The Problem With Mobile Payments

It’s rare that in this day and age, I find myself taken aback by the speed at which technology is evolving. Similarly, I rarely find myself preaching caution to clients searching for the latest solutions in search of a competitive advantage. However, the rate at which mobile payment solutions are being requested by organisations, and the number of options being fast-tracked to market has made me stop and think. Something has changed, but what?

It feels like in this scenario, the answer has arrived before the question has fully formed. With mobile payments still yet to be confirmed as going ‘fully mainstream’ in 2013, and so many products already on the market – how do both brands and consumers select the right options with confidence?

New behavioural patterns

I believe there are five key considerations for the mobile payments industry. The first is that mobile growth is influencing new behavioural patterns in consumers. Currently, in 2012, 51 per cent  of mobile consumers own a smartphone. By 2016, this number is set to grow to 72 per cent, of which 40 per cent will own a tablet – and even this sounds relatively conservative.

Much like eCommerce before it, consumer confidence is quickly gathering pace in the mobile space – and the nature of purchases through the channel confirms this. In 2009, more than half of consumers were using their phones to purchase ringtones, compared to 14 per cent buying physical products. Within three years, 44 per cent are now buying physical products – with the medium also becoming a crucial tool for on-the-go research into immediate purchasing decisions. Such a dramatic influence means brands have to adapt via implementation of new and evolved business models.

Secondly, the digital wallet arguably remains the biggest unanswered question. Whilst confidence in mobile payments is growing, the lack of an industry standard for mobile wallets has led to hesitation in uptake. Currently Visa leads the way, but with a market share of only 15 per cent – demonstrating the fragmented nature of the market.
With the payment process already established, any new digital wallet will need to incorporate a host of added value. This means access to deals, coupons and other payment services. Without this, there is little incentive for adoption.

Thirdly, the merchant value proposition is currently unappealing. In the quest to create a consumer-friendly proposition, the merchant’s role must not be forgotten. While the transition to mobile and a loss of control is inevitable, merchants can choose to create their own solutions to ensure they aren’t removed from the payment process without a say. Starbucks mobile-pay remains the most successful solution so far in the US – and at such an early stage of mobile payments, a closed-loop solution can be a trustworthy and attractive proposition for consumers.

Practical issues
Fourthly, practical issues are still to be addressed. The role of design cannot be overlooked when discussing mobile payments. While NFC technology may pose no problem with low-value transactions, smartphone design (and by extension, mobile website design) remains a barrier to many browser-based transactions, due to a lack of optimisation, as well as small touch screen keypads. Effective design has to be one of the first issues tackled in any mobile payments strategy.

Finally, Apple is lurking. Apple’s stock has dropped slightly since the debacles around iOS6 and, in particular, its attempts to unhinge Google’s Map dominance. However, despite the problems around iOS6, it would be remiss to ignore the tech giant’s movement in the mobile payment space.

In June this year it announced the release of Passbook – a central platform for Apple users to organise various gifts, loyalty incentives, rewards and tickets in app that can also leverage QR and barcodes at merchant locations. While the concept is not new, Apple’s Passbook also allows for integration with closed-loop payment apps, including the wildly successful Starbucks payment app.

However, the omission of NFC from the iPhone 5 further confuses Apple’s intentions and conclusions with regards to such technology. Whilst the brand continues to lead the way in creating stylish and intuitive experiences, the lack of any wallet payment capabilities does leave large question marks. Regardless, it would be remiss to make any move within the space without keeping a close eye on Apple.

In conclusion, it seems clear that early adopter brands need to be aware of the experimentation phase the channel is still in. With no clear leader or standard in the market, any significant investment represents a huge gamble, both for merchants and consumers – or risk buying a MiniDisc player months before the iPod launched.

Chris Minas is managing director of Nimbletank

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