Mobile phone-based payments slow to find acceptance
Wednesday, July 6, 2011
By Bridget Botelho, Special to Mass High Tech
Waltham-based Pyxis Mobile, a mobile application platform company that lets enterprises develop apps for mobile devices, works with a number of companies developing point-of-service applications that turn smartphones into wallets. The company has worked with online and brick and mortar retailers that are looking to make smartphones into point-of-sale devices, said Christopher Willis, executive vice president of marketing for Pyxis.
“There are a number of ways to deliver this technology right now, but it is very early stage and completely device driven,” Willis said. “Since existing Blackberry and iPhones don’t support (near-field communications) chips yet, it will be a while before this takes off.”
The technologies and issues
Security concerns also hold this market back in America, even though payment functions are secured through PINs. The risk of having someone steal and use a phone’s payment function is no greater than losing credit cards from a wallet or purse. In fact, it’s probably a more secure way to carry credit, according to M/C Venture Partners’ Sal Tirabassi.
Michael Finneran, a mobile device analyst with dBrn associates Inc. based in New York, agreed that security shouldn’t be a concern.
“The credit card companies don’t mess around with their money; security will be built in, so consumers won’t have to worry about it,” he said.
There are a few different approaches to smartphone payments today, some based on software applications and others based on hardware.
Google essentially validated the hardware approach with Google Wallet, which uses near field communications (NFC) data exchange chip technology to turn Android smartphones into credit cards.
Google and Samsung will offer the Nexus S phone with NFC to support payments via MasterCard WorldWide PayPass and Google prepaid cards by the end of the summer. Google also partnered with merchant services provider First Data for provisioning of payment card credentials to Google Wallet, and to help merchants get the technology they need to receive payments.
NFC technology will also be available in RIM’s Blackberry Bold sometime this year, and T-Mobile U.K. recently announced plans with partner companies to support NFC technology for consumers in Europe. Apple, Motorola Inc., and other device makers in the U.S. will probably jump on board with support for NFC as well, Finneran said.
There are a few software-based applications that offer payment functionality without NFC. Starbucks Coffee Co. of Seattle, for instance, offers a barcode mobile payment app for the iPhone, BlackBerry and Android smartphones, and Starbucks stores have barcode readers to scan smartphone payment apps.
San Francisco-based Square offers a free app for Android, iPhone, iPad, or iPod Touch users that allows users to submit and receive payments. It comes with a pocket-sized credit card reader that plugs into a phone audio jack. Similarly, Payfirma Corp. in Vancouver, Canada, provides an app that lets merchants receive payments on iPhones.
The market demand for smartphone-based payment functionality differs by region, with many users already taking advantage of it in Asia and parts of Europe. “It’s a matter of time before its everywhere, but there are a lot of constituents that need to align first,” Tirabassi said. “The market is very fragmented right now.”
The real money for smartphone payments lies in the retail channel, but major retailers, banks and credit companies all have to get behind a standard solution for it to hit a tipping point. “Getting merchants to accept payments through Google using smartphones is going to be a lot of work,” Tirabassi said. “But not impossible.”
It’s up to each individual merchant whether they accept payments this way, and their decision will largely depend on fees. Merchants already pay fees for accepting credit cards today, so if it costs less to accept Google Wallet payments, merchants will be more inclined to support it, Tirabassi said.
To use the Square application, users pay a 2.75 percent fee per swipe. To receive Google Wallet payments, merchants have to accept PayPass payments via a plug-in peripheral reader or a fully integrated system, and the cost of using it varies depending on the system, according to MasterCard.
If the stars align, NFC–based mobile device payment transactions could reach $50 billion worldwide by 2014, according to a June 2011 report by Juniper Research, a mobile telecom market analysis firm based in England. In a separate report, Jupiter predicted that 2.5 billion people will use phones for payments by 2015.