Mobile Payments Enter A Disruptive Phase
A recent article in The Wall Street Journal mentioned that Google could team up with MasterCard and Citigroup to pursue a role in mobile payments; this is yet another indication that disruption is looming in the payment space.
In his keynote at 2011’s Mobile World Congress, Google CEO Eric Schmidt stated that “NFC should revolutionize electronic commerce as well as payments.”
What does Google have to do with payments? Well, it has already rolled out (quite unsuccessfully so far) Google Checkout. What’s different about this new proposal is that this is not just about payments: Google would embed Near Field Communication (NFC) technology in Android mobile devices, allowing consumers to make purchases by waving their smartphones in front of a small reader at checkout counters. So what? Well, NFC is more than just a payment technology; it brings mobile payments together with mobile marketing and loyalty programs. As with mobile devices in general, it helps bridge the digital and physical worlds.
What if Google aimed to make mobile payments easier in a bid to boost its advertising business? The planned payment system would allow Google to offer retailers more data about their customers and help them target ads and discount offers at mobile-device users near their stores. Appending real-world purchase information to its treasure trove of online behavioral data would allow Google to drive significant transactional and advertising revenues. The CEO of xAD — a local mobile ad network in the US —sums it up quite well in an interview with GPS Business News: “There’s going to be more tracking, more measurement and mobile can bring that extra piece of measurement when people are taking their phones to stores.”
Google isn’t the only potential entrant to the mobile payment space. At year-end 2010, PayPal reported 5 million active mobile users and a whopping $750 million in annual mobile transactions; for 2011, PayPal is targeting transactions worth more than $2 billion from its mobile products. eBay will likely provide a significant chunk of these transactions. However, eBay is one of the most advanced players when it comes to rolling out a mobile commerce (mCommerce) strategy. Take into account the RedLaser and Milo acquisitions, and you’ll see that mCommerce for a pure online player will mean much more than just eCommerce on smartphones.
While other pure online players, such as Amazon.com and Facebook, have mobile payment plays, this is not just about purely online firms. Banks like Rabobank and Sanpaolo Bank are becoming telecom operators, while telecom operators like SK Telecom and A1 Telekom Austria have acquired banking or eMoney licenses. NTT Docomo in Japan has more than 10 million customers for its DCMX Money credit service!
New partnerships among all these players are emerging. French operators in partnership with Atos Origin have announced a consortium — “Buyster” — that will compete with solutions like PayPal. In the US, AT&T, T-Mobile, and Verizon Wireless have partnered with Discover Financial Services to form ISIS; it plans to offer NFC-based payments for the carriers’ subscribers at a wide array of merchants, beginning in 2012.
Adding new players and technologies such as NFC to an already complex and evolving value chain is a recipe for disruption in many forms. Of course, after so many years of trials, NFC can no longer be considered a new technology. However, 2011 is — finally! — the year in which we will see significant volumes of NFC devices shipped from the largest handset manufacturers. Such volumes will accelerate change in countries like the US and the UK, where NFC-enabled point-of-sale (POS) devices are already present in the market.
So, new payment methods, such as contactless schemes, aim to displace cash transactions. Mobile payment capabilities can also catalyze changes in related markets, such as transit systems; their readers could be upgraded to accept digital tickets stored on phones. Disruption also means that new entrants could gain market share at the expense of incumbents.
This disruption will be slow to occur. Why? Because: 1) vendors and providers will need to create consumer demand, which is currently nonexistent; 2) merchants will also require significant motivation; and 3) stakeholders will need time to iron out business-model problems.
Does that mean you should wait and see? Not at all. Consumer product strategists at banks, card networks, device makers, and operators face different issues, but all will have to make decisions on the role they want to play in the evolving mobile payment ecosystem. They should, at the very minimum, anticipate the different disruptive scenarios and determine the likelihood of them happening.
If you’re a Forrester client and want to know more about this topic, have a look at our latest report “Mobile Payments Enter A Disruptive Phase.”