Nov. 15, 2012
IDC Financial Insights has issued a new report on the future of mobile payments and the future is bright — kind of. According to the report, "Technology Selection: Worldwide Mobile Payments 2012–2017 Forecast," worldwide purchase volume over mobile devices will exceed $1 trillion by the year 2017.
But according to Aaron McPherson, practice director for Worldwide Payment Strategies at IDC, that's just a drop in the overall transaction bucket.
"Even at a trillion dollars — that's a big sexy number — in the grand scheme it's not that much," McPherson said in a call with Mobile Payments Today. "It's clear that (mobile payments has) a long ways to go," he said.
McPherson added that announcements of mobile payments growth may not be as good as they look when viewed against the entire addressable market. "People don't have a good intuitive sense of just how large the global economy is," he said.
McPherson said the total mobile payments market will represent only a small fraction, just 2.5 percent, of the total transaction volume that mobile payments could, at least theoretically, address. He said that number, which includes cash, check, ACH and cards, is closer to $50 trillion.
Even with that caveat, however, McPherson said mobile payments growth will continue to accelerate.
M-shopping and NFC tapping
McPherson also noted that a couple of results from his research surprised him a little. "One of the things that jumped out at me was just how big (m-commerce) is," he said. He explained that most of the money being attributed to "mobile payments" is actually money being spent through m-commerce, meaning consumers shopping from a mobile device instead of online or in a store. "It's a much higher percentage of the total than I was expecting," he said.
McPherson said he was also surprised how well NFC came out in his research and admitted to having been a bit of an NFC skeptic going into his research. According to the report, proximity payments, including NFC, will trail only m-commerce in percentage of mobile payments.
"We're approaching critical mass (with NFC) in some ways," McPherson said. "There have been some fits and starts, but because of EMV upgrades a lot of the terminals have been upgraded. It's a growing piece of the pie."
When compared to other methods of making mobile payments, McPherson said NFC eliminates many of the user experience issues and potential pitfalls of technologies such as barcodes or cloud solutions.
"My own experience working with barcodes, the user experience still leaves a lot to be desired," McPherson said, adding that he has also become more concerned about the fragility of cloud solutions. "NFC is much more robust and established, especially in the Far East," he said. While McPherson said he wouldn't go so far as to say consumers will all be using NFC in a year or two, he predicted that the technology will mature.
"My skepticism would be properly characterized as 'not-yet-icism," McPherson said. "Not right now, not soon, but we're starting to see the pieces fall into place.
A global perspective
One of the reasons the predictions on NFC, and mobile payments as a whole, are generally rosy is because IDC's research takes a global look at the mobile payment market, McPherson said. The U.S. is an idiosyncratic market with multiple financial institutions and carriers making it a tougher nut to crack he said. Other countries are simpler, and in many countries, the need is greater for a mobile payment ecosystem.
"Being based in the U.S. it's easy to be cynical and say 'it's not going to happen,'" McPherson said. "But that doesn't mean it's not going to happen elsewhere."
McPherson said that emerging markets are actually providing a good story when it comes to the growth of mobile payments.
"There's a good leapfrog story to be told (in emerging markets)," McPherson said, with consumers in those markets adopting mobile payments at a higher rate since they lack other options. "The banking sector is so underdeveloped that you can see it being leapfrogged."
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Photo credit: Ed Yourdon