Why mobile payments is like Wacky Races — and why Apple is steering clear

Why mobile payments is like Wacky Races — and why Apple is steering clear

Summary: So what if Apple hasn't got mobile payments all figured out? So far, neither has anyone else, and that's not likely to change soon.

TOPICS: Apple, Banking, Mobility

Right now, the mobile payments market reminds me a lot of the old cartoon show Wacky Races.

But instead of Dick Dastardly and Penelope Pitstop with their outlandish jalopies, we have banks, mobile operators and handset makers with their different technologies and alliances — all hoping to become the winner in mobile payments.

Mobile payments
Which technology will win in the battle of mobile payments: NFC or cloud?

In the UK, Barclaycard is promoting PayTag, a miniature credit card it wants customers to stick on their mobile phones (or their shoes, or their dog) to make contactless payments. Barclays Bank has its Pingit application, which lets people make payments to anyone who owns a mobile phone in the UK, as well as — soon — in Africa and Europe. On the mobile service provider side, O2 unveiled its O2 wallet service in April.

And it's not just banks and operators — Visa and Samsung used the London 2012 Olympics to showcase the mobile payments work they've done, while Google Wallet is another option (only in the US, for now) and Square's recent deal with Starbucks has shown there is plenty of room for new entrants.

It's certainly a race worth winning: worldwide mobile payment transaction values will top $171.5bn (£108bn) and reach 212 million users this year, rising to $617bn and 448 million users by 2016, according to Gartner. Few companies would turn down an opportunity to take a cut of that — hence the mad race by all players to trial all manner of technologies in an attempt steal a march on their rivals.

"The market is all over the place," explained Sandy Shen, research director at Gartner.

Two camps

Most mobile payments players can be divided into two camps, said Shen.

One group is betting on near-field communications (NFC) technology, which involves an NFC chip inside users' smartphones. The other camp is banking on cloud-based services: these are mostly based on existing technologies — such as mobile apps — that people can download and install on their mobile device.

The advantage for the cloud camp is that this approach doesn't require any spending on new technologies. In contrast, an NFC service requires new NFC phones, as well as contactless readers for merchants to be able to accept the payments.

"One requires quite substantial investment in the infrastructure, while the other is trying to leverage existing technologies, with minimal investment and changes required by the merchants or consumers," Shen told ZDNet.

Advantage cloud

Unsurprisingly, the cloud camp is winning at the moment, said Shen. For NFC technologies to take off, the infrastructure needs to be in place. This will probably take two years at least, given that merchants must upgrade their point-of-sale terminals and consumers upgrade their mobile devices.

"Right now, the most immediate opportunity is with the cloud-based approach" — Sandy Shen, Gartner

"Right now, the most immediate opportunity is with the cloud-based approach," said Shen. "If you are looking at NFC technologies, there is lots of hype and lots of trials. But if you look at real adoption in the market, it is very slow."

"You need to address a problem — an existing 'pain point' in the purchase process — to convince users, rather than have a technology ready in search of a problem. That's the case with NFC — it's a technology in search of a problem," she said.

A big part of the challenge for all would-be providers is that cash and credit cards are still doing a pretty good job. Explaining why someone should download an app or upgrade their phone just so they can buy a cup of coffee is proving difficult. This is because many companies are emphasising the mobile payments element when really they should be focusing on how their service improves the overall shopping experience — by saving time or money, for example.

AWOL Apple

However, potentially the most important player is missing from the mobile-payments race: Apple. 

Earlier this year, it unveiled its Passbook app which — when iOS 6 arrives — will allow iPhone users to store various loyalty cards on their phone. This is seen by many as Apple's first step towards supporting mobile payments.

And Apple is hardly new to processing payments, either: hundreds of millions of people conduct transactions through iTunes already. So Apple seems to have many of the pieces in place, but hasn't made a big play — yet.

While there have been some suggestions that the iPhone 5, expected in September, may contain an NFC chip, Shen believes Apple could be waiting to see how the mobile payments market develops before making its own — likely decisive — intervention.

"Apple obviously haven't seen the value of putting an NFC chip in their device, as they know the market is not going to be there for another two years," he said.

"Apple haven't figured out a way to play a role in the payments ecosystem — how they can make money from that — and that's why they've been holding back."

The iPhone maker hasn't always been first to market, of course. Whatever Apple's strategy, Shen said the NFC-versus-cloud battle is unlikely to lead to a clear-cut victory for either side.

"They can co-exist with each other; they are not contradictory or exclusive," he said. "In some situations — small purchases, maybe — you can think of NFC. But for other retail scenarios, like large-ticket items, you would probably resort to other means of payment, maybe using the cloud-based approach."

Topics: Apple, Banking, Mobility

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  • Didn't Mention

    What about Dwolla?
    • Lots of players

      @benched42 There are so many players at the moment, which is really the point of the article - chances are that lots of different apps and services will be succesful as they target different aspects of payments.
      Steve Ranger
  • What are you Smoking ?

