Sunday, August 8, 2010

Who cares about US mobile payments

The latest mobile payment announcement (Mercury NewCo) is note worthy.  AT&T and Verizon among them have over 170M subscribers, and would deploy 60M handsets annually (assuming an average of 3-year plans).  Assuming half of the handsets on offer support mobile payments, and a third of those subscribers activate their mobile payment service, we can expect about 10M new mobile payment cardholders each year.

It may not come as a surprise that nearly half a dozen banks offer MasterCard PayPass cards, and 10 issuers offer Visa PayWave cards. These banks have already deployed over 60+M contactless cards over the past 5 years.  There is a 1 in 3 chance that US readers of this blog have a contactless card in their wallet.

You might wonder why I jumped from mobile payments to contactless payments.  Elsewhere in the world, these two payments are synonymous.  I would tap my phone to pay for products/services.  Consequently, I am assuming that this latest announcement is going to be along similar lines.

If none of us have been excited about 15 banks issuing contactless cards for the past many years, why is there a buzz around this latest announcement?  Mobile payments are sexy, while bank cards are boring.  New is good and a way to stay in the news and the minds of the consumer.  The real questions are: When would the consumer care?  Why would the merchant care?

Consumers: Humans are creatures of habit.  In return for changing our habits (paying with a phone instead of a card), we demand ubiquity.  If we change to mobile payments, we would like to pay with our mobile phone wherever we pay with our card or with cash.  To keep things simple, most of us might not mind using our card for the large purchases and having ubiquitous mobile payments for the small purchases / cash displacement (cash usage is estimated at 14% of retail spend / $1T).

To change habits, user awareness and education needs to take place and incentives given.  Given the marketing budgets and reach of the above consortium, they can participate in a high-decibel campaign.

Merchants: The rub is whether a merchant cares about 10M users becoming contactless (out of a base of 300M). There is a silver lining, in the form of a large and influential merchant (not the one from Bentonville).  Even though mass transit is not the volume leader in small payments, mass transit is the killer app in mobile payments elsewhere in the world (Tokyo, Hong Kong, [London]...).  Riding on mass transit, we can expect success in New York, Bay Area, Washington, Los Angeles, Boston...  However, for success in these regions this missing merchant category needs to be added.  If users start using their mobile phones for transit, they will start using for other allied activities.

It is necessary for this mobile payment consortium to be focused and not be all things to all people.  There have been suggestion of support for PIN Debit and EMV.  My suggestion is to stay away from large ticket purchases, big box retailers...  Concentrating on Transit (including parking), QSRs, movie theatres, vending... will get to fill an unmet need.  With just this market, it is feasible for the mobile payments industry to capture over $10B of transaction volume in the short-medium term.  With an addressable market of $1T, they would have enough room for growth as well.

There is an additional joker in the pack.  The handset vendors.  There is enough on this topic to warrant another post.

Do you think that this latest initiative is just another bump on the mobile payment road?

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