Will 2012 Be the Breakout Year for Mobile Payments?

Navigator Edition: Mobile Commerce & Alternative Payments: SPECIAL EDITION
By: Paul Grill

2011 was an exciting year in the development of mobile payments. Among others, the year will likely be remembered by events such as:

  • The launch of the Google mobile wallet;
  • Isis’s continuing development, including forging relationships with all of the major US payment networks;
  • The rapid growth of Square and support the company has attracted from investors such as Visa;
  • PayPal’s significant growth in mobile transaction volume ($4.0 billion), acquisition of Zong, and announcement of plans to expand mobile functionality beyond payments;

Despite progress that’s been made, the industry still has a lot of work to do to realize the full vision of mobile commerce, where consumers can efficiently use their mobile devices to find what they are looking for, redeem targeted offers, and pay for their goods. While no single roadblock is holding up the development of this vision, several trends are having a strong impact on how mobile is evolving.

  • Commerce (marketing, advertising, coupons, offers, etc.), rather than payments, is driving mobile business cases for new entrants and established payments competitors. Many companies view commerce transactions as having several times the economic potential of payments transactions, but few organizations have in-house expertise to be successful in the segments of the commerce value chain that drive the greatest revenues (i.e., sourcing offers from merchants and leveraging unique data to target offers).
  • Many banks aren’t prepared to enable mobile payments. Mobile requires new technologies, processing capabilities, and servicing approaches that differ from established practices. While providers are quickly deploying Trusted Service Manager (TSM) and other solutions to enable mobile, committing resources to implementation in the current market environment is challenging for many banks without a clear business case. Furthermore, banks that may be concerned about potential customer data or relationship impacts need to evaluate the range of economic, data use, handset access, and other value propositions being offered by mobile payments enablers.
  • Merchants haven’t yet embraced NFC. Perhaps only 5% of US terminals have been enabled for NFC. However, shipments of NFC-capable terminals are increasing, and the upcoming ISIS trials and Visa EMV requirements may spur more deployment.  More important, most leading retailers are enabling other forms of mobile functionality (e.g., shopping apps, store locators, loyalty programs) that will provide a foundation for future mobile payments functionality.

Despite expectations that 2012 will deliver a wave of NFC-enabled handsets in the US market, viewing 2012 as the breakout year for mobile payments is probably wishful thinking. Rather, 2012 will be a year of learning. Among others, we expect to find out:

  • If merchants are willing to embrace NFC-based mobile technology (and as a by-product whether the currently envisioned Google and Isis models will be the driving platforms for NFC development);
  • Whether emerging, cloud-based solutions can provide a mobile payment experience that rivals NFC;
  • If mobile can transform offers and other promotional tactics to the “surgical strike” vehicles they are envisioned to be (or whether consumers and merchants grow fatigued of “carpet bombing” approaches); and,
  • If banks are willing to begin making the investments in mobile payments and commerce that are necessary to head-off the long-term disintermediation of their payments products.

These learnings, while they may be slow and sporadic to realize, will provide valuable insights into how mobile will eventually transform the payments landscape. Despite that some (maybe many) approaches to mobile commerce not will flourish, it is not too soon for banks, merchants, acquirers, and other established payments players to take action to develop their own mobile knowledge base and capabilities. The mobile payments growth “hockey stick” is inevitable; at this point, it’s just a question of when and with what technologies.

For more information, please contact Paul Grill, Partner specializing in the Mobile Commerce & Alternative Payments Practice Area, paul.grill@firstannapolis.com

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