It is March 2013, and we are nowhere near where we thought we would be with mobile payments in North America. There's huge velocity in the area, be it investments by major players, committed VC dollars, conferences, analyst reports, and so on. But mobile payments have impacted relatively few consumers' lives to this point.
To explain why mobile payments haven't taken off, I'd like to use the analogy of E-ZPass vs. parking meters. Stay with me on this one. If you remember the early days of electronic toll collection, each state had its own program. Massachusetts had FastLane, New Jersey had E-ZPass, Florida had something else, and so on. Just when you got accustomed to the notion of breezing through a tool booth, you'd cross a state line and be back in the slow lane. Over time, these various programs entered roaming agreements with one another, and consolidated. Now, regardless of your home state's "program," the service works across just about every other system in the country--there are no extra registrations, surcharges, etc.
In addition to being a "nationwide" service, E-ZPass (using this as a generic term to describe electronic toll collection in general) has continued to improve, for example adding open road tolling, expanding to select other venues, such as the parking garage at my local Amtrak station, and solving some of the trickier aspects of the concept, such as taxis and rental cars. The program has been a success across just about every metric.
Why has E-ZPass been successful?
- It solves a problem: Long lines at tolls
- It saves money: fewer toll collectors
- It works. I don't know exactly how, but it works. How many incorrect bills have you received?
- It's easy. Once the transponder is on and billing is set up, you forget about it.
- It's a great example of a successful public-private partnership. (Side question: why does this type of arrangement only seem possible with road-related projects?)
And now, for a 180-degree turn, let's examine the disaster that is parking meters. I'll use my home city of Boston as an example. Yes, glory be, there are some spots that now accept credit cards for payments. That is, some meters on some streets. For the other streets, I still have to have that stash of quarters in my car. In my home town of Brookline, which is only one mile from the Boston city line, there's also a "park card" which I can fill with money (at merchants, not online) and insert into meters, instead coins or a credit card. But it doesn't work in the city or in any other neighboring suburb. Each municipality has its own separate parking meter "system," and some have their own "park cards," which naturally don't work in neighboring towns. Oh, and to complicate matters even further, for the Boston area's public transportation system (called "The T") there's the Charlie Card, which is a wonderful contactless payment system that can be used on the subway, trolleys and buses. It can be replenished with an easy tap. Actually, the Charlie Card works sort of like we have dreamed mobile payments would work…except it can only be used on The T.
What I've described about the parking meter disaggregation in the Boston area applies in every city. Chicago's set up is different than San Francisco's. And within those cities, there are undoubtedly differences from one municipality or suburb to another. Some cities are still in the Stone Age, with meters taking coins only (it's still quaint in some small towns when you get an hour for a nickel). Other cities, from Montreal, Canada, to Tallinn, Estonia, actually allow citizens to use cell phones--cell phones!--to pay for meters and then reload them remotely. Municipal governments play a big role in determining their particular parking meter infrastructure, but there is rarely any coordination across towns, no less between cities.
Now, let's look at mobile payments. Rhetorical question of the day--are we closer to E-ZPass or parking meters? The reason mobile payments haven't taken off yet isn't because of technology. It's a problem of scale, coordination and disaggregation. The Starbucks app is fine, but I don't want a separate "app" for each of my favored merchants. PayPal's mobile payments system works fine at Home Depot (though typing in a mobile # and PIN isn't exactly speedier than whipping out a credit card) but it doesn't work at Target. ISIS and Google Wallet will work at some merchants but not others. Then there's the Merchant Customer Exchange (MCX), which includes some big box stores but not others. You get the picture. Parking meters.
Now, let's look at some of the successes in mobile payments so far and tie them back to the E-ZPass analogy.
Square. Solves a problem (allows small merchants to take credit cards ); saves money (2.75 percent fee compared to 4 percent); easy (sets up and works flawlessly, for the merchant and the consumer).
Felica, Japan. The most successful mobile payments system in the developed world, involves deep cooperation between service providers, device OEMs, and public sector. As the de facto standard in Japan, it can be used in many merchants and public transportation systems across the country.
LevelUp. What I would call a "spot success." I point it out because it is an app, requires no unique infrastructure in the handset (you download the app and link to a credit or debit card), and works across many different types of merchants (generally fast-food and fast casual sorts of restaurants). LevelUp offers unique benefits to consumers, in the form of discounts and loyalty points; and to merchants, such as low transaction fees (ranging from 2 percent to zero if the merchant runs a customer acquisition or loyalty campaign), and anonymized analytics information about its customers.
So, if someone can take the E-ZPass or Charlie Card concept, make it work across merchants and other venues such as parking meters, garages, vending machines, and stadiums, all tied to a debit or credit card, with extra benefits such as loyalty points for using it, then we've got the mobile payments market every one has envisioned.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.