The recent acquisition of mobile payments provider Zong by Paypal would indicate the growing importance of the mobile networks as a payment platform. Indeed, Yankee Group are predicting that the value of this market will be somewhere in the region of $670bn globally by 2015.
In parallel recent statistics show that the feature phone market remains 7 to 8 times larger than the Smartphone market globally at present, however the predicted growth pattern of global smartphone shipments, coupled with the handset development policies of the major players in the space that is focused on making the Smartphone the ubiquitous device at all pricing levels, would indicate that the smartphone market is ready to explode across all markets.
So, if the smartphone is becoming ubiquitous, and it will be the most commonly used device to access the internet, why then would one of the internet’s largest payment platforms be interested in a payment mechanic that takes them out of the loop?
Well it would appear that the answer is more straight forward than one might otherwise assume;
Firstly, Mobile is the payment mechanic in everyone’s pocket!
Mobile device penetration in western countries and a growing number of asian markets is already more 100% (Over 118% in Ireland and over 140% in Finland for example!) Credit card providers can only dream of penetration rates like these. With some of the worlds largest markets also approaching 100% handset penetration there is also lots of growth potential.
Secondly, Mobile is fast becoming the most critical device in your life.
Like it or not, its already got your email, your contacts, your music, your photos and your must have apps – so why not your payment tools also. Merchants are also keen to reduce the burden of cash handling on their businesses, so cashless payment mechanics are going to be increasingly accepted as a means of facilitating the removal of some of the cash element. Brendan Kenney of Geodelic mentioned at the “Get Mobile 11” conference hosted by Dublin City University this week that the day he lost his phone he had a replacement within 60 minutes; the day he lost his wallet he cancelled his cards immediately and got around to getting a new wallet. It is probably a story that rings through for most of us!
Thirdly, A contractual billing arrangements already exists between the customer and the carrier network
Mobile carrier networks are utilities providers. As such they have highly sophisticated fraud monitoring mechanics and strict processes in place for the recoupment of monies outstanding to them. In order for the transaction to be processed in the first place, the network has had to confirm that this customer may have the charge added to their account, commiting themselves to retrieve this, so the merchant can be safe in the knowledge the payments are backed and confirmed as viable by the billing agent – the carrier.
Finally, The Value Added by the Carrier Network – DATA, DATA, DATA
For the same reason that Facebook is valuable so are the mobile carriers – its all about the DATA. In processing the payment, they know, its value, the retailer, the product / service being purchased, the time, and the location. Add this to the details already at hand such as, home address, contact information, personal demographic data, the spending habits and patterns and credit worthiness. Admittedly not all of this data may be shared but in its entirety this volume of specific data one each and every customer provides a hugely valuable resource for those willing to pay for highly qualified leads.
Are there threats to this?
Like any great, seemingly flawless, product there are undoubtedly some threats to its rollout and usage on a widespread basis. Primarily and most importantly is the simply the fact that the lines between the major players in the industry are becoming very blurred as the scramble for share of mobile payments gets underway. From a regulatory perspective, by offering small scale credit facilities the mobile carriers are effectively becoming banks and (perhaps correctly) will be treated as such by the market regulators in the financial services arena, of note recently was the move by Rogers Telecom of Canada to register as a bank with the Canadian Financial Regulatory Authorities. Also, while Near Field Communications (NFC) hardware embedded in mobile devices will allow contactless payments, and the carriers may offer their billing infrastructure behind this as the account to debit against, there is also nothing to stop these NFC Chipsets from triggering communications with other wallet or Account providers such as banks or, as seen in the trial on the New Jersey Transit system, Google Wallet! It is also difficult to see the incentive for the carrier networks in deployment of NFC reader hardware in merchant locations on this basis; it is more likely that exisiting merchant services providers (such as the retail banks) will provide NFC reader devices to their existing merchants as part of the renewal of hardware on the basis that the same NFC chipsets may also be deployed in traditional credit and debit cards.
So what is the future?
It is my opinion that while the NFC space may be somewhat crowded it will be a successful product that end users will adopt given the massive push that this has been given by major players in the telecoms, banking and now search industries. However, the undoubted benefits of the data that is available through direct carrier billing provides merchants as advertisers with invaluable quality of leads for the sale of their products whilst also providing a controllable payment tool for the end user in a variety of situations where the merchant is not / or does not need to be physically present. Paypal clearly believe that this is going to be the case and for me, that would serve as a pretty good indicator of the potential of this.
By Simon Bell