Optimists see Facebook’s prospects as almost unbounded. After all, it has almost a billion users and its users spend an astounding amount of time on the site. Even if you replaced Zuckerberg with a dolt, the company ought to be able to figure out how to make gobs of money from having a community that is larger than the population of all but two countries.

Skeptics, though, remember how indomitable social-network-rival MySpace looked not that long ago. Then MySpace went into a death spiral as users flocked to Facebook. Skeptics have a more immediate cause for concern. Facebook admits that it doesn’t have very good ways of making money when people use Facebook on mobile devices. That’s a big problem as mobile use skyrockets.

Me, I’m a skeptical optimist. My optimism is based on understanding that Facebook isn’t just a platform—it’s a lot of interdependent platforms each of which could be valuable alone, but incredibly valuable together. Read on to find out why I’m nevertheless a bit skeptical.

Unpacking the Facebook Platform

To the casual observer Facebook is mainly a social network where people link up with their friends. The movie didn’t exactly help elucidate what the platform is really about. So here’s a really boring description and further evidence that I have no future in Hollywood.

Facebook’s user accounts are its core asset. For every individual who joins, Facebook has a unique identifier, relatively rich self-reported data on the person including location, sex, relationship status, where they went to school, and more. It also knows the other individuals, merchants, celebrities, and organizations that person is connected to. This has just started, but some users also have a wallet that is connected to one or more payment instruments. Facebook has these accounts for almost 900 million people around the world. That’s one amazing database.

These accounts support seven interrelated platforms as shown in the Figure 1.

1. Communications platform. Facebook started out as a way for friends to communicate with each other. Enriching this has been a major focus of the company as it has worked hard at growing and keeping the user base engaged. But today, Facebook is the largest communications company in the world. Most people use it for multi-casted messages between friends rather than for bilateral communications using voice or video calling. But since Facebook has aliases (urls not to mention email addresses) for all of its users it can provide many different forms of communication. Increasingly, Facebook is also a communications platform that connects individuals and merchants.

2. Advertising platform. Facebook has made its money so far by operating a fairly traditional online advertising platform that connects advertisers and users. The ads appear on the right-hand side of the page (with new methods just rolled out to include paid spots in the news feed). Ads accounted for about 82 percent of its revenue in the first quarter of 2012.

3. Application platform. Facebook provides APIs, SDKs, tools, and a sandbox to developers who it has courted assiduously for some time. There are more than 500,000 applications on its platform. Social games are the “killer app” of the moment propelled by Zynga’s games such as Farmville. Facebook is making money from applications by requiring them to use Facebook Credits for selling virtual goods (the main source of revenue for social games) and taking 30 percent of the value of credits when they are turned into cash. That was a major contributor to the 18 percent of revenue in the first quarter of 2012 than came from “payments and other fees revenue”.

4. Customer-relationship-management platform. Facebook has almost 40 million “pages” with 10 or more fans. These pages are operated by merchants, celebrities and organizations who use them to organize and communicate with their fans. This is a massive CRM system.

5. Commerce platform. Although this is happening in low volumes at the moment Facebook is being used to sell digital and physical goods to merchants. A number of merchants have set up their fan pages so that they can sell things, malls have been established, and Facebook has developed an offers program to help drive consumers to merchants’ physical locations.

6. Payments platform. Facebook enables people to pay merchants on Facebook using Facebook Credits. The company has a wallet which enables consumers to link several different method, including their mobile phone account as well as credit and debit cards, and purchase Facebook Credits. At the moment, Facebook Credits are primarily used to purchase virtual goods but over time they will likely to be the main currency used on Facebook.

7. Mobile platform. To an extent mobile devices are simply another browser-based device that can access Facebook directly through its url or indirectly through a mobile phone app. But already Facebook’s mobile applications enable people to check-in at physical locations. Over time this mobile platform is likely to allow significant interaction amount Facebook’s consumers and merchants in physical space.

Facebook Optimism

The numbers shown in Figure 2 show how successful Facebook’s platforms are after just a few years of development. Remember, this company only opened up to the general public in September 2006. My optimism for Facebook’s future isn’t based, though, on how good it is today but on how much runway it has. The truth of the matter is that none of its platforms are anywhere near their full-on potential.

The most well developed platform—communications—provides mainly for fairly limited multi-casting of messages. It isn’t a sophisticated platform for bilateral communication or for broadcasting in the way Twitter is. And even for multicasting the communications are straightjacketed within a fairly limiting user page.

Some observers might think that the Facebook advertising platform is well developed. And it is relative to other online advertising networks. But it takes little imagination to realize that with the social graph to use, and rich data on people, one can do a lot better than tiny clickable display ads. Facebook, like all online advertising, is still using 20th century approaches to advertising and hasn’t yet developed innovations that really make use of the new technologies. It’s starting with things like Sponsored Stories and the newly launched Highlight feature (where people can pay to have their posts bumped to the top of a news feed) but these are early experiments. But no one else has the social graph and data available to do what Facebook can do.

Skeptics point out that Facebook is nowhere in commerce and is getting killed in mobile. But those are problems that talent, focus, and money can crack. None of those ingredients are in short supply at Facebook. I put all of those in the opportunity column.

In applications, Facebook has essentially one killer app (games) putting it, at about the same point in its history, as the personal computer with spreadsheet software like Lotus 123. With application developers around the world writing for Facebook in many different areas it is only a matter of time before there are more.

In the end, though, the reason why I’m optimistic about the economic future of Facebook is that it has almost a billion, and growing, accounts with rich information. If Facebook succeeds in most countries in obtaining the penetration of Internet users it has achieved already in some countries, it will essentially have a incredibly rich database of the global population. It won’t have everyone. But it is likely to have account information in not too long for the people that account for most of the income (and spending power) in the entire world.

Facebook Skepticism

There are reasons to be skeptical that Facebook will be able to capitalize on the tremendous assets it has developed. But as I’ve just noted that’s not because it doesn’t have its game together in mobile or because there isn’t a lot of commerce occurring in Facebook-land. To the extent I am skeptical that Facebook is worth $100 billion valuation it is that I see several sources of peril.

MySpace went into a death spiral because people stopped wanting to go there (it was getting pretty nasty) and because there was a nicer place to go - Facebook. Facebook isn’t immune from positive feedback effects working in reverse. Some people may decide they’d rather go hang out some other place, and then more follow them, and then sooner than you know it a slow trickle of departures turns into a stampede. Facebook is particularly vulnerable to younger people deciding that Facebook isn’t hip anymore. Those younger users could give a competing social network a critical mass (just like Facebook’s college crowd gave it a critical mass) and then that critical mass sucks in more people as they all grow up and enter the mainstream. So far Facebook hasn’t had significant defections despite various actions that have led to significant complaints from their users. But a significant misstep by Facebook, or a just a collective view from users that they’d rather be somewhere else, could sink Facebook – and it fast.

