The Future of Mobile Payments

From the Retail Payments Risk Forum December 5, 2011, The future of mobile payments is explored. Although mobile payments have been much slower to develop in the United States than many industry observers had predicted, there have been a number of encouraging recent developments. Starbucks, for example, has processed more than 20 million mobile payments since launching its app, and the Chicago Transit Authority’s new fare collection system will be able to accept mobile payments starting in 2013. Still, despite these small successes, the United States has not seen the mobile phone really take off as a vehicle for point-of-sale payments.

The Retail Payments Risk Forum takes an active interest in mobile payments. For the past few years, we have gathered together key industry stakeholders to promote dialogue about barriers to adoption and reach a collective understanding about the state of the industry. Forum members have recently published a paper describing the views of these stakeholders and outlining the necessary elements of a successful mobile payments system.

The Retail Payments Risk Forum recently interviewed David Evans, a payments industry consultant and the founder of Market Platform Dynamics, in a podcast exploring some of the challenges facing widespread mobile payments adoption. Evans maintained that a couple of obstacles have kept mobile payments from taking off in the United States. “Barrier number one is that there is not a very persuasive mobile payments alternative for consumers to use at the point of sale, and the second is that there’s really not the technology at the point of sale capable of processing a mobile payments-type transaction.”

In addition to these barriers, he said, is the simple fact that most consumers are satisfied with the way things are. Evans explained, “I can pull out a credit or a debit card at the point of sale, I can swipe it, and it works beautifully. Takes about a second. No fuss, no muss—the clerk knows what to do. The technology is all there. So we have this wonderful system that works really well right now that’s extremely efficient.” To change the status quo, a compelling value proposition must emerge for all parties. “Someone’s going to have to come up with a really great alternative that adds value to the merchant and adds value to the consumers to make both of them want to do something different than [what] they are currently doing,” said Evans.

Regarding the prospects for mobile payments outside the United States, Evans said, “I think that where we are going to see mobile payments take off around the world is primarily in countries that do not already have a very well-developed payment card industry with acceptance at the point of sale and that have very well-developed mobile phone systems.”

The role of different types of market players has been a major source of debate among those forecasting mobile payments. Many disagree how the mobile carriers, such as Verizon and AT&T, will fit into the new landscape. Evans predicted that “the likely role of the carriers in payments is basically being a pipe.” He stressed that mobile carriers do not have the expertise to operate mobile payments and are more likely to become pipes for others who will develop mobile payments alternatives.

When asked about his predictions about the type of technology that will ultimately support mobile payments, Evans said that it was still too early to know. However, he did say that “it’s really the solution that is going to drive the adoption of a particular acceptance technology at the point of sale, rather than the acceptance technology driving the solution.” There are clearly still a lot of unknowns with regards to mobile payments, and Evans wisely concluded that “we should talk about this in 10 years when we may actually know the answer!”

By Jennifer C. Windh, a payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed