Mobile Payments: A Question of 'What' and 'When'
There has been a lot of hype about mobile payments, especially last year, with executives proclaiming adoption to be a rapidly growing trend. While we know that consumers are using their mobile devices to access information on the Internet, are they actually using them to shop?
The idea of purchasing while on the go or simply waving a smartphone at an item to buy it in-store sounds attractive, but is this actually a reality that both retailers and consumers are ready to embrace?
It seems adoption of mobile payments has not grown as quickly as anticipated, despite all of the excitement around the concept. Should retailers be doing anything now to address what's currently available and prepare for what's potentially to come?
To address this, let's take a look at what developments there have been recently in payment technology, consumer attitudes toward mobile payments, and external factors such as legislators.
At this year's Mobile World Congress, eBay and PayPal both made major announcements of partnerships that would allow them to expand their acceptance of mobile payments. And just this past June, there were several announcements that demonstrated a renewed focus on the mobile payments arena.
For example, global mobile payments startup Kuapay, which offers a wallet app, closed a US$4 million round of funding from a single, private investor. And another mobile payments startup, Square, announced that it was rolling out new functionality in its devices for accepting payments.
As the mobile wallets of Google and PayPal go head to head for first-mover advantage, who is going to win the race? The wallet and NFC are pieces of technology where Google seems to be leading. When it comes to providing complete services, PayPal is first. It's going to be an interesting race.
Regardless of all else, the technology and service partnerships continue to forge ahead. The real benefit of these developments is that when retailers and consumers are ready to embrace mobile payments, the technology should be widely available and robust enough to meet retailers' and consumers' needs.
Mobile payment security continues to remain a high concern for consumers. Many remain quite skeptical of smartphone-generated payment solutions and in the near term are not likely to give up traditional forms of payment. Some reports have indicated that half of all American consumers say potential security and fraud significantly influence their likelihood to use smartphone technology to make purchases in the future.
Certain types of businesses have actually been successful at selling via the mobile channel, though -- for instance, those selling apps, media and ticketing. The reason for this could be that app stores and media services are 100 percent optimized for mobile usage. And although physical goods have not currently been as successful, with the increase in mobile Internet usage and the proliferation of tablets and smartphones, growth in mobile commerce and mobile payments should increase.
A Consumer Financial Protection bureau official told lawmakers recently that the government may need to develop rules to keep pace with rising use of mobile payment systems. Is now the time for retailers to begin investing in mobile payments initiatives, or should they delay to see how everything shakes out? What is the most sensible approach when resources may be limited?
These are questions that many retailers are asking themselves when it comes to mobile payments. With many retailers reporting that mobile turnover only reaches 0.1 percent of their e-commerce volume, it's natural to wonder if mobile commerce -- and supporting mobile payments -- is something a retailer should be focusing on. Could mobile in fact remain more of a marketing platform than an actual sales tool? I suspect it is unlikely; this is an inevitable development -- it is just taking longer than expected.
What to Do When Resources are Tight but Opportunities for Growth Much Needed?
Retailers who have not yet started on mobile payments can at least prepare now to provide mobile solutions for their customers so as not to be left behind. There are different tacks retailers can take, but with sparse resources in mind, a sensible approach could be to reduce the mobile product portfolio to the demand of specific mobile target groups and just extend existing solutions to the mobile channel, rather than develop new mobile-only solutions.
It is easy to provide mobile forms for credit and debit card payments or a mobile PayPal solution. Just extending existing payment options to the mobile channel reduces the efforts to the design of a mobile front-end, but back-end procedures, e.g., for accounting, are identical, which reduces the efforts to an acceptable minimum that reflects the relatively low mobile turnover.
Another key area that can be addressed by retailers now is ensuring that their payments systems have watertight security measures. Trust takes time to build and seconds to destroy. One way to win consumers' confidence could be to offer a buyer and a seller protection system just like PayPal does for physical goods.
What Does the Future Hold?
Moving forward, the mobile wallets of Google and PayPal promise a breakthrough in the retail business because using the phone to pay in the brick-and-mortar store around the corner will certainly train consumers to use their mobile devices to do mobile commerce with mobile payments too.
If retailers prepare now for what's to come, they won't be left behind as their competitors start to maximize the mobile channel to its full potential.