One promise of smartphone technology was relief from an affliction known as the “Costanza wallet.” You know — that bursting wallet you get when trying to stuff cash, credit cards, loyalty cards, debit cards, credit cards and coupons into a billfold small enough to pocket?
Instead, digital payments would let you just wave your smartphone at the checkout. No more fumbling for cards, no digging through pockets or purses for coupons, no need to carry cash.
But although Forrester has been calling for U.S. mobile payments to hit $90 billion by 2017, the game-changing industry has been off to an awfully slow start.
According to GigaOM, U.S. consumers spent only $500 million using mobile transactions in 2012, and the majority of that was from the Starbucks (SBUX) barcode app. So while nascent technology like mobile payments admittedly take a while to ramp up, we are a long way away from $90 billion. Heck, the situation is bad enough that Google (GOOG), which has been pushing its Google Wallet near-field communication (NFC) “tap and pay” system for in-store shopping, very nearly stooped to releasing a physical credit card.
What gives? Well, mobile payment has encountered numerous barriers, with perhaps the biggest challenge being the sheer number of contenders for a mobile payment standard.
Consumers don’t want to carry around multiple device or install multiple apps or try to keep track of which retailer uses which mobile payment technology. That’s just as bad as having to carry around an overstuffed wallet.
And retailers don’t want to have their checkout counter cluttered with an assortment of scanners, readers and receivers, or have to worry about integrating all these different payment methods.
Google faces a particularly vexing problem with its push for Google Wallet. Sure, Android is the top-selling smartphone platform and many new Android, Windows and Research in Motion‘s (BBRY) BlackBerry are equipped with the NFC chips needed for ‘tap and go” payment.
But wireless carriers are making their own plays for a mobile payment standard.
Verizon (VZ), T-Mobile USA (TMUS) and AT&T (T) are part of the ISIS mobile payment standard … and they block Google Wallet on phones on their networks. Among big U.S. carriers, that leaves only Sprint Nextel (S) smartphone owners — who aren’t carrying an iPhone — able to use Google Wallet in stores. As a result, Businessweek reports that Google Wallet is “leaking money.” Acquisitions to support the mobile payment service hit $300 million, while app downloads for the last two years have only hit 10 million. For the icing on top, processing fees leave Google losing money on every transaction.
Making an even bigger mess of things is the fact that the company that leads the U.S. in smartphone sales — Apple (AAPL) — doesn’t offer NFC in any of its smartphones. It does use its own proprietary in-store payment app, but that only works in Apple Stores. It also offers an OS-level feature on its smartphones called Passbook that serves as a digital wallet for tickets, coupons and boarding passes.
Apple also recently acquired a biomentric company AuthenTec, touching off rumors that a forthcoming iPhone will incorporate fingerprint authentication — addressing one of the key concerns about mobile payments: security. Given Apple’s past history of going it alone and pushing its own standards — along with its still considerable sway in the tech industry — many people are waiting to see what Apple eventually does before committing to a mobile payment scheme.
An obvious follow-up question is: What about Square — the company that was going to revolutionize mobile payments by putting a card-reading dongle on every iPhone and that announced a deal last August with Starbucks to let customers in 7,000 stores buy coffee wirelessly using their smartphone and Square’s Wallet app?
Well, this article in Smart Company outlines the challenges that initiative has run into. In short, between roll-out, training and integration, it doesn’t seem quite ready for primetime. That’s why most of that Starbucks mobile payment volume I mentioned earlier has been using Starbucks’ own mobile app, not Square Wallet.
All this considered, the bottom line is clear: Mobile payment is not going to take off with a dozen competing standards. Heck, to top it off, even the existing credit card point of sale companies like VeriFone (PAY) are entering the mobile payment market in an attempt to fend off these new players.
Still, there’s a lot at stake, so everyone from smartphone manufacturers to wireless carriers will keep chasing the prize. So far, despite throwing hundreds of millions of dollars at the problems, Google and other technology companies have failed to become the standard — or even make much headway — in the mobile payment business.
The question is whether someone can gain enough momentum to seize control and become the mobile payment standard before consumers and retailers tire of the mess.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.