No, NFC still hasn’t come to the iPhone — or many other devices, for that matter. But this does not appear to be stopping the momentum in the world of mobile payments. Research out today from Gartner says that this year will see more than $171.5 billion in mobile payment transactions — a rise of over 60 percent on 2011’s $105.9 billion — with 212.2 million people (up 32 percent from 160.5m in 2011) using some form of mobile payment service. And what’s fuelling the rise? Despite the rise of smartphones, it’s legacy-based services like SMS and web-based transactions.
Longer term, Gartner believes that transactions will reach a volume of $617 billion by 2016 — with average growth slightly slowing down to around 42 percent — with 448 million users using such services.
SMS, Gartner research director Sandy Shen notes, remains the “dominant” access technology for making payments in developing markets, while in more mature markets, the vast majority of transactions are made via mobile internet portals. In North America in 2012, 80 percent of all mobile payment transactions will happen via Web/WAP routes, Gartner predicts; the figure in Western Europe is an even higher 88 percent.
That’s not to say near-field communications — the technology that will let people wave their phones in front of a payment terminal to pay for goods and services — is completely absent, but use of it will remain “relatively low” through 2015. (My theory is that if Apple puts an NFC chip into an iPhone and activates a service with it sooner than 2015, these forecasts could change: I’ve heard more than one mobile payments industry person tell me they are “just waiting for the iPhone to get NFC” before things really take off.)
Interestingly, Gartner doesn’t put slow adoption of NFC on the doorstep of handset makers, but does seem to refer to challenges among other players: “NFC payment involves a change in user behavior and requires collaboration among stakeholders that includes banks, mobile carriers, card networks and merchants,” Shen notes.
Her prediction: NFC will be used but not for payments: “Tticketing, rather than retail payment, will drive NFC transactions,” she says.
— Fragmentation. This seems to be a double-edged sword. On the one hand, fragmentation in offerings — both from the point of view of service providers and technologies (NFC, SMS, dongles from the likes of Square and Paypal among them) — seems to keeping any one solution or group of providers from properly scaling up as the de facto standards for mobile payments. That has a knock-on effect for merchants and consumers, of course, who trust such solutions less. Gartner believes these kinds of fragmentation issues will continue for the next two years.
But on the other hand, fragmentation may be a necessary evil for success. Gartner points out that as mobile payments continue to mature, providers will need to tailor offerings to local markets, or “local demand patterns to customize their offerings,” says Shen. That goes not just for regulation and getting approval to offer services in specific markets, but also different retail business models, existing embedded technology, and local preference. For example, while U.S. customers may love Square, the jury is still out whether Jack Dorsey and Co. will be able to take that solution further afield with such success.
That’s not to say that there will not be behemoths in mobile payments are there are in the world of credit cards, but that local companies may have a stronger role in mobile payments than we have seen in credit up to now. “There will be a few global players that have the scale and resources to serve large customers and the mass market whose requirements can be readily satisfied by standard solutions,” Shen notes. “However, there will always be segments that cannot be sufficiently served by the global players. The demand of these segments can only be satisfied by specialized or local players who can better understand the segment and have specific solutions to meet the unique challenges.”
— Who is in the driving seat? In North America and Western Europe, it will be merchants, says Gartner, who will be seeing mobile payment transactions both in physical stores as well as in online payments. Online it will be led by companies like eBay and Amazon, who are already going at a fast clip in mobile payments. Offline, the Starbucks model of using an app to work as a payment method/loyalty card will be the route that others will also take.
Developing markets are another story. It won’t be merchants as such setting the pace for and using mobile payments. Rather m-payments will be used mainly for other kinds of services like money transfer and top-ups of mobile calling and text minutes. An interesting area I’ve not seen mentioned before is ticketing: apparently mobile payments are used to improve the efficiency of buying tickets for public transportation in markets like Africa and South Asia, Gartner says.
— Regional breakdown. North America may make the most noise, but by 2016 it will only be the third-largest market for mobile payments, Gartner says. Asia Pacific will be the biggest region, with Africa at number-two, with the pair accounting for more than 60 percent of all mobile payments in four years. The full table below
[Image: Steven DePolo, Flickr]