Google and its partners (Sprint, MasterCard, Citi and First Data) officially launched the Google Wallet mobile payments app yesterday.
At the same time, Google licensed Visa’s PayWave contactless payment technology. And both American Express and Discover signed on as Google partners. With these companies now on board, Google is starting to build a strong partner ecosystem. In so doing, Google Wallet competing with other emerging mobile payment systems (such as Visa’s own Digital Wallet as well as the Isis consortium), in getting the strong array of partners in place.
Building a partner ecosystem will certainly help to strengthen the various mobile payment offerings. However, the emerging mobile payments sector will need to overcome a range of key hurdles in the coming years. Two of the most significant hurdles are:
- Merchant acceptance: only a very small percentage of merchant payment terminals can currently process mobile paymment transactions. Mobile payment providers will need to focus initially on spend categories and merchants that are most amenable to mobile payments, and over time expand to other merchant categories.
- Consumer adoption: Cash and cards are established and relatively convenient forms of payment, and will be very difficult to dislodge. Mobile payment providers will need to build awareness of mobile payments as a spending category, and communicate mobile payments’ key advantages over establish payment methods (e.g., speed, convenience, as well as the ability to receive special offers at the point of sale). In addition to marketing the categories, individual mobile payment providers will also have to differentiate their own offering from direct competitors.
With these hurdles in mind, it is notable that American Banker this week quoted a MasterCard executive as referring to Google Wallet as a “five-to-ten year effort, not a one-year effort.”
In recent weeks, we have seen mobile payment launches by Google and Square. These follow the creation of the Isis joint venture by AT&T Mobile, T-Mobile and Verizon Wireless. Many of the leading banks (including Bank of America, Wells Fargo and U.S. Bank) are currently conducting mobile payment trials. And a series of smaller players (e.g., Dwolla, Boku, Propay) have recently introduced mobile payment apps.
Mobile payments have the potential to capture to a significant share of spending in the coming years. However, there are significant challenges to overcome in order to realize this potential. These include:
- Consumer privacy and security
- Technological functionality and interoperability
- Revenue-sharing among stakeholders: There are a diverse range of companies looking to gain a share of the emerging mobile payments market, including: banks; payment networks; payment processors; payment app providers; smartphone manufacturers; communications service providers; and merchants. Each of these companies bring strengths and limitations to the table, and no one company can go it alone. So, an effective and sustainable mobile payments model will need the involvement of multiple partners, each of whom will need to earn a return commensurate with their contribution.
- Changing consumer behavior: Consumer spending patterns change over time, and consumers are moving away from paper-based payment methods and towards cards and electronic payments. However, consumers’ payment usage patterns alter more gradually than many would expect (according to The Nilson Report, by 2015, checks will still account for 12% of consumer payment volume). To encourage consumers to switch to mobile payments, marketers will need to:
- Identify and target consumer segments with greatest interest in using mobile payments
- Develop a value proposition and user experience for mobile payments
- Determine which merchant categories would be most receptive to mobile payments
- Identify which payment methods are most vulnerable to being dislodged by mobile payments, and clearly articulate mobile payments’ advantages to consumers and merchants
- Create incentives to encourage first-time and repeat usage by consumers
- Merchant acceptance: contactless payments have been around for some time, but fewer than 150,000 U.S. merchants can accept such payments, compared to the approx. 6 million merchants that can handle card transactions. Many merchants will balk at the cost of equipping their point-of-sale terminals to accept mobile payments. To overcome this, mobile payment stakeholders will need to:
- Develop technology solutions that reduce the cost of mobile payment acceptance
- Market the benefits of mobile payments to merchants, so that they are more willing to make the investment in mobile payment acceptance