Facebook has done a much better job than MySpace at making people sticky. People are attracted by all the applications and the fact that almost all their friends and merchants they’d want to be fans of are there. That makes Facebook formidable, but hardly impregnable.

The other reason for skepticism is that Facebook hasn’t proved that it is adept at anything beyond the communications platform. Its advertising platform isn’t particularly innovative. Its software platform is well executed but Apple has developed a far richer and stickier applications layer. It is way too early to tell whether Facebook can pull together social commerce, payments, or mobile.

The final reason to worry is that there is a significant risk that Facebook, and Zuckerberg, will get drawn into government investigations and lawsuits around the world over antitrust and privacy issues. Not because they’ve done anything, mind you, but just because that’s the way it is these days for successful companies with complicated business models. Facebook is by far the leading social network, immensely wealthy, and widely known. That makes it a natural target for competition authorities and consumer advocates throughout the world. In the not too distant future, these investigators will have either gotten tired of beating up on Google or have extracted enough concessions from the search-engine giant that they feel like they can move on to fresher meat. Facebook will be the next one up. As the top executives at Microsoft found, these battles can take a lot of time and psychic energy.

In the end I’m more of an optimist than a skeptic. If I were a betting man I’d probably take a flier on Facebook. Since I’m not I’ll calmly watch my optimist friends sweat bullets if Facebook goes Groupon, and my skeptical friends turn green with envy as investors buy beach houses.

As I said on Friday, CTIA invited 50,000 of its closest friends to gather in NOLA for its big International Wireless show. I moderated a panel on mobile commerce, plus wandered the exhibit floor and sat in on some sessions. Here is my second post in a series of three – this one captures my musings on what I saw, said, and heard about mobile wallets.

A Wallet by Any Other Name …

Any mobile show worth its gumbo must have at least one discussion about the mobile wallet. CTIA did not disappoint. Not only was there discussion of wallets, they were on full display. Both Visa (V.me) and MasterCard (PayPass) had its digital wallets available for demo in their booths. And, wallets were the topic of conversation on several of the panels. Here are a few of my observations and insights.

This might be stating the obvious, but I just want to make sure everyone understands this basic point. V.me and PayPass are acceptance marks just like PayPal. So, as these wallets get diffused, you’ll start to see “Pay with V.me” and “Pay with PayPass” presented along with other payment options at checkout. The proposition is that consumers will load all (and they mean all) of their payment cards and loyalty products into these wallets and will have the ability to toggle back and forth between card types as desired at checkout to make a payment. Ease of use/convenience and security are the key value propositions. V.me is live today with Buy.com and PacSun and MasterCard has launched with Barnes and Noble and American Airlines.

The MasterCard PayPass wallet though has decided to take a slightly different approach with its wallet vision. MC has launched not just a wallet but a digital wallet platform that will enable any other wallet or app to connect to it and operate within its PayPass wallet environment. It enables this via a switch that routes these transactions via its rails to the appropriate endpoint. An API enables wallet and app providers to easily connect to this platform. PayPass is envisioned to become the consumer’s uber-wallet – the ability to have many wallets/apps within a single PayPass wallet.

Here’s how they describe a potential use case. Say that Merchant A has its own mobile app that is payment enabled. It can hang out on smartphones as its own mobile payment app and/or it can connect that app to PayPass and have customers access it within its PayPass wallet container. A merchant might want to do this to make it easier for consumers to have all of the apps that they use at the point of sale conveniently organized in one container. Merchant A might also want to incent consumers to use its app to enable payment at other merchants too. Merchant A, in this case, gets the benefit of being in the PayPass wallet of its customer (and used more conveniently), and also potentially, acceptance across multiple points of presence enabled by the PayPass wallet that they could otherwise never get easily.

This uber-wallet concept could spawn an interesting mashup of technology/loyalty and business model innovation – potentially catalyzed by MasterCard - as it aggregates more merchants and volume via its wallet platform. I’m told that merchants pay nothing extra to be part of this wallet platform and that monetization opportunities will come later as other value added services are developed and made available to customers of the platform. The issue of how data moves between wallet providers and consumers and merchants is still a work in process – and of course, subject to all of the privacy and security issues that relate to payments. Here is a peek at a demo if you haven’t seen it.

The devil is in the details of the execution, of course, and as many in this space have discovered, it is not all that easy to get others with their own wallet ambitions to play together nicely in the mobile wallet sandbox. How likely it is that we’ll see a V.me or Serve connect to PayPass is unknown – but hey, Serve just connected to ISIS so stranger things have surely happened in this space. How this gets answered will depend on thorny issues like business model and data sharing and that good old issue of perceived and real customer ownership (a biggie). It will also depend on how well preserved another wallet’s functionality is in the PayPass environment. Will PayPass just enable a payment transaction that is enabled by another wallet/app linked to its wallet or will it also host and display and aggregate all of the other important goodies like offers, rewards, and balances attached to that app or wallet? PayPass could be an interesting wallet play, perhaps not so much for the payment aspect as for the potential business model opportunities enabled by uber-aggregating of lots of single “apps” into its wallet infrastructure.

Who’s on First?

Here are a few other thoughts after having seen the wallets and thinking further about the digital wallet space.

One pretty big insight is that in the mobile/digital wallet world, pretty much everyone is at the starting line at about the same place. Digital wallets aren’t just little spiffy icons on a mobile phone – they are acceptance marks – and merchants have to agree to accept them at the point of sale. And that’s not trivial - just ask PayPal who has been slogging it out for about the last 13 years. Granted, for MC and V to be added as a tender type isn’t as headache-inducing as asking merchants to enable NFC at the point of sale, nor even as involved as adding a new network like PayPal to the lineup, but it is still something that merchants have to agree to do and allocate technology resources to get done. And now, these merchants have like a zillion players knocking on their doors asking for some version of the same thing and all about at the same time: Visa, MasterCard, PayPal, Google, Discover, ISIS, and American Express along with all of the emerging people who want some of the action too.

So, when merchants go to answer that door, who should they decide to let in? Well, the player that can bring lots of good stuff to the table, naturally. So, what is defined as good stuff? Well customers are good stuff – you might say they’re really great stuff if you are a merchant. If that’s the case then it’s really only PayPal, with consumer accounts tied directly to its wallet, that can credibly sell merchants the proposition of a 100M+ potential customers. PayPal has also worked hard to flip consumers to ACH so, in theory, they are able to work with large merchants on pricing – another really good thing if you are a merchant. (Visa and MasterCard have to think thru how they will handle card not present pricing - a real biggie – it’s not really not in their interest to want to flip consumers to debit much less ACH transactions.) If you’re MasterCard and Visa, you have the prospect of bringing many, many and many millions of customer relationships to merchants but they belong to the issuers and then they and the consumer have to be given an incentive to want to play in their wallets. Doing all of this is clearly not impossible to do, but it’s just another step and another layer of coordination.

