The story of money is in many ways a story of convenience, spanning from coins to promissory notes, cheques, then credit cards, ATMs, online banking to today, where we live in a world of contactless payments and NFC-enabled smartphones that let us pay with our thumbprints and even selfies!
Driving the engine that powers this technology are the mobile payment gateways. Until now POS has been dominated by banks and major credit cards, but this blurring of the lines between our physical presence and our digital identities is allowing a whole raft of other players including PayPal, Google and of course Apple to offer systems that provide vendors and retailers secure payment solutions to offer consumers without the need to carry a specific payment instrument such as your credit card.
This is something of a Golden Age for the Internet of things (IOT), where everyone is trying new and novel ideas to connect all our devices. Inevitably mobile payment technology has become one of the primary battlegrounds in Silicon Valley and for tech companies worldwide developing IOT devices.
These companies tend to be able to innovate faster, but at the cost of a lack of history, trust and often requiring an additional layer to tie them to a bank account - something existing institutions don't need to worry about when releasing their own mobile payment solutions.
The result? An increasingly diverse and even fragmented marketplace with many players operating their own payment ecosystem.
With each new gateway solution trying to nurture and ideally dominate with their individual ecosystems will the bubble eventually burst and give us our 'VHS' moment? Or is the international mobile payment consumer base so large and the technology so cheap that all these platforms can survive side-by-side?
The playing field today
The virtual ubiquity of smartphones and tablets means that according to the SQS whitepaper 'Mobile Payments Through The Looking Glass' [LINK] a staggering 79.4 million U.S. consumers are expected to make purchases using a mobile device.
Indeed, PayPal processed more than $27 billion in mobile payments in 2013 - around 15 % of its total payments volume1. Although non-traditional players are expected to grow at a faster pace than banks, they are still as critical as ever. As you can imagine, this is because they control the money, so in the end 77% of mobile payments go through either a credit or debit card, regardless of the technology used up to that point. Despite this fact, this consumer-led evolution is challenging them to change their business and organisational models significantly in order to remain competitive.
As a result, five primary business models have emerged;
* Mobile-Financial institution collaboration.
* Open federation model (common platform shared by alliance of carriers and financial institutions).
* Third-party intermediation model (apple pay, PayPal mobile, MobileLime, etc.).
* Mobile carrier going solo and competing with other stakeholders.
* Financial institution working independently and competing with other stakeholders.
Identifying the growth, revealing the opportunities
Over three billion of the world's eight billion smartphones being used to make payments, which means big numbers with a lot of room for growth both in terms of numbers of devices and the percentage of those being used to make payments, creating superb conditions to drive m-payment innovation.
This is primarily due to the ever-decreasing cost of data speeds and volumes, which is fantastic for consumers, but it is also due to many players becoming (or planning to become) primarily a software platform, which is far cheaper to develop, maintain and deploy long-term.
Such a radical shift in focus for the payments industry brings new and exciting opportunities for tech companies and other non-traditional players to collaborate with stakeholders to further improve m-payments for consumers and businesses alike.
But there's another opportunity, and one which is so far being far less exploited than it could be: Mobile-marketing.
By being able to attach physical and digital customers directly, vendors are able to learn far more about their customers, who in turn receive a far more tailored and personal service regardless of how they choose to interact.
Now the very best parts of both the online and physical shopping experiences are able to come together, which generally tends to stick to the old 'greater than the sum of its parts' adage, so you can safely expect the unexpected in this arena.
Nothing comes without risk - So what are the challenges?
Widespread innovation, small businesses and inexperienced start-ups being funded by an industry eager to lead through innovation, breeds exciting change, industry - and even world-changing - new technologies in an industrial arms race. However, this breeds a risk-centric culture and historically many casualties.
For m-payments, this is most likely going to be seen in market fragmentation and an eventual dissolve to a core set of primary players and a smaller set of more specialist outliers. The driver for the dissolve will not simply be the number of suppliers over-saturating the market, but as a result of so many solutions coming to market that only function on specific hardware for the payee and only certain devices for the consumer.
On top of this, m-payments have transformed international payments, adding layers of complexity, legalities and increased costs for many potential players, making some financial institutions slow to act.
This internationalisation is also highlighting differences in payment cultures. Finding ways for them to all achieve widespread m-payment adoption while all remaining compatible and streamlined is particularly challenging.
And finally no talk of challenges can come without mentioning data security. Moving from physical and wired payments to wireless gives potential thieves a new access point, and much of the industry is still widely underprepared. 61% of organisations are uncertain about fraud management methods for m-payments as per the Mobile Payments Fraud Report 2015.
What to make of all this
Mobile payments, and in the wider context portable device technology as a whole, is having its renaissance. A rapidly evolving landscape which rewards customer service and quality consumer experiences in the most direct way possible for businesses and investors in this space.
The only way this can work is when the best minds from both sides - those with the solutions and those with the customer base and of course, the funding - work together in just the right combination to deliver m-payments solutions which delivers a better, more secure, more popular and of course better value service for everyone in the chain.
This won't be for everyone and not every great idea will work, but those that survive the forge will come out the other side with that most prized of titles; 'Industry Standard'. And it will be very interesting finding out who those companies are...
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