By Patti Murphy
ProScribes Inc.
Despite several fitful starts, mobile payments are taking root. It seems quite possible that 2012 will be the year when mobile payments finally take off in the United States. There are plenty of data points to bolster this prediction, as well as a few stumbling blocks to broad adoption.
According to the International Telecommunications Union, there are more than 5 billion mobile subscribers worldwide, and mobile cellular signals cover 90 percent of the world. Many of the phones in use are basic devices. However, adoption of smart phones (a prerequisite for most mobile payment applications) is growing fast. In the United States, 40 percent of mobile phone users over the age of 18 had smart phones as of July 2011, according to The Nielsen Co. Smart phones are owned by 62 percent of 25- to 34-year-old U.S. consumers, Nielsen reported. A survey conducted on behalf of MasterCard Worldwide found 62 percent of U.S. consumers who use mobile phones are interested in using them to make everyday purchases. And here's another data point: according to IBM Corp.'s Coremetrics service, 15 percent of Americans who log onto retail websites this holiday season will do so via mobile devices.
Meanwhile, the Independent Community Bankers of America reported that nearly 15 percent of community bankers offer mobile payments; another 50 percent plan to offer mobile payments by 2013, according to the 2011 ICBA Community Bank Payments Survey.
In addition, Sir Richard Branson's international conglomerate Virgin Group Ltd. just invested in Square Inc., the mobile payment startup that aims to become the credit and debit card processor of choice among budding entrepreneurs.
Square claims to have over 800,000 of its card reading devices in the marketplace and predicts the devices will be used to make over $2 billion in payments in 2011. Square has also secured funding from Visa Inc. and venture capitalists in excess of $100 million.
Mobile payment innovator ROAM Data Inc. has shipped over 300,000 of its dongles, primarily through ISOs and merchant level salespeople, and expects to have 1 million of its devices in the market by next summer. Originally only available online, Square now has distribution agreements with leading retailers, including Wal-Mart Stores Inc. Square offers rebates to cover the retail cost of the devices.
Meanwhile, Visa has an electronic wallet product in Beta testing, V.me by Visa, that works with mobile devices and is expected to be widely available in early 2012.
The company has also been working with Google Inc. to integrate Visa's payWave technology with the new Google electronic wallet. Visa and the other leading card brands also participate in ISIS, a mobile payment venture launched by leading telecommunications firms AT&T Mobility, Verizon Wireless and T-Mobile USA.
Given all the activity in the marketplace, it should come as little surprise that 80 percent of merchant acquiring executives queried by Aite Group LLC earlier this year were bracing for a dramatic increase in card accepting businesses that want mobile payment functionality.
Unfortunately, 80 percent of payment networks are not ready to support mobile applications on the back-end.
"The current inflexibility of transaction-routing infrastructure ensures that the existing authorization infrastructure will be unable to handle new transaction types" created by mobile devices, said Rick Oglesby, Senior Analyst at Aite and author of the report titled The Hosted POS: Enabling Mobile Marketing and Mobile Payments in the United States.
Visa has begun addressing the situation by expediting efforts to get Europay/MasterCard/Visa (EMV) up and running in the United States. EMV chips can be used to support plastic card payments or integrated with smart phones and other mobile devices to support tap-and-go payments.
"By encouraging investments in EMV contact and contactless chip technology, we will speed up the adoption of mobile payments as well as improve international operability and security," said Jim McCarthy, Visa Global Head of Product.
The United States has been slow to adopt EMV for a variety of reasons. But the strength of those arguments dissipates as EMV adoption in other western economies drives more card fraudsters here.
Chip technology greatly reduces fraudsters' ability to steal payment card data by replacing transaction information with dynamic values. That way, even if card data is compromised, it can't be used to create a usable counterfeit without the requisite coding contained in the card's chip.
Visa is taking a carrot-and-stick approach to merchant adoption of EMV: migrate at least 75 percent of Visa transactions to POS devices that accept both contact and contactless transactions, or assume the financial fallout of any card frauds that occur as a result, beginning in 2015.
Most large merchants already have EMV terminals in place; many smaller merchants do, too, said industry consultant Paul Martaus. Where the technology support is lacking for EMV is on the back-end, Martaus said.
Under Visa's new migration plan, acquirer processors and their partners have until April 1, 2013, to have technology in place that supports authorization and processing of chip-based payments.
This will demand systems changes, including the ability to carry and process additional information such as the cryptographic messages that mask transaction information, Visa said.
George Peabody, Director of Emerging Technologies Advisory Service at Mercator Advisory Group, described Visa's move as a "welcome step" in the fight against card fraud. "There is no security silver bullet," Peabody said. "But smart cards and smart phones using EMV add a strong layer for payment transaction security as well as online banking, access to medical records and more."
The Ponemon Institute, a Michigan-based think tank, surveyed consumers this summer and found 61 percent owned smart phones; it also found that credit cards and PayPal Inc. dominate online payments, with 61 percent using PayPal most often and 53 percent using credit cards.
Those preferences will have a spillover effect on mobile payments if results of a survey of online shoppers by the firm Ogilvy & Mather are indicative. That survey revealed that consumers trust Visa-branded mobile products over all other brand names.
Other companies mentioned, in descending order of preference were: MasterCard, American Express Co., PayPal, the U.S. Postal Service, Apple Inc., Microsoft Corp., Google Inc., eBay Inc. and Facebook.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com.
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