There’s a lot of hype these days about “mobile payments” and the mobile wallet.
We are told that soon we won’t need a wallet or even a credit card. It’s simply not true. Though our wallets are smaller, we all have credit cards. In fact, we have more cards than ever before, according to the latest Nielson Report. And merchants continue to pay high monthly fees for payment processing terminals. So why aren’t we paying for everything with our phone? Why aren’t all merchants avoiding credit card fees by integrating to a new network?
I believe part of the answer lies in the notion that payments and mobile are two very different markets, neither of which is ready to be “merged.” While payments is certainly a hot topic these days, it shouldn’t be put side by side with mobile. Mobile is naturally a growing industry since more of us have mobile phones, more of us spend time on them, and more content is developed each day for the mobile device than was ever developed for the entire PC market. Payments, on the other hand, has become a huge focus for entrepreneurs and investors focused on markets ripe for “disruption ,” simply because it’s universal – we all make, touch, receive payments every day.
Despite this, the industry itself has experienced little change since MasterCard, VISA, and American Express. These three big players haven’t changed much since their inception. And the credit card business is enormous. It is one of the few industries where an entrepreneur can truthfully walk into an investor pitch with a slide showing “Trillions.” The blunt reality is that “mobile” is a consumer game and “payments” a merchant one. It is difficult to tackle both sides – to simultaneously get merchants to adopt a new way of taking payment, and consumers to adopt a new way of making them.
Let’s first take a look at companies that I believe are “succeeding” in the payment industry. Most, you will find, have focused on leveraging the existing ecosystem of players like banks, acquirers, and card brands to work in their favor rather than against them – and none of these companies really involve mobile. Square, for instance, took the approach of solving the merchant pain-point of accepting cards and was underwritten to do so. To you or me there is really no difference (we probably wouldn’t know about Square if they hadn’t raised so much money). Collectively we continue to spend trillions of dollars at restaurants, retailers, gas stations, and grocery stores each year.
Square is now capturing billions of dollars within that existing spend. It’s not as if we – the consumers – are asked to spend differently, or spend more. Square makes it incredibly easy for merchants to accept cards, and in that respect they are eliminating – or at least reducing – an inefficiency in the acquiring side of the world. But, in no way, are they moving towards mobile payments, at least beyond trying a few initiatives with their larger merchants.
Starbucks, for instance, uses mobile to “detect” the consumers’ presence within the store when they are making a payment. I’m sorry to say that Starbucks is only one merchant of the approximately 20 million small/medium sized merchants in the US that uses mobile. Square is an acquirer killer. And why shouldn’t they be? As proven by their incredible growth, they don’t need to be in mobile payments to achieve success.
Now let’s look at the other side – a company we all know well and who is going after the mobile payment space: Google. Google has poured a lot of money into their “Google Wallet” initiative – but hasn’t yet achieved the adoption they had hoped for. While we don’t hear a lot about Google Wallet, a recent blog post gives a good – and honest – indication: “Consumers aren’t interested.” I think there is a greater problem. You can’t use Google Wallet anywhere. So of course “consumers aren’t interested.” Why would any of us use our phone to make a payment when there’s no place to make that payment?
Compared to Square, it would be as if Square had to get consumers to download and sign up for their app before making a payment at a merchant that accepts the Square dongle. Thankfully we don’t have to download an app – we simply use our card as we always have and continue to do a billion times a day in the US. By trying to solve for “mobile” and “payments” at the same time, Google attempts to change one of the most common every-day habits of consumers. And this change would only come after getting 20 million merchants to adopt a new technology when merchants are adverse to change and technology in the first place.
So can anyone solve “mobile” and “payments” simultaneously? In my opinion, the two are not set to come together in the near future. To be sure, it will inevitably happen one day, and yes mobile will play a big role. There are some companies I admire – such as Braintree – that are on the right path. That’s because they are focused on what I believe is the main value of ‘payments:’ trust.
At the end of the day, payments and money are simply an exchange of value – in this case the most basic form of value is trust. Trust has always been the most secure form of currency as well, regardless of what it was traded in (grain, gold, paper, plastic, bitcoin). As long as the two parties involved – particularly the receiving party – trust in the transaction that is taking place, then it is irrelevant what form the payment is made in or – more importantly – when it is actually paid.
If merchants trust you, they will take your money. If all merchants could trust the consumers making payments via phone, and if no one needed to make changes like adding hardware, Google Wallet could be a hit. Suddenly, we could “use it anywhere and for everything.” But this is not the case, and I believe it is a very difficult challenge to solve. Until it is solved, both payments and mobile will be large industries, but I doubt we will see any transformations in “mobile payments” any time soon.
 If math is any indication: Forester estimates “mobile payments” to reach $90 Billion by 2017, at which time total US “payments” will be in excess of $10 Trillion. More money will be spent at Wal-Mart than will be the entire mobile payments industry.