The Battle for Mobile Payments

New technical standards and consumers’ extensive use of mobile media during Holiday 2010 put us on the cusp of an explosion in mobile payments. Long rumored and heavily used in Asia, mobile phones have the ability to be used as payment devices similar to credit cards. In Seoul or Tokyo people point their phones at Coke machines, parking meters and newspaper kiosks to make small purchases instantly.

Now the growing penetration of smart phones, the widespread use of phones to comparison shop, share price or product features or accept discount and coupon offers makes mobile payments the next high demand phone function.

There is finally a single technical standard – called Near Field Communications (NFC) that everyone is embracing. Snap-in chips for current model phones exist and are expected to become available by mid-year. The first Android phones from Nokia, with NFC built-in, will appear by mid-year and other manufacturers will soon follow suit.

Google’s CEO Eric Schmidt not only expects payments to be big, but aspires to have phones replace credit cards, debit cards, loyalty cards and become an identity management tool — basically transferring all your wallet functions onto a mobile device. This could be the rationale for Google’s purchase of Zetawire, a wireless payments start-up, in December.

Getting mobile payments to market will be a 4-way fight. The contenders will be banks and credit card co-ops (Visa & MasterCard), Online Merchants (Amazon, eBay and Google), Telecommunications carriers like Verizon, AT&T, T-Mobile and handset builders (Nokia, Motorola). Each segment brings a different perspective and different set of skills, competitive advantages and perceptual baggage to the game.

Mobile payments will be data-rich and complicated. Not only will players have to move transaction data around securely, they’ll have to instantly interact with multiple networks, process and bill payments and handle tricky customer service issues.

The contenders track record in each of these areas is a mixed bag. Most are counting on large installed customer bases to give them a going-in posture and to piggy-back marketing efforts and reduce marketing costs. Nobody wants to miss out on the huge potential revenue pie and nobody wants to pay the other guy transmission, access, systems or processing fees.

In marketing terms, it will be a real dog fight since carriers, credit cards and online merchants have serious digital and CRM experience, big data bases and partners or affiliates in-place. The Banks will be the weak sister in this battle both because they are conservative marketers and because this is an extension or add-on service, that rarely gets the backing needed. But the scale of the potential market – everybody in the US buying virtually everything using a pocket-held device — is too big a pot of gold to ignore.

There are several technical options to do payments – in the phone itself, tapping a terminal (like a gas fob), texting or having charges billed to your cell phone bill.  Each approach has its unique technical and security challenges, but all are easy for customers to understand and do.

Differentiating technical approaches and framing compelling customer value propositions by creating reasons to believe or claims of superiority for one method will require considerable creativity.  The horse race will draw consistent press attention and buzz, since it’s hot, a natural extension of mobile service and something that is very useful for consumers. The branding and lead generation work will have to be extremely creative and will live at the nexus of social-digital-mobile.

Stay tuned as the big brands – like Visa’s pilot consortium or ISIS, the joint venture between AT&T, Verizon and T-Mobile or Google take the field.


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