Ever since the launch
of the first iPhone in 2007, there has been a major shift in consumer behavior toward
mobile media consumption, shopping and payments. Mobile commerce is expected to surpass $86B by 2016 in the U.S. alone, according to eMarketer.
Our phones have already replaced our cameras, music players, web
browsers, and navigation systems, so the idea that phones will soon replace our
wallets is highly plausible.
Considering that, I thought it would be interesting to put some of the recent announcements in this space into perspective.
Considering that, I thought it would be interesting to put some of the recent announcements in this space into perspective.
After three
years of testing and development, major U.S. carriers have finally rolled out
Isis, a joint mobile payment initiative in November (available to AT&T,
T-Mobile and Verizon customers). The Isis Mobile Wallet stores credit cards and loyalty programs and makes it possible
for users to complete payments simply by waving their phone in front of the
check out terminal. The wallet takes
advantage of near-field-communication (NFC) technology and is accepted at
thousands of merchant locations nationwide.
However acceptance is far from ubiquitous, as majority of merchants are
yet to upgrade existing point of sale (POS) systems to new contactless
terminals. Whether Isis succeeds or
fails will be largely determined by widespread adoption of contactless
terminals, ease of use and ultimately the carriers’ ability to convince mainstream
users of its value and benefits.
Google, which first piloted an NFC mobile wallet back in 2011, has
recently issued a physical debit card that allows users to withdraw funds from
their Google Wallet account in an attempt to broaden its reach and bridge the
gap with legacy POS systems. Despite being one of the early proponents of NFC
in the U.S., Google Wallet has struggled to gain meaningful traction with consumers,
and its tap-and-pay feature has been hindered by the carriers, who have all but
blocked it from their networks in favor of their own proprietary wallet, Isis
(Sprint is the sole U.S. carrier supporting Google Wallet and is not part of
the Isis consortium).
Meanwhile, a new
startup called Coin announced plans to develop a programmable
card that can store multiple credit cards, debit cards, and loyalty accounts and
has a new kind of magnetic
strip capable of replicating any stored account at the press of a button, allthewhile maintaining physical
dimensions of a traditional card (i.e. compatible with existing magnetic swipe terminals).
Coin appears to have taken a clue from Google Wallet by developing a
proprietary device that is outside of the carriers’ reach and is compatible
with legacy POS systems. However, Coin has
yet to face card issuers, payment networks, and financial regulators as it
attempts to process and store sensitive payment information.
While financial institutions
have for the most part embraced mobile banking, there is a general sense of
unease surrounding POS transactions. This is primarily driven by the
financial sector’s reluctance to share a slice of transaction fees with
contenders and desire to protect current merchant discount rates. That said, the battle is not only over
merchant fees, another contentious issue is the data associated with financial
transactions. This is arguably the real
reason why Internet giants such as Google have a vested interest in mobile payments.
After all, whoever owns transaction data holds the keys to a treasure
trove of consumer behavior information (when and where they shop, what they
purchase) and is in a position to influence future purchasing decisions by serving
more targeted and timely ads, deals, and offers.
Technology has the power to disrupt industries
and to change the power dynamics among the key players. Publishing and music industries are but two
recent examples. As new mobile payment
mechanisms evolve in the form of mobile wallets, smart cards, and (someday
soon) wearable devices, they may well threaten financial institutions’ grip on
merchant fees and transaction data.
While the financial sector is highly regulated and the underlying
payment networks so far remain largely unchanged, the world is changing. Those that adopt short-term defensive
strategies will face long-term risk of being left on the sidelines,
disintermediated and ultimately not in control of the customer interface.
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