When looked at in those terms, it must sort of make the network guys little nuts but then again, it’s always been a mystery as to why it has taken them so long to develop a digital wallet solution to compete with PayPal and to reduce transaction time online.

But there’s a flip side to all of this when it comes to how many players even get as far as the merchant front door – and this is where the incumbents have a real advantage. The incumbent networks may not have direct customer relationships, but they have something also very valuable - merchant relationships and that is goodness of a different sort. They have these relationships directly thru their global merchant services groups and with issuers via co-branded cards. They have a decided leg up in going to merchants and negotiating acceptance, that will at some point likely include how they choose to address the CNP pricing issues, too. Now, merchants still have to agree to do all of this and the integration still has to happen, but the large incumbents can sort of jump the line. This dynamic might also make a PayPass wallet aggregation capability that much more attractive to apps that need payment/wallet enablement – a value proposition to simply connect to PayPass to get functionality and acceptance could be quite powerful.

Whiter ISIS

All of this made me wonder even more about the viability of ISIS. When evaluated in this context, what on earth does ISIS have to offer merchants or consumers at this point? They don’t have consumers, they don’t have merchants. They don’t have pilots with traction. They also ditched the notion of being a closed merchant network a while back. So what are they offering when they go a knockin’ on merchant front doors? My view is that the launch of incumbent wallets simply put another nail in their coffin - they appear to have nothing to offer merchants or consumers that these well-established networks with their own well-formed and functioning wallets can’t and in fact don’t already have.

The U Zone

Oh, one other point worth mentioning is ubiquity. I sat in on the Citibank mobile payments discussion. The point made by Rich Clow, and that has been widely reported in the press, is that wallets won’t take off unless they are ubiquitous. I interpret that to mean available to be used everywhere – just like cards. I don’t agree.

First off, let’s define what is meant by “wallet.” My definition of a wallet is something that aggregates multiple payment types, can also aggregate loyalty information and offers and can be used at the digital or physical point of sale. My definition puts merchant “wallets” like Starbucks in the payment enabled mobile apps bucket. If you agree, then what makes the whole mobile wallet ubiquity discussion interesting is how easy smartphones make it to have and access multiple apps and wallets.

My problem with the ubiquity argument is that, as Starbucks has shown us, people will use apps that are accepted at only one place because it is convenient for them to do use and even to top up. (Most people top up their Starbucks app while they are waiting in line for their lattes.) And as apps like Uber and LevelUp have shown us – both of which are not widely accepted or available but have loyal users - is that the ease of use is in the ability to link a single card that can be used at the places that these apps are accepted - not having them all in one place to access. So, maybe the new definition of ubiquity in the digital world is having a card that is accepted everywhere linked to an app that enable usage at any merchant location that accepts that app. But I digress. Will there be a threshold for how many wallets and apps people actually download and use? Of course. Will there be a single wallet that consumers use? Hard to see why that will be. I get that people have a single leather wallet today and that everyone wants to replicate that same analogue in the digital world. Smartphones make it easy, and likely, that consumers will use multiple wallets just like they use multiple cards today. Yes, in theory, wallets will aggregate all of the card options that people carry around in their physical wallet today but until there is a value proposition that moves well beyond the user experience of scrolling in a digital wallet versus scrolling on a smartphone, consumers will play around with a bunch of wallets and apps. Will they play around with 100 apps and wallets? Probably not. Will you need more than two hands to count the number of wallets and apps they will settle in and use? Again, probably not. Well, at least that’s my view. What’s yours?

My final piece for tomorrow will focus on my most awesome mobile commerce panel discussion. I guarantee you, it is a must read! The panel did not hold back! See you tomorrow!

Okay, Nick Holland – I’ve taken the bait. Your NFC media advisory today refuting the notion that NFC isn’t to cards what Betamax was to video was simply too good to pass by. You actually selected the perfect analogy. Here is my argument as to why it could end up just like it.

1. The Betamax was a “superior” recording option – if all you are talking about is the quality of the picture. But Sony failed when it tried to turn that superiority into a standard that was going to control the ecosystem. Rather than comply, competitors created something new – even though it was admittedly less “superior.” On the NFC front, the big difference is that NFC is a technology standard already, with others working to persuade the ecosystem to adopt it via SIM-based wallet. That “control” is not something that all players in the ecosystem are willing to cede right now, so, rather than comply, competitors are emerging all over the place.

2. And just how “superior” was Betamax: it could only record an hour at a time! That meant that guys who wanted to record a football game were SOL. So were moms who wanted to record a movie – who the heck wanted to get up in the middle of the game or a movie and switch cassettes, even if the quality of the recording was better? Utility, ease of use and convenience ruled over quality. Turning to NFC, consumers are now used to whipping out their cards and using them just about anywhere they want – utility and convenience. Tap and pay sounds good and may be a superior proposition, but not if you can’t tap and pay anywhere you want to. NFC seems to have a long way to go before getting that sort of coverage. Until then, consumers will just use something else that is more convenient, whether that is a mobile app, their plastic cards, or good old cash. The risk to NFC is that consumers will standardize on a mobile solution that enables them to use their phone at most of the merchants that they visit regularly and once NFC becomes available to them, there won’t be enough benefit to make the switch.

3. The VHS – Betamax wars started in the early 1980’s and by 1982 was in a knockdown, drag ‘em out fight. By about 1984, Sony was losing share but still selling units – actually peaking that year. It was all downhill from there though. That year, ironically, marked the tipping point for VHS. Three years later, VHS accounted for about 95% of the market and Betamax was officially declared dead by Rolling Stone magazine. Turning back to NFC, it very well may be that having POS terminals that enable NFC causes some merchants to activate it. It still means that consumers have to buy in (literally, as in buy new phones with chips) and the business models among the players in the ecosystem have to work themselves out for deployment to get to any sort of scale. The longer that takes, the more risk to NFC that another solution tips, and moves like wildfire to gain so much share that NFC becomes a technologically superior but irrelevant payment alternative.

