Mobile payments: Fantasy vs. Reality

By Ralf Gladis

Consumers are certainly using their mobiles to connect to the Internet. According to Forrester, 100 million phone users in Europe connect to the Internet at least once a month. However, is this mostly for email, news and social networking or is there a real appetite for mobile payments?

Whilst the idea of purchasing whilst on the move or simply waving a smart phone at an item to buy it sounds attractive, whispers heard at Mobile World Congress earlier this year suggest that momentum around mobile payments had not in fact increased, but rather slowed. So, what should retailers be doing now to prepare for the future – if anything at all?

To answer this question, we need to look more closely at what developments there are in payment technology, at consumer attitudes to mobile payments and at external factors such as the global economic climate and legislators.

Payment technology

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 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 $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 and to back the service up.

Consumer attitudes to mobile payments

Whilst consumers are currently using their mobile devices more for researching products than for purchasing them, certain types of businesses are already really successful in selling via the mobile channel, for instance, those selling apps, media and ticketing. However, I suspect the main reason for this might be that app stores and media services are 100 percent optimised 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 smart phones, growth in mobile commerce and mobile payments should increase.

Another key factor is that mobile payment security continues to remain a high concern for consumers. Many Europeans and Americans remain quite skeptical of smartphone-generated payment solutions and in the near-term are not likely to give up traditional forms of payment. That study also says 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.

External factors

A Consumer Financial Protection bureau official in the U.S. told lawmakers recently that the U.S. 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 sparse but opportunities for growth much needed?

Retailers who have not yet started can be at least preparing now to provide mobile solutions for their customers, so as not to be left behind. There are different tacks retailers could 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 developing 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 just like PayPal does for physical goods.

Will innovation win the day, and when? Moving forward, the mobile wallets of Google and PayPal promise a breakthrough for retail. Using the phone to pay with Near Field Communication (NFC) at a Point of Sale (PoS) in the bricks and mortar store around the corner will certainly train consumers to use their mobile devices for mobile commerce with mobile payments, too.

About the author

Ralf Gladis is CEO at Computop.

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