Making the Move to Mobile Payments
When a magnitude 7.0 earthquake devastated Haiti in January, Americans were asked to pull out their cell phones rather than their wallets. In the first large-scale use of texting to make charitable donations, givers contributed more than $30 million in just 10 days.
The texting campaign was a signal moment in charitable giving, but it also served as an indicator of the move toward mobile payment, says Kolja Reiss, managing director for industry leader mopay Inc.'s U.S. operations. "We'll look back and say one of the key drivers for mobile payments in 2010 was Haiti, when people realized 'I can donate through my cell phone,''' says Reiss. "The way that we pay for things is changing drastically globally. A couple of years back, people would have said, 'Why do we need this? Let's just put it on a credit card.'"
The boom in mobile payments
Across the globe, mobile payments are rapidly gaining ground. Analyst Juniper Research projects revenue transactions will top $300 billion worldwide by 2013. In Japan, where one mobile phone carrier dominates, mobile payment has become commonplace for consumers.
While the United States has traditionally lagged behind when it comes to adoption of mobile technology, the gap is narrowing rapidly, say analysts. The rapid, widespread adoption of smartphones means your consumers are growing accustomed to conducting much of their lives through their mobile devices. Soon, they'll likely expect to be able to pay via their phones as well.
According to technology analyst ABI Research, mobile shopping in this country leaped from $396 million in 2008 to $1.2 billion in 2009, with 100 percent growth to $2.4 billion projected for 2010. "Overall, the U.S. doesn't have to be ashamed of being behind anymore,'' says Derek Kerton, principal analyst for The Kerton Group, which specializes in advanced telecom.
However, the market is still murky when it comes to just what forms mobile payments will take and just how consumers in middle America will adopt the technologies, Kerton cautions. "Some people are doing this, but a lot of the country is more reluctant than we think," Kerton says. "I haven't seen anything to see that it's being adopted all that widely yet. It usually takes a fair bit of time for a new solution to be picked up and spread out."
Where the technology is headed
A myriad of companies are jockeying to provide mobile payment solutions. A sampling of recent developments:
- Verizon Wireless will launch an e-commerce service that lets customers charge up to $25 a month in online purchases to their Verizon account. Consumers can click a button on participating websites, indicating they want the charge billed to their cell. The consumer is asked to input cell number and billing zip code, then receives a code to use in the checkout process.
- Mopay, which has been used primarily to purchase virtual goods such as videos and music downloads, recently announced it will support the online purchase of physical goods in 28 counties. Consumers provide their cell phone number and receive a text message confirming the charge. Right now, purchases are limited to small-ticket items, and the service isn't yet available in the United States. Startup XIPWIRE has launched a mobile to mobile service in Philadelphia that lets consumers and merchants send and receive money through text messages.
- DeviceFidelity and Visa rely on near field communication (NFC) to enable a new iPhone case that includes a removable MicroSD card capable of storing and transmitting credit card information. Consumers will simply hold their iPhone cases up to Visa's PayWave scanner to complete transactions.
- Square is targeting small businesses with its payment system. A small card reader is attached to a phone via the audio jack. A Square application for the Android or iPhone lets the customer approve the transaction on the touchscreen. The company allows for better tracking of analytics for small businesses that usually are more reliant on cash sales.
What's a small business to do?
Right now, both transaction fees and sorting out which technologies will triumph in the marketplace can be daunting. For instance, mopay is seeing fees as high as 40 to 50 percent on its small transactions, which average $5 to $10. "Carriers charge a high premium,'' Reiss says. "The transaction fees in the mobile industry are definitely the highest. We'll see a decline in transaction fees."
Square merchants will pay 2.75 percent plus 15 cents for each transaction using a card and 3.5 percent plus 15 cents when consumers offer just the card number. XIPWIRE will offer free service this year, then plans to charge just 10 cents a transaction.
This is one time small to mid-size businesses need not fret too much about keeping up, says Kerton. The innovation will come from companies such as Visa, Kerton advises. "You can easily say 'This is your turn to earn that darn commission,'" Kerton says. "The individual merchant doesn't need to do that much, although there will be training aspects as new solutions emerge."