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The 7 S's Required for Success in Mobile Payments > A 7-Week Series
These seven things are standard protocol in retail commerce. In transition to mobile, missing any one will spell defeat.
TechCrunch says mobile payments are a trillion dollar a year industry. Many say the 'Mobile Wallet' is soon to be the 'King of Commerce', but what will make the wallet king? The mag-stripe on credit cards has long been the standard of enabling electronic payments. NFC technology, used by Google Wallet, ISIS, Visa and Mastercard is now gaining traction, as is use of 2D barcodes as a method to enable mobile payments.
The first 'S' is forStandardization of bridging the 'POS GAP', to enable mobile payments'. The Standardization of Bridging the POS GAP between mobile and retail POS systems is what makes mobile payments possible. It is the 'Flux Capacitor' delivering us to the future of mobile commerce.
The 'Mobile Wallet Space' shall be a much fractured market dominated by the likes of PayPal, Google, ISIS & MNOs (Mobile Network Operators), Apple, Amazon, Microsoft, Facebook, Verifone, Vivotech, Intuit, Roam Data, NCR, Micros, payment networks, proprietary services run by retailers (powered by the likes of Corfire, Incomm, Blackhawk & FIS), large banks, acquirers or processors vying for a piece of the pie and another 50+ startups. This means no one standard will be set, but there will be many winners and standards adopted. Like you see payment network stickers in storefronts, so you will see stickers offering customers the option to pay by phone, earn rewards and get special deals. These stickers will be larger and more Web 3.0 than the conventional payment network stickers we see.
And let's add to the mix that Mr. Jason Oxman, the new CEO of ETA (Electronics Transactions Association), was recently interviewed by Transaction Trends (TT), The Official Publication of ETA, and he stated “I'll break some news with you here: ETA is in the process of forming a mobile payments and digital wallet working group . . . Our goal is to bring the entire industry to the table at one place, here at ETA . . ." He has also been busy stumping for 'The Mobile Wallet' on National Public Radio.
Many retailers will not make an investment in new terminals equipped with NFC and EMV until they are mandated to do so by PCI (2013-15). With this delay, many merchants are adopting technology that enables mobile payments without NFC. Conventional mobile payments in Japan and elsewhere have used NFC in the phone and POS terminal to complete mobile payments, but in the US up to 95% of merchants still do not use NFC equipped terminals and NFC equipped mobile phones may have even lessor penetration. Google Wallet, ISIS, Visa and Verifone are the key players in using NFC as the enabler of mobile wallets. The question with NFC is who is going to fund the cost of terminals if it is not the retailers? The issuers and networks could lose out as the choice of payment is now evolving, but will terminals in the field guarantee usage by consumers? I suppose that PCI will work it's mandate magic to make EMV and NFC standard by 2015, all in the name of security.
Five of the top startups; Tabbedout, Paydiant, Kuapay, LevelUp and Digimo, are seeking to bridge the GAP without requiring NFC. Given enough success they are candidates for acquisition, which could lead to threaten the current payment networks or processors. Tabbedout routes the transaction by connecting through the Integrated POS and claims to be officially certified by all major systems in the hospitality. With Paydiant a 2D barcodes is displayed on POS terminals or shopping carts and the Paydiant mobile app is used to scan the code to pay. Kuapay, recently featured by TechCrunch, is somewhat a play off Starbucks Card Mobile App as is Levelup. It displays a barcode to on the mobile screen and the merchant scans it to initiate the transaction.
And lastly, Digimo, also recently featured by TechCrunch, displays a 2D barcode to be scanned by the merchant and unlike the other three, does not require new hardware or software for the merchant to add mobile payments (I've heard of another startup claiming the same thing a couple years back, hmm?).
According to TechCrunch, "DigiMo issues bank cards to merchants (instead of individual consumers like regular issuers). This special DigiMo card has a specific bin range.
