MOBILE PAYMENTS: Desire, Fear, and Other Commercial Conundrums

Mobile commerce is still an emerging market in search of itself, with both the boosters and skeptics commenting in recent weeks. The swirl of news and surveys illustrates the tensions between tradition and innovation that mark the new-technology dance of entrepreneur demand creation and consumer desire fulfillment.

A Big, Fat Cloud
In a study that articulates demand for mobile phone payments, Accenture says that 45% of the most active mobile device users would pay for goods and services using their mobile phone. “Mobile commerce—which encompasses mobile banking, such as checking balances or paying bills over a mobile phone, plus coupons, promotions, redeemable gift cards, loyalty points, and more—is poised to drive huge changes in the way we shop and pay for goods and services,” said Andy Zimmerman, Global Managing Director, Accenture Mobility.

At the same time, 73% of the active mobile device users surveyed “expressed significant privacy and identity theft concerns,” according to Zimmerman. Accenture put a good face on the consumer counterpoint of desire and fear, as Zimmerman continued that “While the survey indicates there are issues to address in terms of privacy and security, these findings are good news for mobile network operators because consumers have requirements they look to operators, technology vendors, or financial institutions to address.”

The commercial conundrum within the counterpoint of desire and fear is nicely articulated by Yankee Group analyst Nick Holland, “Every silver lining comes with a big, fat cloud, and the much-hyped and even more anticipated mobile transactions explosion is much the same.” Although usage of mobile devices for payment, commerce, banking, and couponing transactions is increasing, “when consumers are asked to pay for such services, the answer is still a resounding no.”

Upper and Emerging Market Appeals
It appears that mobile banking and payments markets will develop to serve both sides of such oppositions. Mobile banking and digital banking and payments will appeal to both the upper-end U.S. consumer and unbanked emerging-market customer, predicted Citi Chairman Vikram Pandit, speaking at the Feb. 17 meeting of The Executives’ Club of Chicago.

For emerging and unbanked markets, “Mobile banking is a way to address ‘financial exclusion’ and provide greater access to banking to a broader number of people at reduced costs,” Pandit said. For the upper-end consumer, mobile banking provides additional convenience and efficiency to busy lifestyles.

The inevitable and much-needed hype warnings continued on March 1, as Art Gillis, an IT and security consultant specializing in banking, wrote in Bank Technology News:

“Mobile banking, in my opinion, is a little bit of a good thing. The press attention it has received is, in my opinion, over the top. Google Alerts sends me articles daily that were published all over the world with headlines that are hard to believe. Every investor I work for is aware of mobile banking as the hottest new technology, and investors expect it to be the proverbial shot in the arm for bank tech vendors. That’s a little bit like 10% ethanol in my gas tank will solve the global warming problem.”

Mobile is the shot in the arm for any number of organizations battling over ownership of the transactional turf. The Accenture survey, in keeping with its customer base, weighs in on the debate over which kind of organization will profit from mobile payments.

Reports an eMarketer article on the Yankee and Accenture surveys, “Respondents to the Accenture survey expected credit card companies to play a big role in facilitating mobile payments, at 59%. Nearly as many, 54%, thought mobile network operators would help enable mobile payments, and 52% thought software companies like Apple and Google would play a role.”

Apple and Google’s “Me Too” Strategy
I have heard it said, fervently yet naively, that banks and mobile operators ought to watch out for Google and Apple, as they move into payments, both on the web and through mobile access. This shows confusion about the payments mechanisms through the financial system and the payments process at the point of sale.

The artisans at Apple and engineers at Google both have been in the payments news lately, with their announcements of new content payments models. Apple’s has higher fees to content providers while Google’s is considered more of an open and equitable solution, as reported in Information Week.

Writing in the TechCrunch blog, Ohad Samet, payments fraud and risk management expert, provides a cogent commentary on the prospects of Google and Apple in the payments business and why any assumption of their massive success in payments does not take into account the nuances of the business. “Dominating payments requires much more than having the most users with credit cards or a huge take rate on digital content. . . . Creating yet another network based on existing methods is a ‘me too’ strategy that doesn’t provide real incentive for merchants to switch beyond the very specific uses Google and Apple provide today.”

Even so, the continuing focus on payments lies in the ongoing opportunities for innovation and disruption, which Citi’s Pandit believes lies in the vast international population of people without bank accounts and Samet believes lies in disruptive applications for payroll and short-term credit. The market for digital payments remains as vast as the number of traditional analog payments. As the Federal Reserve’s 2010 Payments Survey states, “With 27.5 billion checks still being written, almost half of which are consumer-to-business transactions, much opportunity lies ahead.”