The mobile wallet: We’re still waiting

Three key factors are still needed for kickoff

A few years back, it seemed every smartphone maker was touting the promise of purchases with cellphones and Near Field Communications (NFC). Then, as quickly as it started, the promise vanished.

What happened? Well, NFC didn’t deliver. NFC proved unappealing to smartphone makers because it required a separate physical chip. With power at a premium, handset vendors were loath to add another power-drinking chip into their devices.

why we're still waiting for the mobile wallet

The mobile wallet, promised for some time, has never delivered due to security and ease-of-use concerns.

A different kind of power is also needed to make the mobile wallet a reality: The power of collaborative effort by multiple stakeholders. Mobile wallet transactions that would make the credit card obsolete require an effort that involves retailers, banks and credit card issuers. There is no one unifying entity that can corral all of the major merchants, point-of-sale (POS) equipment makers, retailers, banks and credit card issuers under one roof to agree upon standards and processes.

Add in the concerns about Web and mobile security – made all too apparent by the recent revelation of the Heartbleed bug – and it’s easy to see why the mobile wallet has not yet become a reality for most smartphone users worldwide.

The mobile wallet: Three key factors for kickoff

So what is needed to initiate change and get us started down the path to mobile wallets? Here are three key factors:

A unified platform: We would need all of the major banks and credit card companies to be on board with a unified platform. There are too many options for digital payment today, which defeats the potential ease of use. It’s not that the technology isn’t there but rather that an infrastructure has to be laid.

This infrastructure has to accommodate everything from a plethora of mobile devices and operating systems devices at the point of sale to networks that are able to securely handle the transactions. One look at the complex system that exists today for processing credit card transactions – and the recent news of POS breaches at major retailers such as Target and Michael’s – and it’s easy to see how challenging it is to add mobile POS payments into the mix.

2. A unified wallet: How the mobile wallet is handled is also important. The credit card companies have to agree on this, and given how different they are when it comes to processing transactions, that alone is proving to be a challenge. For example, because most American Express charge cards are designed to carry no interest-bearing balance from month to month — thereby reducing Amex’s potential revenue from cardholder interest payments — Amex instead charges retailers more per transaction than other credit card companies do.

Right now, the only thing resembling an e-wallet is Google Wallet. It’s barely used at retail, and good luck getting Apple to open up its ecosystem for a Google product. There needs to be a vendor-neutral electronic wallet that all the major players can agree upon.

3. Bluetooth Low Energy (LE): Bluetooth LE is the technology that will carry electronic wallets. Unlike NFC, Bluetooth LE is a low-power equivalent that shipped with Bluetooth 4.0. It allows two very close devices, such as a cash register and smartphone, to connect when they are in range. You don’t even need to take your phone out of your pocket.

Bluetooth LE isn’t just for cash registers. LE devices can be deployed around a store to transmit electronic coupons to customers, rather than taking paper ones from the aisles, and also guide a customer through a store to an item they want. Bluetooth LE is in all of the latest smartphones, and is expected to take about four years to reach critical mass.

According to Juniper Research, the number of contactless payments made using a mobile phone will increase from 3 billion in 2014 to 10 billion in 2018. Market research firm ABI Research found that nearly 2 billion smartphones will ship globally by 2018, almost triple the amount for all of 2011, as millions of consumers buy cheaper and faster smartphones.

Bluetooth LE has some momentum. PayPal is supporting it with its Beacon service, which will enable retailers to set up Bluetooth modules in their stores for electronic payment. The module initiates a connection with the customer, who then accepts the connection with his or her phone.

Mobile wallet makes waves in the Far East

It could be argued that America and Europe are victims of their deeply entrenched payment infrastructures. For example, unlike their Western counterparts, Chinese consumers rarely used the personal checks and credit cards that are so entrenched in Western nations. Instead, they seem to be moving directly from all-cash transactions to electronic payments. That’s because the infrastructure for electronic payments was laid down first, with a little help from the state.

China has recently built out its infrastructure and skipped many of the older technologies with which the West is still saddled. The state-sanctioned AliPay, a PayPal-like service offered by e-commerce giant Alibaba, has more than 550 million registered accounts and handles around 8.5 million transactions a day. According to the company, it processed U.S. $150 billion in mobile transactions in 2013, greater than PayPal (U.S. $27 billion) and Square combined.

It may be time we start looking Eastward to for a glimpse of what our mobile wallet future will look like.

Andy Patrizio
Andy Patrizio has covered the high-tech sector for 20 years, working for publications like InformationWeek and InternetNews.com. Currently he is a freelance contributor to Enterprise Efficiency, Network World and ITworld. He is based in Orange County, Calif.
Andy Patrizio
Andy Patrizio
Tags: IT Security,Retail,Technology
  • http://www.simpalm.com SIMpalm

    Hi Andy, I really enjoyed reading your article. I have developed several apps in the mobile payment world and have worked on NFC and BLE 4.0 as well. I was a payment industry veteran before founding SIMpalm (https://www.simpalm.com) and was very enthusiastic about building wallets and NFC related solutions, but it has not materialized that much. I am not sure why these solutions are not picking up in USA while they are gaining tractions in the East and some of the European market. It has potential to change the payment industry. Could it be Visa and MC preventing this revolution?