Why Make Mobile Payments Easy when you can Make it Hard (and expensive)
The NYTimes had an article yesterday about how investors are pouring (and have poured) tens of millions of dollars into payments on mobile phones since that is the next payments frontier. It talks about turning phones into “virtual credit cards” that enable “click and buy” commerce. Then it proceeds to describe the complexity of getting carriers, merchants and payment companies on board and several start ups that are focused on things like using your mobile phone number as a substitute for a credit card.
The article is right, getting two massively complex ecosystems – payments and mobile - to play nicely together is an undertaking that has resulted in the situation we have today – not much to report, at least here in the US. Sure, there has been talk for the last 5 years about the promise of NFC payments, but that has gone nowhere given the lack of a merchant business case for it. And, given the current economic state, it is likely to continue as wishful thinking for some time to come.
Then there are the P2P solutions, which for the life of me, I can’t figure out. I get the fact that it is technically feasible since it relies on a text-based process which is handset and carrier independent, but the use case, well, I don’t see it. Maybe the every now and again mom who wants to pay the babysitter, or dad wants to send money to junior at camp (whoops, most camps don’t allow cell phones, so scratch that), but that doesn’t strike me as the mobile payments nirvana. Ditto the notion that carriers will become lenders, allowing us to buy stuff and charge it to our phone bill. Any chance of that happening now in this current regulatory environment is slim to none – for a whole bunch of reasons. Of course, no discussion of mobile payments is complete without talking about the 2D bar code, another gee-whiz solution that lacks a merchant business model now.
So, where does that leave us besides lots of investment dollars without a ROI?
Well, there are, in fact, real viable solutions that drive commerce via the mobile right under our noses.
The iPhone and smart phones with better browsers enable commerce via the mobile by making it increasingly easy to shop online with the phone, in much the same way as we do now on the PC. And solutions like that which Intuit recently launched that turn the phone into a POS system – opening up commerce via the mobile for many smaller businesses.
A real interesting play to watch is the opportunity to enable commerce without either the carriers or the payment providers having to say yes. Enter text-based commerce. The majority of mobile phones can text, and adding short codes to ads and in store signage and even loyalty card integration is all possible now, with minimal technical integration, minimal upfront investment and minimal time hurdles. I know it isn’t as “sexy” as tapping with the mobile, but it works. And, interestingly, it is one of the only solutions that does not really require either the carrier or the payment company to “get on board.” Merchants can append short codes to their products, and market to consumers – consumers can choose how to pay, and like the iTunes model, whatever card is downloaded on that first purchase is likely to remain the default payment device for future purchases.
In the spirit of transparency, one of our ventures, ShopText, offers this solution today, and where it has been implemented, it has surprised even its own merchant customers. A national retailer was able to hawk $299 trenchcoats and $199 handbags and $40 sunglasses (and 8 other pages of items) by appending short codes to those items and hook their inventory systems to the solution in real time to determine availability. 90% of the customers who bought, bought again. These merchants also get to offer customers membership into their mobile club, append loyalty program offers to them that work at the physical point of sale, and capture important data about the other behaviors of those customers. Is text-based commerce THE solution for the mobile phone? Who knows. But it is an important bridge to the future of mobile and available to a large number of people who don’t have smart phones but use their phones (and text a lot). It may not be perceived as “cutting edge” but you don’t have to invest or lose a fortune to get results.
Perhaps the bigger question for all of the investors out there is how long it will take for mobile commerce to account for an acceptable percentage of retail sales. Today, roughly 10 years after the birth of eCommerce, online shopping is projected to account for roughly 7% of retail sales in 2009. It’s growing, but the majority of sales still happen in stores. Will commerce via mobile accelerate the growth of online sales numbers given the blurry lines between shopping online via a PC and the mobile browser? Or, do we think that the mobile will cannibalize the plastic card and become an acceptance device at physical stores? To date, investors have been betting on the latter, with marginal results.
