Scott Loftesness - Glenbrook Partners

I’m sure you’ve seen it – there’s been so much “buzz” in the press over the last few weeks about mobile payments.

Yet, in our partners’ meeting at Glenbrook earlier this week, I told my colleagues that if I knew of a way to short “mobile payments”, I’d be all over it. Follow along as I explain my thinking…and, you can decide whether you agree or disagree with me. Again, my focus in this conversation is on the U.S. market opportunity. I’m not addressing other aspects of “mobile payments” – such as bill to carrier, etc.

I’m a skeptic about the opportunity for mobile payments in the U.S. at physical point-of-sale locations – at least for the next 24-36 months.


Getting to a “tipping point” in terms of face-to-face mobile payments acceptance is a hard problem. If you can’t “tip” the consumer experience, it will fail. You need to be able to pay consistently at the locations you visit most. You know where they are in your own experience.

Why is it such a hard problem?

We have tens of millions of point-of-sale (POS) readers in this country – all of which support reading traditional magnetic stripe cards. Those cards work very well, millions of times every day. Relatively few (perhaps a few hundred thousand) POS devices support contactless, sticker or, eventually, mobile handset-enabled NFC-based payments. If an upgrade to existing contactless readers is going to be required to enable them to accept NFC-based payments, the hurdle gets even higher.

But don’t mobile payments solve a consumer pain point?

You think you’ll leave your house without your wallet – and your payment cards. Seriously? Sure, I never leave home without my mobile phone – but I also never leave home without my wallet – which has my favorite and highly reward-oriented cards – that work everywhere. That wallet also has my driver’s license! Do I really “need” mobile payments?

What about delighting the consumer? Can’t mobile payments do that?

Maybe. Depends. For me to be delighted, I need to have high confidence I can pay this way “everywhere I want to be”. What’s required for that to be convenient? Maybe I can be delighted through mobile-enabled loyalty and rewards programs? Maybe…

What about Isis? Aren’t they going to change the game?

At this point, it’s too soon to tell. Assuming Isis and its mobile carrier partners can get NFC-equipped handsets (carrying card credentials in secure elements) into the market, what’s the POS acceptance side solution and how is it enabled? Will major merchants sign on to accept Isis-based NFC payments? How does the acceptance solution emerge? How does it get to a tipping point?

What about Google and Apple? Based on press reports, aren’t they jumping into NFC-based handsets?

Who knows? I don’t. There’s nothing official about what either might be thinking of doing. In any case, a big open question remains the POS acceptance infrastructure. To support any NFC-based approach to payments, the POS acceptance infrastructure has to undergo a significant upgrade. How does that happen?

OK, so it’s hard. Why is there such a “buzz” about mobile payments at the point of sale?

We all share a sense that paying with our mobile phones is inevitable. The use case just “feels right” – why can’t we just do it? The challenges boil down to the intersection of technology and business issues. Do card issuers want to compensate mobile carriers for securing card data on their handsets? Will consumers? Is there incremental sales volume to be gained from doing so? Tough – but hard-minded, questions.

So, where does all of this lead?

We can all envision a wonderful future where we can just wave our mobile handsets and make payments – or board our next flight using a mobile boarding pass. The hard problem is how do we get there – and what are the economics associated with making such a major transition?

In other countries, without the very well-developed POS infrastructure we have deployed in the US, we’d be solving for a different problem. But, in this country, we’ve got some serious “chicken and egg” issues to get to that nirvana.

OK, should we just sit on our hands?

That’s a difficult question – it depends on who “you” are! A couple of quick thoughts…

As a merchant interested in offering unique loyalty solutions to my customers, I might be considering doing something similar to what Starbucks has done – enabling a mobile app for payment (non-NFC) with the loyalty features that matter to my customers. For that to be successful, my customers likely need to have a high enough frequency in my stores such that their mobile payments behavior is self-reinforcing.

As a major card issuer with a bit of discretionary R&D budget available for mobile payments, I might be experimenting with the non-carrier solutions (e.g., DeviceFidelity/Visa) – to learn more. I might be talking to Isis – to understand their strategy and value proposition for issuers.

But, as an issuer, I’d understand that my ability to influence the migration of the POS acceptance environment is very difficult – so one could argue why bother? Perhaps I’d be influenced by potential improvements to bill payment, mobile banking, mobile device for authentication, payments in the browser and person to person payments. On the other hand, I might conclude that my best strategy is just to watch – and simply be a rapid follower.

As a card network, I’d have to be all over the various options – demonstrating leadership in understanding mobile payments to my card issuing clients and helping guide their strategic thinking. And, I’d be thinking really hard about how could I solve the POS acceptance infrastructure issues as part of my strategy.

