Is Mobile Commerce at a Tipping Point?

Mobile commerce is in a hype cycle, with high expectations for growth. The issue is whether it is at a tipping point, the point of critical mass where an adoption inflection point occurs, and "overnight," it seems, a new trend gets established. 


You should expect to hear lots of speculation about mobile commerce, mobile payments or mobile wallet efforts reaching a critical mass or tipping point in 2012, as it is the time of year for attention-grabbing predictions. What is a tipping point?


You should remain circumspect. Something big is coming. But it still is "coming," it is not going to be "here" in 2012. 

Get Ready for Wave of Skepticism About NFC

The 2011 KPMG Mobile Payments Outlook, based on a survey of nearly 1,000 executives primarily in the financial services, technology, telecommunications, and retail industries globally found that 83 percent of the respondents believe that mobile payments will be mainstream within four years (by 2015).


In fact, 46 percent believe mobile payments will be mainstream within two years.



But there is room to disagree about the accuracy of those projections. One might argue that forecasts of this sort are notoriously unreliable, with respondents overestimating near term prospects.



Analysts at Gartner, for example, use a model of how expectations for significant new technologies running in a predictable cycle. What the cycle suggests is that expectations nearly always (always, according to the model) run ahead of marketplace acceptance.



What the Gartner hype cycle suggests is that expectations for mobile payments using near field communications are at a point where we can expect five to 10 years to elapse until NFC actually begins to make serious inroads as an adopted mainstream technology. The emphasis probably is important to note: “begins.”



But KPMG analysts take the opposite view, arguing that respondents are too pessimistic. “We believe that exploding smart phone growth and myriad opportunities will grow mobile payments at a much faster rate than our respondents anticipate,” said Gary Matuszak, KPMG Global Chair of the Technology, Communication and Entertainment practice.



“While KPMG believes that these forms of mobile payment will all gain some traction, our view is that mobile wallet is one of the most exciting and promising payment opportunities,” analysts say.

Mobile wallet provides the momentum to move beyond payments to participate in the entire chain of mobile commerce, from consideration and brand awareness to purchase after-sales loyalty and care,” said Tudor Aw, Technology Sector Head, KPMG Europe.
Banks, mobile service providers have key roles in mobile payment

If Gartner analysts are right about the near field communications "hype cycle," we should soon see some public "disillusionment" expressed about near term prospects for NFC. The reason is that Gartner now sees NFC at the "top" of its hype cycle, the point at which overly-optimistic projections face the reality of an extended period of development, before something "useful" actually emerges.

Internet TV, NFC payment and private cloud computing all are at what Garner calls the "Peak of Inflated Expectations," which is always followed by a period where the hype is viewed as outrunning the actual market. That suggests NFC soon will enter a phase where expectations are more measured.

In fact, Gartner now expects it will take five to 10 years before NFC is in widespread and mainstream use. Gartner's latest expectation likewise is that cloud computing and machine-to-machine applications will not be mainstream for another five to 10 years as well. Gartner's 2011 Hype Cycle

Consider some of the issues that will have to be settled before mobile commerce can reach a tipping point. First, the communication methods need to settle, whether NFC or other approaches are considered. 


Carrier billing could play a crucial role in how consumers start easing into the idea of mobile commerce, but mobile service providers will have to revise traditional pricing, as a payment scheme costing more than a credit card or debit card charge will not work, especially for small ticket purchases, where carrier billing seems most germane. 


Many of us believe "daily deals" are crucial, as a key source of new value for mobile wallet services that answer the question of "what's in it for me?" for both consumers and retailers. Right now, most mobile payment systems cannot provide simple answers for retailers and consumers.


Then there are all the privacy issues related to personalization and location-based targeting, which are certainly going to grow in importance.  Top 7 Mobile Commerce Trends in 2011:

MasterCard invests in mFoundry

MasterCard has made an investment in mFoundry, the developer of mobile banking, payment and commerce solutions that created the Starbucks mobile payment system. MasterCard also seems to be interested in mFoundry's relationships with hundreds of banking institutions that have created their own branded apps. 

Intel Capital, Fidelity Information Services and Motorola Mobility also are said to be part of the funding round for mFoundry. Previous investors include PayPal and NCR. The list of backers illustrates some of the dimensions of the developing mobile commerce ecosystem, which includes mobile handset, payment clearing network, retailer terminal, mobile wallet and mobile advertising and marketing functions as well.

For the past five years mFoundry has been developing mobile banking applications for banks that typically enable users to check their balances and conduct other financial services from their phone.



Going forward, MasterCard wants to work with mFoundry to enable those applications to make payments at the register using MasterCard’s near-field communication (NFC) technology called "PayPass." MasterCard invests in mFoundry

Will Mobile Commerce Will Be Driven by Better Experience and Increased Control?

Despite the fact that mobile commerce will include payment and transaction mechanisms, mobile commerce, and a good deal of retail commerce, will not be primarily about the change in payment mechanism, argue analysts at mobileYouth.

In fact, control and access to information will be more important for users, mobileYouth predicts. Payments may be important for the generation without credit cards but it’s their fear of losing control, and avoiding surprises, that will drive adoption.

Mobile commerce also will be about sharing and reclaiming the social experience, mobileYouth predicts. Mobile commerce is not just about making the purchase more informed, or easier, but making it more social.

Providers need to think less about the payment and more about the shared experiences and activities made possible by mobile payment systems. In other words, replicating the value of "hanging out together at malls" is more important than providing a new way to pay for things.

