The war of the digital wallets is almost upon us. But don’t go throwing away your credit cards yet – for all the talk, we’re still a way off from being able to breeze in and out of supermarkets, clothing stores and petrol stations without ever needing to interact with a live salesperson.
The mobile payment market is rapidly gaining momentum; pushing their own versions of digital wallets in the US are Paypal, American Express and Isis – a consortium of mobile phone carriers Verizon, AT&T and T-Mobile, which has signed deals with card networks and expected to debut soon.
Meanwhile, Square, which offers sellers a free credit card reader that plugs into a phone or iPad, is now processing US$4 million daily. Co-founded by Twitter creator Jack Dorsey in 2009, the company has also launched an app that enables customers to make purchases without physically swiping their card.
Mobile payments include technology such as near-field communication (NFC), which enables cell phones to pay for purchases at checkout terminals, P2P payments, online shopping through mobile apps – and, for sellers, mobile devices like Square that enable them to process payments on the go.
The first category is where competition is hotting up. NFC is a short-range radio technology that allows devices to communicate with each other. While its speed and distance capabilities can’t compare to Bluetooth, connections can be established faster and there’s less likelihood of interference – and security is a key concern when money is changing hands. The idea is that eventually we’ll be able to store a range of cards in our mobile wallets – just like we do now with real ones.
Six months ago Google announced plans to launch Google Wallet, which enables Nexus smartphones equipped with NFC chips to make tap-and-pay transactions at MasterCard PayPass terminals. The first version of the app, rolled out in September, will be accepted at more than 311,000 retailers around the world. It can also store gift cards and Groupon-style deals, called Google Offers.
Paypal followed suit with a mobile app that uses NFC to enable people to pay each other by touching together a pair of phones (but not before suing Google for allegedly stealing trade secrets and poaching a former executive). It differs from Google Wallet in that it only supports phone-to-phone transactions for now, much like American Express’ Serve platform.
Visa, too, has grand plans to enter the market with a still-unnamed digital wallet that will support NFC, store both Visa and non-Visa accounts, P2P payments and mobile commerce.
Both Google and Visa will introduce an advertising element to push offers to customers based on purchases they make, and Visa will continue to take a cut of merchants’ transaction fees.
With so many different industries involved, no single bank or telco can expect to go it alone. Forming partnerships as Google has done with MasterCard, for example, will be key to success. And of course, getting buy-in from merchants and customers is the other half of the equation.
As to when we can expect to see NFC here, Visa country manager for New Zealand Sean Preston says the first step is getting consumers comfortable with contactless card payments. Both Visa and MasterCard offer this capability for low-value (sub-$100) transactions, where tap-and-go terminals accept payments by simply waving a mobile device or card in front of a secure reader.
NFC technology has also been tested by all of Australia’s big four banks, although none of those pilots led to widespread deployment. A group of ANZ staff in New Zealand is trialing a similar system – but rather than a chip inside a phone, a sticker is placed on the back of the handset. And according to Vodafone chief executive Russell Stanners, the telco is in talks with banks about implementing NFC as more advanced devices become available.
But will consumers get on board? How long before mobile payment goes mainstream?
Laura Chambers, PayPal’s senior director of mobile, reckons it already has.
“Three years ago we did about $25 million of payment volume via mobile. Two years ago that was $141 million, last year was $750 million, and this year we expect to do over $3 billion.”
Not everyone is so sure. While the majority of companies surveyed by KPMG in a global report on mobile payments say it’s an important area, three-quarters believe it will take two to four years to go mainstream in their respective regions.
One potential market lies in developing nations, where penetration is growing as prices continue to fall.
In India, for example, there are more than three mobile phone connections for every bank account, and a number of banks are collaborating with telcos to launch payment services.
For urban consumers, the trigger is convenience, while mobile offers access rural or semi-urban residents access to services previously beyond their reach.
Japan is often cited as a success story in this area. Yet research firm Celent found that out of 117 million registered contactless payment accounts, less than a fifth were actually being used to make transactions. Even among a tech-savvy population, consumer adoption takes time.
But as new-generation NFC-equipped cell phones hit the market – and if, as rumoured, the iPhone 5 is NFC-enabled – that could mark the tipping point for the digital wallet.