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Mobile payments: The next great debate

I find myself at the forefront of many debates these days. And I’m not talking about politics, but rather how we will pay for products or services in the future.

A year ago, the topic of mobile payments circulated as mild Internet banter in terms of how money is exchanged across sources, rails and platforms. Today, this complex subject makes its way into daily conversations.

When discussing the future of mobile payments, rarely do I observe people who ride the party line. You’re either for it or against it. There’s no such thing as a moderate. And the ever-important question: near field communication (NFC) or the cloud? Is there room for both? And are people actually ready to use something other than plastic to pay for stuff?

I remember downloading the Blaze app to my iPhone in 2008. It was exciting to have a mobile wallet app on my phone that I could share with clients, friends and family. Everyone chuckled at the notion that I had a wallet on my phone. I remember working for a leading mobile banking platform provider (who would later provide mobile banking services to one-third of the top 50 banks in North America and a compelling international pipeline) at the time when it only offered short message service (SMS) and Mobile Web. The provider wasn’t marketing mobile applications because consumer usage was slanted toward SMS and Mobile Web was less intrusive. When I bragged that I had a wallet app on my phone, no one was impressed. My bubble burst. Regrettably, I never used the Blaze app. The concept was clever, but it was premature.

To understand mobile payments, we have to look at the history of mobile banking: even it failed in the beginning. In 2001, I was working for one of the leaders in online banking, which offered mobile banking through a small platform provider. Our client base was presumably highly educated, tech savvy and, based on their deposits, pretty wealthy. The perfect group for mobile banking, or so we thought. We rolled out a Wireless Application Protocol (WAP) solution that was available for the only devices that could support Web browsing from your phone, as long as you had a BlackBerry or Treo. If the past is an indicator of the future, prophets would have been able to predict that both RIM and Palm would later struggle for meaningful market share. It would be six years before mobile banking would resurface as a viable option.

Today, in 2013, technology is finally mature enough along the distribution chain and smartphone saturation is at a peak (and still growing). Alternative payment networks like Square and Dwolla are making significant traction in the market, and both players make it easier for consumers and merchants to exchange currency. Square has gone a step further through its Pay with Square app. Apple recently announced Passbook, and Lemon launched a similar offering. Other options include Paydiant (cloud), ISIS (NFC), Google Wallet (NFC), the CIBC and Rogers relationship (NFC), the Walmart and Target agreement (NFC), as well as daily noise from carriers and card issuers.

We’re more engaged with our mobile devices than ever before. Whether we’re tweeting, Instagramming life’s great moments, updating Facebook statuses, or replying to text messages, our devices have become vital to the way we communicate. So it’s easy to understand why this technology could also serve as our lifeline to our money.

How do I see mobile payments shifting? I've always been a fan of the cloud. Whether developed or hosted, shared or dedicated, the cloud is simple. As I approach payments, I side with the cloud over NFC for several reasons: deployment and distribution, utility, time to market, consumption and adoption, and, in most cases, unlimited by hardware. NFC, on the other hand, requires consumers and merchants to update their device (or attach a sticker to it), which proves to be a detractor. Simple wins every time.

I’ve been on a project in San Francisco and have been able to use Square or Dwolla (my two favorite cloud-based payment providers) as a means of payment on a daily basis (not to oversell, but the apps even direct you to nearby merchants supporting their method of payment). And while every Starbucks in the city accepts mobile app payments, it is proprietary (built by mFoundry), so distribution is narrow. But it works.

Let’s not forget the other great thing about making payments through these applications: e-receipts. Even in my hometown of Birmingham, Alabama (not exactly the hotbed of technology transformation), I’ve been able to use these apps. Another benefit is that these offerings allow small businesses to accept card-based payments without high interchange fees and investments in merchant services and hardware.

Don't get me wrong. I'm not blind to the utility of NFC and the sophistication it offers. But if we waited for every merchant to upgrade their hardware and software, and for every consumer to update their device, it could be years before it’s a relevant, not to mention predominant, method of payment, whereas cloud-based payments could be as easy as software updates for merchants and consumers.

