Mobile Wallets – A Two Sided Marketplace

It’s that time of year again – kids are going back to school, leaves are starting to change color, and Apple is hosting its fall iPhone launch. And as usual, there is a flurry of rumors and leaked photos circulating the Internet such as this pre-order page from a Chinese telecom company. However, I did see something interesting that I felt should be shared from a retail perspective – Apple’s potential near-field communication (NFC) integration, which would enable mobile payments with smartphones.

While rumors of an NFC-enabled iPhone aren’t new, there has been some evidence that make it more probable for this iteration. An unnamed source told the Financial Times that NXP Semiconductors is working directly with Apple. This is also validated by Chinese repair company GeekBar, which leaked schematics showing the use of NXP’s PN56 chip. In any case, lets assume for this article that Apple will enable mobile payments. What would that mean for retailers and consumers, and what would happen in the competitive arena of digital wallets?

Taking a step back and looking at the current landscape, there are numerous companies tackling mobile wallets. We have the big/expected players such as PayPal, Google, and Softcard (formerly ISIS), but we also have offerings from Macy’s, Amazon, Starbucks and a host of third party provider startups. In short, the competitive landscape is incredibly fragmented and competitive. There hasn’t been a solid leader in the space because no one has developed the necessary critical mass between both consumers and retailers. Right now, mobile payments are inconvenient to use, not widely known about, and lack support. However, there is potential to drive mass adoption.

One possible path to filling this two-sided marketplace is to start with the demand side, consumers. Apple has over 800M user accounts, most attached to a credit card, which it can use to increase the ubiquity and pervasiveness of mobile payments. Similar to what’s been happening with iBeacon, Apple’s sheer size enables it to successfully implement new technologies on a massive scale. The company has also partnered with the major credit card brands, American Express, Visa, and MasterCard, to further enhance ease-of-use for the consumer. The logic here is straightforward: create demand on the consumer’s side and retailers should move to accommodate.

The other way to look at this is from the supply side, retailers. In 2012 a consortium of retailers formed a joint venture called Merchant Customer Exchange (MCX) to create a mobile payment solution. The list of retailers includes Best Buy, 7 Eleven, Kmart, Old Navy, Target, GAP, and more. All in, these represent 110,000 brick and mortar stores. As far as competition, this company may become the biggest rival to Apple for the same reason that the tech giant would be successful – size. And similar to Apple, their goal is to also increase the pervasiveness of mobile payments through their app, CurrentC, which is slated for release in 2015. It probably isn’t a coincidence that this news comes just before the iPhone 6 launch, and it shows that retailers are taking new consumer habits seriously. If this does launch in 2015 as expected, it will be a significant player.

It’s difficult to say what the catalyst to mobile payment adoption will be, but I certainly think these are significant steps in the right direction.

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