us mobile payments - cartesian · 2020-02-26 · us mobile payments primed for growth by todd...

US Mobile Payments

Primed for Growth

By Todd Bricker and Shahzad Zia

Momentum is building in the US for in-store mobile payments as smartphone ecosystem leaders unveil

enhanced mobile payment platforms. The battle for mobile payments primacy is driving intense

competition through internal innovation and acquisitions. Apple and Google are staking out leadership

positions but there is still room for Mobile Network Operators (MNOs) to participate and benefit while

helping to drive mobile payment growth.

March 2015

Cartesian: US Mobile Payments – Primed for Growth

Copyright © 2015 Cartesian, Inc. All rights reserved. 1

Primed for Growth

Although mobile payments have been possible for years, awareness and usage have been

limited. Despite the efforts of mobile operators, technology vendors, financial institutions,

and startups, only 16% of US consumers made in-store mobile payments between December

2013 and February 2014.1 However, the potential for mobile payments grew considerably

with the launch of Apple Pay and other recent developments that have resulted in the four

mobile payment platforms shown in Figure 1.

Figure 1. Leading US Mobile Payment Platforms

* Digital payments during the month of November 2014, PayPal (78%) and Square (18%) lead digital payments

History suggests that smartphone ecosystem leaders will extend their dominance to the

mobile payment space through aggressive research and development, acquisitions, and

1 http://knowledge.wharton.upenn.edu/article/consumers-arent-buying-mobile-wallets-yet/



marketing to encourage universal adoption of mobile payments. According to analysts, the

value of US in-store mobile payments is forecasted to grow from ~$4B in 2014 to ~$120B-

~$200B by 2018. Expected payment volume growth rates for the next few years are over

100%.2

This expected growth can also be attributed to retailers becoming increasingly NFC-equipped.

Currently only 30% of US terminals support contactless payments.3 However, US credit card

issuers and payment processors are pushing for compliance with global standards

incorporating microchips. Credit card issuers have announced a liability shift (by October

2015) that will require retailers to support the Europay, MasterCard and Visa (EMV) global

standard or risk assuming the consequences of payment fraud. What’s most important is that

almost every EMV terminal includes an NFC reader, enabling contactless payments with

smartphones. As new terminals with NFC capabilities enter service, Apple and Google’s reach

will extend rapidly and mobile payment usage will accelerate.

Achieving Sustained Success

Existing credit cards and payment networks work perfectly well for most people. Therefore,

in order to achieve widespread adoption, mobile payment platforms need to provide

functionality that goes beyond in-store payments. Effective integration of device capabilities

and solution elements from the broader ecosystem is required to provide enhanced value to

consumers. A critical mass of the mobile payment functionality shown in Figure 2 must be

addressed to motivate consumers to migrate to a new mobile payment platform.

Figure 2. Mobile Payment Functionality

2 “US Mobile Payments 2014: Updated Forecast and Key Trends Driving Growth”, eMarketer, September 2014. “FORECAST: US In-Store Mobile Payments To Reach $189 Billion By 2018”, BI Intelligence, June 2014 3 http://digitaltransactions.net/news/story/The-U_S_-EMV-Migration-Produces-a-Windfall-for-POS-Terminal-Producer-VeriFone



Figure 2 illustrates the need to build on the basic mobile payment platforms that have been

introduced. Mobile payment platforms will increasingly enable consumers to leave everything

else at home. Imagine a day where NFC allows you to unlock and start your car. At lunch time,

your smartphone uses a coupon voucher for a free sandwich as you make a mobile payment.

On your way home from work, you receive a grocery list from your spouse and an integrated

digital assistant routes you to the grocery store and through the aisles. This functionality will

transform a pleasant mobile payment experience into a “must have” mobile ecosystem.

Key Players in the US Mobile Payment Space

With adoption low but awareness growing rapidly, actions taken over the next year may

determine who dominates retail payments for the next decade(s).

Figure 3. US Mobile In-Store Payment Platforms

Technology Giants:

Apple has focused on creating a secure, mobile payment experience. They have gained the

attention of consumers and the backing of financial institutions through seamless fingerprint

scanning and tokenization, where no customer data is collected or shared with retailers. Both

new iPhones and the upcoming Apple Watch support Apple Pay. To build on momentum with

consumers and financial institutions, Apple should partner with retailers to extend platform

functionality into loyalty and rewards.

