Mobile payments have at last reached the stage in the UK where trials and pilots are starting. Barclays Bank, O2, and Transport for London has announced a trial of a combined transport/payments card in London (news report here), while RBS and MasterCard have announced a trial of a mobile debit card in London and Edinburgh (D). But as Dave Birch points out in a long and wry post at the Digital Money Forum, just because some producers are getting excited about a product doesn’t mean that it will be successful; the payments market place is slow and conservative.
Dave’s reflective piece – as much about technology take-up as mobile payments – is worth reading in full. His starting position is that while clearly RBS and Barclays see potential in the market, as does Dave himself, Deloittes were sceptical, in a recent report. From a futures point of view this is evidently a point of uncertainty. So what would make it play out in different ways?
First, incumbents don’t usually invest in technologies which are going to potentially disrupt their market: “this is why BT didn’t invent Skype, Wells Fargo didn’t invent PayPal and Sears didn’t invent eBay. And, more relevantly I suppose, it’s why banks didn’t invent payment cards or ATMs. What banks did do is wait until someone else had invented them and then draw the technology into mass market financial services.”
Second, mobile payments could be so important to the future of the mobile industry that they will drive the market – whether or not the banks are involved – because they can see revenue streams and business models which the banks can’t imagine. As happened with the music majors, Apple, and digital downloads. Globally, there are mobile payments trials, driven by mobile operators, almost everywhere.
But it’s still not enough that mobile operators whink it a good idea, or even that users indicate interest. There has to be value in the phone-payments device at point of sale which generates enough revenue to fund the necessary infrastructure. The Deloittes report suggest that the current margins on cards don’t leave room for someone else to take a cut.
So the contactless phone has to offer other opportunities. These might be there: in service discovery, easier usage, data exchange. In particular, Dave reckons the service discovery opportunity is huge for operators who struggle to get users to try out data services:
It’s just too much hassle to figure out how to type in URLs and then it’s too much hassle to actually type them in once they’ve figured out how. But if you could simply hold your phone against the timetable in the bus stop to bookmark the bus timetable in your phone browser, you might well open it up and take a look sometime.
So both are right: Deloittes are right to say that on the current business models there is little reason to see a decent return on investment on mobile payments. And the operators are right to see potential (higher risk/reward) in innovation.
For my part this reminds me of working in the interactive TV business in the mid-1990s and trying to persuade an advertising agency to find a client or two willing to put £25,000 in to the first large scale interactive advertising trial in the UK. (There’s a paper about this in my Selected Articles page: scroll down). The twenty-somethings from the digital department were keen until a grizzled planner punched some numbers into his calculator and told the room that they’d get a better ROI from a quarter page in the Evening Standard. JWT and Kellogg’s, who took the project on, gained learning and kudos.
At the same time, the prediction by Richard Humbach, Nokia’s mobile payments systems manager, that ‘We can expect mass-market acceptance around 2010 or 2011,’ seems optimistic, even if he is paid to say bright things about this new market to pep up the spirits of the mobile operating companies. He sees the only barrier as being the speed the technology can be pushed into retailers – but even if that were the only obstacle it would take longer.
One of the difficult issues in designing the Barclays/O2/TfL trial points the likely way to future disputes, about ownership of the data (and an implicit dispute about ownership of the customer):
‘The mobile-phone operators wanted to see the transaction details, because they felt they had a right to see data flowing over their networks. The payment community would not allow that, and now the networks have had to accept that they are just transferring encrypted data between the user and the card issuers.’
There’s also an important issue buried in here about the extent of permission given by the customer to different organisations. Banks may be disliked, but they do have permission to handle our money in a way which mobile companies do not. Obviously such permissions can change (Apple gained our permission to become a music company) but there are not yet signs of mobile operators extending their permission space beyond communications – despite their best efforts to tell us that they are media and entertainment distributors. At least being a communications channel for mobile payments is close to their core business.
Update: There’s now a podcast with Colin Swain of Barclay’s New Product Division, in which he talks about the trial, at the Digital Money Forum.