A look at the future of mobile payments, and the factors impacting mass adoption of the technology.September 23, 2012
Once we start to head out the door, the internal checklist usually begins: Car keys? Check. Phone? Yep. Purse? Backpack? Got it.
Wallet? Well, perhaps not…
The reason you may soon leave your wallet behind is because your smartphone will take its place and become the repository for credit cards, coupons, loyalty cards—and cash. However, before that can happen, a mobile payment standard has to be agreed upon by a range of interests, and then adopted.
Part of the adoption complexity is due to the fact that mobile payments offer a substantial reward, to both customers and companies, depending on which technology becomes the standard.
In the meantime, business alliances are made, competing technical solutions offered and the efficacy of one payment method over another is debated. And of course all of the competing factions—mobile manufacturers, wireless carriers, banks, to name a few—want a piece of the action.
However, one thing is clear, mobile payments will become a reality, at the very least as a consequence of reaching critical mass.
To NFC, Or Not To NFC? That's The Question…
Arguably, we are still in the early stages of mobile payments. The field includes players, such as smartphone manufacturers (Google, Samsung, etc.), mobile carriers (AT&T, Verizon, T-Mobile), electronic payment providers (PayPal, Square & others) and a flurry of application developers.
The arena has been divided into competing visions of what the mobile payments space will look like. Much centers on the use, or absence, of the Near Field Communications (NFC) chip. Acting effectively as a short-range wireless system, NFC consists of an embedded chip within the smartphone. Users simply tap their phone on a corresponding merchant device to make a purchase.
Google represents the largest player in this market and has introduced Google Wallet. It offers a secure, wireless connection to transmit payment details via MasterCard's PayPass™ system. Offered only with the Google Android phone, the solution has prompted some controversy due to its use limitations—there's just not that many retailers equipped to accept Google Wallet.
However, the company continues to make retail alliances with the goal of creating an extensive mobile pay system. The complexity of competing approaches is underscored by Isis. Created by a coalition of point of sale providers, credit card companies, including Visa and MasterCard, and smartphone manufacturers (Motorola, Samsung, Sony), the Isis Mobile Wallet also incorporates the NFC chip to make purchases.
Recently, a few large retailers have begun to see the writing on the wall and have decided to collaborate as well. Merchant Consumer Exchange (MCX) represents a mobile pay method that includes retail giants, such as Wal-Mart, Target, Best Buy and CVS.
This venture represents retailers who are straddling the divide between specialized technology adoption and competing alternatives by offering an application that's pre-packaged with the smartphone regardless of the maker. The advantage of an application approach is obvious: iPhone? Android? Windows Phone? The MCX application will function on all these devices.
In addition, PayPal, a subsidiary of online auction and e-commerce site, eBay, released its consumer mobile payment system at two thousand Home Depot stores as well as at a number of apparel retailers. PayPal's ubiquity in many kinds of online transactions means that it can sidestep the NFC arena altogether and rely on mass appeal for the success of its mobile pay application.
Perhaps the best representative of mobile payment applications that can be easily downloaded to any smartphone is Pay With Square developed by the online payment company, Square. Essentially, it lets the smartphone owner conduct personal transactions at a store, café or restaurant without ever actually taking the device out of the user's pocket or purse.
Where Apple Goes, So Goes The Mobile Pay Industry?
The direction of Apple, or lack thereof, has loomed large during this period preceding the latest iteration of the iPhone 5. Much ink has been spilled, and rampant speculation has underscored the company's influence on all things mobile.
The iPhone 5's recent launch has shown that the company has still not committed itself to a specific mobile payment solution. In fact, a previous inclusion of the iPhone-specific application, Passbook which groups coupons, loyalty cards and other retail-related items for scanning at point of sale, may simply represent an elegant example of the company's holding pattern.
If the seamless shopping experience at Apple retail locations is any indication, the company is content to wait until a near-flawless solution prevails. The long, thin profile of the new iPhone 5 demonstrates that the NFC chip, which would require more real estate, is still not ready for prime-time.
At present, the iPhone 5's longer battery life and lighter weight take precedence over the inclusion of NFC. Moreover, it seems that Apple executives have a keen understanding of the numbers as well: It's only a matter of time until a decisive approach to mobile payments prevails.
In the meantime, smartphone users will continue to have a range of options. And that's not a bad thing.
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