4. Betamax also ran into another problem. As consumers became disillusioned with the lack of recording capabilities, the other side of the market – video rentals – began to take notice and fewer video rentals became available in Betamax format. That meant that the demand for Betamax recorders declined since consumers couldn’t rent the movies they wanted, leading to a downward death spiral – fewer movies to rent, less demand for recorders, meant fewer movies to rent leading to less demand for recorders, etc. The corollary for NFC is twofold. First, fewer merchants accepting NFC means fewer consumers are interested in using it. Second, fewer merchants, and consumers interested in NFC mean fewer developers and entrepreneurs interested in developing cool apps that leverage it. It really could become the Betamax scenario almost to a tee.

Nick also projected that there would be $355 billion in NFC payments transaction volume worldwide by 2016. Wow, that’s like 4 (well, 3.5 to be exact) years from now from sort of nothing today. Holy ignition Batman! I take the point that there are parts of the world where NFC technology is a little more entrenched, like some parts of Asia Pac and Europe, but their overall share of the payments market pales in comparison to the US where getting scale seems still elusive. Nick’s prediction is, by far, the most optimistic I’ve seen. InStat predicts $9.9 billion in the US in 2014 (which means the rest of the world would have to REALLY ignite to make Nick’s numbers pan out) with others topping out at $50B in 2014 – even that seems ambitious given where things are and in less than two years’ time.

Nick concludes his piece by saying that “card networks, banks, MNOs and hardware vendors must work in unison to create a positive and compelling case for merchants around NFC, particularly underscoring its long-term benefits.” Totally agree but his stated differentiator, “tap and go” payments, just doesn’t seem to have the appeal that it did once upon a time. And so, far, that seems to be the only value proposition that anyone selling an NFC solution talks about. It may be “technically superior” and in an ideal world convenient and easy, but it needs a serious ignition strategy and soon. Otherwise, well, I’ll let you finish that sentence.

So, now you’ve heard my take on this … what do you think?

Last week I was asked to give my thoughts on what the market obstacles are to payments innovation and what if anything the government should do about this. The occasion was an excellent conference put on by the Kansas City Federal Reserve Bank.

The premise of the question seemed to be that it’s been hard to get mobile payments, NFC, and other things off the ground. Maybe there’s a problem there and we need to government to knock some heads together or show the way. After noodling on this subject for about 2.3 nanoseconds I concluded that entrepreneurs should post sign to Gov: Stay Out.
I made three points.

We are going through one of the most intense periods of innovation in payments—really anything that surrounds the exchange of value between consumers and merchants—that we’ve ever had.

But a lot of things that people call innovation wouldn’t actually make consumers and merchants better off. Often they don’t solve a real problem. They can’t and shouldn’t get traction in the market.

Decentralized markets are pretty efficient at discovering the optimal path of innovation in the payments industry. And the government doesn’t have a great track record when it comes to payments innovation.

Creative Destruction

We’re in a period of creative destruction. We see this in a number of ways.

A lot new technologies and business models are being introduced. For example, LevelUp is a mobile payments system that is tying payments to sophisticated loyalty programs.

A lot of this innovation is blurring the lines between online and offline commerce. That’s Pay by Square.

Much of this innovation is coming from major players outside the traditional industry. That includes Google, Facebook, Intuit, and Groupon.

Venture capital is poring into payments. Just about every day some VC is handing out several million to a payments-related startup.

The big guys are acquiring innovative players. For example Visa bought Fundamo, a mobile payments platform for lesser developed countries.

Just about everyone in the payments industry and in adjacent ecosystems is focused on innovation. Just take a look at Amex which has a whole business unit run focused on this.

All the traditional players are very worried. Just listen to their nervous chatter about PayPal’s entry into offline payments. And they should be nervous because a lot of the innovation is commoditizing the networks and issuers.

There are several reasons why we’re going through this “inflection point” of creative destruction.

The spread of mobile devices: 100 million smart phones in the US as of January 2012. My guess from looking at the data on the demographics of people with smart phones is that they account for a majority of spending. They are high spending people under the age of 45.

The development of sophisticated software platforms on mobile devices and in the cloud that empower entrepreneurs around to engage in payments innovation. Think iPhone, PayPal X, and IPCommerce.

The rise of data analytics. Many of these new schemes like Square and LevelUp are using data in creative ways to provide value to merchants and consumers.

Innovation doesn’t always lead to good products.

Just because something is an innovation, or called one, doesn’t mean that it can or should succeed in the marketplace. Entrepreneurs talk about their innovations like parents talk about their kids.

There are some serious obstacles to market adoption.

The most important one is that payments currently work really, really, well. You swipe your card or click online and it all happens in a second. Merchants get paid. Everyone knows how to do it. A lot of the mobile phone solution that have been devised fail because they are just too complicated.

The next most important one is the chicken and egg problem. Many of these innovations can succeed only if they get merchant and consumers to agree. That’s usually a hard business problem. But its especially hard if the innovation doesn’t make merchants and consumers better off.

Third, there are massive amounts of sunk costs tied up in payments. From the rails, to the processing software platforms, to the physical point of sale equipment, to all the learning that clerks and consumers have done. That leads to massive inertia. It is true that a lot of the payments system is a rickety Rube Goldberg contraption tied together with rubber bands, paper clips, and shoelaces. A lot of it could be replaced with better stuff. But it all works, so why spend good money changing it?

Entrepreneurs encounter many market obstacles. But a market obstacle isn’t the same thing as a market failure (the name of the problem that economists agree we might think about fixing). Many seemingly great ideas won’t get traction because at the end of the day they don’t generate enough incremental benefits relative to the incremental costs. That’s been the problem with the adoption of NFC. Waving cards at the point of sale sounded great to a lot of senior execs and payments pundits. Visa and MasterCard led banks to issue millions of cards and kept telling merchants they better take them because it was inevitable. Unfortunately, contactless didn’t save consumers much if any time and forced them to change their behavior. It also required merchants to invest in changes in their physical point of sale without any evidence that it would save consumers money.

Of course, it wasn’t inevitable after all. Most of the successful mobile payment apps are using QR Codes. NFC may take hold eventually because the market is ready for it, not because central planners wish it to be so.

Just because things that sound cool don’t take off policymakers, and academics, should avoid the knee-jerk reaction to claim there’s a market failure. It is probably consumers and merchants speaking loudly that it isn’t so cool after all.

Government: Please, Go Stay Away

When it comes to guiding payment innovation what should the government be doing? The short answer is stay out of the way especially while the market is trying to figure things out.

First, there’s no evidence there are market failures in the adoption of payments innovation. A market failure would be a situation in which an innovation that increases net social value doesn’t get adopted in the marketplace. No one has articulated a compelling case for why that is likely to happen.

