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Tuesday, January 13, 2009

Mobile payments coming of age

A December 2008 Mercator Advisory Group report, Mobile Commerce and Remote Payments: Consumers and Merchants Are Getting It, But Will They Really Use It?, examines mobile payment as a value added service for merchants and an additional revenue stream for ISOs and merchant level salespeople (MLSs). According to the report, smartphone-based remote payments are estimated to reach $8.6 billion by 2014, up from $76 million in 2008.

"As a value add for ISOs and MLSs, it's huge," said George Peabody, Principal Analyst for Mercator and the report's author. "All you have to do is go back and look at history. Look what's happened since the Internet showed up; e-commerce payments are becoming ever more prevalent. Now we've got an even more immediate potential payment platform because we all have a phone in our pocket.

"We've got 260 million people using them, and they're not just Gen Y's or Gen X's anymore. Folks in their forties and older text now; they're using their phones for data. The usage numbers for Americans has really shifted. We are way past just telephone calls. Things like iPhones have redefined how consumers use this technology. These are smart devices at the edge of broadband networks just like PCs, except they happen to sit in our pocket."

Ready for mainstream?

According to Peabody, mobile commerce now has the requisite infrastructure for its expansion into a global payment network. User access to mobile networks has increased, and operating systems are becoming more secure and Payment Card Industry (PCI) Data Security Standard (DSS) compliant. Most importantly, application distribution channels are expanding because the technology and vendors are now in place to properly implement it.

Approximately 40 million mobile Web users exist in the United States, and that number is expected to rise to over 60 million in 2009. Text messaging via short message service (SMS) continues to skyrocket. In the United States alone, over 105 billion text messages are sent every month.

"Mobile commerce platforms are now available to retailers hungry for marketing advantage and frequent connections with increasingly online-all-the-time consumers," Peabody said. "The combination of handsets with larger screens operating over high-speed broadband networks is compelling. And there are myriad simple solutions that make remote payments and mobile retailing available to almost anyone with text messaging capability."

Top line improvement?

In the report, the term "mobile payments" refers to payment transactions initiated from consumers' mobile handsets. These remote payments operate on software that does not require payment cards or contactless chips. The report said the average ticket size of payments done via mobile devices is growing, and users are able to pay for more types of goods and services with their Blackberrys and iPhones. Many vendors today provide downloadable applications for these devices. "I'm pretty bullish on what must be done to drive sales, and if ISOs can shift to a more value added business model, there's an opportunity now," Peabody said. "The software and technology are now available to merchants; it can empower them to improve their top line [total revenues] and that relationship becomes really tight."

But Peabody pointed out mobile phone usage can be expensive, especially in this tight economy. Monthly bills and two-year service contracts may make users think twice about the mobile lifestyle. "However, given the plasticity of computer and communication technologies, consumers will adopt what works and, in these times, what works at the right cost," he said. "And the mobile commerce ecosystem is starting to accelerate its evolution."

end of article

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