It's that time again: time to review the passing year and see what we've accomplished. Last year, 2012 was billed as "The Year of Mobile Payments." It was the second (or third?) year to earn that moniker and the expectation was that some sort of tipping point would be reached during the year, spurring wide adoption of mobile payments. And though 2012 didn't become the year when everyone ditched plastic for an app, in hindsight the year did see some important developments in mobile payment space.
Following are the "big stories" from 2012, the stories that showed how mobile payments is progressing. They are the stories the readers of Mobile Payments Today, by traffic and by discussion, found to be the most noteworthy. In no particular order, the big stories were:
Square has been a bit of a media darling since its launch more than two years ago and fascination with the company by tech and financial analysts alike continued in 2012. It boasts Jack Dorsey of Twitter fame as its charismatic founder and has raised enormous sums of money — almost $350 million — from investors such as Richard Branson.
But there have been questions as to the sustainability of the Square business model. Is there enough money to be made by processing payments for micromerchants to justify Square's multi-billion dollar valuation? The company has signed more than two million micromechants, and now processes approximately $10 billion on an annualized basis, but are those merchants profitable?
In August, Square seemed to address some of those concerns by becoming more than the payment processor of choice for America's dog walkers and lawn services. The company signed a deal with coffee retailer Starbucks that has Square processing all the credit and debit purchases for 7,000 Starbucks locations nationwide. The deal included Starbucks investing $25 million in Square plus a seat on Square's board for Starbucks CEO Howard Schultz.
It's still too soon to tell how Square will adapt over time, and how — or if — it will grow beyond its mPOS roots. But its deal with Starbucks was likely the first sign that the company is well aware that its future lies beyond handing out dongles to small merchants.
Mobile point-of-sale grows — and shrinks
Square's apparent success has attracted plenty of copies and the field became even more crowded in 2012 with mobile point-of-sale providers popping up left and right. Among the entrants joining the fight this year were daily deal site Groupon, PayPal, European companies such as iZettle and mPowa, and POS-maker VeriFone.
VeriFone's entry into the mPOS space was particularly interesting not so much for how it started, but for how it ended. When VeriFone released SAIL in May the move was seen as a tacit admission that tbe company needed to find some way to compete with Square. SAIL was notable for both its distinctive card-reading dongle, and the fact that, unlike Square, its platform was open, meaning that developers could incorporate it into their apps.
And then seven months after SAIL launched, VeriFone pulled the plug on its mPOS product.
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Company CEO Doug Bergeron cited too-narrow margins as the reason for the decision; too narrow for VeriFone to acquire and service small merchants. VeriFone will continue to offer SAIL through third parties, including an EMV solution overseas, but it is divesting itself of the resources required to run SAIL in the U.S.
What makes VeriFone's exit important, maybe even more important than its entrance, is that it has cast a bright light on the entire mobile point-of-sale business and its profitability. According to Bergeron, only those companies that can offer mPOS as an add-on service, such as Intuit, which bundles its GoPayment solution with business software, will survive in the long run. This means that other competitors in the space, such as PayPal and Groupon, are likely facing similar economics with their mPOS products and VeriFone may not find itself alone in abandoning mPOS.
Google Wallet reboots
Google Wallet reached its first anniversary in 2012 to little fanfare, possibly because there hasn't been much cause for it. Though Google keeps a tight wrap on actual numbers, adoption of Google Wallet, the first NFC-enabled mobile wallet to hit the market, has reportedly not kept pace with expectations. And key members of the Google Wallet team have either left the company or been reassigned. In a company notorious for killing products that underperform, there was even talk that Google Wallet might go away.
But Google didn't kill Google Wallet, it reworked it — twice.
First, Google took its mobile wallet to the cloud, allowing users to load any credit or debit card. Instead of storing user credentials on a mobile device's secure element, the new Google Wallet stores those personal account numbers in the cloud, and stores a "prepaid" account on the phone. The prepaid account is linked to accounts stored in the cloud. The prepaid account is processed at the point of sale but connected to the cloud accounts for actually funding the purchase.
The solution solved one problem Google Wallet had been having: getting card issuers to join the cause. With the cloud approach, issuers became unnecessary.
And then Google went one step beyond a cloud-based approach and began working with card brand Discover to issue a companion plastic Google Wallet card.
With the plastic card, Google will give users the same ability to choose which debit or credit card funds a purchase, along with the ability to pay with Google Wallet at locations that don't accept NFC payments. It's the best of the mobile wallet coupled with the ubiquity of a plastic card.
Technically, this update is expected to launch next year, so it might earn a place in 2013's retrospective list of stories as well. And along with the move to a cloud-based approach, Google's reboot of its mobile wallet show the company is willing to support its wallet until it gets it right.
Discovering mobile payments
Working with Google Wallet wasn't the only mobile payment play Discover had up its sleeve for 2012. Its other big partnership this year was a deal with online payment provider PayPal. In August, Discover and PayPal announced they had agreed to let PayPal users access their accounts through the Discover network at the POS in brick-and-mortar retailers.
Through the partnership, PayPal's 50 million U.S. account holders will be able to key in their phone number associated with their PayPal account then enter a PIN at any POS where Discover is accepted. The purchase is funded from the PayPal account. Not only does that make it easy for consumers, but Discover-accepting merchants are able to take PayPal payment without changing out their point-of-sale terminals.
For Discover, the deal means the card brand now has access to a whole new group of transactions and all the data that entails. For PayPal, the relationship with Discover means that the company gains a direct relationship with merchants who accept Discover cards. Discover also acts as a merchant acquiring bank for 1,500 merchants. With one deal, PayPal increased its footprint from a mere 16 merchants to thousands of merchants and millions of terminals.
Merchants do their own thing
And speaking of merchants, 2012 is when merchants took mobile payments into their own hands. Every other solution on the market had left merchants unimpressed, so large retailers like Walmart, Target and Best Buy joined together to start their own effort: the Merchant Customer Exchange.
When officially announced, MCX said its initial focus would be on providing merchants a mobile commerce solution for offering integrated discounts and promotions. The vision of MCX was fleshed out to include a mobile platform that will include a number of consumer-use cases — from payments to discounts to marketing — all with an eye towards keeping the costs low in new equipment and technology. Additonally, MCX will take a "hands off" approach to retailers' transaction and customer data.
At this point, the actual MCX solution is still under wraps as MCX builds it out. The expectation is for a launch early next year. But if nothing else, the role of MCX merchants is significant. Along with Walmart, Target and Best Buy, other participating retailers include Lowe's, Sears and 7-Eleven. Together, retailers participating in MCX represent approximately $1 trllion in annual sales.
These weren't the only big stories of 2012 (and we admit a bias toward stories from the U.S.). For instance, these top five stories don't include Isis finally launching pilot programs in Salt Lake City and Austin, or the announcement by Vodafone that it will launch the largest mobile payment network in the world next year. Additonally, MasterCard's partnerships with wireless carriers worldwide and Visa's launch of its V.me mobile wallet were certainly signs of things to come from the card giants. (Plus, history may show a story that seemed small actually had large effects.) If there's a story you think should have been in our top five, please let us know in the comments below.
One thing is certain: 2012 was when many players, from banks to merchants to wireless carriers, began to take the idea of paying or shopping on one's phone more seriously. So 2012 may not have been "The Year of Mobile Payments," but some day we may look back and say it was "The Year Before the Year of Mobile Payments."
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(photo credit: Ed Yourdon)