Ugh. Sounds complicated!

Yep. It is complicated. If you could wave a magic wand and both ship new handsets and upgrade the POS acceptance infrastructure to support mobile payments, a BIG piece of the problem would be solved. Much easier said than done.

Meanwhile, I’m short! Perhaps I’m just being too realistic – or, for some, just pessimistic?

Do seek out your best counsel. These are the kinds of challenges we enjoy working on – if you’re trying to get your head around mobile payments in the US market, we can help you think through these issues. Send me an email – and we can setup a time to talk and continue this conversation in the context of your specific situation. Or, add your comment below – and share your perspective with the world!

17 Responses to “A Bubble in Mobile Payments?”

  1. Tejas Kotecha says:

    Hi Scott,

    Very good article with very good points. I agree with the theme that NFC will require economics advantages to achieve merchant adoption as they have to change their POS. But there are enough companies out there who use existing technology like barcode scanner to do mobile payments and even they are not getting much traction. So there needs to be consumer convenience factor that seems laking.

    For NFC’s side; there are couple of very unique things it can do which can lead to adoption; I don’t know if it is going to be wide adoption though.

    1. NFC are on phones; which generally have eyes, ears and location awareness (camera, mic and GPS) which can be very helpful in preventing fraud or things like that; when we look beyond NFC in silo.

    2. There are many places which doesn’t have card POS, they still deal in cash(like Golden Gate Bridge till yesterday); those places are in need for POS equipments and new POS machines can be equipped with NFC and contact-less to start with. Now biggest challenge in this approach, is interchange fees. Most places haven’t changed their POS systems to accept Credit Card for fees reasons; so for NFC to become cash replacement it needs to be cheaper than Credit Card.
    From consumer point of view; forgetting cash is very common practice, at least in the urban areas where Credit Card is primary way to pay.

    So I agree with you, NFC/Mobile Payment has its place and potential but replacing Card and wallet is probably far fetched.


  2. Jeremy Kidd says:

    Excellent points. This is one of those topics where everybody wants the technology for its own sake and is just sure it will be an automatic win for everybody. These are all valid barriers and challenges that all parties need to think about.

    However, your considerations are about how mobile payments fit into the existing way of doing things – that will indeed be very difficult to break through. Where I think mobile payments will break out is when somebody uses mobile payments to do something truly new in the marketplace. It will take a disruptive innovation for mobile payments to make real money in the US market. I think there are 2 opportunities that seem ripe for this:

    1, Person-to-Person: Sure, the business case for merchants who already have point of sale terminals has many barriers, but what about paying people who don’t have POS? What if I owe a friend money? What if I want somebody to pay me for my daughter’s Girl Scout cookies and don’t want to mess with a lousy check? I know PayPal is already paying a huge role in the space, but there is a huge market of consumers out there who have bank accounts, mobile phones, but no PayPal account. Imagine being able to pay somebody by punching in a PIN and waving my phone by their phone after they’ve put in their PIN. Now that’s something new.

    2, Cutting out the middle-man: I’m relatively new to the payments space (and that in corporate payments more than consumer) and I still don’t understand all the players involved in card processing. I may be a bit naïve here but it seems like there’s a lot of fat in the whole process and a lot of totally unnecessary middle-men taking avoidable fees. It seems like mobile payments can give financial institutions a way to cut all those players out, make more fees for themselves while lowering the total cost of the system. If you can lower a merchant’s processing fees by 50% by getting them to use an NFC-equipped POS terminal and encouraging their customers to pay-by-mobile, you will see that tricky infrastructure problem start to shrink.

  3. Scott,

    What if the topic of your commentary was ‘mobile retailing’ instead of ‘mobile payments’? Would we still be hypothesizing that this is a ‘bubble’? I would argue that we now use our phones to shop now and that’s the way it’s going to be for the foreseeable future… mobile retailing is not a bubble!

    OK, then my next hypothesis is that mobile payments, the kind that has a strong value proposition for merchants and consumers, is an integrated component of the mobile retailing experience. It’s not just about using your phone to pay instead of a card, because that’s frankly not very interesting. Think about a retailers mobile app having a few core components. My former consulting colleague is now calling it the 4 P’s: 1) Place – store locator and other location-based services, 2) Product – reviews and information, 3) Promotion – coupons and loyalty, and 4) Payment. This type of scenario does not require NFC, or business models to evolve with banks and wireless carriers. Retailers can deploy this on their own (see Starbucks) and it works just fine.

