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More companies join mobile payments rush

With Wal-Mart and Starbucks both announcing plans in the past week to make it easier for customers to pay using smartphones, the mobile payments market is finally moving into the mainstream.

The bold prediction by PayPal that by 2016 people would no longer need to take their traditional leather wallet with them on shopping excursions seems less futuristic as big household names get behind mobile wallet projects.

It is not just retailers who are looking to claim the increasingly crowded market for mobile payments. Google Wallet launched in the US last year, while three of the big US telecoms operators, Verizon, T-Mobile USA and AT&T are developing a service known as Isis.

Elsewhere, Ebay's PayPal unit, has also launched an app that allows users to pay for items with their mobile phones across a number of stores in the UK and Barclays has launched Pingit, a mobile-to-mobile money transfer service earlier this year.

The Mobile Money Network has a payment app that can be used in stores such as Carphone Warehouse, Thorntons and HMV and the UK's biggest operators are planning their own wallet service, nicknamed Project Oscar.

Visa has also invested heavily in mobile payments services and predicts that by 2020 over half of all the payments it processes will come from mobiles. The danger is that consumers will be left confused by these competing offerings and stick to more familiar options such as credit and debit cards, or cash.

"The market won't sustain more than a a few of these services and so there will have to be a big shakeout," says Steve Ledford, partner at Novantas, the US-based management consulting company.

"It is a safe bet that nine out of 10 of these will fail. The more difficult thing is knowing which ones," he said.

One of the reasons for so many different offerings for mobile payments is that a number of factions are vying to control the mobile customer relationship. Banks do not want to lose their role as a primary handler of payments. The mobile operators want to make money from their close relationship with mobile handset owners, and retailers want to avoid being charged heavy fees for using a new payment mechanism.

When Wal-Mart and its peers announced they are building their own mobile payment system, they said part of the reason for doing so was "eliminating unnecessary costs to all stakeholders".

All of them would like access to the details about consumers' shopping habits that can be gleaned by monitoring mobile payments – what are people buying, where and at what time.

The danger, say some industry analysts, is that the proliferation of competing and incompatible mobile payment systems will confuse consumers. Significantly the US-based Electronic Transactions Association formed a Mobile Payments Committee last week in a effort to oordinate the wide range of mobile payment inititives underway, establish standards and prevent fragmentation in an effort to c.

The committee consists of the big four US mobile operators, Verizon, whose Federal Relations Director chairs the group; AT&T; T-Mobile USA; and Sprint which partnered with Google to launch the Google Wallet using NFC (near field communications) technology.

Among the others involved in the initiative are Google, Wells Fargo, Paypal, and Isis. Credit card companies,including Visa, MasterCard, American Express, Discover, and Capitol One, have also signed on.

"All the three main parties – banks, retailers and mobile operators – are all having a go at this. There is now an initiative from all of them," said Fred Huet, analyst at Greenwich Consulting.

It is still hard to tell whether any of the mobile wallet services are gaining real traction, with scant data available publicly. Visa, which was looking to showcase contactless payments at the London Olympics said about 15 per cent of all payments under £20 were made using a contactless card or mobile phone.

However, an IT failure that prevented tills at Wembley Stadium from taking Visa credit or debit card payments during one of the Olympics matches may have undermined Visa's attempts to showcase the new technology during the games.

PayPal, meanwhile, said it was expecting to process $10bn in payments made on mobile devices this year, up from $4bn last year.

However, overall, usage levels are still low. Starbucks has seen perhaps one of the biggest successes in this area, with more than 1m people a week using Starbucks' mobile application to pay for their coffees. But this is still less than 2 per cent of the over 60m weekly transactions at the coffee shop chain.

"We haven't seen any of the wallets really take off yet. Someone getting a little bit of traction can can go a long way at this point," said Hank Israel, partner at Novantas.

Clunky customer service and difficulties setting up mobile payments accounts are turning many customers off, says Mr Huet. "Barclays Pingit is a good idea, for example, but installing it is too complicated and has stopped people adopting it," he says.

Nevertheless, if those involved in developing mobile payments can strike the right balance and develop services that consumers find convenient and easy, and above all else is secure, the potential is enormous. Juniper Research predicts that mobile payments could reach $1,700bn by 2017 - or about 4 per cent of all global retail transactions.

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