Sunday, May 17, 2009

US Proximity mobile payments round the corner

The standard refrain around mobile commerce commercial deployments [in the US] is:
  • Far East (Japan, Korea, Hong Kong) has been doing this for years. The rest of the world can use this roadmap
  • Western Europe and US are more competitive/freer markets (as opposed to a handful of dominant players in Japan/Korea), and therefore, have to chart their own course (implying Far East's success is not readily transferable)

Business model (the 800# gorilla in the room) aside, I take a whack at understanding what Japan has done and what the 'western' world can learn from it:

Japan 2008-09 (tipping point?): 25% of POS terminals support contactless (400K out of 2.1 million); 40 million of the 90 million mobile phones have contactless / proximity payment capabilities; 780 Million payment cards, 80 million contactless cards, 10 million mobile electronic wallets enabled for contactless payments. Additionally, keep in mind, transit is an intrinsic part of life in Japan where majority of the urban population uses contactless technology.

US retail market: 8 million POS terminals deployed out of which less than 800K have contactless readers; 900 million payment cards in circulation, 400 million cards active, 80 million contactless cards. Needless to say, no phones, mobile wallets... (for proximity payments).

When will the US reach tipping point: Contactless cards getting into wallets of consumers seems to underway. As part of the card replacement cycle, by 2011-12, US might have 300 million cards deployed. At which time consumer education around contactless cards [in our wallets] will start. By 2012, we might have 3 million contactless readers, deployed primarily at cash replacement verticals and industries/stores with higher fraud rates. Given this picture, MNOs (e.g., AT&T, Sprint) will offer proximity payments in their handsets starting in 2012.

What else needs to change: Payment/Debit networks rules around PIN and contactless have to change to enable, for e.g., PIN debit via contactless [for amounts greater than $25] (Thanks to Scott for pointing out the nuance around Debit & PIN).

As deployment of contactless cards and readers takes place, MNOs will work out business models and place orders for phones. We have more than a couple of years to get there.

Do you agree with the above assessment. If this true, would startups serving this market survive till then? If so, how? What can the industry do between now and then to prepare?

Thanks to Steve, Japan for leading me to some of the stats used here.

Disclaimers: Figures mentioned are ball-park numbers, and are at different points in time. The figures are meant to provide a context to the discussion and to the point being made.

1 - K used above indicate thousands of units

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