The Mobile Payments Impasse.

Ball and chainOn a daily basis, I get an email about a new conference or report or blog around this fascinating new opportunity found at the  intersection of mobile and payments. This indicates a couple of things to me.

  1. I have become fashionable by accident. Like a stopped clock being right twice a day, my core area of research for the last ten years is red hot right now (this will pass). 
  2. With this much noise, there is a bubble. Bubbles burst.

And here is where I produce a nice sharp needle…

YES, there is a lot of activity around mobile payments at the moment. BUT, it is time for a reality check. The mobile payments industry is, as the name might hint, made up of two industries – mobile and payments. The former is radically evolving the way we interface with the world around us, having a significant impact on many facets of our daily lives. The latter is evolving with a speed best described as vegetable. And therein is the rub.

It is hard to think of a single mobile payments initiative in developed countries that is not anchored to traditional payment rails. Even iTunes and PayPal are connected to existing credit or debit accounts held at traditional financial institutions. And, these traditional entities are quite happy with the way things are. In fact, change is to be shunned because change would upset very well established dynamics around tried and tested “top of wallet” strategies and clear interchange models around “card present” and “card not present”. Change bad.

So, we have this dichotomy – the mobile industry chomping at the bit, desperate to evolve and disrupt and the payments industry, content with the status quo and although interested in what mobile can do, really see the handset as simply a new form factor at the very periphery of what already exists. Mobile is a veneer, that is all.

And it seems we are reaching an impasse. The ‘mobile’ part of mobile payments has ran out their leash as far as they can and are now choking themselves while they wait for the ‘payments’ part of mobile payments to catch up. In the US, this is a two to three year wait for EMV infrastructure at the POS, a move that is expected (but not guaranteed) to provide the requisite contactless architecture for NFC to ignite. Elsewhere, there is less of a catalytic event and more of an expectation that next gen POS upgrades will seed the market with the right technology. But again, this is just a change at the periphery and the status quo of traditional payment networks is intact.

For all of the bluster around mobile payments, the two most important stakeholders, merchants and consumers, are often overlooked. For consumers, existing payment systems work fine. Cards and cash are fast, secure, ubiquitous and relatively inexpensive. For merchants, yes, there may be some gripes relating to the cost of card acceptance, but that is pretty much the cost of doing business.

Mobile payments today are not trumping existing payment mechanisms in a way that is noticeable for merchants and consumers. Yes, it may be more convenient to scan a QR Code at Starbucks and redeem points, but that is not so measurably better than swiping a card that a consumer wouldn’t default back in a pinch. And, fine, that works for a major coffee chain, but the fact is that existing payment mechanisms are the ones we still have to use in the 99% of other retail locations. I’m not saying that there are no advantages to mobile payments. However, the opportunity for consumer / merchant value addition seems to be less around the transaction and far more around augmenting the retail experience. The mobile payments obsession is missing the point.

What it comes down to is this… this is not like moving to MP3s from CDs. Mobile does not and will not replace plastic for many, many years to come. And that is our reality. Mobile payments are this year’s hot conference item, but sober evaluation of the opportunity is starting to seep in. The payments industry will not adapt to change at the rate that the mobile industry wants it to. I just hope that the mobile industry has the tenacity to hang in there before moving to the next shiny object.

(Look, a blue car!)


  1. chasmalloy

    Nick…great post!!The points are well made and IMHO absolutely correct. The application of mobile veneer to the current transaction ecosystem[being a decade + participant in the nascent mcomm sector as well], will not result into the sea change that iTunes gave us in the music sector. I think that the digital cash instrument sea change came close in 1995 with the Mondex scheme that was tied to the POS but also allowed for the transfer p2p of digital value just like cash. The significant and substantive direction is a true digital currency ….this would then allow for a new commerce ecosystem, in parallel to the current one. Development of the Octopus card stored value redemption in Hong Kong is another example of an alternate digital cash instrument. Yet, both examples residing on a multos system on a chip card,…. It is convenient to use a mobile device for transactions, but I always have my wallet on me….a black leather one

  2. Christopher H. Short

    Hello Nick, I enjoyed reading your article and for the sake of transparency and full disclosure let me preface my reply by saying I’m one of those guys working very hard to see mobile payments move forward much faster that you have stated here in your article. I am not sure who will be right at this point, you with a slower more conservative approach or me with a desire for fast adoption but it will be a fun and interesting race to watch. I would like to add I do agree with many of your points, changing the ways things are done in one fell swoop is not likely, but there are some exciting inflection points available to us today that were not there before. I am not a fan of NFC in payments but the very fact that so many are open to the idea means that traction is building for mobile payments; the fact that QR codes, which I do see as key to the future of mobile payments is also building momentum fast is exciting. There are advantages for billers, acquirers, merchants of all sizes, and consumers in moving towards mobile payments, what will trigger that move en mass is in some organizations yet to be determined. I’d like to say that I feel we have that trigger but I’m not here to push our solution, I am interested in the entire payments and settlements life-cycle and those firms that have technology solutions that can provide value to the entire payments life-cycle will have an opportunity to be part of the transformation in payments. IMHO, value-add is the key to disrupting what is being done today, when value added capabilities are provided, where there is a win – win – win scenario across this arena then the movement to mobile payments will accelerate rapidly. Eliminating the use of credit cards altogether is not realistic as you pointed out, they are here to stay for many years to come, but by adding value mobile can become a player in the payments landscape.

  3. Ger Rottink

    Nick, again you hit the nail right on his head. I believe though that we are heading for a ”shake out ” of 95% of all start -ups moving into this space right now ( or are struggling already for years now ) in 2014-2015.
    Maybe, and just maybe, the ”banks” will push, – ( not control the space ),- mobile payments ( dictated by and outsourced to the PCI ) due to the fact that their installed base is huge, and a direct link to someones bankaccount will make things a lot easier for both sides ; consumer and merchants.


    • Christopher H. Short

      This is a good point Ger, getting linked to the bank account via the ATM Card or via the debit card may be the 1st step. The fee structure is critical then, how man BIPs will the bank need to make this type of transaction palatable for them? The merchant likes this approach as they can bypass Visa and MasterCard and other charges and go for a lower cost instrument. I agree with your concept, the banks driving this makes sense due to the huge consumer and merchant bases but the revenue coming from the credit card fees is the hurdle to overcome. If there are a few BIPS for the banks using the debit cards and/or ACH fee that is reasonable then there is the mass movement that can disrupt the current plastic trend. (my 2 cents)


  4. Ger Rottink

    Christopher, I agree. We also concluded that migrating from a (pre-paid, meastro driven (EU)) debit and/or credit card, connected to a wallet, to eventually full mobile payments, is the way to convince both, consumer and (POS) merchant/acceptant.
    What surprises me still though, is that no issuing party ( bank or non bank ) has seen the model of linking such a own branded card on the front end users side, and connect/link variuous banking accounts/cards as funding source. This model transfers/shares the customers ”ownership” ( and data if applicable) from A to B.


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