Mobile Payments--The Wave of the Future?

Mobile Payments—The Wave of the Future?

NACHA PAYMENTS 2007— The Next Generation of Electronic Payments

Mary J. Yerkes, Communications Manager & Staff Writer

NACHA—The Electronic Payments Association

Steve Ellis, Executive Vice President, Wells Fargo and Chair of NACHA’s Board of Directors, took the stage April 16, 2007 at PAYMENTS 2007, along with other industry experts, to discuss mobile commerce—the opportunities, the challenges, and the state of mobile payments today. Ellis staunchly supported mobile commerce on behalf of the banking community, praising its “ease of use.” “We see the channel similar to the Internet,” said Ellis. “It’s going to be very big.”

The panel, moderated by Claudia Swendseid, Senior Vice President of the Federal Reserve Bank of Minneapolis, also included Kevin Dulsky, Senior Director & General Manager of PayPal Mobile; and Tim Sherwin, Executive Vice President of CardinalCommerce Corporation. According to these industry experts, the circumstances and momentum have shifted from just a few years ago.

“In 2006, the percentage of us carrying mobile devices is up to 70 percent,” said Swendseid. She also pointed to an upsurge in applications in recent years. “Over the last few years, the…applications that you can use on your phone…has really exploded,” she said.

CTIA, the International Association for the Wireless Telecommunications Industry released statistics at 2006 year’s end, confirming an upsurge in mobile users. According to their website, there were 233 million mobile subscribers by 2006 year’s end, that is more than 76 percent of the U.S. population. They also cited 93.8 billion SMS messages sent during the latter months of 2006, up 93 percent from 48 billion in the second six months of 2005. Additional applications are on the rise as well—audio players, date books, games, calculators, and clocks are just a few of the offerings available to mobile users.

“Industry experts cite mobile payments—the exchange of financial value between two parties using a mobile device (e.g., mobile phone or personal digital assistant (PDA))—as the wave of the future,[i]” reported Krista Becker, Emerging Payments Analyst for the Federal Reserve Bank of Boston in a February 2007 briefing.

“It’s a natural extension for consumers to have a virtual wallet,” said Dulsky, calling PayPal “incredibly bullish about mobile payments.” According to Dulsky, PayPal expects mobile commerce to grow, providing new applications for consumers and new opportunities for merchants.

Tim Sherwin is also an advocate of mobile commerce:

Today, there is a dramatic difference not only in terms of cell phone penetration but also in terms of technology that is ubiquitous within those phones. If your bank sends an alert to your phone saying that you’re reaching a limit on your credit card or you have a strange transaction in your account on your card, you don’t even have to be familiar with that technology, but certainly it’s there and it’s available on your phone. That, combined with a lot of major players in the space…I think you have a very different landscape today.

While the technology for mobile commerce certainly exists, there are significant obstacles to overcome. Can all the players—bankers, technology and telecom companies, and users—get on the same page? Is there enough revenue to go around? Is the value proposition clear and compelling as a complement for current payment methods? Can authentication and authorization issues be resolved?

For now, there seems to be more questions than answers. Still, mobile commerce is gaining traction. Wireless Week reported several major financial institutions, including Bank of America, Wells Fargo, and Citibank, either have a mobile banking service or are planning one.[ii] Some industry experts have gone so far as to predict a “mobile revolution,” citing mobile payments success in other parts of the world and mass adoption of mobile devices in the United States.

“We talked about the Internet as transformative because of its reach,” concluded Swendseid. “But this [mobile technology] has extended beyond anything we had ever imagined.” She emphasized the “far flung” reach and widespread use of mobile technology “in every country… by every age group, and every social and economic class…There is something very powerful about that in terms of opportunity.”