new favorite app of all time, allows me to pay via an app on my phone when I want an alternative to a taxi in the cities they operate (thankfully Boston),
Mobile payments is also replacing the way consumers pay for stuff on line. Thanks to the iPhone and Android devices using the phone instead of the PC is getting easier and easier to do. The growth in online retail via mobile grew nearly 100% 2010 to 2011. MasterCard reported that nearly 7% of all internet sales were done via the mobile device. Someone in another session mentioned that mobile retail is the second most popular activity on the mobile device behind general use including search. I found this surprising at first but suppose that for so many people, the smartphone has replaced the personal PC (if there was one to replace) that it isn’t that difficult to imagine after all.
This view of mobile payments also extends to tablets - a device increasingly responsible for commerce. Thirty percent Gilt Group’s sales over the holidays were made with tablets and 38% of people who own tablets - yes, still a small number but growing - make purchases from their tablets. And why not, they are just more portable PCS and offer a better browsing experience than the smartphone.
Now, let’s move to mobile commerce. That’s the set of activities that happens on either side of the acting of paying. The mobile, in many ways, has almost commoditized the payments process - it is the means to the end - it’s not where the interesting stuff in payments is happening now. Payments is still important but simply the final leg of a shopping experience that is now being transformed by the mobile device. Offers are being pumped to consumers via mobile in the hopes of bringing in more foot traffic to those storefronts, inventory and prices both are being checked by mobile. But that’s just the beginning.
Nearly half (46%) of the apps downloaded today are designed to help consumers shop or make better buying decisions while they are shopping. Sixty five percent use their mobile devices to find businesses and then go to the physical store to make a purchase. It’s why everyone and his mother is chasing down schemes that make it seamless to go from search to purchase using the mobile phone. And, frankly, it’s why schemes like those that PayPal and Square are putting into the market are getting so much interest and traction - they make it easy for local merchants and consumers to transact. They both remove the friction from the transaction itself, and add value by serving offers and making the experience more personal and personalized. Keith Rabious was recently interviewed about the popularity of Square and its Pay with Square and Square Register applications. He said two things: (a) Square solves a real problem for real people (and merchants) and (b) Square has embraced the existing payments rails to enable its innovation. Square rides existing payments rails and enables existing plastic cards to transform commerce for consumers and merchants via the Square dongle. And, did I mention he also disses NFC? Pretty much says it is DOA (my words, not his).
Mobile Commerce isn’t going to tip, it has tipped.
Anyone who follows my writings knows that I am known for my direct and sometimes controversial statements. After all it was me and my colleagues back in 2006 that gave the big thumbs down to NFC when just about everyone on the planet said we were insane and instead invested in NFC schemes like there was no tomorrow. The mobile is a fait complet in the payments/commerce world and that has been a known fact for a long time. But NFC was just too complicated with too many players to make happen. So, entrepreneurs moved to the cloud and found their innovation and opportunity there. NFC might make it at some point but it will be a long slog and it will now have to prove it is better than the cloud based solutions that are moving along at Mach speed and getting consumer and merchant traction.
But I digress. So, here’s the controversial statement. We’ve hit a tipping point for mobile commerce. Unlike some who at the conference said it was coming, I’ll disagree and say it’s here (echoing what David Evans said a few weeks ago in his post). And, it’s only going to explode from here.. It is here and it will explode because smartphones are just about everywhere now or they will be soon and by definition they work with cloud-based applications.
Here are the stats that I shared at my session.
• 53% of US Adults own a smart phone
• 71% of those 25 - 34 own one too.
So, maybe you say, tell me something I don’t already know. Well, here’s maybe something you don’t already know.
• 70% of those who earn $75k and over own one
• More than half of those making $30k or less own one
If you cross the percentage of those who own smartphones with those with the most spending power - it is pretty astounding. Me and my colleagues at MPD have looked at this and found that, as a conservative estimates, about 60% of the spending power in the US belongs to people who carry around smart phones. If you don’t think that is a reason for mobile payments to tip, I don’t know what is.
But that is just the tip of the iceberg.
Nearly 90% of those users access the internet with their phones - and almost 95% of those 18 - 29 do. That pool of people is just going to get bigger as people adopt smartphones worldwide. The number of global internet users is going to grow two times in the next three years and smartphones will fuel that trend. Just think about that ... two times as many people in the next three years will be using their mobile phones to access the internet - with many people in many parts of the world only having a mobile phone and only accessing the internet using it. The opportunity for commerce to happen via mobile is almost beyond comprehension.
So, as I said, it’s only a matter of time - and not that long of a time - before all of these people who are running around with smartphones do three things:
1. Shop on line just as they did or do with their PCs
2. Use their phones even more to assist with the shopping/commerce experience - discovering merchants or offers or both
3. Download apps like LevelUp, Uber, Pay with Square, PayPal and the others who allow them to use simple technology to facilitate their shopping experience at their favorite merchants.
The smartphone makes it easy for that to happen and the consumers who carry them are comfortable with the technology. Plus, they’ve had a whole decade of experience of shopping on the web and being trained by the card companies that they are safe and protected while shopping doing so. Security is a topic that many people talk about and say is an inhibitor of mobile commerce adoption. For the reason that I just stated, I just disagree.
People also these days don’t think twice about registering their cards with apps. If you’re over 45 and still use a Blackberry maybe you don’t or say you wouldn’t but you’re in a shrinking minority and certainly not where the mobile commerce momentum is gathering a head of steam.
So, at the end of the day (and the end of the conference), here is where I stand. With apologies to anyone who is still madly in love with NFC, if you want to find the future of mobile, look in the cloud and look in your hand. That shift to the cloud, and the connection to smart mobile phones, has and will shake up the ecosystem in so many ways. Every single player now will have to pivot. Every single question about business models, data security, maybe even the rationale for EMV, is all up for grabs.
The mobile commerce train has left the station - and it isn’t the NFC express. So better get on board and hang on for the ride of your life.