Some lessons around mobile payments over the years

There is a fair bit of hype and confusion in the market as it relates to mobile payments and mobile banking. First of all, they’re NOT the same thing.
Mobile banking refers to using your phone as another channel similar to what you do online today with your bank. This includes account lookup, bill payment, transaction history, alerting, etc. Banks (in the US) began rolling this out about 3-4 years ago (a few are catching up now). Abroad, most banks rolled these services out years before the US. The financial services that are offered on the phone for banking customers are now starting to be offered for unbanked customers as well. The mobile banking heyday has come and gone. Now, it’s all about mobile payments.
Mobile payments. What does “mobile payments” mean? Here are some definitions:
• Mobile payments can mean any of the following:
a. Remote payments (like enabling ecommerce on the phone),
b. Proximity payments (In-store purchases… often synonymous with NFC since it’s the fastest, easiest technology to use for an in-person phone payment),
c. Remittances & P2P (sending money from one person to another)

Lessons I’ve learned over the years:
1. In general, the US is far from “getting it.” Silicon Valley may have been the forerunner for ecommerce, but the US is way far behind in getting mobile. Understand it, accept it, and take a trip abroad before coming to any conclusions. If you haven’t read, seen a video, or travelled to an emerging market like The Philippines, India, or almost anywhere in Africa – do it if you want to understand the space.
2. Most carriers don’t have payments experience and have misconceptions around how the financial services industry works. Imagine a 30-year bank veteran trying to set up the cellular network based on nearly no engineering knowledge. There’s a fair bit to understand in payments including not only the regulatory pieces, but also regional cultural differences in payments standards and adoptions. The devil is in the detail… the devil is in the detail… the devil is in the detail…
3. Bank or Carrier… Association or Alternative Payments system? Constant debates. The answer is simple: credit/debit cards work pretty damn well in markets where the infrastructure exists. Where no financial services infrastructure exists and where people get shot at for going to a bank… or where 85% of the population can’t use a bank because they don’t make enough money to seed the account… THIS is where the carriers can come in and drive the mobile payments infrastructure… and have begun doing so all over Africa. Will mobile payments ever take off in the US or Europe? Sure, kind of… but it will look a lot different (NFC) and will take a lot longer (because the current payments systems support the needs of most of the public.) As for association vs. alternative payment scheme, the answer is simple. If Visa/MC is already set up and has the merchant acquirers who have substantial merchant penetration, it’s near to impossible to start a brand new rail (take a look at Discover!) Where none or little penetration exists, this is a totally different story (which is why everyone’s chasing India).
For now, the one liner for today is this: There is no one answer in how mobile payments will play out. It depends completely on the region… the payments schemes that are (or are not) present, the PC penetration (or lack thereof), and how cash-dependent the country is. (Oh, one more thing… the UI is really really important and depends on whether it’s rolled out with a carrier or without a carrier… more on this later.

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3 responses to “Some lessons around mobile payments over the years

  1. I wonder if the U.S. doesn’t get it or, as you point out, if most Americans don’t need it. If there isn’t a functional need as you see in emerging markets, isn’t the key to adoption in the U.S. preference for this method of payment? We often want what we don’t need. Mobile payments seems natural for the Gen Y and younger set who are addicted to texting and haven’t established banking and payment habits.

    • Hi Crystal,
      You’re very right. Preference of this payment is key. Gen Y’ers are definitely more likely to try out phone-based payments. The question really is, when does it reach mass adoption levels? On the payments side, there are some fundamental criteria that affect mass adoption: 1. Is it secure? (This is baseline); 2. Is it more convenient? (cards work pretty well here); 3. Is there more value? (this could tip the scale if the mobile wallet can intelligently integrate loyalty programs, promotions, etc. all at the point when the phone is used at the retailer’s location.) Also, remember that payment schemes are only as good as they are relevant. PayPal, for instance, will only stay as a niche as long as they only play in the online space. If you can’t use the card / money everywhere, one tends to opt for the payment scheme which IS relevant everywhere. At the end of the day, people’s habits around payments are quite entrenched (look how long it’s taken for checks to finally go away… and we still have pennies in circulation!), but if there is a real VALUE associated with the payment scheme, there’s a chance mass adoption could take place (but it takes time). Gen Y’ers will migrate to mobile, but the masses will lag for years here in the US. My forecast is that mobile payments will never see mass adoption as the primary method for payments in the US.

  2. By the way, that is not to say mobile won’t be used for payments. It will. Likely the underbanked and unbanked in the US will migrate toward their carriers for their alternate account…

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