Mobile Payments: On the Move to Opportunity

Smarter Devices and Their Global Presence Make Mobile the Next Big Thing

In developed and developing payments markets alike, the mobile phone is poised to become a significant payment channel, and for Gen Yers in developed markets, it could well become the channel of choice for bill payment—and soon.

That’s the judgment of payments industry experts Fred Brothers, managing partner, eCom Advisors, and Simon Pugh, group head, MasterCard Center of Excellence for Mobile. In a recent conversation, the two found much to agree on regarding the current state of mobile payments and how they might evolve.

Different strokes

Responsible for the MasterCard mobile strategy worldwide, Pugh notes that the different infrastructures and behaviors in the developed and developing worlds require different strategies for mobile deployment.

“In the developed world, we see mobile as a lifestyle choice, a convenience channel,” he says. “Most large banks have launched or are trialing mobile banking solutions, which are really an extension of their existing Internet banking services, and the smaller banks are paying attention. What we are seeing is a collection of financial services—both information and transaction oriented—in a consistent fashion in a handset.

“In developing markets, mobile has penetrated more significantly than traditional banking services and MasterCard core payment products (e.g., ATMs, bill-pay, payment cards). “There, we see mobile as a consumer access point to payment services and, for MasterCard, an access point to new customers,” says Pugh. ;

U.S. trends in mobile bill-pay

Pugh’s observation that mobile is just another channel for online banking and payment services rings true for Brothers. He believes the evolution of mobile services will move along a trajectory similar to that of ATM and Web services, where consumers first tested the waters with nontransactional functionalities.

“Banks are clearly promoting information-oriented banking on mobile phones—balance checking, for example—but not as much transactional banking yet,” says Brothers. “But we absolutely believe that we’ll see the migration of branch functions to mobile just as we did with the Web—account opening, funding, transfer, loan initiation, bill payment, et cetera. Anything you can do today on your desktop will be very mainstream on mobile within a few years.”

One of the biggest obstacles to the migration is bankers themselves, Brothers believes, because most continue to think of mobile as equivalent to the flip-phones of yesteryear. While no one would bank on small screens and numeric keypads, they will on the “pocket PCs” of tomorrow—full-function browser solutions on the go. (Brothers sees iPhone 2, due later this year, as setting the industry standard.)

Nor are many bankers thinking like twenty- and thirtysomethings. “We suspect the Gen Yers may originate more transactions via mobile than they do by PC,” Brothers says. Because of this, he believes the ability to receive and approve e-bills will be a critical element in mobile bill-pay.

The consumers win

Bankers today are pondering the shape of things to come. “They want to know what will win—downloadable apps or browser based? How important is SMS? Will the carriers remain more involved in mobile commerce than they are in PC-based or telephone-based e-commerce? Which model wins?” says Brothers.

In the near term, he says, “downloadable apps benefit from better performance, functionality, and security. But as devices get more sophisticated and mobile browser functionality increases, mobile Web could eventually eclipse downloadable apps as the preferred model.” For certain transactions, he says, “SMS will absolutely positively be important because that’s how this next generation thinks.”

Pugh notes that some mobile carriers believe they should be recompensed for every transaction initiated over their devices. He and Brothers agree that while this approach may work in the short term, the availability of full-capability browsers on mobile devices will gradually erode closed networks and carrier control, as the wired and wireless Internet continue to converge.

“For the carriers to keep a piece of the value chain as mobile e-commerce evolves,” says Brothers, “they will have to continue enabling transactions and capabilities that the mobile browser alone can’t provide.

“In the end, the technology will continue to evolve,” he says, “and the consumers will vote, and the consumers will win. Period.”