Battle Over Mobile Payments Intensifies

2 Dec, 2011

Google, PayPal, Visa and leading mobile phone operators are all rushing to announce mobile payments services, in a battle to establish a foothold in a lucrative new market.

In September, Google launched its mobile wallet service in the US, allowing people to pay for goods at stores including Bloomingdale's, Toy'R'Us and Walgreens, by using a mobile handset equipped with a near-field communications (NFC) chip that communicates wirelessly with the cash till.

Visa is preparing to launch its own digital wallet service next year, allowing users to make speedier payments online and over mobile phones, and PayPal is in negotiations with retailers to get them to accept payments from its mobile internet service in stores, a scheme expected to launch next year. Meanwhile, AT&T, Verizon and T-Mobile in the US are thought to be spending more than $100m on building their own mobile payments platform.

In the UK, the Mobile Money Network, a mobile payments platform backed by Carphone Warehouse , was launched in November but could soon face competition from a rival platform planned by the UK's three largest mobile operators. That is, if the mobile operator joint venture manages to clear an anti-trust complaint launched by a fourth rival operator, 3, owned by Hong Kong's Hutchison Whampoa, this month.

Research in Motion, maker of the BlackBerry, and Telefónica, the Spanish mobile phone operator, last Thursday became the latest to announce a trial of a mobile wallet service in Spain.

"There are so many announcements at the moment it feels like a land grab. Everyone is staking out their place," says Zilvinas Bareisis, analyst at Celent, the Tokyo-based research company.

It is little wonder there is a scramble, as the value of transactions made over mobile devices is estimated to be $240bn this year according to Juniper Research, growing to triple that size over the next five years.

The IMRG, the research group that tracks e-commerce in the UK, expects British consumers to spend £1.64bn over mobile phones in the run-up to Christmas this year. The 2012 Olympics is expected to be an important showcase for mobile payments, with Samsung and Visa teaming up to allow visitors to pay for items in the Olympic park with a wave of an NFC-enabled handset.

Analysts at Forrester, the US-based research company, have predicted that by 2016 consumers may be able to leave their traditional leather wallet at home and pay for most of their shopping over their handset.

"It is really basic but it does what it is supposed to do. You just pass the phone in front of the terminal, and when you have made the payment it shows you a little receipt on your screen, which is quite nice," says Digantam Gurung, analyst at CCS Insight, the research group, who has been among the first to start using Orange's QuickTap payment system in the UK. It is unclear, however, which of the competing mobile wallet propositions is likely to prevail and Mr Bareisis warns that this is causing confusion among retailers.

"For merchants who have to invest in these technologies, the choice is quite staggering and slowing down adoption as they wait to see which is likely to win," Mr Bareisis says.

"Lots of people are trying lots of things to see what works. Below the surface of all the propositions it is about partnerships being formed, putting the connectivity in place," says Alastair Lukies, chief executive of Monitise, a UK company that provides software for a number of mobile banking platforms, as well as the Mobile Money Network. Visa, for example, is a partner in most of the initiatives, licensing its own electronic payments technology to Google and taking a strategic stake in Monitise, to ensure that it has a position in whichever the winning platform or platforms turn out to be.

"Nobody can really say for certain what this space will look like in five years' time. Is there a threat of being left out? Absolutely. We are making sure we are in place with the right partnerships. We have our finger in a lot of pies," says Mary Carol Harris, head of mobile development at Visa Europe.

Analysts expect NFC technology to be a cornerstone of mobile payments, with the simplicity of paying with a single tap of the phone appealing to users.

But consumers still have a certain amount of mistrust about NFC. Mr Gurung of CCS Insight says that although stores such as McDonald's and UK sandwich bar Eat have installed contactless terminals, staff were often still confused when he used his phone to pay.

"I think I have only been in one shop so far where they knew what I was doing. Usually they look at me as if I am a bit strange when I pull the phone out."

A recent survey by Gemalto, the smartcard company, showed that nearly half of UK consumers feared that if an NFC-equipped phone was lost or stolen a thief could quickly rack up a fortune in transactions.

There are also still very few phones on the market with NFC capability, one of the reasons the Mobile Money Network, for example, does not use it. At the moment Samsung's Galaxy Nexus phones are the only NFC-enabled handsets selling in volume. However, a number of new NFC phones are expected to come on to the market in 2012 from BlackBerry, Nokia and HTC.

Companies are also still negotiating how to share mobile payments revenues and, crucially, who has control over customer data. This is where the real potential of mobile payments is expected to be, with revenues earned by the mobile phone operators and banks from serving targeted advertising and offers to mobile users.

"The payments industry is traditionally low margin, therefore the real value lies in enriching the transaction itself. Loyalty cards and couponing provide a unique opportunity to understand in real time what the consumer is doing," says Fred Huet, the UK-based managing director of Greenwich Consulting, the research company.

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