Friday, September 5, 2014

Will Apple Drive Inflection Point for Proximity Payments Business?

The rebranding of the AT&T, Verizon and T-Mobile US mobile payments app to SoftCard pretty much tells you what market SoftCard is chasing: retail payments made by mobile phones that displace payment by a credit card or debit card at a retail terminal.

That occurs just as the Apple iPhone 6 launch, among other things, means Apple also is getting into the mobile payment business for the first time.

Some of us have argued that Apple was the one company that could really make a breakthrough in mobile payments in developed markets.

The emerging issue now is whether, in fact, Apple’s presence can transform a market that has been slow to develop, even if there have been some successes, including the branded Starbucks app and credit card readers such as Square.

Among the long-standing issues is the matter of value--whether ability to swipe a phone is sufficiently more valuable than swiping a credit or debit card at a retail terminal.

There is an argument to be made that, in fact, the incremental value is relatively small. Some might point to the high use of the Starbucks card from mobiles as an example of how much value might be added.

Others might simply counter that the value is not the swipe, it is the free coffee one earns by swiping the Starbucks app from a phone, instead of paying by cash or card.

In that sense, the value for end users is not so much the “pay by phone” capability as the upside of free coffee. For Starbucks, the value is the data about its customers, as well as enhanced loyalty. And in 2012, Starbucks mobile wallet purchases accounted for perhaps half of all U.S. mobile wallet payments.  

There arguably also is some incremental lift in spending per customer, as often has been noted for credit card or debit card purchases, compared to cash payments.

Proximity payments, where a smartphone replaces a physical credit card, remains the big immediate opportunity in developed markets, many expect, even if money transfers have been the bigger development in developing markets.

That will likely be the case for Apple, SoftCard and others in the U.S. market as well.

Longer term, the bigger opportunity in developed markets might be banking or commerce in a broader sense. Still, the immediate measure will be the growth of merchandise sales in retail outlets where payment is made by a phone, linked to one or more credit or debit accounts.

U.S. mobile proximity payments are about to explode. Mobile proximity payments are payments for goods and services transacted via mobile device in bricks-and-mortar stores.

BI Intelligence, for example, estimates that mobile proximity payment volume will grow at a compound annual growth rate of 153 percent from $1.8 billion in 2013 to $190 billion in 2018, with an inflection point in 2016.

Mobile payments doubled in 2013 and will continue to grow at 43 percent annually through 2018, Forrester Research predicts.

All that noted, it remains unclear whether Apple will be able to make a breakthrough with its mobile wallet. At least so far, nothing about its approach is structurally different from what others have tried to achieve.

At its heart, Apple’s mobile wallet appears to be one more way to link credit and debit cards to phones, allowing them to act as the payment mechanism at a store.

Granted, Apple is Apple. Its market presence might be the tipping point, causing a critical mass of merchants to adopt new terminals and systems to support taking mobile payments.

But we likely are still a few years away from knowing. The iPhone ecosystem will need some time to replace older devices with devices capable of using the mobile wallet, and retailers still will have to make investments to support such payments.

The point is that Apple’s entry might help. But just how much, remains to be seen.

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