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The Green Sheet Online Edition

April 13, 2009 • Issue 09:04:01

Mobile payments? Not yet

By Biff Matthews
CardWare International

Prevalent elsewhere in the world, particularly Europe and Asia, mobile payments have a combined global market value projected to top $600 billion by 2013. The mobile payment market for goods and services, excluding contactless near field communication transactions and money transfers, is expected to exceed $300 billion globally by 2013.

In some developing countries, mobile payment devices are even being used for micropayments. None of this is surprising: An estimated 70 percent of the global online population do not have credit cards.

Everywhere but here

Yet, in the United States, mobile payments have failed to gain traction. There are four main reasons for this:

  1. The continued ruckus over who owns mobile transactions
  2. Lack of agreement regarding funding for hardware upgrades needed at the merchant level
  3. Generational demographics, specifically the lack of enthusiasm from the baby boom contingent
  4. Security concerns, real and imagined, from all sides.

Regarding the first factor, consolidation continues across all segments: telecommunications, carriers and gateways, banks and processors, along with myriad other entities between the two end-points.

Each wants to lay claim to owning the transaction. Until all parties are on the same page, the progress of mobile payments will remain stunted.

Regarding hardware, if there were ever a time for the merchant community to draw a line in the sand, it is now. Merchants should rightly ask all parties (except consumers), "If you want my business to accept your mobile payments, what are you willing to pay me to make that possible?"

At brick-and-mortar businesses, readers are needed to accept and transmit mobile payments. Merchants already have cash registers with printers, POS devices with printers for mag stripe card transactions and check imagers. And now they must integrate readers for mobile payments? Who will pay for that? What is the payback for that investment?

I have long been a vocal advocate for policies that help, rather than hinder, the merchants on whom we all depend for our livelihoods.

It is tragic and unfair that so many costs are imposed on them arbitrarily (and you thought taxation without representation was a relic of the 1770s).

Pilot programs by leading providers of mobile payments have thus far failed to result in a major rollout. The common wisdom is that each party has been unwilling to give up what the other wants.

In regard to demographics, many adults are at a loss to fully understand (much less accept) the impact that cell phone and mobile computing technology has had on the pre-adult community.

For the not-yet-adult population, personal interactions - and transactions of all kinds - are primarily virtual versus face-to-face. They are comfortable, if not obsessive, about texting. And they are the primary target for mobile payments.

Downturn or not, this group purchased a significant portion of the 1.3 billion mobile units shipped worldwide in 2008, according to ABI Research. The race to profit from applications through the sale of virtual goods, games, subscriptions and so forth is clearly in full swing.

Ironically, younger people use mobile devices extensively, but they don't attribute much intrinsic value to them.

They certainly do not regard them as "wallets," even though mobile devices are functionally similar to wallets, every bit as personal and no less of a headache when they get lost.

Tiny footprint, gargantuan risk

For all of their short lives, young people have known only devices that also have short lives. Device marketers encourage this by continuously touting trade-ins and upgrades.

The message is that mobile devices are, by nature, disposable. If one is lost or stolen, it's no big deal - another one will replace it.

Mobile payment devices pose a risk in the hands of those who subscribe to this belief: The possibilities for fraud and malice are endless. On the flip side, responsible adults resist mobile payment, citing security issues.

The security of personal and financial data in the device is a legitimate concern, as is the accessibility of data. Security of financial data in transit between devices and readers during transactions is also a valid concern.

That this is debated in an environment where data breaches and identity theft appear to be rampant only fuels the angst (255,647,975 individual records compromised since January 2005, according to Privacy Rights Clearinghouse, and 9 million American identity theft victims per year, according to the Federal Trade Commission).

Lose your wallet, and you can cancel your cards and driver's license. But lose your mobile device, and it may be hard to cancel anything, since all the information required to act is likely inside the device. A mobile payment device provides instantaneous, anonymous access to all your financial accounts.

Solve these problems, and mobile payments may grow to be as commonplace as ATMs. But don't bet the farm. With percentage-based card transaction fees continuing to move skyward, merchants may yet stage a Boston-style rebellion, à la 1773. For many of them, cash is beginning to look very attractive, indeed. end of article

Biff Matthews is President of Thirteen Inc., the parent company of CardWare International, based in Heath, Ohio. He is one of 12 founding members of the Electronic Transactions Association, serving on its board, advisory board and committees. Call him at 740-522-2150, or e-mail him at biff@13-inc.com.

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