Mobile commerce: information and experience

Era of E-Commerce is Over

Forrester Research e-commerce forecast

John Donahoe, CEO of eBay, has said that the concept of e-commerce is dead and buried, since consumers really don’t care about where they buy, so long as they get the cheapest price. You can thank increasing use of mobile technology for that change.

Now consumers are walking into retail stores, and using their phones to identify better prices for goods they like, and will use either online or offline purchasing to get the price they want.


“Over the last 12-18 months we at eBay have changed our view on e-commerce,” he explained. “We’re now seeing a profound change in how consumers are behaving, and we’re going to see more changes in the next three years than we’re seen in the previous 20 in terms of shopping and payments." 

NFC handset forecast

"Mobile devices are blurring the lines between online and offline at a rate no one would have predicted.” eBay boss declares era of e-commerce is over

As for eBay’s strategy, Donahoe said the company is presenting itself as a retailer-agnostic platform. Price comparison applications on the site will show a broad range of suppliers, all displayed on a level playing field with the competition. eBay will simply process the sale.

Mobile Content in the Shopping Process

Brands now have to create and distribute content available "for free" when and where customers need it on social media platforms. The other corollary is that brands have to avoid  "pushing" promotional information when consumers are looking for answers.


While marketers like to use every media channel to deliver marketing promotions, you must understand consumers' shopping-related needs have evolved.

They now want and access information before, during, and after they make a purchase. 


With U.S. smartphone usage at 40 percent, it's critical to offer customers the information they want and need wherever they are in the purchase cycle and physically (since they may be in your store or your competitor's).

Social Media and Shopping

Mobile "Payment" is Shifting to "Wallet"

Bloomberg technology writer Rich Jaroslovsky has been testing the new Google Wallet, and at least for the moment thinks mobile payment and wallets are less about improvements in the payments process, and lots more about the marketing and promotion advantages.

"This is really the secret sauce in mobile payments, because while, yeah, it is kind of a little bit more convenient, that isn't really what's going to get people to use it," he says. "What's going to get people to use it is the possibility that they can save money." Mobile payment more marketing than "payment"


The mobile payments business is starting over, says David W. Schropfer, a partner at Luciano Group. Ironically, as both Isis and the Google Wallet systems now essentially disclaim any interest in revenue from the transaction process, seeking instead to build new businesses based on advertising and loyalty, the “wallet” part of the mobile commerce business now seems to have “substantially slowed mobile commerce development in the rest of the developed world.”
To a large, though not complete extent, “payments” now are taking a back seat to “wallets,” which probably means we are headed for a period where “mobile commerce” becomes the headline phrase, not necessarily “mobile payments.” Mobile payments starting over 

Mobile Payments Business is Starting Over, Says Schropfer

The mobile payments business is starting over, says David W. Schropfer, a partner at Luciano Group. Ironically, as both Isis and the Google Wallet systems now essentially disclaim any interest in revenue from the transaction process, seeking instead to build new businesses based on advertising and loyalty, the “wallet” part of the mobile commerce business now seems to have “substantially slowed mobile commerce development in the rest of the developed world.”



To a large, though not complete extent, “payments” now are taking a back seat to “wallets,” which probably means we are headed for a period where “mobile commerce” becomes the headline phrase, not necessarily “mobile payments.”

The new direction, at least for many significant players, seems to be a recognition that “significant revenue is available from the advertising, retention and rewards programs,” says Schropfer. That’s the upside.



The other recognition is that the payments ecosystem cannot easily afford to support many new “mouths to feed” in the revenue chain. Complicated ecosystem That being the case, the incumbent participants have every incentive to use their considerable resources to thwart entry by a new category of participants, says Schropfer.



Make no mistake, there still remains  a potential disruption here. But it is a disruption of the broader commerce process, not the “payments” process in a narrow sense.



One might also argue that the “commerce” angle, aiming to reinvent the shopping experience, almost automatically answers the question of “what’s in it for retailers” in a way that “payments” systems have not. Merchants care about loyalty, customer retention and promoting customer traffic. The “Wallet” approach addresses all three of those concerns, in addition to providing value for consumers.

Loyalty programs and systems generally refer to programs intended to bring a consumer into a specific merchant with incentives such as coupons, discounts, and other incentives, says Schropfer. The advantages for consumers and merchants therefore are pretty clear.



“Remarkably, there are over 2.1 billion loyalty and rewards programs currently
issued to customers in the United States,” Schropfer says. “With only 300 million total
population, this equates to almost seven accounts for every individual in the United States.”



Just as important, retailers are willing to spend money to acquire new customers. “In a study by international consultancy Deloitte, the company estimated that merchants  are willing to pay between seven percent and nine percent of a transaction amount to acquire a new sale,” Schropfer says. 


That’s important because it suggests where a wallet revenue model lies: getting paid by a merchant to deliver a customer.



“Starting over” is a bold statement. But it is hard to deny that, with some exceptions, much of the activity in what used to be the “mobile payments” business now has shifted in the direction of “mobile wallet,” with a revenue model based on loyalty, offers, advertising, marketing, promotion and other elements of the commerce system.



One might argue that there are some areas, such as enabling use of a smart phone as a credit card reader, or integration of PayPal as a retail payments method, various forms of social and virtual currency or overseas or person-to-person remittances continue to be important for some segments of the “payments” business. 

Still, for the moment, “wallet” seems to have emerged as the more-important aspect of change in the mobile commerce arena, eclipsing “payments” for the moment, even though “wallet” value is sometimes harder to describe. “Starting over” is an important phrase, whether one agrees or not.