    With a 17% global market share, to label Apple as the most important player, just shows your bias. Next time try a little harder or get a little realer.
    • Influence?

      @RandallRPR Are you *really* saying Apple isn't influential in the smartphone market? Please feel free to explain further...
      Steve Ranger
      • strawman argument.

        He didn't say that. You know he didn't say that. Argue with his points, not ones that he never mentioned.

        You are aware of the logical fallacy, AKA strawman.

        In your article you said Apple would most likely make a move and be decisive.


        Do you think shop keepers are any more likely to install costly equipment, just because it has an Apple logo on it. Not everyones a fanboy, some of us have companies and businesses to run.

        Come back with the answers to his argument.

        And answer mine whilst your at it.
  • NFC is the mobile TV of the future

    About three years ago all the analysts and vendors were saying "In three years time mobile TV will be big". Today no-one watches TV on a phone, downloaded videos perhaps but there is no revenue model for that.

    In three years time there will be something new and shiny and NFC will be as dead as Push To Talk or UMA.
    Simon Rockman
    • Technology in search of a problem?

      @Simon Rockman - yes, the history of mobile is certainly littered with applications that the consumer never really wanted. Will be interesting to see if NFC is indeed a technology in search of a problem.
      Steve Ranger
    • An emergeging marketplace

      I have a Google Samsung Nexus S phone which is technically set up for NFC, though there aren't any merchants that I know of in my end of Atlantic Canada that offer such options. When I was in NYC on vacation a few weeks ago, I did notice a couple Duane Reade pharmacy shops set up for Google Wallet payments, though I didn't use it - used cash instead.

      As for why not too many people watch televisions on their smartphones, is that the data coming in on 3G & 4G bandwidths - particularly the latter with quality streaming of television shows - is nearly cost prohibitive without a truely unlimited data plan. I'd hate to see the phone bills of folks who streamed live coverage of the Olympics on their phones when they weren't in wifi areas. In Canada, Bell Mobility had the rights to view live streaming on enabled smartphones. I did via the Bell/CTV Olympics app, but only in wifi areas, primarily at home on my wireless network. A 3GB data plan is $85 plus tax/fees - I have a 1GB plan for $55 plus tax/fees for the time being.
      • Ouch

        Ouch, that was expensive data in Canada. Here in Sweden we can get 4G 80GB data, around 30-50 Mbit/s for the $55. I personally only pay $10 for 1 Mbit/s totally unlimited data pot and unblocked 3G data on my phone. I can even run my computers on it if i create a wifi hotspot with my HTC Titan.
        • No kidding

          The Canadian national telcos have atrociously expensive mobile data costs. The speeds yes, we can get, but the data rates are expensive. Bell who is my provider has $63 for 200 min voice & 1GB data. $83 for 1000 min voice & 3GB data. Each additional amt is $10/gb
    • Maybe so.

      Or maybe not.
  • Seriously Stevie boy

    Perhaps you could explain what happened to Nokia's influence when it made a wrong turn a few years back?

    The reality is that 'phone payments will become very trendy, especially if the technology allows you to replace all the other cards you don't want to be carrying around like GYm membership, Travelcards, Loyalty cards etc.

    Apple fanbois are going to start looking a little left out and behind the curve ... and we know for sure that the Apple owner has an ego that wont tolerate being seen as a loser.

    Hence, Apple is playing a dangerous game if they think they can wait this one out.

    I'm pretty sure that they are going to follow the leaders ... as usual they'll try to spin it, lock people in and try to make more money ... but they'll follow as they always have.
    • A strange and rather angry rant...

      Pagan jim
      James Quinn
  • my credit card is already as mobile as it gets

    why do I need to pay with a phone?
  • The First Bank of Cupertino

    For a lot of legacy reasons that would take decades to change, it will be virtually impossible to cut the credit card networks (Visa and Mastercard, in the US) out of the picture. They run the transaction network that connects all the banks and that hardly ever goes down, and they run the real-time automated fraud detection stuff on the torrent of transactions that goes by every day (and credit card fraud is a BIG deal that cannot be ignored or left to amateurs).

    For what they do, the networks get a cut. The other guy who gets a cut is the card issuer, which is the bank that has the customer and the customer's account with the money in it.

    Is there room for an interloper to come in and ask for a slice? A device maker, an app maker, somebody like that? Not really. The merchants don't want higher transaction fees, the customers don't want higher bank fees, and the guys who are getting the money now don't want to share.

    So what to do if you're Apple? Become a bank. Actually, buy a bank and use it to offer customers bank accounts with Visa or Mastercard numbers. Now you're the card issuer, and you get a cut. This is not a new idea, GM did it. They used to call it GMAC, now it's Ally bank.

    Owning a bank is a PITA because of all the government regulations and oversight, but if this pay-with-your-device stuff takes off, it would be highly lucrative.
    Robert Hahn