Although Apple was one of the first to offer payments at the device, others are following suit. I recently bought merchandise at Nordstrom, where the checkout process was executed on the spot, with the associate using iPhone and emailing me the receipt. It’s even easier during your next visit to Nordstrom because, like Square, the retailer assigns the e-receipt preference to your card number, so it is automatically sent after the transaction is approved. Through a limited rollout, Macy’s now accepts Google Wallet payments (though store associates consistently tell me they hate it and it never works). ATM giant NCR recently announced a new machine that allows cash withdrawals using a mobile phone and 2D barcode. I can even use my card at vending machines – even if it’s NFC enabled.

It’s evident that the market is maturing, behaviors are changing and technology is at the forefront of both.

The issue we face, regardless of your school of thought, is who, or what, survives? Will there be a single form of payment or is there room to support the cloud and NFC? Who is more powerful: the consumer or the merchant? Does the carrier deserve a seat at the table? All complex questions with no easy answers.

I’ll close with the following list of my favorite mobile applications:

  • Square: Jack Dorsey’s No. 2 is proving to be successful. Will it be bigger than Twitter? #onlytimewilltell. Check out Pay with Square in the app store.
  • Lemon: A fresh look on the mobile wallet. This sleek application has a remote capture function to store cards in the wallet with a Starbucks app-like execution of payments.
  • Dwolla: Developed in Des Moines, Iowa by a college dropout who realized we needed a new way to pay for a cup of coffee. And to prove he’s not trying to be a disruptor, Ben Milne has a few banks in his back pocket that support his platform.
  • Shopkick: Just when you thought rewards were going away, Shopkick shows up like Mr. Miyagi. Back in the day, I would check in on Foursquare and collect badges that mean nothing. Now, I can check in at my favorite merchants and be rewarded for it.
  • Seamless: Ordering food from my phone has never been easier. Takeout or delivery? Both needs can be fulfilled.
  • Roaming Hunger: Food trucks continue to provide posh, modern menu items without impacting your budget. This app allows you to locate the best trucks in your area – and most of the trucks supported through the app allow you to use one of the payment forms above.

What form of mobile payment do you prefer? Join the discussion and leave comment.

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Comments: (2)

Douglas Hartung
Douglas Hartung - Diebold - Houston 22 April, 2013, 17:17Be the first to give this comment the thumbs up 0 likes

I find it interesting that the post starts out with the standard NFC vs. cloud reference, and closes with a list of favorite mobile apps, none of which are leveraging or dependent on NFC.

I would suggest that NFC vs. cloud is a false dichotomy in that one describes a methodology for defining a communication channel between two devices, and the other references where the user's card credentials are stored and accessed. 

NFC as a communication protocol that then accesses credentials in the cloud could eliminate the chokehold that current NFC implementations are trying to establish.  Use of the secure element on the chip for storing card information is more about control than technology.

Consumers buy client experiences that manifest at the application and presentation layer.  They generally don't care about physical and data layer attributes.

A Finextra member
A Finextra member 23 April, 2013, 04:24Be the first to give this comment the thumbs up 0 likes

Douglas, thanks for your comments. I believe the users are going to set the stage for which payments capability succeed. I wrote a follow-up to this article highlighting the need for us to all do a better job providing features and benefits the user finds meaningful.

Personally, the ease at which I have been able to use Square and Dwolla has been unmatched by NFC. The latency within NFC causes me to wonder if we will ever see it reach mass adoption. ISIS has experieinced the issues with getting it off the ground. Beyond that, we have to look at device availability (meaning, how many NFC enabled phones are in the hands of consumers) and acceptance (how many POS terminals can effectively accept NFC payments without issue).

There's a ton of dialogue around this topic. At the end of the day, I'd like to get rid of my wallet and use my phone...the quicker, the better.