Citi has shut down its mobile P2P payments program (source). Let us analyze the rationale behind their decision, and what this means to the rest of us in this and related spaces.
A lot of us in the 'payments innovation' space look down on the conservative bankers who are vary of payment innovations. These bankers are even more vary of startups promising disruptive innovations that will change the landscape. The data from the Citi P2P trials are both eye opening and stark. We in the industry expect each passing year to be the break out year in mobile payments. This year we are pinning our hopes on the iPhone. But not much changes with each passing year, except mortality rates.
The numbers from the Citi trials paint a very sobering picture. Less than 10% of the users used their phones for mobile banking (a pre-cursor to mobile payments), and a dismal 1% used their phone for P2P payments (source).
iPhone users will claim that the low numbers are because of the user experience. If the users were given a intuitive user interface (and a vibrant market place built on iTunes Store), the adoption rate would be higher. I don't doubt that claim. However, would this change the outcome?
A startup would look at Citi's decision and conclude that a market of 3 million early adopters is very viable. However, would such a market size/adoption rate be viable for other players (their partners) in the ecosystem (e.g., merchants)?
PayPal is an obvious success that each of us would like to reference to support our claim. About 50% of online users have a PayPal account and about 50% of the top online retailers accept PayPal (US perspective). PayPal is built on an ubiquitous platform (magstripe credit card platform). In spite of such overwhelming numbers / market adoption, PayPal has under 10% of the online markets (based on Total Payment Volume). The bottom line in payments is not the market share with issuers, merchants or consumers/cardholders. It is the transaction volume, as it is this number that really brings in the revenues.
If you view the market stats released by Citi in this light, you will quickly realize why Citi arrived at the decision that it did, iPhone at best will only be niche offering, why bankers are conservative, why investors discount related business plans significantly.
The biggest banks and payment schemes have been rolling the dice and have been getting snake eyes. I sometimes wonder whether those of us in the payments innovation space are just plain suckers for punishment.
I am sure you disagree with such a pessimistic post. Would love to hear about your success stories and how you are doing things differently.
To conclude on a positive note, there are successes emerging in the payments space. Social Networking, Gaming, Micropayments (around content licensing/consumption) is where you can find some of the green shoots. These niches are worth hundreds of millions of users (target market), with a much smaller percentage being active users. My Apple friends would see themselves in this category :-) (PayPal's iPhone app as an example)