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From the January/February 2009 issue of ISO&Agent magazine.
As ISOs seek to expand their revenue streams and services in a payments industry with ever-tightening margins, some are looking at mobile devices as the future for transaction growth.
It is not a matter of whether widespread use of mobile payments, in which consumers conduct transactions at the point of sale using payment-enabled mobile devices, will happen but when, says Nick Holland, senior analyst with Boston-based Aite Group LLC.
"It's coming," Holland says. "It's not debatable at this point."
Despite the existence of mobile-payment technology and the certainty by many observers that mobile payments will be in use nationally in the near future, many ISOs are unaware of the technology, says Sam Caine, president of Card Payment Services Inc., a Frisco, Texas-based ISO and processor. Many ISOs also are unaware of the revenue potential that exists with mobile payments in selling ancillary products and contactless-enabled terminals to merchants, he says.
Few ISOs that are aware of mobile payments know what actions to take now to make them profitable in the future. "Do we want to make revenue on [mobile payments] when it comes to pass in the future? The answer is yes. Is it something I've paid a lot of attention to? No, it hasn't been," says Wayne Keddy, CEO of Granite Payment Alliance, a Roseville, Calif.-based ISO.
ISOs such as Keddy's that eventually want to earn revenue from mobile payments first should educate themselves and their merchant clients about mobile technology, mobile-payment insiders agree.
State Of Mobile Payments
Predictions for when a national rollout of mobile payments will happen vary. Adoption estimates "are all built around how quickly mobile pilots turn into mobile deployments," says Randy Vanderhoof, executive director of the Princeton Junction, N.J.-based Smart Card Alliance, a nonprofit association for the smart card industry.
Awele Ndili, CEO of MShift Inc., a San Jose, Calif.-based provider of mobile-banking services, predicts mobile payments will become more common in two to three years. "It is going to be in synch with other applications, such as e-commerce and mobile banking. We're certainly going to see more mobile applications and a big uptake of mobile banking," says Ndili.
A majority of consumers view the prospect of using mobile devices to pay for purchases at the point of sale "somewhat appealing" to "very appealing," suggest the results of a Monitise Americas LLC survey. Eighty-four percent of survey respondents expressed interest in contactless mobile payments, with 46% finding the concept "very appealing" and 38% "somewhat appealing."
Among respondents ages 18 to 24, 88% view contactless mobile payments "somewhat appealing" to "very appealing," while 85% of those ages 25 to 44 and 84% of respondents ages 45 to 65 find it appealing. MaCorr Research in November conducted the online survey of 1,134 U.S. adults ages 18 to 65 who have and use cell phones regularly.
"No one is debating [mobile payments] will happen. The driver is consumers," says Lisa Stanton, CEO of Monitise Americas, a Providence, R.I.-based provider of mobile-banking and mobile-payment services.
Though mobile-payment technology exists, the path to a national rollout is not without difficulties.
Confusion and disagreement regarding how the multiple organizations involved should share the expenses and revenue from Near Field Communication mobile payments have hampered its rollout, note industry analysts. As such, the technology will be unable to offer viable, large-scale mobile-payment capabilities for at least six years, according to a recent report issued by ABI Research Inc., an Oyster Bay, N.Y.-based firm.
Near Field Communication is a wireless communication technology that enables devices, including other NFC chips and readers, to exchange data. NFC-enabled payments differ from regular contactless payments in that non-NFC-enabled contactless devices, such as cards or fobs, do not have two-way communication capabilities.
Those involved in NFC-enabled payments include merchants, wireless operators and card issuers, and each has multiple costs to cover, says ABI Research senior analyst Mark Beccue. For example, it can cost the mobile carriers to put contactless chips into phones, and merchants must upgrade their point-of-sale terminals to accept NFC transactions, he says.
Other mobile-commerce methods, such as short-messaging-service, or SMS, text messaging, Web-browser applications and downloadable applications, have a greater potential to advance mobile commerce because they involve fewer costs, according to ABI Research.
"Consumers would, in many cases, prefer cashless transactions when away from home. So around the world, solutions providers have leveraged SMS [text messaging], mobile Internet and downloadable mobile applications to enable mobile commerce and payments," says Beccue.
The potential revenue of mobile transactions using the three methods in 2013 may reach $18 billion, according to Beccue.
Four retail categories likely will drive mobile-payments adoption: taxis, parking, movie tickets and Internet shopping, the ABI Research report says. Internet shopping would account for nearly 75% of mobile-commerce revenue in 2013, 15% would come from parking, 5% would come from taxis and 5% from movie tickets, according to the report.
Will Consumers Adopt It?
The spread of mobile financial services is preparing consumers, many of whom have not embraced nonmagnetic-stripe card-payment methods such as contactless payments, to accept and use mobile payments for purchases at the point of sale, according to mobile-payment insiders.
Getting consumers comfortable with using their mobile devices for banking is a "necessary evolution" to reach mobile payments, according to Monitise Americas' Stanton. "We want to get everybody comfortable with thinking about doing something financial with their mobile device," says Stanton. "The short next step is mobile payments." With mobile banking, consumers use their mobile devices to pay bills, transfer funds between accounts or check balances.
