There are certainly a great deal of gloomy predictions regarding mobile-wallet adoption, but Jason Oxman, chief executive of the Electronic Transactions Association, a trade association of the payments industry, sees a bright future just around the corner.
“We’re at the dawn of mobile wallet adoption by consumers, the point of inception,” Oxman said. “Right now, mobile payments are just a fraction of 1% of payments.” But Oxman is optimistic that mobile wallets will achieve ubiquity within the next few years. He bases his view on the following factors relating to the three key players: financial institutions, consumers, and merchants.
Oxman’s comments are particularly relevant today considering FIS’s announcement that it will acquire mFoundry for $120 million.
1. The financial services industry has embraced innovation.
You read that right. Oxman drew a comparison with the recording industry, which has fought disruptive online services tooth and nail and still come up on the losing end, in his view. By contrast, banks and payments companies have embraced mobile banking and mobile payments and are actively working on new products and services, alongside the disrupters. A now-familiar example of this is remote deposit capture, which USAA rolled out in 2009, and JPMorgan Chase in 2010.
Major players in the payments industry are working toward establishing mobile solutions that use the same payment networks as cards. This means that payments companies are disrupting their own business model and are able to form partnerships along the shared infrastructure to fight the common enemy. What or who is the enemy? “Cash is the enemy of the payments system,” Oxman said. The revenue opportunities with cash are certainly limited compared to the fees that can be charged for electronic payments.
2. Customers love their smartphones.
Americans may hate Congress and taxes, but we love our smartphones. We notice that we’ve forgotten our phones much sooner than we notice that we’ve forgotten our wallets, a recent study found. It’s easy enough to swipe a card to buy your coffee, but if your mobile phone can get you deals and discounts and targeted offers at multiple locations, and store receipts rather than stick you with a piece of paper you don’t want, the phone will be more convenient and beneficial than cards.
There are an estimated 321 million mobile phone subscriptions in the country, and 313 million citizens. In 2012 online commerce, which is generally thought of as beginning in 1995, crossed 10% of total commerce, and 10% to 15% of the online commerce is mobile (1% to 1.5% of total commerce, in other words.) Mobile is small but quickly growing. 88% of mobile users in 2012 had engaged in mobile commerce, up from 82% in 2011.
3. Merchants are seeing the upside.
None of the above matters if merchants don’t adopt the needed technologies at the point of sale. The technology has matured to the point where the benefits are tangible to all players, said Oxman. Loyalty programs, location-based offers, coupons, member histories — the possibilities of customer engagement in the mobile retail environment are plentiful. Mobile devices encourage more closeness with the retailer, particularly within branded apps.
Starbucks led the way with 50 million mobile payments last year, 20% of overall card transactions at the company. Member data can be stored on the device or in the cloud to create offers that meet customer preferences and serve customer convenience. Oxman pointed out that cards can be left at home, but no one leaves his phone at home. And speaking of cards, customers were inundated with cards in the dawn of the credit card era, until players such as Visa and MasterCard made having one card more convenient.
From Competition to Convergence
Advances in technology and an openness to innovation have allowed customers and merchants to see the benefits in mobile payments. But what about the competing standards and technologies? This challenge isn’t enough to pop Oxman’s balloon. He sees a near-future where the standards co-exist alongside one another and eventually come together: “We’ll see a convergence that allows consumers have ubiquity of acceptance, as happened with cards in the 1960s.”
There will be consolidation and some winners and some losers, but basically the players we see today will form a hybrid solution that will allow for ease of use by customers and merchants, and revenue for the banks and tech vendors.
It’s Oxman’s job to be sunny. As we’ve reported, others are not so sure. With Google’s recent struggles, we’re inclined to pessimism in the case of the “mobile wallet,” but bullish on the rapid growth of mobile commerce along the Starbucks model’s lines. The FIS deal today supports this perspective.