Mobile Payments: Why Is It Falling Short?

Mobile payments

Mobile Payments Create Excitement… and Confusion

It has been believed for quite some time that “mobile payments” represents a tantalizing new source of revenue for brands, payment processors, card issuers, network operators, content providers, etc. But the term “mobile payments” is confusing because it is an umbrella reference that covers six functional models and each model supports a uniquely different consumer experience, set of operational expectations and set of user/merchant requirements.

In order to better understand mobile payments, one must first have a basic understanding of the six models:

  1. Open Loop Model: The smartphone is mobile extension of traditional credit cards and can be used at any participating merchant that is equipped to accept credit cards. (e.g. Google Wallet)
  2. Closed Loop Model: The smartphone is a mobile extension of a merchant/affinity-specific payment platform and can only be used with that merchant or affinity group. (e.g. Starbucks)
  3. Alternate/Hybrid Model: Similar to the Open Model except that non-traditional financial intermediaries replace credit cards as the funding source. (e.g. Paypal)
  4. On-line Model: The smartphone is simply used to access a web site or app for the purpose of remotely executing a payment via the site/app’s payment service. (e.g. American Express)
  5. Merchant Model: The smartphone is used by a merchant as a mobile payment terminal to accept traditional credit card payments from consumers. (e.g. Square)
  6. Peer-to-Peer Model: The smartphone is used to remotely send payments from one member of a given financial entity to another member of that entity. (e.g. Chase)

These six models can be segmented further into four broad classifications:

  1. Proximity Commerce: Is represented by Models #1 through 3. This classification provides for consumers to make in-venue, real-world payments via their smartphones.
  2. M commerce: This segmentation is embodied in Model #4.
  3. Mobile Point of Sale or Mobile Merchant: This segmentation is embodied in Model #5.
  4. P2P Commerce: Is represented by Model #6. Solutions that fall into this segmentation sometimes gets mistakenly grouped into Proximity Commerce.

Unfortunately, news and information outlets tend to make no distinction between the six models, or their four sub-segments, when discussing mobile payments. In fact, it is possible for a consumer to read several different articles on mobile payments and not realize that they may have just read about several distinctly different things. In the consumers mind it’s all one thing – mobile payments.

I believe that this has led to significant consumer confusion, which, in my opinion, is the principle reason mobile payment adoption, specifically Proximity Commerce, has fallen short of adoption expectations.

Adoption Rates Fall Short

Recent reports by Gartner, Yankee Group, eMarketer, etc. have cut mobile payments (Proximity Commerce) adoption forecasts by as much as half. Although adoption of Proximity Commerce has been far less than expected, many in the mobile payments industry are taking heart in other research that shows growing a consumer awareness of mobile payments. Scratch a little deeper, however, and you will likely find that the understanding is superficial at very best.

When I talk to consumers about mobile payments, I find that the vast majority of those who admit a familiarity with the term cannot differentiate between Mobile Merchant, m-Commerce and Proximity Commerce. Even fewer can explain the difference between an open and closed loop payment system. Fewer still can explain the relevance of the different Proximity Commerce engagement technologies such as QR Codes, NFC tags, Phone Numbers, Facial Recognition, etc.

Does it matter if consumers can’t differentiate between the different types? You bet it does. Where there is a lack of understanding, there is an opportunity for confusion. Where there’s confusion, there is resistance. Where there is resistance, there is no adoption.

The Solution to Confusion

So, what can be done to address consumer confusion? First, it starts with the vendors of mobile payment-related solutions. Vendors must make a concerted effort to refer to their offering(s) according to their sub-segmentation verses emphasizing their role as a mobile payment offering.

Second, it is incumbent on the various mobile payment-related industry associations (e.g. ETA, GSMA, CTIA, CEA, NRF, NACHA, etc.) to make a concentrated effort to educate their membership on the need for using the clearer, more distinct classifications/segmentations when referring to mobile payments. The industry press and bloggers must then follow suit by emphasizing these distinct classifications and segmentations when referring to products and services that broadly fall under the mobile payments umbrella.

If the mobile payments industry makes an overt, concerted and coordinated effort to clarify the segmentation of mobile payment products and services, then the larger, general mass media will begin parroting what they’ve heard and learned. This should have a very positive influence on general consumer understanding, which should help facilitate adoption within all mobile payment sub-segments.

Once the broader need for educating consumers on the classification and segmentation of mobile payments is addressed, then the various segments can focus on developing and executing education strategies that best meets their particular needs.


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