Mobile payments is a topic that always appears fresh, yet is somehow perennially disappointing to industry watchers, enthusiasts and prognosticators.
Every January brings the question: "Is this finally the year of mobile payments?" But in reality, the payment ecosystem is complex enough — from both a technology and a cultural perspective — that mobile payments will be an incremental revolution, not the sudden Facebook-style tidal wave of adoption we seem to be anticipating.
But no one should mistake this comparative slowness for hype. What the usual conversation misses is that each of the key players in the ecosystem is motivated by different outcomes. "The Year of Mobile Payments" will arrive only when all of them — providers, merchants and consumers — are sufficiently motivated to change. To put it in project manager-speak, we have three separate critical paths on the road to mobile payments.
On the payments provider side, foundational elements around security and mass-market authentication are being laid, and intra-industry roadblocks, like host card emulation, are being resolved. Remember, however, these are deep technology changes, being implemented amongst highly competitive, yet extremely risk-averse organizations that are only interested in increasing their market share relative to cash, checks or each other. And mass adoption of any type of mobile payments system means the potential for trillions of U.S. dollars in transactions, so no one in the industry is really looking for a Silicon Valley startup to pull an out-of-the-blue overnight revolution.
When heavy-hitting brands like Verizon, Samsung, Visa and Google are jockeying to ensure they have a competitive advantage in a very murky landscape, we should be grateful to see any progress at all. This is why a dense press release from MasterCard that starts with "MasterCard today announced it will publish a specification that leverages Host Card Emulation for secure near-field communication payment transactions" is greeted with such enthusiasm by the industry.
Of course, merchants — both large and small — have their own motivations and their own concerns. They believe (probably rightly) they've been getting the short end of the stick in the payments ecosystem for years, so they are highly motivated to avoid funding the next generation of profit for payment networks, issuers and acquiring banks. And make no mistake; there is really no generational change possible in payments unless merchants adopt the technology to make it possible.
That said, the potential for hardware and governance change driven by the Target data breach is huge. Merchants that resisted expensive POS upgrades for years are taking the brunt of the blame for consumer security issues and are now looking for PR wins. Right or wrong, it looks like payment providers will use public pressure to shift liability for insecure mag-stripe transactions to the merchant. NFC may ride in on the back of chip-and-PIN, and the entire industry may get its long-awaited hardware upgrade.
However, if there's one issue above all that blocks innovation in the mobile payments space, it's this: The payment solution that each of us has today in our wallets is pretty darn good. In fact, it's better, in general, than any digital wallet or mobile app we've seen in production, and arguably better than any of the various vaporware products we've seen hyped in the mobile payments news cycle.
As consumers, we benefit from convenience, comprehensive liability and fraud protection, and a variety of pretty convincing value-added loyalty benefits. And a credit or debit card only weighs five grams and can go through the washing machine.
However, there have been some successes already in closed-loop and loyalty payment systems. In fact, the case could be made that Starbucks' $1 billion-per-year smartphone payment system signals that mobile payments have already arrived and are already thriving on the "small" scale.
The success of these systems points us to the final piece of the puzzle: A dollar spent through mobile payments must go farther and do more for the consumer than a dollar spent from traditional cash or card payment systems.
Mobile payments systems, when they arrive, must provide value-added benefits that are uniquely associated with their mobility, their cloud-connectivity and their data-driven personalization. This value to the consumer must be significant enough to overcome the inertia of existing product familiarity and the challenge of the user adoption curve. Only then will consumers be motivated to exchange what's in their wallet for what's in their phone, their wearable or their cloud.
Jon Eberly is a founder and the chief executive of Clock Four Inc., a digital marketing and technology agency with offices in San Francisco and New Jersey.