Not So Fast: The Coming of Age of Mobile Money?
With the recent release of the iPhone 5, many consumers are eager to try a bevy of apps and features designed to make their lives more fun, connected, and convenient. But consumers may be disappointed to find one long-anticipated convenience missing from their newest smartphones – a built-in “mobile wallet” that would allow them to pay for retail purchases directly from their bank or credit accounts without using a card or cash. Consumers are not the only ones likely to be disappointed.
Brick-and-mortar retailers recognize that mobile payments present an opportunity to effectively and efficiently communicate with customers. For example, a recent UK study showed that shoppers who visit a retailer’s mobile website on their smartphone during a shopping trip were more likely to make a purchase than those who did not consult the retailer’s mobile website. Retailers may capitalize on this effect by using mobile payment technology to connect customers to their mobile websites. So why is Apple – a leader in mobile innovation – not providing a mobile wallet?
Uncertainty in the Market – Apple’s reticence may be a reflection of the crowded and unsettled mobile payment market. In 2011, Google released the Google Wallet, which uses near field communication (NFC) to allow users to store debit and credit cards, among other things, and simply tap their phone at the retailer’s checkout terminal on the way out. Since early 2011, insiders have speculated that Apple would embrace NFC technology. But NFC requires hardware and software to be installed on both the customer’s smartphone and the retailer’s payment processing system and, according to an analyst from IDC, so far less than half of retail stores are equipped to support NFC transactions at the point of sale. The slow adoption of NFC by retailers is compounded by ongoing disputes between Apple and Google, which led to the removal of two key Google products – Maps and YouTube – from the iPhone 5.
Similar challenges are faced by Google’s competitors, such as Square Inc., Paypal, Microsoft, and startups like SCVNGRand GoPago. Would-be mobile payment providers must navigate through complicated terrain featuring not only retailers and consumers, but also credit card companies, banks, cellphone carriers, and other stakeholders.
While the NFC market shakes out, retailers need to be aware of and capitalize on many different forms of mobile payment. For example, although the iPhone 5 does not directly incorporate mobile wallet technology, it does feature the “Passbook” application, which stores payment items – such as coupons, loyalty cards, and prepaid movie tickets – and relies on the existing camera and display to create a scannable QR code. In addition, iPhone and Android-based phone users can install credit card reader devices, such as Square, or download applications like SCVNGR’s LevelUp, to increase their current mobile payment options. These are just a few of many mobile payment options for retailers to be aware of.
Legal Uncertainty – Contributing to the market uncertainty are the legal risks affecting the mobile payment market. Many of the key players in the field have battled over mobile payment intellectual property. For example, Maxim Integrated Products Inc. (Maxim) sued Starbucks over its mobile payment application, which has been one of the most successful mobile payment applications to date. The case is still pending. In addition to its case against Starbucks, Maxim sent demand letters to other companies claiming patent infringement and is embroiled in lawsuits with retailers, banks, and financial institutions. In connection with the launch of Google Wallet, Google was accused of stealing employees and trade secrets from PayPal.
In addition to the risks of being dragged into IP litigation, retailers and mobile payment providers are wondering whether and how existing federal and state laws and regulations could apply to mobile commerce, as well as how to adequately address concerns over customer privacy and security. According to one mobile device analyst, “security seems to be an enemy of usability,” so many, including Apple, may be watching to see how other mobile wallet providers address such issues before jumping in.
While the mobile payment market is still young and in flux, most experts agree that mobile payment is the way of the future. According to one study, a majority of industry experts believe mobile payments will surpass cash and credit card payments by 2020. Retailers will need to pay close attention and develop a strategy to capitalize on this market shift, or risk losing ground on a promising way to communicate with their customers. But until then, it looks like cash may still be king.