For many years, technologists, venture capitalists, journalists, and large companies have pined for the era when the mobile phone would become our wallet.
And yet, already five years into the smartphone era, mobile payments are not mainstream.
Here’s the two overriding strategic issues that need to be addressed:
- Convenience: Any mobile payments solution seeks to replace solutions that are already extremely convenient and involve entrenched consumer behaviour — paying with cash or plastic. Consumers do not view the payments experience as “broken” and there is no obvious “pain point.” Whatever mobile solution attempts to replace cash and credit needs to be at least as convenient to have a hope of breaking into the market.
- Distribution: Payments are a scale business — the business model is to skim a little off the top of every transaction, which only works at scale. More importantly, payments are a network effects business, and must have a critical mass of buyers (consumers) and sellers (merchants), to overcome a fundamental chicken-and-egg problem: buyers won’t use a solution if sellers don’t support it; sellers won’t support it unless buyers use it.
- So, which solution best addresses these issues? Square may have found the right entry strategy by using card readers to piggyback on the existing credit card network. Paying with your name, as with “Pay with Square”, when it works, is even more convenient than cash or credit.
- But there are other promising workarounds: Near-Field Communications (NFC) technology can turn your phone into a wallet, but requires tremendous effort to break the chicken-and-egg barrier. If Apple decides to install this technology in the iPhone 5, they could instantly become a big player in mobile payments. Apps, like Starbucks’, which tie into loyalty programs can offer significant benefits. If they are offered by specific retailers, they solve the chicken-and-egg and distribution problems.
In full, the special report:
- Outlines the two overriding strategic issues in the market.
- analyses the four kind of solutions that currently matter — card readers, apps, carrier billing, and near-field communications — and their prospects for success.
- Show why it’s too early to size the market (but why it will be big).
- Map out the winners and losers.
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