Mobile Money

The promise of mobile phones replacing the traditional wallet has been just around the proverbial corner for almost a decade. Mobile phone penetration in the United States is currently at saturation levels of more than 90 per cent. A recent International Data Corporation (IDC) study found that more than one-third of the population would choose their mobile phone over wallet, keys, laptop or digital music player as the item to leave the house with for 24-hours if they could only bring one. It seems we as a society are more ready for these devices than ever before.

So, what’s the hold-up? Well, several factors. First, the mobile communications and banking industries must agree upon a development and deployment plan. (For UK readers, last week’s announcement of the mCommerce Joint Venture looks a promising move in this respect.) Second, while a variety of approaches are available to enable the technology, none have been widely adopted by carriers and merchants. Finally, and perhaps most important, the value proposition for customers has been hard to define.

Financial services
Consumers have traditionally found it difficult to understand why waving their mobile phone in front of a point-of-sale (POS) terminal is in any way better than swiping a debit or credit card. Consumers are also generally less willing to experiment with their financial services. Still, things look quite good, as there have been a series of recent developments across each of these major roadblocks that might finally set the mobile wallet ball rolling, in the US at least.

A number of large players have increasingly been focusing resources on mobile wallet solutions. Three of the four major US wireless carriers - AT&T, Verizon and T-Mobile - announced a mobile wallet-related venture (Isis) just last year. Such cross-carrier cooperation was critical to ensure that US carriers didn’t each develop their own mobile wallet solutions that were incompatible with each other. A common, cross-carrier mobile wallet solution is likely to be a powerful stimulant.

The availability of cross-carrier text messaging is a good analogy to assess the impact this may have. Prior to 2004, each of the carriers had its own text messaging systems that didn’t interoperate with each other. The introduction of inter-carrier interoperable messaging was followed by a huge spike in US text messaging volumes.

In addition to carriers, others are joining the space as well. Google recently announced its Google Wallet product in collaboration with Sprint, Citibank, MasterCard and First Data. This is currently on trial on the streets of New York and San Francisco. Visa has also announced plans to launch its own solution with 14 banking partners by fall 2011. Amongst merchants, Starbucks has launched a mobile application that can be used to make payments across its 6,800 locations.

Critical momentum
From a technology perspective, Near Field Communications (NFC) is gaining critical momentum among the major US carriers, handset vendors and POS equipment vendors. NFC is a short-range and secure communications standard that is capable of enabling mobile phones to communicate with other NFC devices such as payment terminals, ticket kiosks and other phones. The Isis venture between AT&T, Verizon and T-Mobile backs the NFC-based approach, as does Google’s. Google has even enabled NFC within Gingerbread - the latest version of its Android operating system.

While there are currently few NFC-based phones in the US market (e.g. the Nexus S offered by Sprint), most major handset vendors have announced plans to NFC-enable their phones in 2012-2013. Major POS vendors such as Verifone are also integrating NFC within new equipment, lowering the cost of NFC-enabled terminals by roughly 70 per cent, and implying the appearance of NFC-enabled merchant POS terminals within three to four years (the typical POS replacement rate).

While signs appear to be quite positive for the technology, there continue to be a number of alternative approaches that also look competent. For example, Starbucks’ mobile payment application uses a barcode-based system similar to that used by some airlines for electronic boarding passes. Text-based payment systems, such as Obopay (India) and Safaricom (Kenya) have also proven popular in certain developing markets, though they may be less applicable in the US market.

Finally, and perhaps most important, we need to ask whether US consumers ready for a mobile wallet offer? Easy-to-use smartphones have increased the comfort level for consumers when it comes to relying on technology for daily tasks. Services such as Mint have made personal finance by phone much more accessible, and so a mobile app that acts as a wallet is an easily-grasped concept in today’s market.

Value proposition

Even so, the value proposition for consumers needs to be communicated as simpler, safer and more efficient. Managing all your finances across all your accounts on the go is now much easier - consumers can easily set and monitor budgets through intuitive applications on their phones.

Security is often raised as a concern for mobile wallets. “What happens if I lose my phone?” Consider this: if you were to lose your wallet today, you’d be required to call every bank and credit card company separately to deactivate your debit and credit cards. With a mobile wallet, you’d likely need to make just one call to your wireless carrier to deactivate your phone and all associated financial accounts on it. Mobile wallets will also enable dynamic, enhanced functionality using location-based information and consumer preference data, allowing consumers to do more.

So with almost all the major players engaging in the space, and technology and consumer adoption levels falling in place right behind, when will we finally be able to retire our cash-and-card stuffed wallets? All signs say 2013 will likely be the pivotal year for the mobile wallet. Or, perhaps you can truly now say: “just around the corner”.

Soumen Ganguly is a principal at Altman Vilandrie & Company