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Mobile, Payments, New Business Models, Technology, consumers, Economics, Web 2.0, Internet
Much of the analysis is clear and well thought through; although I would argue there is a business case for mobile payments when we look to the world of the unbanked and clearly many Mobile Network Operators see this opportunity and are investing heavily. Look at Kenya, the Philippines as two countries where Mobile payments are succeeding. We must acknowledge that there are more pre-paid cell phone accounts than there are bank accounts and in those markets where banking is not affordable for the lower income segments the MBOs can develop a compelling business case. Then there is the interesting announcement Zoompass by the three dominate MBOs in Canada where they are deploying a P2P solution that clearly given most every phone is managed by one of the three operators.
If we isolate our analysis to the USA then yes Mobile Payments is not an easy sell.
I very much agree with your take on the situation. So far, much ado about nothing. The phone is simply becoming the browser on your hip, albeit most people are too cool to carry them on their hips anymore (me included). With smartphones having real browsers and real internet connectivity, there really isn’t any need for all these add’l layers, at least as it relates to the ecommerce channel. We have plenty of existing payment mechanisms and all the plumbing is already in place to support them. At the POS, all the talk about RFID has not gotten us very far either. Another technology, like chip cards, looking for a home. With customer activated terminals proliferating and no signature needed for sales under $25 with an ordinary (less than $1.00 to produce and mail) regular old mag stripe card, who needs an overhaul of the infrastructure and mass issuance of new fancy cards?
While most points made are valid, I do want to point out that text based payments have limitations for scale. Fraud ownership with scale cannot be solved without involving the existing eco-system of payment players who own transactional revenue part of which is used as insurance for fraud. This statement is true of any other electronic payment solution, mobile or otherwise.
In my opinion, for payments it is important to have a clear value proposition for a critical mass of merchants, consumers, and the existing eco-system. When the value proposition isn’t there for even one of the three, it is rare to see such a payment solution successful beyond niche scale (e.g. SIMPay, Pay-by-Touch, PayWI). This problem is further complicated by bringing in the MNOs when you talk about mobile+payment. Without a clear win-win for mobile+payment industries I find it difficult that we will have scale.
NFC is a prime example — it defines an challenging trade-off between handset investments vs. transaction revenue sharing and/or secure element ownership vs. fraud liability ownership, resulting in a win-lose or a lose-win business model.
Of course we can stay with plastic RFID or magstripe cards. But we all know that there is clear value for mobile payments for consumers and merchants. If we could solve the business model challenges between the mobile and payment industries, then we have a viable scalable solution. We, at Tyfone, believe that a neutral secure element, such as Tyfone u4ia(R) Memory Card, has that ability to do just that, by creating a level playing field and the win-win necessary for mobile+payments.
Hardware is not the solution to real mobile commerce. It is simply too expensive and will take too long to deploy. It may happen, but not for another 5-7 years at best.
Consumer behavior is the key to mobile commerce, not more hardware. Furthermore, the bridge to commerce is promotions…coupons, rebates, sweepstakes and more.
It’s hard to imagine how text based payments have limitations of scale when the capability is available on over 95% of all phones. And, even Nielsen has reported recently that nearly
half of the U.S. Population is now an “active” texter. We’re now sending over 2.5 Billion text messages PER DAY in the U.S. alone , up from 1 Billion/day in early 2007.
Will any piece of hardware EVER be able to make the same claim of scale and adoption as texting? Doubtful.
As I said, consumer behavior is the key to mobile promotions & commerce. From our perspective that means only one thing: If you can text, you can ShopText: Win, sample, save and buy from your phone the moment a brand’s ad engages you. Oh yeah…no pre-registration required. ShopText connects any ad to fulfillment, eliminating a cumbersome search process on a website from a 1×2 inch mobile screen.
Viewing the mobile commerce puzzle through the carrier, handset and hardware lense creates a massive blind spot. The Carrier billing framework has not only technical limitations, but an even larger consumer behavioral limitation driven by the U.S. Carriers’ own billing model: We have all been trained that variation in our cell phone bill is a bad thing when we’ve just signed up for the family plan.
Beyond handset based digital goods (ringtones, wallpaper, games and music) lies the much larger world of physical goods. The core value proposition for mobile promotions and commerce lies with brands, retailers and their customers. We’ve successfully framed this value proposition while driving response and conversion metrics not achieved even in the early days of internet marketing.
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