Mobile payments is one of the most dynamic sectors in the global economy, with disparate technologies and business models targeting various markets depending on how mobile users choose to transact. As new mobile payment networks emerge, consumers' payment options for virtual and actual goods will expand. Notwithstanding the challenges of increased merchant competition, high deployment costs and consumer confusion, there is a market need for a true end-to-end m-payment solution that merchants can immediately use to drive consumer behavior and additional revenues.
The m-payment opportunity
Consumers have an immense appetite for transacting on mobile devices. A recent Forrester report pegs U.S. m-commerce revenues at $6 billion for 2011, with expected growth to $31 billion by 2016. However, for the market to accept a ubiquitous mobile payment model and embrace a new era where consumer engagement unites with commerce, solution providers have a lot of work ahead.
Anatomy of a successful mobile payment solution
In the U.S., operator billing and premium SMS were the first widely successful m-commerce payment solutions to power digital content services. Consumers personalized mobile devices with ringtones, wallpapers and subscriptions to breaking news alerts and celebrity photos, driving hundreds of billions of transactions. Purchases were initiated with a simple text message or a click on a mobile web site, and payment went directly through their monthly mobile phone bills. Fulfilment happened immediately on the device – the same channel consumers used to make their purchases – with a simple, tightly integrated flow that fostered a thriving industry.
More recently, the proliferation of OEM app stores has reaped huge revenues by building on similar tenets: simple discovery through a catalogue present on the device, identity management and payment wallet for which consumers enroll when activating their devices, low-friction checkout and integrated, over-the-air fulfilment. These attributes represent the bare minimum end-to-end m-commerce solution and must be exposed in any successful payment scheme.
Looking beyond digital goods
While the market for digital goods is massive – Juniper Research estimates 2.5 billion customers will purchase digital goods on their mobile devices by 2015 – an even larger opportunity exists. eBay reported over $2 billion in merchandise bought and sold over mobile last year, while Amazon sold over $1 billion of goods via mobile. Both companies offer slick, device-appropriate browsing and purchasing experiences and an integrated mobile wallet with a wide user base, particularly eBay's PayPal with 100 million U.S. accounts.
Innovation in payment solutions will bring similar success to more merchants. One example is Square, a startup seeking to make it easy and cost-effective for anyone to accept credit card payments. The company's simplified fee structure and a pixel-perfect user interface encourages merchant adoption and lower friction in a familiar transaction for consumers – swiping a credit card Square treats repeat customers to a built-in discovery and mobile wallet app for their smartphones called "Card Case" which allows advance purchases before arriving at a nearby merchant, charged to the previous payment method.
Even 160-year old American Express is innovating in m-commerce. Its recent partnership with location-based social network Foursquare links purchase intent via location with buying habits based on transaction history to deliver targeted offers to consumers. The value is simply credited to the user's Amex statement. The key here is disrupting how consumers use their mobiles when making purchases and driving them towards more profitable behavior without forcing merchants to rip out their existing infrastructure.
These examples barely scratch the surface of what is possible for solution providers. Merchants can place the mobile phone at the center of the customer experience with location-based discovery and offers, alerts and brand engagement via push notifications and SMS, and intelligent mobile wallets leveraging a variety of payment options. The challenge is uniting these elements to solve enough of the problem that users and merchants will get involved.
Don't wait for the endgame
NFC holds great promise for retail and remote e-commerce payments by integrating multiple payment instruments, offer management and loyalty schemes with a secure experience delivered on the consumer's device. However, research suggests inflated expectations for NFC and it will likely take several years for mainstream adoption.
Many of these advantages are available today, without waiting for NFC handsets to hit the market at a meaningful pace. For example, using SMS as a notification channel for offers provides near-ubiquitous reach to the 5.3 billion mobile users worldwide – that's 77 percent of the population and to over 90 percent of U.S. consumers. In addition, mobile operator billing has proven to significantly streamline the purchasing process. Coupled with an established billing relationship and high brand credibility with consumers, this is also a fundamental advantage for operators which merchants should be eager to capitalize on.
As mobile merges with banking, credit cards, virtual currencies and stored value, consumers have more payment options available than ever before. Getting consumers to spend using their mobile device is the overarching objective of virtually all merchants. But still the issues of security, consumer confidence and merchant competition remain. In the complex world of credit card issuers, device manufacturers, mobile operators, retailers and even start-ups, there is a growing need to streamline the purchasing process.
Merchants and consumers will drive higher adoption by using trusted technologies as the primary mode for transactions. They must carefully assess the best option based on reliability, security and interoperability factors critical for driving market growth. Ultimately, more merchants and consumers will get on board with a true end-to-end m-payment solution that lowers costs and offers a better experience.
James Monaghan is director of Solutions Innovation & Consulting at OpenMarket.