Mobile banking lays the groundwork for more-sophisticated transactions, says Reetika Grewal, director of product marketing for ClairMail Inc., a Novato, Calif.-based company that enables customers to access their account information with any mobile device using SMS text messaging, downloadable applications or the Internet. "You can't just jump to mobile payments and expect people to understand the benefits of it. Mobile banking is the first step," says Grewal.
Mobile financial-service use internationally will increase to nearly 500 million consumers in 2013 from roughly 86.7 million at the end of 2009, according to ABI Research. Mobile financial services reached 53.4 million users internationally in 2008. Mobile financial services include mobile-banking services and domestic and international person-to-person payments, says Beccue. Beccue defines mobile payments at the point of sale as mobile commerce and not mobile financial services.
As consumer interest in mobile financial services and eventually mobile payments increases, interest in contactless payments also may increase, says Stanton. Part of the challenge of contactless-payment adoption has been convincing consumers that tapping a contactless-enabled device instead of swiping a magnetic stripe card is more convenient, she says. If consumers have access to more information or applications, such as account-balance information before payment, coupons or instant merchant-rewards programs, adoption may increase, she says.
"If you enrich the experience, consumers will adopt," says Stanton. "The challenge has been convincing the consumer that they cared whether they tap or swipe," she says. "We think mobile is the missing piece of contactless."
However, one of the common consumer concerns surrounding contactless payments-security-may affect mobile payments as well.
Consumer adoption is necessary for the success of mobile payments, yet consumers may be leery of using the payment technology because of data-security concerns, says Granite Payment Alliance's Keddy. Merchant data breaches and the loss of consumer card data to fraudsters have increased consumer security concerns, "so how do you assure the public that if they use their cell phone to create a transaction that they are not going to be hacked into?" Keddy asks.
Making Money With Mobile
ISOs interested in creating additional revenue streams around mobile payments can generate revenue by selling mobile applications that complement mobile-payment technology, such as electronic coupons and rewards programs, according to Smart Card Alliance's Vanderhoof. Mobile devices have high data-storage capabilities to store advanced merchant applications, so "we are going to be seeing more types of alternative offerings becoming available on the market, which is all going to be a revenue opportunity for those ISOs that have the capabilities to offer them," he says.
Mobile operators that offer ring tones available for consumer purchase is an example of how a consumer-based mobile-application platform may work, Vanderhoof says. "That's a technology platform that should lend itself to electronic couponing, gifting programs and other things people can download through a mobile Web site" and redeem at the point of sale, he says.
Mobile payments likely will include multiple ancillary products that ISOs can sell, agrees ClairMail's Grewal. ISOs potentially can sell loyalty and rewards programs or mobile-marketing services, she says.
Preparing merchants for widespread mobile-payments acceptance is another potential money-making avenue. Most merchants are unable to accept mobile payments because there is "no national infrastructure" in place to accept them, says Paul Grill, a partner with First Annapolis Consulting, a Linthicum, Md.-based consultancy.
ISOs "should be talking to merchant customers about what the future holds and encouraging them to upgrade their investment now" so their clients are prepared to accept mobile payments, says Vanderhoof. In the process, ISOs can earn additional revenue from terminals sales and lease contracts.
While consumers eventually will conduct a portion of their transactions using mobile devices, mobile payments will not be a "meaningful" portion of electronic transactions for a long time, notes Grill.
However, in time consumer adoption of mobile payments may help drive transaction volumes by boosting electronic payments and decreasing use of cash and checks, notes Stanton.
Preparing For The Future
Many ISOs are unaware of mobile-payments technology and the potential revenue opportunities because their merchant clients are not requesting information about it or preparing to accept mobile payments, according to one ISO.
Interest in emerging technology trickles down, says Card Payment Services' Caine. If consumers do not embrace paying for purchases with their mobile devices, merchants will not buy contactless terminals to enable such payments, and agents likely will not sell it, he says. "Until the consumer leaves the piece of plastic behind, it's not going to get off the ground," Caine says. Many ISOs also are focused more on surviving during the difficult economy and not on expanding their product reach, he adds.
By educating merchants and partnering with vendors, however, ISOs can speed contactless-terminal adoption and prepare their clients for eventual mobile-payment introduction, according to observers.
The ISO should be prepared for mobile-payments technology when it does come of age, says Aite's Holland. "It makes a more compelling case to sell contactless POS terminals if you know that in not too many years there will be a demand for not just paying using phones but also for loyalty and couponing embedded in the phone," he says.
The upgrade cycle for point-of-sale terminals is slow, so ISOs should introduce mobile-payments information and potential terminal upgrades to their merchant clients sooner than later, says Holland. If ISOs begin preparing merchants now for future mobile-payments technology, "once the phone technology is available, [the merchants] are not caught off guard," he says.
ISOs also can begin exploring business partnerships with mobile-banking and mobile-payments product and service providers, says Ndili. By teaming with companies, "it is possible for ISOs to bring to market a range of products," Ndili says, adding that MShift has a partnership program available that enables third parties such as ISOs to offer mobile services. Monitise Americas also uses resellers for distribution, states a company spokesperson, who adds that Monitise welcomes the opportunity to expand its list of reseller partners.
ISOs "need to have relationships with the value-added resellers and gateway companies providing mobile technology so they can play a role in distribution," says First Annapolis' Grill. ISOs will need to be aggressive in asserting themselves into mobile-payment revenue-making opportunities, he adds. ISO
