Mobile Payday

Photo credit: Ozier Muhammad/The New York Times

It’s pretty clear that mobile devices have become the de facto platform for digital innovation. The sheer number of mobile-centric startups that are quickly gaining traction is astounding. From Path to Instagram, from IntoNow to Color, entrepreneurs are tapping into possibilities that didn’t seem likely even a year ago.

One area that I expected to explode is the field of mobile payments. Unlike many new mobile trends, like location-services, the payment field is very mature with serious competitors who have been at it for decades. In order to successfully disrupt the market, contenders will need to overcome the following issues/barriers, all of which are critical to commercial success.

  • Infrastructure. Incumbents like Visa and Mastercard have invested heavily in robust networks for processing and transferring credit card data back and forth. Similar to landline telecom companies, they have a vested interest in ensuring their mobile payment tactics use what’s currently in place.
  • Vendor Acceptance. While mobile payment is still in its infancy, mobile payment providers will need to understand how to best integrate mobile payment infrastructure in retail environments. Do they plan to displace credit cards or add another device to check-out counters with another scanner, adding to an increasingly complex setup?
  • Fees. While Visa and Mastercard typically charge merchants about 2% new market entrants will need to entice vendors with a better value proposition to increase adoption. Similar to Paypal, I suspect mobile payment players will need to get creative with their fee structures.
  • Barriers to entry. Unlike entrenched incumbents that have enjoyed the comforts of high barriers to entry, the mobile space plays by different rules. Square, Mophie and others have demonstrated that relatively cheap hardware paired with 3G/WiFi connectivity can transform millions of smartphones into legitimate payment systems. No longer do you need proprietary hardware.
  • Security & Fraud detection. Incumbents like Verisign claim the up-and-comers lack adequate security measures like encryption, which should be cause for alarm. Whether or not this is a real concern or if encryption can be added simply remains to be seen.
  • Consumers. Perhaps most importantly, getting a large number of regular consumers will prove the most challenging part of the equation. The potential audience size – make that global audience – makes for a particularly enticing opportunity. As they learn to rely more and more on their mobile devices, I predict more and more people will expect to be able to make mobile payments. This could also keep track of all payments, perhaps putting an end to wallets and purses stuffed to the brim with outdated receipts.

There’s no question the opportunity for mobile payments is significant and very lucrative. Whether the incumbents or startups end up owning the space is not clear. What is clear is consumer demand. Whoever strikes the right balance of practical convenience, ubiquity and seamless experience – and strikes while iron is hot – has a shot at striking gold.

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