Mobile Payments’ Problem: Too Many Options

by Brad Moon | August 20, 2012 7:30 am

Less than two weeks ago, I wrote about digital payments[1]. That article looked at the surging movement toward replacing those credit card machines with — well, all manner of different alternatives. And therein lies the rub. Many players are all angling for a crack at this potentially lucrative opportunity. The piece ended with a warning about the danger of consumers having too many options.

Indeed, since that story was published, another blockbuster announcement came out. This time, it’s a new consortium called Merchant Customer Exchange (MCX) that’s planning to introduce yet another mobile payment option. MCX isn’t live yet, and according to The Wall Street Journal report[2] that outed the initiative to accept payment by smartphone, it doesn’t even have a CEO.

What MCX does have is the backing of four huge retailers, including Walmart (NYSE:WMT[3]) and Target (NYSE:TGT[4]), that combined account for $1 trillion in annual sales[5].

Who else is involved in the mobile payment business? Who isn’t? Banks, credit card companies, computer makers, smartphone vendors, telcos, startups and retailers are all throwing solutions at the wall and hoping one will stick. Here are a few of the more notable efforts:

Got all that? Beyond the sheer proliferation of options, another challenge facing digital wallets and mobile payment is security. For example, Google Wallet uses a PIN system that was compromised earlier this year[24]. Hack the PIN, and the hacker gains access to the Google Wallet — which can compromise all of a user’s credit cards, not just one.

Apple has been stealthily putting the pieces in place to take a run at possibly bringing its digital payment mainstream. First, it announced Passbook[25], a feature coming in iOS 6 that’s being promoted as a digital wallet for gift cards, admission tickets and passes. But not payments — yet.

Then came news at the end of July that Apple was paying $350 million to buy AuthenTec[26], a firm specializing in mobile payment security, including biometric technology such as fingerprint sensors.

It doesn’t take a cryptography degree to see where Apple’s ambitions lie. It’s a relatively small step to evolve Passbook into a true digital wallet, tied to credit cards or a bank account. While mobile payment through an iPhone would be dead easy, thanks to Apple’s considerable expertise in user experience, it could also become the platform that puts consumer fears about the security of mobile transactions to rest. After all, Apple just bought a biometric tech company.

Of course, there needs to be some gear at the point of sale to accept this payment, and hard to believe, but not everyone carries an iPhone. And that takes us back to square one.

Consumers and retailers became comfortable using credit cards, and then debit cards, because they were convenient, they seemed relatively secure (at least at the time) and they became nearly universally accepted. Carrying two or three credit cards and a debit card is easy. Carrying an iPhone, an Android phone and trying to keep track of which cards and accounts are associated with which digital wallets (and which might offer a loyalty bonus for a specific purchase) is a nightmare for consumers.

It’s also an unpleasant scenario for retailers, who would rather simplify their point-of-purchase systems instead of having to accommodate a bigger range of payment methods.

To really fly, mobile payments and digital wallets need two things: some semblance of a standard and solid security. Whoever eventually solves those two problems is going to win big.

As of this writing Brad Moon doesn’t own any securities mentioned here.

Endnotes:
  1. digital payments: http://investorplace.com/2012/08/digital-payments-pluses-and-minuses/
  2. according to The Wall Street Journal report: http://online.wsj.com/article/SB10000872396390444375104577590954176856154.html
  3. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  4. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  5. account for $1 trillion in annual sales: http://www.reuters.com/article/2012/08/15/retailers-paymentnetwork-idUSL2E8JF2RL20120815
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. EasyPay: http://www.forbes.com/sites/briancaulfield/2011/11/08/apple-makes-it-easier-for-apple-customers-to-buy-apple-products/
  8. Google Wallet: http://www.google.com/wallet/
  9. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  10. Square: https://squareup.com/
  11. Square just signed a deal with Starbucks : http://investorplace.com/2012/08/starbucks-to-accept-square-mobile-payments/
  12. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  13. PayPal: https://www.paypal-promo.com/anywhere/desktop/
  14. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  15. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  16. PayWave: http://usa.visa.com/merchants/payment_technologies/paywave.html
  17. INTU: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTU
  18. working on an NFC system: http://about.intuit.com/about_intuit/press_room/press_release/articles/2011/NFCInnovation.html
  19. ISIS: http://www.paywithisis.com/whatis.xhtml
  20. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  21. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  22. MA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MA
  23. PayPass Wallet: https://www.paypass.com/online/Wallet/Home
  24. compromised earlier this year: http://gizmodo.com/5883585/google-wallets-pin-system-has-been-cracked-but-dont-panic-just-yet?tag=googlewallet
  25. Passbook: http://www.apple.com/ios/ios6/
  26. Apple was paying $350 million to buy AuthenTec: http://investorplace.com/2012/07/apple-buys-fingerprint-tech-firm-for-356m/

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