At the beginning of the year, 2011 was heralded as "The Year of Mobile Payments." Many analysts predicted that by the end of the year we would be well on our way toward a wide adoption of some form of mobile money. They expected consumers to have a plethora of choices, and it would not be uncommon to see someone whip out a phone instead of a wallet when it came time to settle a bill.
Obviously, that's not the case. Plastic is as prevalent as ever. But even though we haven't ditched real wallets for their mobile equivalents, a lot did happen in the world of mobile payments in 2011:
The story of mobile payments in 2011 begins with Starbucks and its ingenious mobile payment application. Eschewing fancy tech for relatively pedestrian barcodes at the point of sale, the Starbucks app is a tidy little mobile payment method that does what it does with a minimum of fuss and a maximum of utility. It's simple to use and fast at the point of sale — two qualities mobile payments will need to supplant cash and cards. Additionally, by making its mobile payments closed-loop, and keeping the transactions on its own systems, Starbucks didn't need to partner with a carrier or card brand to complicate things.
The app has become the early standard for mobile payment success and has demonstrated that customers will adopt mobile payments at the point of sale. Rolled out in January, the app was used for 3 million transactions in its first three months – and that was before it even had an Android version. In 11 months the app has now accounted for more than 26 million transactions at Starbucks locations across the U.S. It has been made available in Canada now and will be launched in the U.K. and Ireland in January.
While Starbucks was letting customers pay with their mobile phones, Square was getting merchants paid with their mobile phones. With a streamlined app and clever credit card reader, Square solved a real problem for small businesses and made it simple for even the tiniest merchants to accept credit cards.
Gauging by Square's numbers, there were a lot of those tiny merchants looking for a solution. So far Square has registered over one million merchants and is processing around $11 million per day.
Square still has some issues to solve, most notably in encrypting transactions from end-to-end, but they get credit for making payments interesting in 2011. Add in Square's iPad-based cash register and mobile wallet solutions launched in May and you have a company that's rethinking the way merchants and customers interact at the point of sale. That may be why Square has wrapped up $137 million in funding, including investments from Visa and Sir Richard Branson, and has a valuation of $1 billion.
Square isn't the only start-up rethinking the way we pay for things. Another prime example is Dwolla, a Des Moines, Iowa-based mobile payment company. In March, Dwolla launched services aimed at getting consumers to give up their cards. Like Square, Dwolla wanted to end the byzantine rules and fees imposed on merchants by credit card companies. Its solution: get rid of credit cards altogether. Dwolla lets customers pay from prefunded accounts at the point of sale using a phone's GPS to place the customer in merchant locations. And all Dwolla charges is merchants is 25 cents for every transaction over $10, no complicated interchange tables and fees.
Other mobile payment start-ups entering the market this year include Cimbal, TabbedOut, PressPay and a host of others. It's more than likely that many, if not most, of these start-ups won't succeed in the long run. That's the nature of start-ups. (For instance, Bling Nation, a mobile payment start-up that garnered considerable attention last year, suspended its services in June to "reevaluate its business model.") But one of these companies may have just what it takes to cause a major disruption to payments and be the next PayPal.
As for PayPal, 2011 witnessed its attempts to go from being only a provider of online payments to a player in the offline payment world. Ninety percent of retail in the U.S. is still carried out in "old-fashioned" brick-and-mortar stores, and PayPal is intent on getting a piece of those transactions.
In July, PayPal's president Scott Thompson predicted the demise of the physical wallet in 2015 and the company seems to be actively working towards making that happen. PayPal's parent company eBay made several acquisitions in the mobile payment space, most notably direct carrier biller Zong, and PayPal forged alliances with NCR and mFoundry to provide mobile banking and financial services. Additionally, PayPal unveiled an offline strategy to eventually allow retailers the ability to accept PayPal at their brick-and-mortar locatons. The company even opened a temporary store in Manhattan to show retailers just how its offline offerings will work.
The Card Brands
Mobile payments in 2011 hasn't been just about start-ups and disruption. As many of the mobile payment start-ups can attest, making a payment happen at the point of sale is no easy task and the major card brands — Visa, MasterCard, American Express and Discover — have a head start. 2011 showed that the card brands know the future is mobile and they were active in trying to extend their influence over that channel
American Express launched Serve, a mobile payment platform that offers offline, online and peer-to-peer payments. Visa released its own peer-to-peer platform and mobile payment strategy built around connecting mobile money programs in developing markets. MasterCard partnered on several mobile payment programs including the Quick Tap program in the U.K. and Google Wallet in the U.S. And even Discover was active in mobile payments as the original partner to sign on with Isis, the U.S. mobile payment joint venture of Verizon Wireless, AT&T and T-Mobile.
The Mobile Network Operators
Not willing to sit back and be "dumb pipes" while all those mobile transactions crossed their networks, the wireless carriers made their own play for mobile payments in 2011. The pull of mobile payments was so tantalizing that mobile rivals announced this year that they would work together. Competing mobile operators in France, Germany, the U.K., Italy, Taiwan and elsewhere formed joint ventures to create national mobile payment networks. At this point, most are still figuring out how to work together with only France's Buyster actually online.
Isis, the American version of the mobile payment JV phenomenon, continued working this year toward an expected 2012 launch. Among other announcements the company formed partnerships with the major card brands, a mobile wallet provider and handset manufacturers. And while Isis' own product is still trying to get off the ground, that doesn't mean it's not impacting the market. Isis partner Verizon Wireless requested Google Wallet be disabled on one of the a handset, likely in an attempt to hamper an Isis competitor.
And as for that competitor, May saw the launch of Google Wallet, a real, honest-to-goodness "tap and go" mobile payment solution for everybody. The company assembled all the necessary pieces to make a mobile payment happen at the point of sale including a carrier (Sprint), handset manufacturer (Samsung), card brand (MasterCard), TSM and merchant acquirer (First Data), and card issuer (Citi). Add in other companies like numerous point of sale manufacturers and retailers to accept Google Wallet and the effort was enormous. Google pulled it off in less than a year.
Google hasn't publicly discussed how many consumers have downloaded Google Wallet or are actively using it, but even if the numbers are modest, what Google accomplished by being first to market with a working mobile payment solution is not.
Even if 2011 didn't live up to the hype of being the inflection point where mobile payments took off, there were plenty of stories this year to show that mobile payments are coming, albeit slowly. It may not have been the year in mobile payments, but it certainly was a year in mobile payments.
As always, Mobile Payments Today invites any comments. What do you think about what happened in mobile payments in 2011? What were the big stories? What were small stories that should have been bigger (or might lead to bigger things in 2012)? Please feel free to leave any feedback in the comments section below. Thanks! -- James