This story appears in the September 2009 issue of Cards&Payments.
Critical mass is a key driver of any movement, whether it pertains to bicyclists trying to cross a busy intersection in China or trends nudging consumers and businesses toward wider use of mobile payments.
After nearly a decade of schemes to transform mobile phones into virtual payment card wallets and point-of-sale terminals, the evolution toward widespread mobile-payment use has a new link. Mobile applications downloaded to so-called smartphones now lie somewhere in the evolutionary process between person-to-person funds-transfer schemes launched nearly a decade ago and contactless Near Field Communication mobile phones that remain limited to pilots in much of the world.
Increasing use of downloadable smartphone applications is laying the groundwork for wider consumer and merchant demand for mobile payment-enabling tools. This is especially true in countries such as the United States, where mobile payments have not gained as much traction as they have in parts of Europe and Asia but where smartphone ownership is gaining speed.
In the United States, which has prolific plastic payment card use but has done little to adopt mobile-payment tools, free applications downloaded to smartphones make P2P funds transfers easier than ever. And consumers now can search for, reserve and pay for taxis, and receive receipts for the service, all through free smartphone applications tied to payment card accounts.
In addition, more and more merchant acquirers are targeting small-business owners with applications that turn Apple Inc.'s iPhones or Research in Motion Ltd.'s BlackBerry devices into mobile POS terminals for subscription fees of little more than $20 per month.
The growing number of mobile-payment applications for smartphones could provide a big boost to mobile payments, says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research Inc. "It's a big deal and could certainly extend the reach and broaden the participation in mobile payments," he says.
A smartphone is a mobile phone that offers advanced capabilities, such as e-mail and Internet access. In an April 2008 survey Javelin conducted involving 2,350 U.S. consumers, 9% of participants said they had used such smartphones as the iPhone and BlackBerry Storm. By April of this year, the percentage had grown to 17% of 2,779 survey participants.
"One of the reasons that mobile payments misfired nine or 10 years ago is that you didn't have a critical mass of consumers that had viable (mobile) devices," Cundiff says. "Now you have willing and able participants who are going to download an application."
A confluence now exists of smarter phones, more-affordable data plans and more consumer time spent doing tasks using mobile devices, all of which will drive consumer and small-business adoption of mobile financial services, according to Mike Friedman, a senior analyst at Mercatus LLC, a Boston-based consultancy.
"The smartphone presents an interface that is familiar and convenient to consumers," Friedman says. "The ability to make electronic payments with a smartphone mimics the PC desktop so well that it's a seamless transition."
Demand Increasing
This increasing reliance on mobile phones to conduct a variety of tasks, undertaken so often, is a fairly recent phenomenon, Friedman notes. "Even three years ago, the amount of time and things we were doing on our phones was very different," he says.
And the demand for mobile payments is increasing along with mobile use, according to a recent Mercatus report.
In June, 18% of 1,166 U.S. survey respondents ages 18 to 25 said they had sent funds, paid someone or paid for something using their mobile phones (not including purchases of ringtones, games or wallpaper for the phones themselves). That is up 11 percentage points from 7% of respondents who reported making similar mobile payments in May 2008, according to Mercatus. Among the respondents to the June survey, 14% ages 26 to 34 reported having conducted such mobile transactions, double the 7% from that age group who said so in May 2008, Mercatus says (see chart).
A partnership with Redwood City, Calif.-based mobile-payments firm Obopay Inc. helped MasterCard Worldwide jump into the downloadable apps game in June with the launch of its Mobile MasterCard MoneySend service. At Cards&Payments' deadline, the service was tied solely to a prepaid card issued by The Bancorp Bank, a unit of the $1.8 billion-asset Wilmington, Del.-based Bancorp Inc. MasterCard expects more issuers to offer the service this year.
The service enables consumers to transfer funds between accounts. When the sender and receiver both have cards from participating MasterCard issuers, they can send and receive funds to each other online or by using an application for BlackBerry phones, on other phones via SMS text messaging, or through a mobile browser.
More Possibilities
MasterCard is equally committed to offering payment services through simple mobile text-message channels, which are becoming more common for payments in developing countries where smartphones are rare, says Josh Peirez, MasterCard group executive, innovative platforms. "It's just as fast to send the money with a text message," he says. "But the (smartphone) application really enhances your experience during the service. You can check your balance and interface with your address book."
MasterCard is developing downloadable applications for other smartphone platforms, including iPhones (see story). For now, until those applications become available, MasterCard offers a Web site for iPhone users to access MoneySend through their Web browsers.
"If you're an iPhone user, you don't think of yourself as sending SMS messages, even though when you chat you hit that green bubble that says 'chat,'" Peirez says. "That look and feel is very different from what you get" on a basic cell phone.
Besides P2P payment tools, such as MasterCard MoneySend, consumers also can download smartphone applications to reserve, pay for and save receipts from taxi rides.
For example, RideCharge Inc. in 2007 began as a person-to-taxi reservation and payment system for business travelers. The service works through Web sites, text messaging, mobile Web browsers and BlackBerry or Windows Mobile smartphones. Late last year, RideCharge launched TaxiMagic, a similar service for the general consumer population, enabled by an iPhone application.
Today, both services enable bookings with participating taxi fleets with electronic dispatching services in more than 30 cities.
The concept for RideCharge came from cofounder Tom DePasquale's work building software applications with Concur Technologies Inc., a company that offers travel-reservation and expense-management services for business travel. DePasquale approached Concur about developing an application to offer under a partnership agreement that would help reduce paper receipts and cash transactions from taxi trips by business travelers.
In 2007, the timing seemed right to launch such a mobile application for corporate travelers, says Toby Russell, RideCharge cofounder.
"There was an intersection of mobile technologies and an acceleration of mobile computing–BlackBerry and the advent of the iPhone–to be able to handle on-the-go applications," Russell says.
Users of RideCharge and TaxiMagic essentially are evenly divided between those who use the service through online and text-message systems and those who use it through smartphone apps, Russell says. "We've seen enormous growth on the iPhone," Russell says. "BlackBerry has been growing faster with the launch of the BlackBerry App World."
Russell declined to say how many transactions the company handles each year, but he says the service is growing, mostly from consumers who see their friends use it.
Katherine Sullivan, Concur senior director of solutions marketing, is one of those phone-apps show-offs. "I'm an avid user of RideCharge," Sullivan says. "I was in a meeting with our partner, American Express, in Washington, D.C. We realized that it was 3 o'clock and we hadn't arranged travel to the airport, and we all had pending flights."
So Sullivan booked a taxi through her smartphone, got a message that a taxi had been dispatched, then got notification some 30 minutes later that a taxi was waiting downstairs. "My peers at American Express were in awe," Sullivan says. "They knew we were offering the service, but the peer next to me had not utilized it yet."