By Alex Grinberg
When e-commerce was in its infancy, few options existed for making payments online, with credit cards being the de facto method of choice. However, as this industry grew, so too did the number of payment methods available, leading to a crowded market of alternative payment providers. Today, there are close to 30 alternative payment methods for e-commerce transactions.
Today, the same thing is happening in the world of mobile payments or m-commerce. Driven by the rapid growth of smart phone adoption, the mobile payments industry is heating up, and companies are rushing to innovate and develop new applications to grab a share of this burgeoning market.
According to Yankee Group's latest Mobile Money Forecast, the value of global mobile transactions will grow from $241 billion in 2011 to more than $1 trillion by 2015, a compound annual growth rate of 56 percent.
The four primary methods of mobile payments today are:
While there is plenty of innovation among these payment options, the market is still young, and several barriers need to be overcome before we will see widespread adoption. First, consumers are reluctant to use mobile payments because of security and privacy concerns. According to the latest Consumer Reports findings, the "continuing launch of new forms of payment options does little to offer consumers guaranteed protection against unauthorized transactions."
In fact, despite the hype around mobile payments, a recent survey by Consumer Reports National Research Center found that very few consumers - 5 percent of the respondents - use the service.
Another barrier to entry is the lack of interoperability among mobile technologies. With so many vendors rushing to develop superior solutions and be first to market, it is difficult for mobile payments to be standardized. Lastly, while merchants and ISOs are receptive to new payment methods, they are looking for solutions that enable them to authenticate payments and reduce interchange fees.
A new category of alternative payments is emerging in the mobile space that addresses many of these challenges. Online Banking ePayment (OBeP) systems allow consumers to make purchases using their most trusted financial institutions - their banks. With this approach, consumers don't have to share their personal information with merchants and can better manage their money by paying for goods directly from their bank accounts.
These types of networks are successfully growing in The Netherlands, Germany, Canada and Columbia and are starting to gain traction in the United States. Merchants and ISOs benefit from lower interchange fees as well as payments that are authenticated in real-time and guaranteed. These payment options can lead to increased customer loyalty and repeat transactions.
To address the technology challenges, the International Council of Payment Network Operators was formed by a group of companies to establish the rules and standards for joining the global payment networks together for the benefit of all involved.
No matter what payment options are available, consumers must feel comfortable using them in order for them to succeed. Just as it took consumers a long time to begin feeling comfortable transacting online, the same will happen in the mobile world. Consumers will demand convenience, privacy and trust from any alternative payment method.
If the promise of simplicity, speed and security for the consumer counts in traditional payments, then these three simple propositions are paramount for any mobile alternative to make a visible difference. A payment type that is fast, easy and secure for the consumer; improves conversion and offers guaranteed funds for the merchant; and drives revenue for the bank is a win-win for the industry and will move the mobile payments industry forward.
As Chief Executive Officer and founder of eWise, Alex Grinberg has established the company as an international provider of innovative payment services and solutions for the financial services industry. Prior to eWise, Alex held a number of senior legal and operations roles with Oracle Corp. in Australasia and Europe. You can reach him by email at firstname.lastname@example.org or by phone at 720-258-4300; the eWise website is www.ewise.com.
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