Mobile Payments Business Models: Attackers Face Hard Choices

One way of looking at the business potential for mobile payments is to look at the volume of retail payments, the volume of credit card or debit card payments, and then estimate how much of those activity streams could shift in new ways. In the U.S. market, as compared with some others, the analysis is a bit more tricky.

For starters, the payments process is well developed and efficient. But the latest wrinkle is that the actual payments processing business associated with bank cards bearing the "Visa" and "MasterCard" labels is itself in serious danger of massive shrinkage, by reason of new banking regulations that dramatically cap fees. See http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act or http://www.cutimes.com/News/2011/2/Pages/DoddFrank-Regulatory-Overhaul-Likely-To-Get-Tweaked.aspx.

Deutsche Telekom CTO Ed Kozel says the business model is still in its formative stages, especially in the United States. "Nobody knows what the final version will look like; everybody is still experimenting with their business model," Kozel said. "Will it look like Visa or something else?"

So here's the big and immediate rub: in a payments ecosystem that is efficient, adding one more player either reduces the overall industry revenue, or raises costs to retail partners. On the other hand, if a new player tries to create a new system, displacing or eliminating some participants, there is the obvious problem of determined opposition from the existing players that are threatened.

The former strategy, though arguably prudent, makes it harder to add value to the new experience. The latter strategy means a protracted fight with stubborn foes already facing revenue pressure. Also, if some sort of accommodation with the existing order is the approach, then all the existing players are threatened if a rival and replacement system gets traction. That threat is most obvious for relatively restricted payments using Apple's iTunes or PayPal, for example. But there always is the "threat" that a niche process can improve to the point where it can become a viable substitute for the existing "card-based" system. especially if tightly and elegantly integrated with the mobile device.

Mobile Payments in US Mired in Fight for Control - PCWorld