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What is the Future of Mobile Payments?

Nobody knows the future of mobile payments.  At a couple of recent conferences, we've noticed that straw polls of delegates revealed they were roughly split between those who thought that phone payments using NFC will take off, and those who thought they really will not.  If even the industry experts are not convinced, there's definitely no certainty as to what is going to happen.

We can be sure of one thing.  The existing payment card players will continue to push NFC.  It's a technology they understand; it's a very small step forward from the EMV "chip and pin" technology that's been around since the seventies and that underpins all their existing systems.  And it provides no serious threat to their existing business models.  So behind NFC on phones we have MasterCard, Visa, American Express, and all the other major card players.

We can be sure of another thing.  These existing players will be under considerable threat from new entrants.  So far all the new initiatives in payment acceptance (Square, iZettle, even PayPal) have been based around the existing card payments infrastructure.  But that's not guaranteed for the future.  PayPal's core business, of providing person-to-person payments for Internet-based transactions, tries to avoid payment cards as far as possible by encouraging users to work through bank accounts or even to use PayPal as their bank.  For PayPal, the card payment cost of 1 – 2% of a transaction is money lost.  So PayPal has enormous interest in circumventing the existing credit card system.  They are exploring approaches like location-based payments, and barcodes for PayPal customers to make point-of-sale payments without going through the credit card network.  They might succeed in making one of them mainstream.  Or another disruptive approach might do that instead.

Lastly, there're the new entrants: the mobile operators and phone manufacturers.  They own a "secure element": the SIM or a component on the phone.  That provides the security so a phone can make payments even when neither phone nor merchant is connected to the Internet.  Businesswise though, there's a problem.  The operators see themselves as part of the payment process, and typically are looking for a tiny percentage of all payments; the card owners see the secure element as replacing existing cards, and so are offering only a fixed fee per user.  It's not clear how this will pan out.  The banks are fighting back effectively: Bank Inter in Spain has recently deployed an NFC phone payments solution that replaces the secure element with an Internet connection - cutting out the involvement of the operator.

So NFC or Internet-based payments; secure elements or cloud connections; currently it's all to play for.  These are exciting times ...!


Comments: (5)

Clive Munn
Clive Munn - MFTSE Affairs S.A. - Luxembourg 05 September, 2013, 08:01Be the first to give this comment the thumbs up 0 likes

Hi All,

I have to say that from the title of this article 'What is the Future of Mobile Payments?' I was hoping to find more / something about market research. In particular I think about those people who choose not to have a mobile phone permanently with them, at the dinner table, even in the toilet!! Seriously there is also a part of the older generation that does not own a mobile phone.

Perhaps part of the answer could be the mobile watch; at least this would not make uncomfortable bulges in the pockets! It would not however get over the fact that some people do not want internet permanently with them. After all have you not been annoyed by that person you invited to dinner and as soon as you posed a question he went delving into his mobile to find the answer or even to make you an immediate payment!! Whatever happened to the human mind and memory?? What about those of us who like the physical exchange of money, the feel of notes etc., etc? I understand this is a sizable chunk of the population and growing (the retired people).

All this is not to undermine the technology but to more carefully think and plan the future so that we are not disappointed / frustrated when all this has gone too far too quickly at enormous expense.

Hope I have not been too boring,

Sincere Regards

Clive Munn

A Finextra member
A Finextra member 05 September, 2013, 10:40Be the first to give this comment the thumbs up 0 likes

Clive, the answer WAS in the article: "Nobody knows what the future holds". There is nothing wrong with payments as they are: young and old, worldwide, can use a card which works just fine... Hence, most of the "solutions" are seeking a problem that doesn't (yet) exist.

Ian, operators have wishful thinking: charging per transaction because they "own" SE is similar to Gemalto claiming % of each transactions because it's their chip in the card...

A Finextra member
A Finextra member 09 September, 2013, 14:17Be the first to give this comment the thumbs up 0 likes

Clive makes a couple of good points.  We didn't quote market research, because it tends not to be very specific about which technologies are going to succeed.  You can certainly find somebody to tell you that 5% of all face-to-face payments in five years will be done using a mobile phone.  But it's very hard to see what they base these calculations on other than exponential extrapolations, a mathematical technique which is notoriously inaccurate.


As to take up, the science of this is well described in Geoffrey Moore’s book "Crossing the Chasm".  For any new technology there will be new adopters, the early majority, the late majority, and the laggards.  I completely agree that many elderly will never start paying with mobile phones; they’ll be the laggards.  Mobile payment technology is still at the early stage of early adopters.  The people it will appeal to a very different demographic: young professionals, gizmo lovers, geeks!  Later on it will appeal to people who "quite like the new thing" (early majority); later still to those who accept it because everyone else does (late majority).  By that time it is covered 90% of the population, and commercially we don't need to worry about the remaining 10%.  That book “Crossing the chasm” makes a vital point: it is very difficult to get from the early adopters to the early majority.  Apple did it in mobile phone apps by emphasising usability and making app access incredibly easy.  I believe at the moment many people in the payments market are hoping Apple will do it again with mobile payments.  I'm not so sure; I think we may find the "chasm crossers" will be people like PayPal, who are familiar with how to make payments easy.


Alexander, I agree that it is inappropriate for Secure Element providers to expect percentage of the transactions.  Bank Inter in Spain fought that battle and seem to have won, by creating a SIM-less mechanism for mobile payments.  Threatened by that, the SIM providers and operators are now much more reasonable, and I see a 'hotel model' becoming the norm: payment per year’s use of the SIM service.

A Finextra member
A Finextra member 09 September, 2013, 14:25Be the first to give this comment the thumbs up 0 likes

By looking for 'a future for mobile payments', we may be missing the opportunity through framing the question badly.

As a chairman of payments conferences used to say, 'nobody wakes up in the morning and wants to buy a payment'. We want to buy goods, settle invoices, achieve an outcome (in which the word ‘payment’ rarely figures.)

'Given the likely slow rate of m-payment adoption, players should separate deals and offers from their payments strategy. To be sure, there is more traction to be gained by targeting the 60 percent of consumers who own a smartphone rather than the (at most) 1 percent of consumers who regularly use their phone to make payments.'

What's missing in remote mobile payments

A Finextra member
A Finextra member 09 September, 2013, 14:31Be the first to give this comment the thumbs up 0 likes

As for the current mobile phone use for making payments, it depends: if Apple did $200 NFC phone and IF (that HUGE "if") NFC terminals had 90% penetration, active usage figures would quickly become sky high...

When Apple introduced iPod+iTunes, they were hoping to sell 1m songs in six months. They sold 1m songs in six... DAYS!