Second, there’s no reason to believe that the government could identify markets failures with any degree of accuracy. Even people who are deeply knowledge about payments aren’t very good at predicting what consumers and merchants really want. Just look at the mass hysteria over NFC. The very smart and knowledgeable people at MasterCard and Visa weren’t very good at predicting market adoption. Some regulator in Washington, DC is going to do better. Its important to emphasize that anyone who supports government intervention has to show not only that the government can identify problems but they can also solve those problems, not create unintended consequences from solving those problems that actually make things worse, and don’t make things worse by also fixing problems that weren’t.

Third, governments don’t have a particularly good record when it comes to payments innovation. Let’s give credit where credit is due though. A government created the fundamental innovation in payments: the creation of metallic money three millennia ago. But what have they done for us since I say tongue slightly in cheek?

Indeed, as soon as they had gotten people to use government minted coins governments figured out how to use this innovation to tax people. They started depreciating the content in the coin so that the government could buy things with coins that were really worth less. (This is known as seignorage. Some governments did this with such abandon that people didn’t want to use the currency. Smart governments, like believe it or not the Greeks back then, managed to keep the depreciation low enough that no one really noticed.)

Then there has been the whole check debacle in the United States. Anyone who has tried to get into B2B payments knows how we are still living with a massively inefficient system as a result of the Fed’s subsidizing the check system during much of the 20th century. Even with the movement to electronic checks we’re almost certainly losing large swaths of the rain forest and contributing to global warming as a result. (Some people at the Fed will tell you they saved the country from a massively inefficient private sector check system, in the late 19th and early 20th century, where checks circled the country for weeks in order to avoid the bank fees. That’s actually bunk as my paper on the early history of checking showed a few years ago.).

Conclusion

There is a lot of chatter in the government (and at various Federal Reserve Banks) about the payments industry and how various policies could “help things out” or even improve on what the card networks do. The industry isn’t perfect and there are certainly areas where government regulations are needed. Guiding innovation and helping supposed entrepreneurs overcome market obstacles isn’t one of them.

So much for first-mover advantage. PayPal Here was unveiled today as not the first, not the second, and by many counts not even the third or even fourth small business solution designed to turn phones into POS terminals. And, based on what I’ve seen and heard so far, it was smart for them to wait. PayPal Here is a mash up of all of the “good” features of existing dongle-based solutions, and turbocharged with PayPal’s unique set of assets.

I spoke with Ed Eger, PayPal’s General Manager for North America, who gave me (and probably a dozen other of his closest friends) the scoop on PayPal Here. You can read and see all of the specifics here. Here’s my take on what he said.

It’s not about the dongle. In fact, Ed started the conversation that way. He was emphatic that PayPal Here is not really so much about a triangle-shaped dongle but rather an all in one solution for small businesses to better serve its customers. It is targeted to small merchants, casual sellers, services businesses and mobile field service personnel who either want to replace existing POS options with a single solution that gives them more options and/or wants to be able to accept and process electronic payments. And, the merchant gets instant access to those funds. That’s big for the small business. Really, really big and a huge differentiator. Bottom line, for small businesses, PayPal Here is about never losing a sale because a customer does not have a convenient (for them) way to pay.

It’s not about the swipe. PayPal Here enables merchants to accept just about every payment method under the sun: card, check, cash, and yes, even PayPal accounts. Ed didn’t say this, but I have a sneaky suspicion that PayPal will at some point offer inducements for consumers to pay that way (see point number 5). PayPal Here’s Local feature, in fact, seems to, nicely facilitate that. Phones registered with the app use geo-fencing (sound familiar?) to serve offers and enable consumers to check in and buy with that merchant – tagged to an account on file. So, think of it as Phones with Benefits (sorry, couldn’t resist). Any wagers on how many of those accounts will end up being PayPal accounts not tied to a card?

It’s about maximizing core assets. I was recently introduced to a “head to tail” restaurant dining trend for something else I am working on. This is a trend that is, yuk, about using every last bit of the, ahem, animal in preparing the meal. In the case of PayPal Here, it is about using every last bit of PayPal and eBay’s corporate assets to enrich the small business solution. Local (as described above) leverages WHERE, invoicing for mobile field personnel leverages its invoicing assets, the payment options that consumers might be presented when those invoices are presented leverages Bill me Later, the cash-back business debit card leverages the existing eBay merchant debit product, payments leverages the new digital wallet which leverages all of the offer/discovery and payment options via Milo, Red Laser, and naturally, the security and risk capabilities that are the PayPal core competency. And, I am sure that (a) I missed a few and (b) there will be more capabilities as time goes on. We didn’t talk about how Here will be distributed, but I’d bet money that it involves more than simply activating the existing eBay merchant base.

It’s about the business model. When I first saw the pricing scheme, I admit to being a little underwhelmed. Offering a 2.7% rate is only a teensy bit cheaper than the competition – so teensy it is almost not even worth mentioning, never mind rushing to sign on the dotted line. But, PayPal is promoting that when paired with the use of the PayPal Business Debit card product (which is linked to the merchant account and) the 1% cash back offered on purchases made using that card, brings the “effective merchant rate” down to 1.7%. In this environment of rapidly shrinking debit rewards programs, maybe this is an inducement for small business to consolidate other merchant accounts (if they have them) and really use the card. For PayPal, it is even better – they can make some money from deposits. But, it seems to me that PayPal Here just has to be competitive on the fee and not ridiculously competitive to get adoption. It is banking that merchants aren’t making their decision about small business solutions on the basis of fees alone, as long as they are close. PayPal Here is banking on the proposition that using a one-stop platform will make life easier as a small business - and enable those small businesses to make features available to its customers that will, in turn, allow them to serve them better and find more.

It’s about customer acquisition. As I said, Ed made it clear that PayPal Here’s name of the game is payments acceptance, and making sure that small businesses never lose a sale. That means that it was engineered out of the box so that PayPal is but one of the many payment options that people are able to use. Ed didn’t say this and I didn’t ask, but Here HAS to be a strategy to acquire new PayPal accounts. Yep, there are 106 million registered customers, worldwide, with a PayPal account, which is about 105,000,054 more than customers than have Square Card Case accounts. But, that’s about 200M less than the number of people walking around with Visa or Master Card plastic cards in their wallets (and that’s just in the US). Enabling small merchants to accept electronic payments using a blue triangle is nice and all that, but capturing that customer’s information via an opt in to get deals from small businesses (that, for example, are sweeter if you pay with PayPal); or presenting consumers with financing options at the point of sale using PayPal assets that incent them to use that option; or asking consumers to opt-in to Local and cardless payments tied to their PayPal account could be a very effective way grow their base quickly, and in a way that adds value to both merchants and consumers in the process. And that will seal the deal.

