How Big are the Opportunities in Mobile Payments?

Observers sometimes are not quite aware of why there now is so much activity and hype about mobile payments, mobile commerce or mobile wallets. As always, the reason for all that activity and speculation is that some rather-large revenue streams now are poised for potential disruption, precisely at the point that many large entities are casting about for brand-new fields to conquer, because their own legacy revenues are declining, or are about to decline.

Consider the revenue streams potentially in play. Interchange fees, the transaction fees paid by merchants to process a credit card or debit card transaction at a retail location, typically are in the range of tow percent of the transaction for credit cards, less for debit cards and a bit more for many new mobile payment services.

Typically paid by merchants, interchange amounts to tens of billions of dollars across purchase volume of nearly $2 trillion worldwide, according to Caribou Honig, QED Investors partner.

There also are fee elements. Credit card issuers essentially make $600 billion in loans. A mobile payment platform could capture some of the interest and fees currently charged by the credit card banks, though there is at present much less interest in this revenue stream, compared to interchange.  The reason is simply the risk of holding those payment obligations.

Google, of course, eschews any interest in interchange or the lending function, and clearly is interested in the advertising and loyalty business. Total ad spending in the U.S. market alone exceeds $150 billion.

Apple, on the other hand, will likely want to figure out how any mobile commerce, payment or wallet operations allow it to create big new device revenue streams.

In other regions of the world, transaction fees also are the primary revenue driver. Globally, for example,  the World Bank forecasts remittances in developing countries was about $349 billion in 2011. The issue for mobile operators and other application providers is how much of that could be shifted to mobile means. 

The reason that matters is the revenue associated with transaction fees to send money from one person to another, in country or across borders, using the mobile device.


In India, for example. remitting money using India Post costs five percent of the amount sent, and then many respondents reported another one percent in addition for bribes, tips and other indirect costs. Other remittance channels also represent out of pocket costs.