Mobile Payments Are Huge, But There Won't Be One Standard

Square Estimated Daily Payment Volume And Revenues

Today, Gartner is predicting that mobile payment transaction will reach $617 billion globally by 2016, up from $106 billion last year, a compound annual growth rate of 42 per cent. Transactions are forecast to grow 60 per cent to $172 billion this year.Their report highlighted several key trends (via TechCrunch) that will affect the growth of the mobile payments market:

  • Fragmentation. There is no universal standard for mobile payments. Although we may think of Square or PayPal as mobile payments stalwarts, SMS, aka text messages, is the “dominant” mobile payments technology in developing regions. As we have previously argued, success in the mobile payments market will be defined by “backwards compatibility,” taking advantage of existing behaviours and technologies in local markets. Square’s dongle, for example, takes advantage of the fact that most Americans use credit cards to pay at local retailers, but not everyone has an NFC chip in their phone (nor does every coffee shop have an NFC reader).
  • NFC stalled out? For years, the most hyped mobile payments technology has been NFC, which perpetually seems just around the corner. Gartner is predicting that NFC will eventually be used for ticketing, but not mobile payments. This seems sensible. As we have discussed before, it is very difficult to build out an entire network. For NFC to become a reality, it would take a massive collaboration between many parties. In other words, there is no backwards compatibility.
  • Merchants are the biggest beneficiaries. Merchants will see a surge in online and offline mobile payments. Online, the standard will be companies like eBay and Amazon, who have moved aggressively into mobile payments. Offline, Gartner believes the model with be the Starbucks app-as-a-payment-method. However, we believe it will be more efficient for large retailers to partner with existing technologies, similar to PayPal’s recent deals with 15 national retailers.


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