Saturday, October 27, 2012

Mobile Wallet Runs into the "Adoption Curve"

Mobile wallets or mobile payments are not the first new technology-based innovations presented to U.S. consumers as the "next big thing." So far, actual adoption has been fairly limited, outside of Starbucks stores, where Starbucks operates what most would consider to be the most-successful closed-loop mobile payments or mobile wallet service.

"Mobile payments and purchasing at the physical point of sale have experienced little adoption in the U.S. marketplace despite abounding innovation in mobile and payments technologies," according to Javelin Strategy & Research.

But that will change, for other reasons. A major shift of credit card security technology is coming, and that will be favorable for mobile payments.

Globally, an estimated 76 percent of point of sale terminals and 45 percent of cards are EMV‐enabled. “EMV” stands for “Europay, MasterCard and Visa,” a global standard for integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs). EMV often is referred to as a “chip and PIN” approach to security, as contrasted with the more-familiar U.S. “magnetic stripe” found on the backs of credit, debit and prepaid cards.

Right now, about  10 perent of U.S. terminals deployed in the United States support EMV. About one percent of cards use EMV.

The potential of mobile payments based on near field communications, which Javelin believes will ultimately emerge as the most successful mobile payments technology for the long-term, provides a powerful justification for merchants to invest in dual‐interface EMV terminals that support contactless NFC transactions and NFC-based mobile wallets.

“Javelin believes that NFC will ultimately be the leading technology underlying mobile wallet solutions, and implementing the EMV standards will facilitate that,” said Beth Robertson, Javelin director.

In other words, if most retail merchants upgrade to EMV, and they will, then the companion NFC support will create a ubiquitous point of sale infrastructure to support NFC-based payments. And retailers will adopt EMV because the payment networks have clearly said any merchant not using EMV will in the future bear the losses from fraud, not the payment networks, as now is the case.

That’s a big enough carrot to drive 100 percent of merchants to adopt EMV.


But new technologies historically take some time to reach 10 percent, then 50 percent, then virtually ubiquitous adoption. To be sure, there has been a tendency for new technologies based on digital and electronic technology to be adopted faster. But a decade period to reach perhaps 10 to 20 percent adoption is hardly unusual.

That is not much of an issue for point solutions like computers that can be used without lots of additional change in infrastructure. That is not true for highly-complex ecosystems such as payments, though.

ATM card adoption provides one example, where "decades" is a reasonable way of describing adoption of some new technologies, even those that arguably are quite useful. 


Debit cards provide another example. It can take two decades for adoption to reach half of U.S. households, for example. 



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