Being “fashionably late” to a party is a tried and true way of capturing all of the attention, scanning a filled room to see just where the most interesting conversation is happening, and using the anticipation of the arrival to build both hype and mystique. PayPal Here has certainly made its entrance, fashionably late with its small business electronic payments platform, and is certainly capturing the attention of the many existing players in the space. It will be fun to see how PayPal Here now works the room.

Couldn’t resist the opportunity to weigh in, briefly, on the story that had the Web in an uproar yesterday. Seems as though Verizon may be giving Google the proverbial lump of coal a little early this year by saying ixnay to its Wallet. (Read Verizon’s latest statement.) Now, having the largest mobile operator in the US make that call is pretty big. It would certainly limit Google Wallet’s distribution possibilities a whole lot in the US.

The “talking points” are all about security, but my take is that it isn’t really about that at all. It’s a battle over the Secure Element. It is about security, certainly, but is also about control – control over who has access to their customers and the services they are provided. Google has its Secure Element, in fact, and wants it to become the standard for NFC (which is lacking today) That, naturally, means it won’t use Verizon’s. That also means that Verizon isn’t able to lock in Google Wallet customers in any way, including through any sort of financial arrangement/rev share. (Related: Handicapping PayPal in its Mobile Race with Google and Others)

So, where would that leave Google? Well, as the saying goes, there are other fish in the sea, and they’ll sure need them. Sprint was fine for a test, but isn’t enough for Google to scale. Google’s mobile payments strategy, a wallet on a chip in a phone, by design unfortunately for them, also means that an operator is very much in the mix. It’s a fatal flaw in the whole NFC mobile payments scheme and is why my view of success with mobile payments, consistently, has been about mobile wallets that live in the cloud, far, far away and completely disassociated from mobile operators. That approach means that wallets can follow consumers regardless of which handset or operator a consumer decides they want to use and a service provider wants to enable. The gating factor in this scenario is getting the consumer to say yes, which is still hard. If anyone needed any more evidence as to the merits of such a mobile payments/wallet strategy, then look no further than this news story. It will surely be interesting to see how this all ends up.

Karen Webster is the CEO of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.

The holiday season is upon us. I know, wasn’t it just July? That aside, ‘tis the season of parties, gift buying and giving, holiday songs and TV and movie classics that put the meaning of the holiday season in the proper context. 

And the holiday season wouldn’t be complete without at least one viewing of that modern-day staple, A Charlie Brown Christmas. One particular interchange between Charlie Brown and Lucy sort of sums up the real meaning of the season, and in particular, the impact of technology on holiday shopping.

Lucy: I know how you feel about all this Christmas business, getting depressed and all that. It happens to me every year. I never get what I really want. I always get a lot of stupid toys or a bicycle or clothes or something like that.

Charlie Brown: What is it you want?

Lucy: Real Estate  A smartphone.

Now, we all know, that as astute as Lucy is, had smartphones existed at the time of the original script development, that would have  surely been her answer, particularly given how the real estate market has tanked in the last decade and in light of the estimates of mobile retail trending to something like $12B by the year 2014 (according to Juniper Research) So, I’ll do my best to channel my inner Lucy to provide some insights into 5 key statistics from a recent JiWire study of 2k mobile users that point to why a smartphone would be on her list, and how those devices are changing disrupting the world of retail this year and into the future. For every one of these insights, there are at least 20 more that provide even more clues as to how and why IP-enabled devices are reinventing retail and adding value to the consumer and merchant experience.

1. 55% of users under 30 would rather give up their computers for six months than their smartphones.

The only thing surprising about this statistic is that it isn’t higher. Smartphones ARE computers – full stop – they are just smaller. For many in developing countries, smartphones are the only way that the internet can be accessed and for many, it is a PC replacement.  Apps also make doing stuff on the mobile phone more fun and easier too – there are more than 500k apps in the iPhone apps store alone, in spite of the fact that most people use only a handful of those that they may have downloaded. The table below shows just what people are doing via their smartphones in the US, Europe and Japan.

Visiting retail sites certainly registers, but is not top of the charts, just yet. For mobile and shopping to be the match made in heaven that we know it is and to move it up the charts, there are things on the back end that need to be better integrated into the merchant and consumer point of sale experience, like offer presentment, loyalty and making payment frictionless at the point of sale – whether the point of sale is in lane, in aisle or somewhere else. The former is manual and a hassle for everyone – but seems to be the standard for now, and the latter will evolve over the next few years with the jury still way far out on whether NFC will emerge as the standard for how mobile payments are transacted at the point of sale.

The jury has weighed in though (at least for now) on the apps versus browser debate when it comes to the mobile and shopping. It appears, at least for now, that browser wins hands down with 60% to 80% of shoppers preferring plain old browser for search versus specialized apps (apologies to all of you merchants who have spent oodles on apps). I don’t think that it is all that surprising since searching on the iPhone or Droids or the iPad is really as easy as doing it on the PC and with some exceptions, of course, many apps don’t provide enough value to either download or use consistently. (continued)

Surrendering in face of an onslaught of consumer outrage, Bank of America raised the white flag yesterday and jettisoned its plan to slap consumers with a $5 monthly fee for purchasing with their debit cards. Chase, Wells, Regions, and SunTrust were some of the banks that had already cried uncle not before long.

The $5 debit card fee decision will likely to down as one of the biggest marketing blunders of the decade. Ill-timed and badly thought out, it was painful to watch Bank of America twist in the wind as it was pummeled by consumers, politicians, competitors, the media, and occupiers daily. (Related: Bank of America Will Not Implement Debit Usage Fee)

Appearances count for consumers. The debit card is the way that most consumers pull money out of the checking accounts. That, then quite naturally, led to the claim that banks were charging consumers for getting access to their own money. Silly as that assertion is (sort of like complaining about paying to get furniture out of storage), it resonated. The Bank of America debit card fee structure was also way too cute. Consumers only had to pay the fee if they used their debit card during the month. That’s like telling people they only have to pay their electric bill if they turn on the lights that month. There was a fair bit of evidence presented and publicized by TCF during its lawsuit that consumers would flee from banks.

Of course, the effort of banks to replace the billions of dollars of revenues they’ve lost as a result of the Durbin price caps isn’t over. More than 100 banks are subject to Durbin. They’ve lost 10% or more of the revenue they were earning from offering checking accounts to consumers, largely for free. They don’t really have any choices as businesses but to figure out some way to get some of those revenues back by either raising fees or reducing costs by cutting services.

Politicians can talk until they are blue in the face (why aren’t most of them anyway?) about how banks shouldn’t raise fees because they got TARP funding or because they get gazillions in trading profits. But most of the banks that have been whacked weren’t bailed out and they aren’t particularly flush these days. And in the real world, the person running the checking account or retail banking operation for the bank doesn’t really get to go to the CEO, the Board, or the shareholderstockholders and say, hey, sorry I just more than 10 percent of my revenue – so just suck it up.

