M-Pay lift-off?

By: Sheila Moorcroft

We may be approaching lift-off for mobile payment systems. At present non-western markets still dominate the market, but a flurry of activity, collaborations and trials by major technology and finance companies may herald lift-off in western markets.

What is changing?

In 2010, consumers used an estimated 320 million mobile payment transactions; 81% were in non-western markets by volume, 69% by value.  By 2014, one forecast estimates the value of global m-payment transactions at $1.3 trillion.

A variety of trials and networks are underway in western markets. Perhaps the most significant is Google’s, (because the world tends to listen to Google) who are working with Citigroup, MasterCard, Sprint, First Data, and 15 retailers including McDonald’s and Macy’s. 1000 employees in San Francisco and New York are taking part, before wider roll out later in the year. The USA already has 230,000 readers, and 10,000s more are planned by Christmas 2011. In France, Orange and its partners are being supported by the French government to expand the trial in Nice to 8 more cities. In the UK, Vodafone has installed an SMS based system in London black cabs to enable passengers to pay fares by text message instead of cash. Samsung and Visa are planning upwards of 60,000 payment readers in time for the 2012 Olympics in London. Starbucks has operated m-payment in all its US stores since January 2011, and the company says that, so far, 3 million consumers have used the system.

Why is this important?

As with fax machines and bank ATMs before them, M-Payment systems require critical mass, a network sufficiently large to create momentum and easy, convenient access. That momentum is building fast in the west and the nature of the players is raising the game.  Success will also require companies to collaborate on a greater scale and in new ways, so that industry standards can emerge: without them retailers and consumers alike will be left uncertain and unwilling.

And consumers remain sceptical in many places. In France, about 60% of consumers were reluctant to use m-payment systems; likewise in the US 61% were concerned about security; in the UK just over half are wary.  The best technology and the largest networks in the world will be worthless without users. Security is the top concern, followed by control over spending levels and the ease of going overdrawn. These issues will need to be addressed if roll out is to go beyond the dedicated early adopters.

Not surprisingly, it is not only the payment systems per se that are attracting the big players, but the opportunities to provide location based coupons, downloadable offers and deals from stores or packs, mobile advertising etc. Location based retailing and other services are likely to expand fast.

As smartphones continue to outsell more basic phones and consumers become more familiar with doing more and more things from their phones their fears about m-payment may recede.  But providers will have to address their fears directly and effectively both for the handsets and the transactions, if we are to see lift-off in western markets. (See also previous ST Trend Alerts on Mobile payments, Wave pay n go)

By Sheila Moorcroft