    I’ll stop there for now… it’s a long story… but I really don’t see mobile payments as a bubble because I think it’s going to evolve as a component of mobile retailing, which is here to stay. Also, NFC is not a dependency here, it’s just an interesting technology that can make certain use cases better.

    Andrew Morris, CEO & Founder, Morris Advisors, Inc.

  4. Dan Stiel says:

    A bump? yes. A bounce? yes. A wobble? yes. A bubble? no. Mobile is a disruptive technology that is already fundamentally changing the way we buy – and pay for goods and services. We’re not in a bubble, but the beginning of the second (or third) phase of a long evolution.

    Mobile holds the potential to displace a pocket full of plastic cards, disintermediate current paradigms, and lower costs for both merchants and consumers.

  5. Thanks for your comments!

    Yep, mobile is inevitable – we all share in that belief. Somehow, it’s going to change the way we pay – in ways similar to how mobile smartphones are already changing the way we live, search, navigate, learn, etc. We’re all true believers. Lots of potential. But, I remain a skeptic in the 24-36 month timeframe for POS-based mobile payments.

    Tejas – I agree that there are additional benefits to mobile-based payments that could be utilized to minimize fraud. But, those benefits can only be achieved at scale – and getting to scale is the heart of the problem. I agree that merchants upgrading their POS acceptance equipment can add contactless support to their upgrade spec – but will that be adequate to support mobile NFC-based payments?

    Jeremy, I agree about the P2P use case. PayPal has already enabled it with the “Bump” technology they’ve integrated into their iPhone app. The problem with P2P is the generally low frequency of usage. If I only use it once or twice a month, does it become self-reinforcing in terms of my behavior? Maybe.

    Andrew, you’re totally right about mobile retailing – that’s where the most interesting “action” is, not in payments. Seems like you agree with me about NFC not being central even to payments? I find the Apple retail store payments experience to be almost perfect – yet if you decompose it you realize that they make no use of the phone I have in my pocket. Rather, their mobile terminals do all the work and streamline their acceptance of my card-based payment credential.

    Dan, I can see you’re a revolutionary at heart – as am I. Perhaps it’s the right/left brain problem? I think it will be some time before you take those plastic cards out of your wallet. But, as George Bernard Shaw once said, all progress is due to unreasonable men!

  6. That’s right, Scott… NFC is great for some use cases (like public transit) but it’s not any better than bar codes in many others… Mobile payments can grow and thrive at the retail point of sale even while NFC is still finding its sea legs… We just need a few more Starbucks examples… Maybe mobile phones will be the catalyst for greater usage of closed-loop, store-branded payment accounts, e.g. private label credit, private label ‘decoupled’ debit, and private label gift/prepaid?

  7. John says:

    Here is your magic wand:

    It allows over 3000 Bluetooth(tm) phones to accept card swipe payments, on nearly any merchant account. It only has one button, and a card swipe slot. All the consumer needs is their card (the seller carries the card swipe device).

  8. Nerijus says:

    I see few main problems here:

    1. NFC is Rfid chip and that technology was selected to cover widest potentiality. Everyone use cards, so lets put stripe data to rfid and problem solved. Why merchant have to invest 100-200$ for new POS equipment when today banks (Firstdata) pay for it. What about security? If I step onto bus with rfid reader and get all card data?

    2. Another big problem is pull/push system. NFC/cards represent pull system. Banks (wire transfer) represent push system. When any PSP can connect without big limitations to ACH (like CHIPS), all OLD bank/card networks will follow competition immediately.

  9. nitin agarwal says:

    Almost all the discussion points makes sense.
    scepticism about payment using mobile for POS transation arises primarily due to the fact that the problem that this may solve is just about not carrying your card/ wallet – which may be NOT very impressive..

    But the question arises which problem should mobile payment aim to solve ?

    We may say what may NOT work but what do you think will work? ?


  10. Props to Scott for L for introducing a touch of reality to this topic which has attracted extreme level of hype, if not turned into a bubble. Like Scott, I don’t think carrying a wallet or cash is a major pain for the consumer.

    If we do a quick check, we might find that some of the more visible implementations of Card-based NFC – London OysterCard, NY-NJ Transit, and HongKong OctopusCard, to name a few – owe their success to their ability to alleviate the pain faced by merchants in handling cash and coins.

    Replacing CardNFC could be the low hanging fruit for MobileNFC – after all, the POS / reader infrastructure is already in place, it should be easily possible to load the “stored value” on the mobile phone instead of the card as at present, and so on.

    Another one I find very promising for MobileNFC is BlingNation. Although it follows a closed loop model, its substantially lower merchant fees (0.5%) might prove to be the tipping point in pushing merchants to install a separate contactless POS (“blinger”) terminal.