The 100+ banks subject to the Durbin price caps account for about 70% or so of checking account deposits. They are all in the same boat, and they are all going to be working at plugging the holes in their balance sheets. It is inevitable fees will go up, and services will be cut, as they already have. But it is likely that this won’t be the “in-your-face” approach that Bank of America used. It will be reducing the conditions for free checking, raising fees here and there, cutting rewards and other programs, closing branches and so forth.

One factor that could constrain these banks is the fact that consumers can switch to exempt community banks and credit unions. Those smaller bank and credit unions (less than $10 billion in assets) can get an interchange fee set by the networks that is higher than the caps. They were opposed to the caps, despite what appears to be a real benefit, because they thought, in the end, the networks would push their interchange fees closer to the big bank rate. But even if the exempt banks do maintain the higher interchange fees, they might end up raising their rates to consumers anyway. They will balance business stealing by undercutting the large banks against increasing fees somewhat to existing customers who aren’t likely to switch to the even higher priced big banks. In the end, I doubt the exemption is going to constrain what large banks do.

One way or another, the Durbin price caps will result in consumers paying billions of dollars more in either higher bank fees or by receiving lower services annually. (Related Lydian Journal Article: The Net Effects of the Proposed Durbin Fee Reductions on Consumers and Small Businesses) Merchants, on the other hand, will save billions of dollars, and we’ll have to see when and how much of those savings that pass on in the form of lower prices.

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David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework®, a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass. David is the Founder of Market Platform Dynamics. Read More

Starting last Saturday, Oct. 1, large banks had the interchange fee income they could get from merchants when their customers used their debit cards slashed 45% as a result of the Durbin Amendment. These large banks will lose roughly $7 billion in revenue annually as a result.

Most people used to get their debit cards for free with their checking accounts. Banks used the revenue they got from the merchants to cover the costs of their debit card programs and to encourage people to open up checking accounts by offering free checking. That’s in part why about three quarters of Americans with checking accounts got them for free as of early 2010.

Large banks have been trying to figure out how to offset these massive revenue losses. Bank of America was the latest to weigh in last week with a plan that has put lots of heat on itself for nickel and diming their consumers and on Senator Durbin for setting this debacle in motion. Unlike many other large banks that are quietly raising checking account fees and slashing rewards, Bank of America decided to charge consumers five bucks a month to use their debit card.

The higher consumer fees aren’t a surprise to any of the economists that studied the Durbin Amendment. I, along with Bob Litan and Dick Schmalensee, predicted that banks would try to recover most of the lost revenue through higher fees and cutting programs in the submission we made to the Federal Reserve Board in February. (Related: The Net Effects of the Proposed Durbin Fee Reductions on Consumers and Small Businesses) The Fed’s economists recognized that higher bank fees were pretty likely when they announced the final rules, but of course, were just doing what Congress told them to do.

This is known in economics as a “waterbed effect.” If you sit on a waterbed, all the water beneath you just goes to the other side. Well, the same is true for products that are getting revenues from two groups of consumers to support the costs of the product. If you lower the revenue that one group is contributing, the revenue the other group has to contribute goes up. With debit cards, when merchants pay a lower price because of a price cap, the banks have to make consumers pay a higher price.

Bob, Dick and I have estimated that over the next couple of years large banks will increase fees to consumers by up to $15 billion. Small banks may end up raising fees as well if they end up getting lower interchange fees, too (they are exempt, but market forces may reduce what they can get) or if they figure they can raise fees too given what their large bank competitors are doing (the large banks put up a pricing umbrella). Our guess is banks won’t get the whole enchilada back, but they will probably get a pretty large portion of that $15 billion through higher consumer fees (or lower services like IBC did last week by closing bank branches). They don’t have much choice. The checking account business is pretty competitive and it isn’t as if there is a big profit cushion that the lost revenues can come out of.

That doesn’t mean that other banks are going to follow in the footsteps of Bank of America and raise debit card fees. In fact, Citibank says they won’t. But consumers have come to expect debit cards as part of the basic set of services they get with a checking account. Just like it is easier for restaurants to raise the price of the meal than charging extra for bread, it is easier - and less irritating to consumers - for banks to raise the cost of the checking account or to trim back on some of the other services. This is in fact is one of the reasons that free checking is going the way of free peanuts on airplanes. Free checking has dropped from 75% to 45% of accounts in a bit more than a year. And in any event, after the public relations disaster that Bank of America has brought on itself, it is hard to imagine many other banks heading over this particular cliff.

Taxpayers have a lot of valid gripes against some of the large banks. Raising checking account fees and even charging for debit cards shouldn’t be one of them. That is the direct result of Congress passing the Durbin Amendment that quite predictably moved billions of dollars of money from the pockets of consumers, who are footing the bill for the banks’ loss of revenue, to large retailers who are likely to keep billions for themselves even if they pass a bit back to consumers in lower prices. Banks aren’t yet public services that consumers have a God-given right to use without paying for them. Banks are publicly traded companies with shareholders who can’t simply turn around and tell them, sorry, I just lost 45% of my revenue, and you’ll just have to be OK with that.

Some people have said the banks raising rates is the law of unintended consequences - that’s the law that says seemingly sound regulations often have bad results that weren’t anticipated. Sadly, they are wrong here: the consequences were intended. The Federal Reserve Board, many economists and others knew that consumers were going to get whacked. Fifty-five Senators voted to delay the Durbin Amendment to consider these impacts more carefully in part because they were worried about consumers paying through the nose. They were five short of what was needed to prevent a filibuster lead by Senator Durbin.

So when you pay your bank more for your checking account or for using your debit card, growl at the bank for sure, but keep one thing in mind: you’ve been Durbin-ed.

Mobile. Everywhere. Opportunity. Everywhere. This was the theme of the GigaOm Mobilize 2011 conference held one week ago in San Francisco. Over two days during 50 sessions, participants debated the impact of the mash-up of cloud computing and the mobile Web for driving new opportunities for everyone in mobile - certainly a familiar theme for sure on PYMNTS.com over the past couple of years. Many of the topics focused on what was possible given the technology advances at the intersection of mobile and the cloud. Three panels, however, tackled the topic of mobile payments/mobile commerce head-on and attempted to drill into whether there was any “there, there,” and as a result, really mixed things up for the audience. What follows is a brief overview of the highlights of those panel discussions.

