Mobile Wallet: Coming Soon?

For years, the dream of a U.S. mobile wallet was "just around the corner" only to be pushed back further down the road. Then came the iPhone, and the mobile wallet took form. Surely, the iPhone and its massive App Store would bring the mobile wallet to life.

It seemed like the thinly shaped iPhone with the colorful touchscreen could handle, well, just about everything. You could pay bills, transfer funds, shop on Amazon, redeem digital coupons, even scan an image of a Safeway membership discount card. Indeed, the iPhone has helped create a boon in mobile commerce.

[ The American Red Cross raised $7 million in two days after the devastating Haiti earthquake thanks to donations made with text messaging. Was this a turning point in mobile commerce? ]

Americans began to wonder when they could throw their thick leather wallets bursting with paper and plastic, a la George Costanza's famous exploding wallet, into the proverbial trash can. But nearly four years since the debut of the iPhone, the mobile wallet has yet to come to fruition.

There is no iPhone app today that delivers the ubiquity of cash.

Once again, the specter of hope for a mobile wallet has risen. Last month, Bloomberg reported that AT&T, Verizon Wireless and T-Mobile USA are planning a game-changing venture to displace credit and debit cards with smartphones. The venture will center on a near-field communications chip, or NFC, that's added to a mobile handset.

Customers will only need to wave their phone at a retailer's reader to make a transaction. In turn, transactions would be processed through Discover's payment network, and Barclays would be the bank managing the accounts, sources told Bloomberg.

Such a venture could spur mobile payments in the United States and supplant more than 1 billion plastic Visa and MasterCard cards, according to Bloomberg. Meanwhile, Visa is reportedly working on technology that transforms smartphones, including the iPhone, into a payment device.

Soumen Ganguly of Altman Vilandrie & Co.

It seems that a mobile wallet is just around the corner...again. Is it for real this time? I spoke with Soumen Ganguly, principal at Altman Vilandrie & Company, a boutique consultancy helping wireless carriers, handset manufacturers, private equity firms and hedge funds make better decisions in the mobile e-commerce space.

Here's his take on the state of mobile e-commerce:

The United States is the birthplace of the iPhone and Android, so why not the mobile wallet?

What makes mobile commerce - or in this case, mobile wallets - suddenly more complicated than any typical mobile product is the intersection of two industries, mobile and finance.

You need the right partnerships between wireless carriers, handset manufacturers (which are generally aligned with the carriers) and financial institutions such as banks and credit card companies. They need to come together and agree on terms of how things will work and who gets what share. Then they can deploy the [m-commerce] service.

But each of these companies, and the two industries, come from very different positions. There has been a battle of wills over who controls the customer. Let's say a customer has a mobile wallet app on their mobile phone. Who really owns that customer relationship? It's a struggle.

A lot of mobile wallet initiatives haven't really progressed beyond the trial stage due to this reason. And that's not just in the United States but other countries and Europe as well.

Aren't European countries ahead of the United States?

My point of view is that challenges have also been in Europe. There are m-commerce trials that have done well, certain markets have done better. But it hasn't really taken off that much in Europe.

The countries that are at the forefront of mobile wallets are actually the developing markets. That's because mobile wallets are not a competitor to plastic credit cards or debit cards; they're actually a competitor to cash. In the United States, and to a lesser extent, Europe, credit cards are a very developed and well-understood business.

For U.S. consumers, credit cards are a straightforward value proposition.

[ A mobile-commerce study commissioned by Sybase 365 earlier this year found that the United States lags other countries in the adoption of m-commerce texting services, reports CIO.com. ]

In countries like Kenya or India where mobile penetration is growing very rapidly, leapfrogging landline technology, mobile wallets have done well. One of the value propositions is that security and safety are major issues in these countries, and so mobile wallets in some ways offer a safer alternative to cash.

What about NFC, the technology being used by AT&T, Verizon and T-Mobile in their joint venture?

The trial is mid-2011, and we'll have to see how it goes. Realistically, we'll probably only see real traction sometime in 2012 or 2013.

For NFC to work, you need enough merchants to have devices for customers that would be interested in using the system. Merchants need enough users to install mobile money solutions. Meanwhile, a chipset will cost additional money to be put in a handset, and unless the value proposition is clear, most handset vendors won't want to put it in there.

What's different about the march to the mobile wallet today?

The way you would explain the mobile wallet today is, "Hey, this is a new app on your phone that happens to be a mobile wallet." Anyone who has downloaded mobile apps will get it instantaneously. It's a new app that links into all my bank accounts, it's safe and secure. You can use it either in addition to your credit cards or as an alternative to credit cards (such as NFC).

Five years ago, it wasn't that easy to explain. The iPhone has brought a comfort level to people for managing their life using their phone and an easy-to-use interface. The timing is right for mobile commerce, mobile wallet or a mobile-money solution from the handset and network enablers' point of view.

Are we really close?

Timing-wise, here are the things that need to happen: You need some alignment along at least a few of the major players on the supply side, which, again, is wireless carriers, payment networks or credit-card issuers, and a few major merchants.

From an end-user point of view, think about the value proposition of NFC. If the only thing that's different about mobile commerce is that I now wave my handset as opposed to swiping my card, there's not a lot thats really different enough for U.S. consumers to adopt. But even if it's not better than a credit or debit card, it's at least comparable and there will be some scenarios where you'd rather use your phone.

If those two pieces fall in place, along with the assumption that the underlying technology is widely enough available (which is a bit of a bottleneck right now), handsets are usable, networks allow transactions to happen quickly, and security elements are there (which are the case), then that end-user curve can start growing - and that's a good thing.

We're always joking at conferences that the [mobile wallet] is always two years away. But I think at this point it actually is, or at least I hope so.

Tom Kaneshige covers Apple and Networking for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline. Email Tom at tkaneshige@cio.com.

Read more about mobile/wireless in CIO's Mobile/Wireless Drilldown.

For comprehensive coverage of the Android ecosystem, visit Greenbot.com.

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