There's a lot of investment flowing into mobile payments technology, and perhaps this is more than the market can sustain.
"It seems like there's an overvaluation in concepts with no real business value or even revenue plans," says Marc Castrechini, vice president of product management for Merchant's Warehouse. "There's where we're seeing a gap in money coming in and investment."
But others say that the ease with which technology enables new products has reduced the risk involved in backing these initiatives, and high overall levels of investment are not necessarily a sign of a bubble mentality.
The year 2012 saw an 85% growth in venture capital investments in mobile payments over the previous year, reaching $1 billion, according to Merchant Warehouse. 2013 appeared on pace to surpass that, as venture capitalists had already invested $780 million by July.
Andy Schmidt, a research director at CEB TowerGroup, says the 2013 venture capital investment total was $1.2 billion. Several venture capitalists have reported seeing heightened activity in financial technology investments.
Merchant Warehouse says the number of mobile payments players is growing fastthe company is now tracking close to 200 mobile wallet and m-commerce applications from both startups and entrenched technology players.
"There's no clear winners in this space; there are a lot of people doing the same thing. Everybody wants to get into the mobile wallet space and the payment is at the core of it," Castrechini says.
Sooner or later, the many mobile payments competitors will have to consolidate or at least agree on a common technology.
The current holdup in the mobile payments market is more due to inconsistent enabling technology, Schmidt says. Near Field Communication, QR codes, Bluetooth Low Energy and Host Card Emulation are all deployed in the market today, but no single technology is dominant.
Despite this level of activity, Schmidt says he does not consider the mobile payments market so swollen that it could be considered a bubble.
"Is there a tremendous amount of money going in with little result? Sure. But I wouldn't refer to that as a bubble. It's the technical problems that the market is trying to get around," Schmidt says.
A major argument against a bubble is the lowered overhead required to build a new payments company, says John Lunn, senior director of developer relations worldwide for PayPal, which operates a number of programs to reach out to and spot new technology companies and developers.
"Technology development has gotten so easy," Lunn says. "Ten years ago, you needed a large amount of funding before you could even build anything. You needed servers, an office and a wired internet connection."
Today, hosted technology and more open development models enable entrepreneurs to scale quickly with less upfront capital, Lunn says.
"Now you can sit in a hotel room, develop and be up and running with a new product," Lunn says. This process creates more room for trial and error because fewer resources are required before a product is tested, he says.
The mobile payment market's ability to avoid a crash depends on companies' placing the actual payment in the background and differentiating themselves in other ways, says Richard Crone, a payments consultant.
"There is far too much investment money chasing too few good ideas," he says. "But with that said, there's a huge market opportunity and it is global in scale. And there are so many nooks and crannies that are ripe for change and innovation. So even with a flood of companies and startups there is plenty of opportunity."
Companies should focus on providing ancillary services to mobile payments, Crone says. These include location and navigation, presence detection, in-store self-service, e-receipts, post-sale promotions and social sharing.
There's less chance of a "flameout" among mobile payments players than a series of "pivots" as companies evolve from payment providers to broader models, Crone says. "The payment will be the foundation for CRM, and that is a much bigger market for all of these players."