The recent launch of O2’s mobile wallet app is the latest signal that a shift is starting to happen in the payments market away from banks as the primary providers to a more diverse landscape.
If the mobile wallet does take off in the next few years it could become a lucrative business opportunity, with more companies competing with traditional finance providers.
James Richards, director of mobile at software company Intelligent Environment, has worked in digital banking for over 10 years. He says the market has started to diversify to include retailers and now telecoms companies. “UK banks have been slow to react [to mobile payments]. And other organisations are looking to exploit this area.”
Richards has worked with O2 for 12 months to provide the software and security around its mobile app, which will allow users to transfer up to £500 via text message. While the technology is not quite a mobile wallet, O2 is clearly staking out the market space for mobile contactless payments when the ubiquity of NFC finally arrives.
“Most people have a number of cards they shove into their wallets, such as shopping loyalty cards. Over time we will start to see that replicated on the mobile phone, containing cards and details to pay for goods and services,” says Richards.
“If you take that in context with 02, then anyone can access this and load it with funds from their bank account,” he said.
“Over the next three years we will see ‘the war of the wallet’, with many more organisations wanting to provide mobile payment services. Different types of organisations will focus on different features and functionalities.”
“We are already starting to see a land grab in terms of taking services to market but overtime [providers] will realise rather than competing it would be better to collaborate,” he said.
Slow to market
But while it’s a space starting to see new entrants, mobile near-field communication (NFC) is still some way from becoming a high street reality.
Mike McNamara, CIO of Tesco, says the retail giant is waiting for the mobile wallet to take off before it deploys more contactless payment points. “We have about 40 shops that take contactless payments; one of these days we will roll that out further when customers really care about it and the phones come off the production line. It’s happening slower than most of us would have anticipated, but it’s a good technology. In a year or two we will probably see a lot more NFC-embedded comms," he said.
Rob Bamforth, analyst at Quocirca, said the problem is not getting the technology right, but the incumbent vested interests. “The hold-up is due to the agendas of a number of companies and aligning all those commercial interests, with the questions of who is taking a share of the payment and how much,” he said.
Immediate electronic payments could disenfranchise the incumbent providers, with the added impact of them losing brand ownership as consumers no longer associate payments with a bank card but a mobile phone.
Barclays recently launched a small contactless card that can be stuck to a mobile phone. Bamforth says, “there is something interesting in the messaging of the Barclays contactless payment sticker, as it seemed to be reported as a something to do with mobile. The sticker solution is a good interim but ultimately not where the final end point is,” he said.
Richards agrees. “Barclays is an example of a company that is doing innovative things, such as with Pingit, but it is still behind some of the things that other companies are doing.”
However, new payment providers also need to take a less siloed approach. “There are still some restrictions in place, such as Google’s wallet only being available on Samsung’s Nexus phone and with certain network carriers. These restrictions will need to be removed if companies are to see successful take-up.”
There are three main changes which will need to happen before the mobile wallet becomes reality. Firstly, the arrival of more NFC-enabled phones – Samsung has already started to make some headway in this area but companies such as Apple are remaining tight lipped about when this will arrive on the next iPhone. Secondly, more retailers will need to provide contactless terminals; and lastly payment providers will have to offer the right services that consumers will feel comfortable using.
Consumer behaviour is rapidly changing with the onset of new technologies. If companies don’t move with the times they can quickly fall from success – RIM and Nokia could be a case in point here. As such incumbent payment providers cannot afford to dig in their heels in against change.