Incumbents in most industries aren't big fans of innovation.
History is replete with examples of entrenched companies fighting against advances in technology and the disruption it brings to their legacy business plans. One of my favorite examples of the war on innovation is from the music industry. (No, not the record labels' epic battle against online music stores, although that is a textbook case). It involves John Philip Sousa, who took a break from composing marches in the early 1900s to lobby Congress to outlaw the new music innovation of the day: the player piano. He saw this automation as destroying the market for his sheet music.
For the payments industry, innovation in technology is causing our industry to march forward, not backward, and for good reason. We are embracing innovation in mobile payments because they promise to expand the market for our products and services.
Simply put, the common enemy of electronic payments is cash, and so any technology that makes it more convenient and more rewarding to use a credit or debit account is good for business. And through loyalty, discounts, location-based offers and much more, mobile payments hold great promise to make cash ever less attractive for consumers.
There is widespread agreement that mobile payments will take an increasing percentage of credit and debit card payments. This is not surprising given Americans' love affair with their mobile phones – there are more mobile phones in service in the U.S. (approximately 320 million in 2012, according to CTIA's Semi-Annual wireless survey) than there are people.
In my view, 2013 will be a breakout year for mobile payments, given the breadth of companies interested in the space. With the possible exception of molded plastics manufacturers that make cards, everyone in the payments value chain wins with mobile. And so for the first time in history, payments companies and technology companies are working together to make mobile phones a primary means of initiating a payment.
This collaboration is evident in the membership of the Electronic Transactions Association, the trade association I run which has represented the merchant acquiring industry for more than three decades. Our membership has expanded in just the past six months to include AT&T, Verizon, T-Mobile, Sprint, Amazon, Microsoft, Google, Groupon, Neustar, Ericsson and dozens of other technology companies.
Are these global technology companies seeking to interface with traditional payments companies, or are they becoming payments companies? As I see it, from both the payments and technology industry perspective, the mobile phone is simply a new means of initiating a payments transaction that would otherwise be undertaken with a plastic card. From the point of sale, the transaction will ride the same payments rails as a card swipe. Mobile payments, thus, make both the payments rails and the mobile phone networks more valuable by increasing traffic on and utilization of both.
Our industry still has a lot of work to do to bring mobile payments to the mainstream. The innovation in products and services is happening at a rapid clip. Now the task is to ensure that merchants understand the value of infrastructure investment, and consumers get the "value add" of using their phones to pay.
On ETA's Mobile Payments Committee, more than fifty companies are working to develop industry-wide consumer and merchant education programs that can be applied to any technology platform. One key is interoperability – consumers know and recognize payments networks because they offer ubiquitous acceptance at merchants. Indeed, ubiquity was the principal benefit of creation of the card networks in the 1960s to replace individual store charge cards. With mobile payments, consumers must also enjoy convenience of acceptance to avoid confusion and frustration.
The early stage of mobile payments deployment reminds me of the growth of online commerce. Although we think of online purchases as crushing traditional bricks-and-mortar retail, it is important to remember that in 2012, 17 years after the Web was first launched, less than 10% of retail purchases were made online. Similarly, today, even with the ubiquity of mobile phones, only one out of fifteen online purchases originates from a mobile device, according to Javelin Research.
Mobile payments may still be only a fraction of 1% of overall transaction volume, but given the intense level of product development and consumer-friendly services that bring value to merchants, we can comfortably predict that 2013 will be a breakout year for mobile payments.
Jason Oxman is CEO of the Electronic Transactions Association, the global trade association representing more than 500 payments and technology industry companies.