Google’s strategy centers on collecting data to enable more targeted advertising, precision

marketing, and predicative analytics. Google’s purchase of Softcard and the agreements with

AT&T, Verizon, and T-Mobile will rapidly increase its installed base. Google is also providing a



mobile payment API that enable retailers to build their own payment applications and

integrate them with Google Wallet.

As the top Android device maker, Samsung is taking a backwards compatible approach to

mobile payment by enabling users to pay at magnetic stripe readers and NFC terminals. While

there are many unknowns about the Samsung Pay offering, the approach sounds promising

even if Samsung will be fighting for mindshare with Google Wallet.

Retailers:

Retailers are looking to mobile payment technologies for cost reduction and revenue stream

enhancements. Starbucks, for example, built a platform that integrates payment and loyalty.

With 12 million users,4 the app operates as a digital gift card and Starbucks customers scan

QR codes from the app against proprietary barcode scanners to complete a purchase. Using

their own mobile payment platform gives Starbucks control of how and when to collect

customer data, and push rewards and promotions.

MCX (Merchant Customer Exchange), a consortium of retailers which includes Wal-Mart and

Best Buy, has built a mobile payment platform called “CurrentC” to circumvent credit card

transaction fees. At Apple Pay’s launch, CVS and Rite Aid, two major US pharmacy chains,

turned off their NFC capabilities out of allegiance to the MCX-backed platform. CurrentC uses

a white-label platform licensed from Paydiant (which was recently purchased by PayPal).5

White-label platforms make it easy for retailers to offer stand-alone applications, but

eventually retailers will likely need to partner with ecosystem platform leaders to avoid falling

behind or being sidelined by consumers who would like to use fewer mobile payment tools.

Mobile Network Operators:

While US Mobile Network Operators (MNOs) have missed the opportunity to own the mobile

payment experience, MNOs may yet impact the market by building mutually beneficial

strategic partnerships with mobile payment providers in areas such as customer care,

marketing, and global expansion. As Figure 4 shows, MNOs can leverage innovation centers,

sector specific expertise, and channels to drive broader NFC use. They are more likely to gain

traction competing in areas where they had success in the past, such as enterprise technology

or pre-paid mobile services, rather than in mainstream consumer services where Apple and

Google are likely to dominate.

4 http://venturebeat.com/2015/02/11/starbucks-app-gets-apple-pay-but-you-still-have-to-deal-with-the-qr-code/ 5 http://techcrunch.com/2015/03/02/paypal-paydiant/



Figure 4. Example Opportunities for Mobile Operators

Conclusion

Consumer interest in mobile payment is high following the launch of Apple Pay. Mobile

payments will change how we purchase goods and services. To capture value from this shift,

ecosystem participants need to add functionality to provide a more comprehensive

experience. Broader functionality will increase adoption and usage while increasing platform

stickiness and opportunities to generate revenue for platform partners.

The implications of more ubiquitous and refined mobile payment platforms extend beyond

the US. Established mobile payment approaches in Asia, Africa, and Europe will be subject to

pressure as global solutions from Apple and Google gain traction. This disruption will offer

mobile operators, banks, payment networks, retailers, and regulators in every region new

opportunities to help enable mobile commerce solutions.

Cartesian™ is a specialist provider of consulting services and managed solutions to leaders in

the global communications, technology and digital media industries. For over 20 years, we have

advised clients worldwide in strategy development and assisted them in execution against their

goals. Our unique portfolio of consulting services and managed solutions are tailored to the

specific challenges faced by executives in these fast-moving industries. Combining strategic

thinking, robust analytics, and practical experience, Cartesian delivers superior results.

Cartesian has deep experience helping network operators and other technology leaders achieve

their objectives. We have executed strategic analyses and detailed assessments of mobile

financial services opportunities and can support efforts in a number of areas, including:

Adjacent opportunity identification and prioritization

Mobile solution strategy development

Partner scans and ecosystem expansion

www.cartesian.com

For further information, please contact us at [email protected]

Copyright © 2015 Cartesian, Inc. All rights reserved.

us mobile payments - cartesian · 2020-02-26 · us mobile payments primed for growth by todd...

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