Mobile payments is a hot topic in technology circles – but there are as many definitions of what the term means as there are companies vying for the dollars of finger-swiping, screen-staring shoppers.
One part of the market is an extension of ecommerce – ways to help consumers shop online via their mobile. This is what Vocalink’s start-up Zapp will be trying to crack when it launches later this year, after announcing on Wednesday that it will be enabled for 35 per cent of UK account holders and 60 per cent of UK merchants.
It is a crowded and fragmented market. Other segments include person-to-person payments, services that help retailers cut the costs of processing transactions, and ways of allowing customers to pay in-store on their smartphones.
There are about 7bn mobile phone accounts worldwide, but only 1.3bn credit and debit accounts, according to Morgan Stanley. This gap indicates there is money to be made both by increasing the total volume of transactions and in replacing existing card transactions with mobile payments, it adds.
The question is which of the many new entrants will become profitable.
The real money, analysts say, lies in companies that use their platform to analyse and resell consumer data to retailers – as well as offering reward schemes and targeted advertising to consumers.
“The key thing to look at is what value the service is offering to customers and whether the customer cares about this value proposition,” says Sandy Shen of technology firm Gartner.
So far consumers are not flocking to use smartphones in stores instead of credit cards, with services such as Google Wallet and Isis struggling to attract users. In a back-to-the future moment, Google launched a debit card for its digital wallet at the end of last year.
Part of the problem is the profusion of technologies. These range from “near field communication” chips that use radio signals to process payments by touching phones against a reader, to QR codes that can be snapped with cameras.
The different options can be baffling and prevent a standard developing among shoppers and retailers. Between 2011 and 2012, the number of customers wanting to pay with a smartphone at shop counters fell 3 percentage points to 10 per cent, according to a survey by payments consultancy Vantiv.
Zapp has pushed back the release of its in-store option from the start of 2015 to the end of that year because of the difficulties of integrating smartphone payments at shop tills.
“ ‘Mobile payments are dead, long live digital payments’ is the mantra,” says Ian Foottit, a consultant at Deloitte. Businesses need to look at smartphones as just one tool in an overall shopping experience, rather than a commercial panacea to increase transactions, he says.
What is likely to encourage the adoption of mobile payments is an appreciation that payment itself is incidental.
Later this year PayPal will introduce a device called Beacon, a small piece of hardware that retailers can install to alert them to when customers step into the store, and which can be used to send coupons or marketing messages to the user’s phone.
“What often seems like a payments play is actually a play on information,” says Jens Münch, UK managing director of iZettle, a Stockholm-based company that uses mobile technology to provide low-cost card processing for small businesses.
Another question is whether the sector will consolidate around one company or technology that consumers use in different contexts, or whether different companies will capture different consumers – a payments service for restaurants and another for impulse purchases made after seeing an ad, for example.
“This market is big enough to accommodate multiple players,” says Ms Shen. “I think the technologies are going to compete with each other and be suitable for different use cases.”
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