There's a staggering market for mobile financial services, if only the stakeholders who stand to benefit could get out of their own way.
As surprising as it seems — or perhaps it's not surprising — telecom providers, banks and merchants can't get together on a standard way to deliver mobile payments at the point of sale. Standards could open the market to higher adoption, since market participants would no longer have to choose between payment models.
The inability of banks, merchants and telecoms to see beyond short-term turf wars is a persistent problem, and the resulting lack of cooperation and interoperability could doom mobile payments to underperformance for years. "If the model is telcom-dominated like ISIS, there's the battle to incentivize banks to share data, and if it's bank dominated or merchant dominated it's the same thing," says Aaron McPherson, a practice director with IDC Financial Insights.
In new research released last week, IDC Financial Insights is predicting that by 2017, worldwide purchase volume over mobile devices will reach $1 trillion. Most of the overall volume in mobile will come from mobile commerce, which IDC Financial Insights defines as digital media consumed on the device as well as electronic commerce performed through a mobile web browser. IDC Financial Insight's forecast is focused on consumer and business spending over mobile networks, on goods and services and direct fund transfers, from 2012 to 2017. This does not include spending by service providers on technology to enable such services.
The research company says mobile point-of-sale payments will grow rapidly as a result of future upgrades to handsets and point of sale terminals to include enabling technology such as Near Field Communication. But how rapidly is up to debate. First, while $1 trillion in overall payments sounds like a lot of money, IDC Financial Insights says it's only about 2.5% of the total amount of worldwide commerce that is theoretically addressable by mobile transactions, which suggests vast untapped potential. Javelin Strategy & Research also says there's ample room for growth. Javelin says that in the U.S., the mobile retail payments market will reach $20.7 billion in 2012. But only $417 million of that will come via mobile payments at the point of sale. Javelin says the barriers to adoption include a lack of tech-enabled phones and low merchant acceptance.
Better cooperation, which exists more in press releases and in conference presentations than in actual practice, would almost certainly boost mobile wallets. IDC Financial Insights says if the stakeholders cling to proprietary solutions, its forecast will underperform. The analysts also say the volume could be larger than forecast if a few dominant payment protocols or schemes were to emerge for different countries.
But cooperation will be tough. McPherson says even efforts inside industries can get sidetracked by competitive tendencies. "Big companies have to lay aside their proprietary interest. But how many merchants will want to get into bed with Wal-Mart?" McPherson says. [Wal-Mart is a driver of the Merchant Customer Exchange, a mobile payments consortium mostly led by large big box retailers.]
For financial institutions, IDC Financial Insights says the outlook is good, since the vast majority of mobile payments volume will be driven by traditional card products, either via mobile commerce or NFC. The company recommends financial institutions view mobile payments as an opportunity to leverage the information they possess on their customers' shopping habits and demographic characteristics. It also recommends banks implement targeted marketing and reward programs as a supplement to their regular loyalty programs, since customer loyalty will be to the company that provides them with the best value. "Banks already have the information on the purchasing habits of consumers and their demographic information, they know what products a consumer already has," McPherson says.
Other researchers have suggested banks take a proactive approach when promoting NFC as a standard at the point of sale. Celent says NFC presents a chance for banks to play a direct role in providing payment credentials to consumers and to maintain relationships with consumers. The alternative, in which alternative payment companies take the lead in driving standards for contactless payments, would relegate banks to a secondary role as a funding source,
While that's not a new argument, the slow development of mobile standards also isn't new, nor is it going away, so the market's still relatively open for banks to push NFC ahead of other mobile payment alternatives. For example, McPherson says MCX is still developing, giving banks an opportunity to reach out to merchants themselves by being faster with a tangible payment solution. "Merchants will be tempted to go with what's real today as opposed to what's promised. In the mobile wallet space, promises don't amount to much," McPherson says.