  11. Dave Maddox says:

    This seems very similar to the smart card bubble of the past. At that time there were a lot of alliances formed, pilot’s completed, etc. Everyone was saying that smart card’s were going to replace wallets. It did not happen for many of the same reasons that mobile will struggle here in the US. Mobile will be more successful but many of the same issues must be addressed. However, outside the US and especially in developing countries mobile will thrive….

  12. Deborah Davenport says:

    There is a paved path for ISIS to follow – and if I can see it, I’m sure they can too.

    My dusty little crystal ball shows the regulators viewing mobile payments against a DDA as being the same as a debit transaction. So. Think very close regulatory oversight and security controls. And give some thought to whether the proposed / probable reduction in debit card fees has introduced a disincentive to mobile payments. Merchants would love it – and issuers and transaction processors and mobile carriers would hate it.

  13. Rahul B says:

    Great article, Scott
    I know you are talking about US here, but your observation below begs another article

    “In other countries, without the very well-developed POS infrastructure we have deployed in the US, we’d be solving for a different problem”

    In that context, what are 1-2 major developments you see happening in next 24 months and where?

  14. Dave Birch says:

    “Why is there such a “buzz” about mobile payments at the point of sale?”

    It’s because mobile payments are a platform for value-added services that conventional payments are not. Starbucks is a fun example of this: the payment itself doesn’t add that much value, but the application it is in does, if you see what I mean.

    I know that we (as consultants) are in a difficult position here, because we are working on projects for customers that are currently secret and so we can see that the energy going in to mobile payments is enormous. Consider the Barclaycard/Orange announcement earlier this week: we started work on that project nearly two years ago. So, I’d say that you’re spot on to be sceptical about the “vanilla” attempts to replace simple mag stripe swipes by sending text messages instead, but I’m more optimistic about the convenience of NFC married to the value-adding potential of mobile apps.

    • Dave, thanks for your comments. I agree that there’s a whole lot of energy going in to mobile payments. The question is whether that energy will convert to real value for all of the stakeholders involved.

      For consumers, that means convenience and financial benefit. For merchants, increased sales and reduced cost. For issuers and card networks, increased purchase volume. For the mobile carriers, presumably increases in ARPU. For the handset suppliers, increased market share. That’s a pretty complex equation to solve. Perhaps not impossible, just complex. Complexity inhibits rapid progress.

      I’m reminded of another episode in the history of card payments where many players invested a lot of money in something called SET – to enable secure purchases on the Internet. Ultimately, a “good enough” solution (SSL) emerged as the victor – for both ecommerce and online banking – and those who invested in SET were very disappointed.

      Certainly, we’re living in a different time. There are a few actors who might be able to dramatically influence this evolution of mobile payments. We’ll see how the energy that you describe converts into market success.

      We live in interesting times indeed!

  15. Jim Shanahan says:

    I don’t know Scott. Between your post and Karen Webster’s on Apple, I don’t know if I can take this much reality in one week. Seriously, great article on the barriers. But even better, you came up with what is probably the answer, private label closed loop systems like Starbucks giving us a chicken AND egg. After all, isn’t this how the credit, ATM, debit and prepaid businesses all got started? One merchant or bank providing a service just for their customers. Rationalized on a ROI driven by incremental sales and/or cost reduction. THEN and only then does the market recognize the value to all concerned of the open loop network approach. –Jim Shanahan, President Maverick Network Solutions

  16. Sy Taylor says:


    I appreciate your considered view, but I feel this argument was applicable so long as the only model was MNO’s and banks making an entirely defensive play. The fear of PayPal was what drove Issuers and MNO’s to making small, ill fated trials that have never crossed the chasm.

    Fear isn’t a great starting point for building an elegant user experience!

    Since mid 2009 – my suspicion has been that the technogy companies who provide elegant user experiences currently, at massive scale would be best placed to get the experience right. What’s more their knack for building volume first, revenue later would allow them to cross the chasm without worrying about year 1 ROI.

    From the Merchant perspective:
    Google are open (No big contractual process to follow)
    Focussed on bricks and motar retail (Defense from Amazon)
    Can integrate couponing & have it pop up one someone’s phone
    Pay for your POS refresh…
    and Don’t charge you any extra interchange.

    From the Issuer perspective
    Google are open (Nobody trying muscle in on your interchange)
    Protects your brand (Issuer owns customer contact)
    Google scale, iterate, and will develop a more beautiful product than your IT deparment could dream of, faster and for no cost.

    To me it’s the ultimate no brainer to penetrate deeper into cash. Real time personalisation is incredibly interesting too…

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