Gentlemen: Open Your Wallets

Okay okay. In hindsight, the title makes me sound like this post will be about gold-digging (if you don't know what that is, click here). But that is misleading. This will be about the magical mobile wallet that keeps lingering just over the horizon. What's the draw of having a mobile wallet? Well, your phone is almost always with you (a study shows that the majority of people in Gen X never have the phone more than 5 feet away from them- even while sleeping), it has the ability to have a lot of cool functionalities that other devices don't have (augmented reality, location-awareness, image recognition, voice recognition, a phone line, direct, mobile connection to the internet, etc.). And why mobile wallet? Well, to get one thing clear, a mobile wallet is NOT the same thing as mobile payments, although the two are related.

Mobile wallet is a bit more broad, because it can encompass things from the bank side of mobile financial functionality (managing loans, viewing bank statements/transaction history, viewing credit scores, applying for auto loans, etc.) AND mobile payments (paying at the point of sale through barcode, NFC, sending money to friends through SMS or bluetooth connections) AND "other" (managing rewards points, receiving coupons, marketing ads, etc.). Why is this appealing? Well, phone penetration continues to grow, smartphone penetration in particular, and is forecasted to surpass "feature phones" (non-smartphones) this year. Moreover, other reports indicate that mobile payment users are going to surpass 375 million by 2015 (from 116M in 2011), and potentially could generate $124 BILLION DOLLARS in transaction volume by 2014 (according to a 2010 Insight Research Corp report). Gartner estimates that the number is closer to $246B globally by 2014. Arthur D. Little estimates that $250B in sales volume by 2012. Whatever way you decide to slice it- whoever you decide to believe- a 3-4% interchange on that type of volume is bound to make anyone a little bit excited.

These numbers even go beyond the potential for value added services- which run the gamut. You have premium SMS services, "small digital purchases" (skins, ringtones, etc.), potential ad revenue (don't laugh- consumer information means big bucks! Google is estimated to have earned more than 95% of its revenue from advertising alone- totaling a whopping $29.3B), potential marketing revenue and app sales.

Seems like there's already some big players in the space. We have the Traditional Financial Players (Visa, MasterCard, etc.), the Nouveau Financial Players (Boku, Zong, even PayPal I would put in this category) and then the The Techies (Google, Apple). So who will win?

1. Traditional Financial Players definitely have the existing consumer base and the customer perception advantage- customers are used to using American Express or Mastercard for their purchases- and they have the rails to process payments
2. Nouveau Financial Players- typically offer more robust capabilities and have very critical, strategic partnerships (eBay and PayPal for example)
3. The Techies- do not have much in the way of processing networks like the traditionals, but they DO have large consumer bases (iTunes users for example, has about 160M users), strong customer relationships and hardware penetration (Android for example)

There has been a lot of buzz recently, esp. around Google/Apple releasing NFC phones (Apple has since rescinded that non-announcement, saying that they were holding off on releasing NFC enabled phones with the iPhone5 because of "the lack of industry standards"). Google in particular is forging ahead, with plans to do a mobile payment pilot in San Francisco and New York this summer, rumors of partnership talks with large merchants like Wal-Mart and other payment partners like First Data. However, the argument is that Google is not going to be deterring from its fous on advertising, and is not targeting the ~1.5% interchange fee for payment, but rather the 10% they would get for referring a sale to a merchant.


The First Data partnership in particular is interesting since they just announced that they are introducing a mobile voucher technology for merchants. They call it mVoucher, and it will allow merchants to send offers to consumers through their mobile phones. Could this current couponing system allow Google easy access to one day allow customers to pay with alternative currency (GooglePoints generates coupons to pay for the full price of purchases), drive customers to use GoogleCheckout (use our coupons but only if you pay through NFC with GoogleCheckout) or is it simply a way to move into Groupon's space?


Call me a Google-phile, but Google seems to be a leader in making new opportunities for themselves. I think that this focus on getting into the consumer's wallets- be it through mobile wallet, couponing, offering special rewards, focusing on NFC- will definitely be lucrative in the future, but will also be largely dependent on first-mover status.