The mobile payments market appears set to explode, with growth projected to exceed 300% over the next four years. This shouldn’t come as much of a surprise. After all, most people keep their phones closer by their side than their wallet. With mobile banking steadily gaining popularity, it’s only a matter of time before our trifolds and billfolds are completely replaced by our smartphones.
What is surprising is that so many leading payments companies—everyone from Visa and MasterCard to Google and Apple—have yet to establish a leading foothold in the burgeoning mobile payments market. This has led to a great deal of innovation and flux, as both startups and established companies seek to create a program that satisfies the billions of smartphone users around the world. So what’s it going to take to dominate this industry?
According to Senior Business Development Executive Brad Hill, many new mobile payments technology and service companies are aggressively trying to capture a slice of this massive pie, but no one has established an unassailable position just yet.
“What’s happening in the mobile payment space today isn’t primarily about technology or creating an optimal user experience or developing a newer or faster way to perform a credit card transaction. Rather, it’s about defining a standard—one able to deliver sustainable benefits to its creator. This is VHS versus Betamax all over again. IE versus Netscape, or Blu-ray versus HD.”
The stakes are massive. More than 5 billion smartphones will be used to order services, provide identification, recommend purchases to friends and followers and process financial transactions by the end of the decade. It’s a modern-day Manifest Destiny, and every phone manufacturer and financial institution is looking to expand into the new territory.
We recently examined some of the amazing innovation occurring in the mobile payments space. Standards and technologies aside, there are two large arenas facing immediate competition. The first are services that primarily support payments via the mobile web and through in-app purchases. Think of it as making an online purchase with your smartphone instead of your personal computer. These competitors include Google Wallet, Facebook’s Autofill service, the new “Pay with Amazon” feature and many more.
Perhaps more interesting, however, are those companies seeking to capture some transactional revenue in the physical world, such as the recent PayPal efforts:
In-app purchases aren’t the only form of mobile payments PayPal is gunning for. Physical stores are equally ripe for smartphone commerce, and PayPal is moving aggressively on this front. Their latest offering lets smartphone users pay at brick-and-mortar stores using a QR code and the retailer’s existing bar code reader. The user opens his PayPal app, finds the corresponding QR code for his desired purchase, and scans it across the reader.
One of the more interesting efforts to support real-world transactions are those that utilize the user’s smartphone cameras. Mobile payments startup Flint, which recently received $6 million in Series B funding, is at the forefront of this technology.
With Flint, there is no dongle to attach to a smartphone or tablet. Merchants just download the Flint app (currently available for iPhone and Android devices), create an account, fire it up and hold the customer’s credit or debit card in front of their smartphone camera. The card data is scanned and Flint verifies the information and processes the transaction. No customer data is stored on the proprietor’s smartphone and all receipts are sent electronically.
Transaction fees are slightly reduced, and no extra equipment is necessary on the merchant’s part. What’s more, customers don’t have to get rid of their credit or debit cards. As with many entrants in the mobile payments space, Flint is targeting those small businesses—like pop-up shops and food stands—that can’t afford the traditional card reader equipment or the historically high merchant transaction fees.
One of the interesting aspects of Flint, and other up-and-coming mobile payment services, is how it integrates social marketing into the mix. For example, when using Flint, a user is e-mailed a receipt that contains a link to the merchant’s Facebook page. The customer can then “Like” the merchant’s page and leave a product recommendation for all of his Facebook friends to see.
Helping customers lighten their pockets or purse by leaving their wallet at home, lowering transaction costs and the unprecedented social media integration could prove to be the sweet spot for mobile payments. Not surprisingly, Flint has some competition. For example, there’s Jumio, which offers a similar service and has already raised more than $35 million from leading venture capital firms, including Facebook co-founder Eduardo Saverin.
Can these efforts succeed? Certainly, but not without a few speed bumps. The combination of numerous competitors, evolving technologies, necessary sanctions and the trust of customers will likely not come easy. Consider that nearly two years ago, an eternity in this rapidly evolving industry, card.io—the original camera payment service—was the talk of the budding mobile payments ecosystem. Despite their head start on Flint and Jumio, card.io is still relatively unknown to most consumers and businesses. Brad Hill explains, “We are in the early stages of the mobile payments market. There are a lot of players, a lot of funding and many potential solutions.”
Companies like ISIS, Google Wallet, PayPal and Apple have the greatest advantage, due to their financial scope and ability to persuade customers and credit card companies. Newer entrants with less financial power, such as Square, Flint and LevelUp, all have some great user-friendly features, but they’re more likely to be scooped up by bigger players than stand their ground forever. Whether the big guys ultimately end up calling the shots, or one of these scrappy upstarts can create a modern-day David and Goliath story, mobile payments will continue to be a fun market to watch.
With trillions of dollars in transactions at stake and more than a billion smartphones already in use, it’s clear that our purchasing habits will soon be changed forever. Mobile payments will foster new businesses, new business models, new behavioral patterns and less opportunities for you to lose your wallet.