Are mobile payments the new speech recognition technologies? One of the bigger stories in mobile this year has been the growing investment and hype behind the idea of using one’s mobile phone as a method of payment, but it’s pretty clear that the details of how any one company or organization will build a mobile-payments system are still very much up in the air.
Computer scientists have been promising that reliable speech-recognition software is just a few years away for decades, and while progress has been made even the best software leaves a lot to be desired. Similar promises are being made these days around mobile payments, and a sizable number of people and companies believe that the smartphone can be a natural evolution of the credit card in just a few years.
“There has never been a more exciting time in payments,” said Dave Talach, vice president of global product management at Verifone, echoing during a panel discussion at GigaOm Mobilize what many in the payments industry have been saying alongside the launch of products like *Google* Wallet.
But it’s not going to happen this year, and it’s not going to happen next year, Talach and his fellow panelists agreed. It may not even happen the year after that, as extensive field trials have to be conducted to make sure phones with NFC (near-field communications) technology work properly with merchant terminals and back-end payment-processing systems before any of this can hit the mainstream. Oh, and somebody needs to convince the average consumer why paying with their phone is easier, safer or more rewarding than pulling out cash or a credit card.
Mobile payment backers like Google (NSDQ: GOOG) like to point to the use of NFC technology in lots of places already, such as gas stations and restaurants. But those strategies have actually been a disaster, according to Laura Chambers, senior director of PayPal Mobile.
“Merchants have been burnt by NFC,” she said, referring to the cost required to build out payment infrastructure to support credit cards with NFC, which are used in “less than 1 percent of transactions.” Such cards are used more widely in Europe and Asia, but have yet to really catch on in the U.S.
Square’s Keith Rabois, chief operating officer of a company that makes a mobile credit-card reader and iPhone application, unsurprisingly agrees with Chambers’ view.
“We don’t think NFC is going to resonate with mainstream consumers,” he said in a conversation with Om Malik of GigaOm before the mobile-payment panel. “It’s good cocktail-party chatter.”
Yet NFC technology is getting serious backing from Android phone makers as well as Research in Motion (NSDQ: RIMM), while everyone waits to see if Apple (NSDQ: AAPL) decided to include the technology in the iPhone 5. Paypal is actually planning to release an app later this year that lets users of NFC phones pay each other, Chambers said, implying that Paypal will hedge its bets as it goes.
The real problem isn’t technology or tricky partnerships like Isis, a mobile-payments consortium backed by archrivals AT&T (NYSE: T) and Verizon. (“A joint venture between competitors is tough to execute on,” said Brad Greene, senior business leader at Visa, which is actually a member of Isis.)
It’s convincing people why they need or want this technology, said Ken Miller, vice president of strategic risk services at Intuit.
“The entrenched leader right now is cash or plastic, which takes two seconds. You have to come up with something that is as good or better, plus perks, to get mass consumer and merchant adoption,” he said.
There are definitely some areas to exploit. Verifone’s Talach brought up the good point that mobile-payments technologies eliminate paper from the payments equation, such as paper coupons or paper receipts.
Chambers agreed, citing a study that Paypal did examining what people carried around in their wallets. “The digitalization of coupons and loyalty cards, there’s tremendous value in that. Any solution that’s just trying to change payments is not going to be successful,” she said.
And Visa’s Barnes noted that while there is a need for extra promotion in countries where payments systems already work pretty well, there are plenty of places in the developing world where credit-card systems are poor or nonexistent, people use mobile phones constantly and distrust of banks is high. Mobile payments would be competing with cash in those areas, and could actually be seen as far more convenient and safer than walking around with a wallet full of cash.
So despite all the hype in 2011, even those working hard to promote mobile payments as a more convenient (and data-rich) method of payment for goods and services are urging caution.
“The 2010s are the decade for mobile payments,” said Intuit’s Miller, dismissing suggestions that 2012 might be the year of mobile payments. “To me it’s analogous to the Goodyear tire coming out when everyone has a horse and buggy.”