By Daryl Colwell | @DHColwell | VP, Business Development
Thursday’s Financial Times has an excellent analysis piece by Richard Waters, the paper’s West Coast managing editor, on the nascent mobile payments industry. “Are smartphones about to swallow the payments business,” he asks as he moves on to dissect an industry valued by the Yankee Group at $162 billion in 2010, the last year of available data.
The piece centers around the eye-popping investments in, and growth of, mobile payment startup Square, now valued at $3.25 billion after it raised more than $200 million in a new round of financing.
Waters examines Square within the prism of its larger and more established comrade in the Silicon Valley tech ecosystem — Apple and its new Passbook digital wallet platform, launched this week. Waters rightly points out that however awe-inspiring most Apple products tend to be, a key component is missing from Passbook: a way to make a payment. “Apple’s bet is that consumers still prefer to pay with a card or hard cash,” he writes.
Mobile Payments: Fundamental to Growth of Digital Marketing
As someone who has been a keen observer of, and commentator on, the growth and consumer use of mobile payments, I found the FT piece fascinating. Not only for Waters’ ability to succinctly burst the hype bubble often surrounding mobile payments but for the fact he makes clear a point I and others in the digital marketing space have long argued: the mobile wallet isn’t quite yet ready for prime time.
Don’t get me wrong. As a digital marketer, I’m enthralled by mobile payments and the opportunities the digital wallet brings to consumers and brands. I easily see it being one of the most fundamentally important technologies to emerge in marketing since the rise of the smartphone itself.
But once one gets past the hype, it becomes pretty clear that corporate investment in mobile payments is outstripping consumer adoption.
As I wrote in Advertising Age last June, brands and marketers love to tout mobile payments as “the next big thing. It’s easy to see why: Brands can instantly access an individual customer’s in-store purchase data and serve up targeted deals. The customer pays simply by holding up his smartphone to the checkout scanner — no digging into the wallet for a credit card, dollar bills or, heaven forbid, loose change.
Despite that hype, consumer ambivalence to mobile payments is high. According to a survey by IDC, only 20 percent of people have ever purchased a product using their mobile phone. And of those who have devices enabled with Near Field Communications — the technology behind mobile purchasing — only 2 percent are expected to use them in 2012.
Hype Outstrips Current Value to Consumers
The reality is that the “digital wallet” has yet to gain mainstream adoption for a simple reason: it’s often clunky to use. The hype of a consumer being able to effortlessly flash their smartphone in front of a checkout scanner is met by the reality of usability issues that are inherent in any new technology.
That doesn’t mean brands should give up on mobile payments. For merchants, mobile payments present the perfect mix of targeted e-commerce with bricks-and-mortar shopping data direct from their customers. The opportunity to present consumers with offers and coupons, often in a real-time presence and geo-targeted by their physical location in and around a store, is a sort of Nirvana for customer data collection.
To fully realize the massive potential of mobile payments, marketers must cut through the hype and fix two glaring problems: ease of use and the value proposition to consumers. Right now, neither is very clear, and that is leading to a lot of hype but little economic bite for the digital wallet.
For more on the challenges and opportunities of the mobile wallet, here is a piece I wrote for MediaPost in August.