Mobile Money Goes Mainstream

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“Open your wallet,” Blackberry’s Frank Maduri says and recalls how, not long ago, people carried around physical photos of their spouse and their children. Those family photos, he says, were the first of your wallet’s contents to jump onto smartphones.The rest of your wallet — the cash, receipts, and various credit, debit and loyalty cards — will all make the leap onto your smartphone too and soon, he says.“It’s replaced every single thing; money is the last, and the toughest, frontier,” says Maduri, senior director in charge of NFC products, mobile payments and mobile wallets at Blackberry, formerly Research in Motion. “But it’s definitely going to happen.”

In coffee shops, fast food restaurants and mall clothing stores, the point-of-sale technology is already transforming. And after years of discussion dominated by banks and network operators, Maduri says, the focus is now shifting to execution and the other half of the stakeholder equation: retailers and consumers.

The spread of smartphones, convenient experiences, better security and integrated solutions is driving m-commerce growth.

“Mobile is quickly becoming the new normal,” eBay CEO John Donahoe told analysts in January. He speaks from experience — eBay’s subsidiary PayPal has been one of the biggest early beneficiaries. It saw mobile payments surge to $14 billion last year — a 250% increase over 2011. PayPal projects its mobile payments will rise to $20 billion in 2013, which it says will be “the year that we will truly see disruption in the shopping and payments space.”

Globally, mobile payments are expected to rise to more than $1 trillion by 2017, according to separate estimates by market analysts IDC and Juniper Research. That trillion-dollar figure, IDC says, is just the tip of the iceberg — 2.5% — of the total possible transactions that could be settled through mobile payments in 2017.

The volume of transactions depends on whether financial institutions, operators and retailers can agree on common standards. If the stakeholders insist on going separate ways, they will fall short of the forecast, IDC says. But, it adds, if the market consolidates into a few dominant platforms for each country, it could be much higher than $1 trillion.

Advancing mobile payment capabilities is a priority for Blackberry, Maduri says. NFC mobile payment technology is standard on its 7 series and latest 10 series BlackBerry smartphones; the company is building NFC infrastructure for Canadian network operators and has developed its own Visa-certified Secure Element Manager (SEM) wireless payment system for devices that support NFC.

Blackberry hopes its system can compete with others like Google Wallet, which has been rolling out with the help of MasterCard Paypass and Isis, a mobile wallet initiative led by AT&T, T-Mobile and Verizon that has begun trials in Austin, Texas and Salt Lake City, Utah.

The fragmented world of mobile payments is moving quickly. Maduri recalls a recent visit to a store where at the till, the retailer accepted Paypass, PayPal, and NFC-based contactless card payment, along with other types of mobile wallets. He believes e-commerce is pushing bricks-and-mortar stores to invest in order to remove any friction at the point of sale. Some retailers are using mobile payments to replace cash registers and check-out lines altogether.

“They’re terrified of things like show-rooming, where people are going into their store to try things on and see what they really look like and then going home and buying them on Amazon,” Maduri says. “They can’t sit still.”

Retailers have to change for many reasons, he adds. “I think we’re at a point now where we’re seeing critical mass for them adopting mobile. It is happening.”

Starbucks is one of the pioneers in encouraging customers to abandon cash or card transactions and use their phones instead. Its payment app combines loyalty cards, vouchers and payments into one step, making the customer’s experience smoother while generating valuable data for the company.

“More than 7 million customers now use one of our mobile payment apps — translating into 2.1 million mobile payment transactions each week — with hundreds of thousands of additional Starbucks mobile app downloads each week,” Starbucks spokeswoman Linda Mills says.

The Starbucks app is based on Square, a credit-card reader and mobile app developed by Twitter co-founder Jack Dorsey. The start-up, which was created for people who are cut out of traditional payments services, is now processing $10 billion worth of transactions a year. This experience led Starbucks to invest $25 million in Square in the start-up’s latest round of fund-raising, and the chain recently began selling the credit-card reading units in its 7,000 U.S. stores for $10 each.

Successful mobile money services have to fine-tune the technology to match customer behavior and expectations, Maduri says. He points to PayPal’s $14 billion in mobile transactions last year.

“Why?” he asks. “A single click. What we have to do and where we’re going next is how do you eliminate clicks and friction for the consumer.”

Operators Embrace NFC

The killer app for mobile banking might be something as simple as enabling customers to check their balances at any time, anywhere, says Andrew Griffin, director ofr market Intelligence at Monitise, the British company that provides the technology behind mobile money services for banks and other organizations across the globe. It handles hundreds of millions of transactions annually for millions for customers. Griffin says on average some of Monitise’s banking clients are seeing customers log in to check their balances 20 times per month or more — up to five times the usage for Internet banking.

“What we see in the press about mobile money is maybe missing the point about this fantastic increase in frequency of contact with your bank that mobile brings,” Griffin says. “They’re definitely a first screen for people who use them and it’s that basis for wanting to add more functionality to the app.”

In developed markets the services that are growing fastest are bill payments, m-commerce, and bank transfers.

“Every innovation has to be ten times greater than what it’s replacing so simply waving a mobile phone at a point-of-sale terminal to make a payment is not better than pulling a card out of your wallet,” Griffin says.

PayPal President David Marcus might be NFC’s most vocal critic. In January he predicted that NFC will fail to gain mass adoption this year.

Major operators like Vodafone are putting NFC at the center of their m-commerce strategies. Vodafone is building its own mobile wallet that will use NFC technology to send encrypted data over short distances to carry out secure transactions. It plans to work with banks, retailers, transport and utility companies, event organizers, software developers and advertisers to host a range of services, including loyalty plans and gift voucher credits. The SIM card-anchored service aims to replace the plastic cards populating customers’ wallets and purses.

“Vodafone’s approach is very much one of collaboration for NFC,” Vodafone spokesman Simon Gordon said. “We’ve teamed up with Visa to help develop our own stored value account and are engaging with banks to offer them space for their own virtual cards in our mobile wallet, which we plan to roll-out during the year.”

Amid the debate over NFC’s prospects, $4 billion in mobile payments were made using the technology last year and that number is expected to rise to $191 billion in 2017, according to market analysts ABI Research. The research firm predicts it will take at least two years for the market to agree on standards but transportation and ticketing will be the first market to benefit.

Nine of the top ten mobile phone manufacturers have already released NFC-enabled handsets to the market with 102 million shipping last year, ABI Research says, adding it expects that number to more than double this year. (The major holdout is Apple, which said it did not include NFC on its latest iPhone because it felt its existing barcode scanning features were sufficient.)

Monitise’s position is to wait and see whether NFC payments go mainstream on a country-by-country basis, and then help banks add NFC to their banking apps, Griffin says. Ultimately, stakeholders will have to work together based on consumer behavior.

“The history of payments has been all about interworking networks, which are all about getting massive scale, but [with each party] taking only a tiny slice of that as an interchange fee, and that’s really what Monitise is built on,” Griffin says, paraphrasing a line often spoken by the company’s CEO Alastair Lukies.

“The point is 10% of a big number is better than 100% of nothing.”

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