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Merchants receive a DigiMo card and unique barcode/number for each of their Point Of Sale terminals. Finally, at the time of a purchase, a customer uses the DigiMo mobile app to scan the barcode at the cash register. They then authenticate the app with pin or other security credentials which connects to their DigiMo account in the cloud. This info is sent to the cloud and lets DigiMo know at which unique cash register the transaction is taking place. The merchant closes the transaction loop by swiping the DigiMo card into the existing POS reader which rides the rest of the transaction on the regular card network and authenticates at DigiMo’s server and debits the customer account. Boom. You’re done!"
PayPal and Apple's Passbook serve as the two top alternative payments players that do not appear to be embracing NFC unless or until it is a widely adopted standard. It does not seem likely NFC will be added to the iphone 5 either. Both PayPal and Apple pose significant threats to the incumbent associations. Both have standing relationships with hundreds of millions of users, with PayPal having the edge due to it's history of payments innovation. PayPal's alternative offerings are interesting, especially their flex-spend Digital Wallet, where users can select the choice of payment at a later date, even choosing multiple new financing options. However their offerings, though creative, need improvement if they any of their offerings are to be taken to scale (will touch base about this more in our Tour D' Mobile Payments). Apple's Passbook is visually simple and stunning, thus meeting our expectations of Apple, but what is their method of connecting the transaction to POS? I'd have the same question of PayPal, Amazon or Facebook when they arrive to market. Perhaps mobile payment startups have the answers by use of 2D barcodes or by custom integration of Integrated POS?
Jay Donovon, author of the TechCrunch article also states, "The first thing I thought was wow, why didn't somebody think of this before. Its a pretty good idea and solves many of the problems that plague mobile, face-to-face payments." I agree with Jay here, I can't believe no one has thought of this idea before. The idea is very simple! I see potential to board merchants in minutes and at a very small cost to do so, perhaps as little as 50 cents (2-3 mag-stripe cards) or perhaps a one-time fee of less than $50 to pay toll fees to gateway, network, processing partners and even provide POP displays. A technology like this removes the need for integration and eliminates the 'chicken and egg' problem that NFC and all other solutions in the market face. However, DigiMo may face the same problem as Groupon, the clones. Yes the knowledge wall is a bit higher, but for the payment networks, processors and banks, there is a lower barrier to entry. The question that comes to mind next is, does Digimo hold any patent rights? If they do, they may have some very valuable IP. But even if they did, they are still an execution play as eventually, swiping a card to initiate mobile transactions, will be replaced by seamless integration with POS, be it NFC, 2D bar codes or something else yet to be made public, that trumps them all.
I reached out to Digimo weeks ago requesting an interview; asking if they hold patents covering their technology, but I have not hear back. As far as I can ascertain, Digimo does not portend to hold patent rights for their technology. Maybe they do have defendable IP and they are making it hard to find or view their patents? The best strategy for a company with such a potentially paradigm shifting technology is no easy one to configure or execute.
The industry is seeking is a standard to build, scale and rely upon, like Blu-Ray, iOS or Windows. And when it comes to mobile commerce, there are several companies that have come up with innovative ways of bridging the POS gap. Innovation is backed by patents and the standardization war is just getting going. The future will unveil who holds what IP (Intellectual Property) cards or if some are in the game just bluffing. It makes sense that some or all of these alternative methods of enabling mobile commerce are acquired by a major player to scale, remove potential competition to their own solution or to prevent a competitor from acquiring the solution. At this time the IP cards will be laid on the table.
There are many other companies offering potential standards for making mobile commerce a reality sooner, rather than later and we will cover many of them in our upcoming Tour D' Mobile Payments.
'The 7 S's Required for Success in Mobile Payments' is a 7-week series by Randy Smith the Founder, CEO and author of all (for now) articles posted by Mobile Wallet Media. This is week one and this topic will be further discussed in our upcoming feature article: Bridging the POS GAP.
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Mobile Wallet Media is a news media, analyst, marketing and consulting firm focused on the future of mobile: payments, commerce, daily deals, security, loyalty, marketing, prepaid cards, virtual currency and the convergence