Don't Throw In the Towel on Mobile Yet

Felix Salmon has an interesting and provocative piece arguing Why Mobile Payments Will Never Take Off. The problem, Felix observes, is that none of the mobile payment systems around really offer any improved convenience over plastic. (Indeed, one might note that depending on the setting, cash is still the fastest, especially if security procedures for plastic, such as checking to see that a card is signed, are followed.)  Felix also observes that the developing world examples of successful mobile payment systems, like M-Pesa, don't really present a model for the US.  In the developing world, mobile payments represent the Great Leap Forward, bypassing the age of retail banking and plastic cards, and going straight from paper/barter to digital. If the contest is mobile vs. paper/barter, the outcome is likely to be different from mobile vs. plastic.  Felix is right on both points. Still, I'm not as ready as he is to throw in the towel on mobile.

To make a payment platform work, there needs to be a consumer and a merchant value proposition sufficient to motivate usage from both.  Mobile's consumer value proposition isn't going to be convenience per se.  It is going to be integration of payments with other streams of information: discounts and special offers, frequent buyer rewards, etc.  The payment may not be faster, but there is a benefit to being able to combine all of those different cards that may or may not be in your wallet into one place.  And to the degree that early mobile adapters are likely to be higher spenders, there might be some ability to cross-subsidize them (regressively) from other consumers. The value proposition for merchants is going to have to be some combination of lower costs and consumer data, but maybe some merchants think mobile rewards/loyalty programs will increase sales.  

So far, no one seems to have found quite the winning combo of consumer and merchant value propositions and technology. Part of the trick may be that the formula does not work unless its done to scale, and that presents a chicken-and-egg problem. Another problem might be the economic structure of mobile payment systems. Simply put, there may be too many mouths to feed.

Let's suppose that a mobile payment system has a value of X greater than plastic in the form of consumer and merchant and systemic (e.g., anti-fraud) benefits.  If the various stakeholders in the mobile system are demanding revenue streams that are greater than X, the system won't work. This could well happen as X is not a clear dollar amount, but there are a lot of potential mouths in any mobile ecosytem:  OS developers, app developers, device manufacturers, telecoms, banks, payment networks.  All of them are quite sensibly out trying to get the best deal for themselves.  But in the process, they may erode the value available for consumers and merchants to the point that the systems are not attractive. What we have is sort of a pre-emptive tragedy of the commons in an overgrazing of a shared plot that isn't yet in existence.