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March 11, 2012

Why the market won’t care about mobile payments until Apple does it

by mikediliberto

I promise this is not just my “sour grapes” in reaction to not making it to South By Southwest this year.  Ok maybe a little bit.

Listening to the PR engines wind up and prepare for takeoff as the annual South by Southwest festival gets underway, I started thinking about some of new applications that I have seen launch at the conference and have a fantastic first showing only to peter out in the weeks and years after the festival.  A recent question and subsequent post by my good friend Mitch Wagner got me thinking about mobile payments and where we are going to see the tipping from small trials (like this one being planned for, where else, Austin) to full adoption by the general public.

Next year we will probably see a google wallet or some other payment solutions at SXSW, and that’s great.  But what is it going to take for mobile payments to gain critical mass? I don’t think it is merely that having mature technology is enough; the reality is that technology has been mature enough to support mobile payments for some time.

I am going to be honest, I was not a believer in mobile payments.  Lots of people pitched it to me, all the way back to the mastercard “tap and pay” scheme from a few years ago, and my opinion was always that it seemed to gimmicky, that really the level of effort involved in tapping my mastercard on a payment device seems only marginally less effort than swiping the card, or handing it to a cashier and letting them deal with it.

That was until I got my first Octopus card here in Hong Kong.

A few years ago my job transferred me overseas, and I got my first taste of the Octopus Card when figuring out the Hong Kong transit system.  But soon after I started seeing the Octopus logo everywhere.  In the grocery store. In Starbucks.  Everywhere.  Even some of the Taxis are starting to take it.  The first time I used it to pay for something non-transit related was when I ducked into a Mannings one morning looking for some allergy pills. As I was waiting in a very long line, a cashier from the express lane, with no line, waved me over.  “is that all you are buying?” she asked.  “yep” I said.  “Well, I can ring you up right here”.  So she scanned my item and as I pulled out my wallet to pay for it, she blurted out “oh, sorry, Octopus only”.  So out came the Octopus Card and BAM, payment accepted and I was on my way.

It was like a drug, it was so easy.  No wallet, no receipt, no need to sign a piece of paper before I was ready to walk out of the store. (for those unfamiliar, you can register the Octopus card online for auto-refill and to review transactions) One hit and I was hooked.  It was the first time that I realized that mobile payments, if done correctly, were the future of commerce for most of the transactions that we as consumers make on a daily basis.  There are those of you out there reading this and saying, but yes, the largest transaction amount you could spend on an Octopus is around seventy five US Dollars. That is true.  But I have to ask, how many times are you in a rushed situation where you need to spend more than that? I think we need to look at credit transactions and divide them up into large and small purchases.  For large purchases, that is, more than one hundred US dollars, I could care less that I have to pull out my wallet.  But for a coffee on the way to work, or a vending machine, or a parking garage, or countless other small transactions that would otherwise be paid for in cash, that friends, is where I think mobile payment is going to shine.

So what was it that made Octopus succeed where so many others have failed.  I think it’s the ubiquity of the card itself.  Try to find a Hong Kong resident that does not possess an Octopus card.  With that kind of market penetration all a store needs is a reader and they are ready to take money from just about every person in town.

But that’s enough of my swooning over the Octopus.  The point I was making was that success in contactless payment is going to come down to an easy to use system that everyone already has. Which is why I would be willing to bet that Apple is working on their own mobile payment system in the background to be built into the next (or maybe existing) iPhones.  There are thirty million people in the USA with iPhones.  That means that nearly ten percent of the population of America owns an iPhone. That’s a great market to tap for a payment solution.

There are no doubt going to be people that read this and tell me that I am crazy for making such a prediction. That Android or HTC or some other brand has some technology that will run circles around the iPhone.  What I say in response it, it is not about the technology.  It is about making an easy to use solution and getting that into the hands of as many people as possible as fast as possible.  Apple has, just in the USA, thirty million potential iPayments customers.  That’s huge.

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