A Bubble in Mobile Payments?

I’m sure you’ve seen it – there’s been so much “buzz” in the press over the last few weeks about mobile payments.

Yet, in our partners’ meeting at Glenbrook earlier this week, I told my colleagues that if I knew of a way to short “mobile payments”, I’d be all over it. Follow along as I explain my thinking…and, you can decide whether you agree or disagree with me. Again, my focus in this conversation is on the U.S. market opportunity. I’m not addressing other aspects of “mobile payments” – such as bill to carrier, etc.

I’m a skeptic about the opportunity for mobile payments in the U.S. at physical point-of-sale locations – at least for the next 24-36 months.


Getting to a “tipping point” in terms of face-to-face mobile payments acceptance is a hard problem. If you can’t “tip” the consumer experience, it will fail. You need to be able to pay consistently at the locations you visit most. You know where they are in your own experience.

Why is it such a hard problem?

We have tens of millions of point-of-sale (POS) readers in this country – all of which support reading traditional magnetic stripe cards. Those cards work very well, millions of times every day. Relatively few (perhaps a few hundred thousand) POS devices support contactless, sticker or, eventually, mobile handset-enabled NFC-based payments. If an upgrade to existing contactless readers is going to be required to enable them to accept NFC-based payments, the hurdle gets even higher.

But don’t mobile payments solve a consumer pain point?

You think you’ll leave your house without your wallet – and your payment cards. Seriously? Sure, I never leave home without my mobile phone – but I also never leave home without my wallet – which has my favorite and highly reward-oriented cards – that work everywhere. That wallet also has my driver’s license! Do I really “need” mobile payments?

What about delighting the consumer? Can’t mobile payments do that?

Maybe. Depends. For me to be delighted, I need to have high confidence I can pay this way “everywhere I want to be”. What’s required for that to be convenient? Maybe I can be delighted through mobile-enabled loyalty and rewards programs? Maybe…

What about Isis? Aren’t they going to change the game?

At this point, it’s too soon to tell. Assuming Isis and its mobile carrier partners can get NFC-equipped handsets (carrying card credentials in secure elements) into the market, what’s the POS acceptance side solution and how is it enabled? Will major merchants sign on to accept Isis-based NFC payments? How does the acceptance solution emerge? How does it get to a tipping point?

What about Google and Apple? Based on press reports, aren’t they jumping into NFC-based handsets?

Who knows? I don’t. There’s nothing official about what either might be thinking of doing. In any case, a big open question remains the POS acceptance infrastructure. To support any NFC-based approach to payments, the POS acceptance infrastructure has to undergo a significant upgrade. How does that happen?

OK, so it’s hard. Why is there such a “buzz” about mobile payments at the point of sale?

We all share a sense that paying with our mobile phones is inevitable. The use case just “feels right” – why can’t we just do it? The challenges boil down to the intersection of technology and business issues. Do card issuers want to compensate mobile carriers for securing card data on their handsets? Will consumers? Is there incremental sales volume to be gained from doing so? Tough – but hard-minded, questions.

So, where does all of this lead?

We can all envision a wonderful future where we can just wave our mobile handsets and make payments – or board our next flight using a mobile boarding pass. The hard problem is how do we get there – and what are the economics associated with making such a major transition?

In other countries, without the very well-developed POS infrastructure we have deployed in the US, we’d be solving for a different problem. But, in this country, we’ve got some serious “chicken and egg” issues to get to that nirvana.

OK, should we just sit on our hands?

That’s a difficult question – it depends on who “you” are! A couple of quick thoughts…

As a merchant interested in offering unique loyalty solutions to my customers, I might be considering doing something similar to what Starbucks has done – enabling a mobile app for payment (non-NFC) with the loyalty features that matter to my customers. For that to be successful, my customers likely need to have a high enough frequency in my stores such that their mobile payments behavior is self-reinforcing.

As a major card issuer with a bit of discretionary R&D budget available for mobile payments, I might be experimenting with the non-carrier solutions (e.g., DeviceFidelity/Visa) – to learn more. I might be talking to Isis – to understand their strategy and value proposition for issuers.

But, as an issuer, I’d understand that my ability to influence the migration of the POS acceptance environment is very difficult – so one could argue why bother? Perhaps I’d be influenced by potential improvements to bill payment, mobile banking, mobile device for authentication, payments in the browser and person to person payments. On the other hand, I might conclude that my best strategy is just to watch – and simply be a rapid follower.

As a card network, I’d have to be all over the various options – demonstrating leadership in understanding mobile payments to my card issuing clients and helping guide their strategic thinking. And, I’d be thinking really hard about how could I solve the POS acceptance infrastructure issues as part of my strategy.

Ugh. Sounds complicated!

Yep. It is complicated. If you could wave a magic wand and both ship new handsets and upgrade the POS acceptance infrastructure to support mobile payments, a BIG piece of the problem would be solved. Much easier said than done.

Meanwhile, I’m short! Perhaps I’m just being too realistic – or, for some, just pessimistic?

Do seek out your best counsel. These are the kinds of challenges we enjoy working on – if you’re trying to get your head around mobile payments in the US market, we can help you think through these issues. Send me an email – and we can setup a time to talk and continue this conversation in the context of your specific situation. Or, add your comment below – and share your perspective with the world!