First up was an interview of Keith Rabois, COO of Square by legendary journalist, Silicon Valley mover-and-shaker and conference namesake, Om Malik. (More: quare COO: NFC Won’t Drive mPayment Adoption) And Keith sure didn’t hold back. Characterizing Rabois as an NFC-naysayer is little like saying that Kim Kardashian isn’t really motivated by being in the celebrity spotlight. After remarking that “I’ve never met a single merchant in the U.S. who says I want this NFC thing,” Rabois went on to say that he’s not that worried about the competition since PayPal, as a brand is “atrophied,” and Square looks inward and not on the competition when thinking about how to develop their product. Well, at least he’s not all overplaying Square’s prospects .

Rabois also offered another couple of interesting tidbits. Square’s focus, he says, is to deliver a “simple solution” that isn’t a hassle to implement. Hinting at a new service that will launch later this month, Square says it is, ahem, squarely focused on leveling the playing field between big and small merchants who, with Square and according to Rabois, will get access not only to payment enablement but data and other tools that help them run their business and manage sales. What he didn’t say outright, but is clearly an important piece of the Square proposition, is their ambition to build a network of consumers and merchants that can influence spend with other Square merchants by offering promotions that help drive consumers to other Square merchants in the area. He suggested that Square may not open its API to others, which suggests that their network ambition, if truly an ambition, might take on the personality of one that is closed. In the meantime, the proposition that consumers patronize other merchants who “accept” Square is in and of itself is really clever positioning, since Square is nothing more than a POS device - it’s not a card or an acceptance mark or anything to do with “acceptance” in the traditional sense. It’s sort of like persuading customers to shop at stores that use VeriFone terminals, which as ridiculous as it sounds, is exactly what Square is doing in the short term, with its longer run ambition perhaps one in which “accepting Square” takes on a very different meaning.

Next up was the panel that I moderated on mobile payments. (Watch video of panel debate) We had a great conversation, and I was lucky enough to have an all-star cast participating: Laura Chambers (PayPal), Brad Greene (Visa), Ken Miller (Intuit) and Dave Talach (VeriFone). We covered a lot of ground in our 40 minutes together and had a great conversation.

Not surprisingly, the panel was split on NFC – PayPal giving it a big thumbs down (citing the 3-5 years that it will take to get any traction as too long for anyone to wait, least of all, PayPal whose mobile vision includes everything but NFC), Visa and VeriFone giving it the thumbs up but conceding that it will take time to ignite and Intuit suggesting that they are looking at NFC but have been in market for three years with a solution that leverages plastic cards and mobile phones (goPayment). VeriFone’s Dave Talach fought really hard for NFC, suggesting that consumers will love it since it is easy, and hinting that lots of things are going on behind the scenes to drive merchant adoption. I remain a skeptic, or in Dave’s terms, “allergic” to NFC.

On the topic of chickens and eggs and merchant acceptance around mobile generally, PayPal cited that they are getting no push back at all from their visions of mobile payments, citing that conversations with 60% of the top 200 merchants are going well, Visa suggesting that getting merchants on board is the toughest part of ignition and VeriFone commenting that NFC is the only plausible option for merchants, since it is the only technology that supports the kind of robust functionality that will drive mobile payments adoption for consumers. I tried to push hard on the button that if merchants love it so much, why don’t more of them have NFC terminals, with PayPal’s Chambers chiming in saying how less than 1% of all merchants are NFC enabled, but Visa and VeriFone remained steadfast in their belief that (with Visa’s incentive scheme) and other inducements, we will see rapid adoption of NFC terminals. We’ll see - and have it on tape J.

Moving away from NFC, when I asked Intuit asked about the competition from Square, and its intention to create a small business and consumer network, Miller remarked that since they already have a network of many millions of small businesses and consumers who interact with them via a variety of products and have been in the market for three years with a mobile payments solution that works for everyone they weren’t all that concerned. Intuit’s recent deal with Verizon Wireless also gives it a chance to scale via a national distribution scheme that doesn’t rely on putting dongles in the mail.

I asked each panelist for a one word comment on ISIS and Google Wallet – the responses were, in a word, varied. When asked about ISIS, responses ranged from “complicated” and “interesting” and “confusing” and Google Wallet came in at “Plan B,” “powerful” and “limiting.”

In spite of the differences of opinion on a variety of approaches and outcomes around mobile payments, one thing everyone agreed on was that 2012 was not the year that mobile payments would ignite. All agreed that it was going to take time, that payments alone was not enough of an incentive to drive adoption for anyone - merchants or consumers. There was general agreement that, at the moment, there is no killer app that will drive mobile payments adoption (NFC or otherwise), with Intuit remarking that cash and check (for them) represent well entrenched competition given the ease of use and familiarity. PayPal echoed that same theme, saying that payments in the United States, at least, works so well today, that there has to be more for anyone to care enough to switch to something new. As I’ve written, we’ve seen what a killer app can do to ignite mobile payments adoption (e.g. Starbucks, goPayment and Square) but in each instance, those solutions leveraged stuff that both consumers and merchants have in hand already (no pun intended) understand how to use and were motivated by solving a problem that had little to do with payments transactions in the first instance.

In spite of that, there was general agreement, enthusiasm and excitement that 2012 will be the year that we all emerge from our PowerPoint visions of mobile payments and really start to see pilots and trials begin to shape the reality of mobile payments in real time and with our own eyes (and, of course, phones).

The last mobile commerce panel debated the merits of the SoLoMo (social, local, mobile) phenomenon. This term, first coined by Silicon Valley VC John Doerr, is the idea of making data available to consumers and businesses who can, in turn, use it to improve the process and outcomes around the shopping and buying value chain for both merchants and consumers. This panel, which included Wal-Mart, Best Buy, PayPal and ThinkNear, discussed how a combination of smartphones, mobile apps, GPS and social media are not only empowering consumers with information but changing the way they shop and buy. There was interesting discussion around the “Digital Signals” that consumers emit as they tweet about their experience, “check-in,” search for nearby businesses and how that is closing the gap that used to exist between businesses that want to reach relevant consumers and consumers that want to be served relevant offers.

Panel moderator Phil Hendrix posited a view that by mining the SoLoMo Digital Signals, companies can reduce the friction associated with using traditional media and advertising channels today to reach customers. The panel discussed how using a SoLoMo combo approach helps them recognize customers as they enter the store and provide them with a personalized guide based on the customer’s interests and even previous purchases; enable shoppers to share feedback with one another (which many online retailers already do); reward consumers in real-time with incentives and reinforcement; and in many other ways.

GigaOm’s Mobilize was an incredibly interesting conference and a lot of rich insights were shared by all of the panelists. You can see the live streaming of the various panels and interviews described above here. Panels were each 40 minutes and worth the listen. As always, your comments and feedback are welcome!