Why has the genesis of the mobile wallet been so slow?

The mobile wallet has been touted as the next big thing for a number of years, so you would expect that by now the App-For-That maxim would ring true for everyone with a smartphone. Oddly enough while mobile payment services still seem to be positively fetal when it comes to real world application, industry gurus swear that mobile wallet use is significantly on the rise.

Back in 2009, Gartner Group predicted that the number of mobile payment users around the world would be topping 190-million by 2012. This year, Gartner revised that number to 212.2 million users, with a total of US$171 billion in mobile payment transactions. These figures seem puzzling to me. Nobody I know is actually using a mobile wallet for their general shopping. In the UK, services like Barclays’ PingIt, which allows you to transfer money to another user’s account using your mobile phone, have only just reached the market. Businesses are hardly equipped properly to handle mobile payments. The question I would like to answer is: where are all of these users and why are mobile payments taking so long to reach the rest of us?

One of the big problems, when it comes to defining mobile payments, is that this term encompasses a variety of different technologies. The most commonly used and available technology is probably Direct Mobile Billing, where your mobile service provider acts as the middle-man and simply debits your account for your online transactions. This approach has been around for many years now, but comes with a number of limitations. The most obvious being that the retailer needs some kind of partnership arrangement with your mobile service provider.

It works for a variety of digital services, but it’s hardly made it onto the high street. In a similar vein, Premium SMS transactional payments have also been around for years and were the ground on which hugely successful mobile payment services like M Pesa were built. But when we think of a mobile wallet, these are not the services that leap to mind.

Nowadays, the technology that smartphones have on offer should allow us to use our online services like PayPal, Amazon Payments and Google Wallet to make real-world purchases. If we want to leave our wallets at home, the high street
stores need to support technologies like NFC (Near Field Communications) and should integrate with a wide variety of service providers, including the mainstream credit card providers such as Visa, MasterCard and the like.

In truth, the adoption of NFC for mobile payments has not had the sort of take-up that one would expect. While the technology seems to be blossoming in Japan and certainly some of the more niche shops in New York have been willing to give it a go, it is still far from an everyday reality for most of us.

In fact, Gartner admits that Mobile Web payment services are expected to dominate mobile payments in North America and Europe through to 2016, while SMS is expected to remain the primary mechanism for mobile payments in developing markets. NFC transactions will only start picking up from 2016. So, for most of us, the mobile wallet seems locked into online payments only for a good while yet.

Okay, so back to those numbers at the beginning of this article. We’ve already established that most mobile payments aren’t happening in-store, and that these are largely making use of pretty old technology. We also know that the majority of mobile payments that even vaguely resemble the concept of a real mobile wallet are mostly happening in the Far East. We’re also looking at a fairly lengthy timeline before we see this sort of tech reaching the mainstream market. So what are the hold-ups?

The first thing is that handsets just aren’t ready for this kind of technology. To take advantage of NFC, phones need to have a built-in chip (like the RFID chip that is starting to appear on some bank cards) that can identify the handset and that can manage the transaction. There are actually very few phones around with this sort of technology built-in; the Samsung Galaxy S3 is one and its pretty recent on the market.

Actually, there are probably more stores that can cater to NFC-type payments than there are phones. That’s because banks have been trying to get contactless payments to work with your bank card for quite a while now. So, until the majority of phones start including RFID chips that NFC terminals can read, the standard concept of the mobile wallet is on hold.

Next on the list of obstacles is the fact that the mobile wallet just doesn’t have massive consumer confidence when it comes to security. Contactless payments have been pushed by banks for quite some time, and they really haven’t had a great deal of uptake. In fact, this year it was discovered that millions of Barclays customers in the UK were at risk of fraud as a result of the technology.

In the US, a recent survey showed that after questioning 1 203 people it was pretty clear that most users would not feel secure using mobile payments to purchase goods in store.

Finally, the hurdle that will really determine how quickly the mobile wallet makes it to the marketplace is vendor confidence. Much of the technology that can make mobile payments really possible at any store is already available, but security issues and the fact that potential customers don’t seem enthralled by the idea, mean that vendors are a little nervous to invest in the technology required to make this all an everyday reality.

As I’ve already pointed out, the fact that banks have been pushing for contactless payment services does mean that a lot of the bigger shops are starting to see the tech as part of their general card processing facilities now, but it will be a while until this technology can cater to a realm of online payment services.

So, to sum up, while the mobile wallet has taken its time getting to us, the services are starting to appear. Realistically, it will be a good few years before you actually get to leave your real wallet at home and just rely on your phone… and if the polls are to be believed most of us aren’t going to be rushing to switch from leather to silicon just yet.