The announcement today of Visa’s acquisition of Fundamo signals the drawing of the battle lines in the face off between Mastercard and Visa in the mobile payments stakes. While I understand that a wallet is much more than just an NFC enabler, the announcement of Google’s NFC trial around their ‘wallet’ last month put some pressure on Visa to make a strong competitive statement against the Android positioning. But what does this mean for the mobile payments landscape?
There’s only room for a few wallet standards
While everyone would like to ‘own’ mobile payments and the mythical m-wallet, the fact is that the recent failure of ISIS to successfully launch a competing payments backbone means that in all likelihood the current card issuer networks will remain at the core of the mobile payments infrastructure for the time being. This gives Visa and Mastercard a fairly significant advantage in owning the plug-in or API that enables access to the backbone. The wallet effectively acts as that plug-in functionality.
The challenge that Visa and Mastercard have at this point is not technology, but getting partner banks enthused enough to start aggressively rolling out solutions around mobile payments with their proprietary “wallets” plugged-in. The problem is that today you can count on just two hands the total number of banks globally who’ve enabled broader P2P payments as part of their mobile App strategy – such as Chase, Hana, ING Direct and ANZ – and that is an appalling legacy mindset hurdle to get over.
The fact that banks have been so slow to embrace mobile P2P enablement does not bode well for broader bank-led adoption of the mobile wallet. It means that Fundamo and Visa will have to rely on consumer take-up, or integration at the handset level for broader adoption. In this respect, the Google Wallet still probably has an advantage here, but if Visa gets a deal with MSFT/NOKIA or with APPL then all bets are off.
The other opportunity and challenge here is the pre-paid debit card market. With some 50 million+ underbanked in the US alone, with the increasingly strong debit card market in the EU and with China and India ramping up rapidly in respect to smartphone adoption, perhaps the greatest opportunity to be tapped will be integrating pre-paid mobile accounts and pre-paid debit cards in the same handset. It makes sense doesn’t it? What’s the difference between a pre-paid debit card enabled via a mobile wallet, and a pre-paid phone account? They are both value stores…
In that environment, Visa could do with some independence from the issuing banks – perhaps issuing their own pre-paid debit cards as part of the wallet proposition. Given their relationship with the banking community, however, I don’t expect a rapid independent solution to this problem.
The good news is, that Fundamo already has a strong financial inclusion play, so my view is that overall this move is going to be very positive, especially in emerging markets.
Circumventing the backbone might still be possible
The dark horse here could still be Apple (or someone else – PayPal perhaps), leading with a P2P solution that circumvents the traditional networks. Apple has just taken a shot across the bow at Telcos with their iMessage component of iOS 5, which circumvents traditional short-message-system networks, so they’ve shown their willingness to use their broadly adopted platform to challenge services that are redundant in the cloud world. In the world of payments, you only need large-scale adoption of IP-enabled handsets to start challenging this space and creating a new service framework. ISIS couldn’t do this because they didn’t have a way to get their service ubiquitous. Apple already has 250 million cardholders plugged-in to iTunes, so they have massive momentum already. Could they turn that into a P2P backbone?
Sure. Apple will still need to plug in at the back-end in someway, but a cloud-based competitive backbone to the traditional payment networks would be even more pressure on the current interchange environment.
Long-shot? Maybe, but it won’t be long before the pressure on interchange fees, modality of payments around mobile wallets and the changing role of the POS (mobile becomes the POS ala Square and NFC) makes cloud-based alternatives viable. Certainly within the next 5 years this is likely to happen.
It’s still about context
While owning a wallet that has a rapid path to NFC and P2P enablement is a great start, I still believe the real trick with mobile payments is around the context of a payment. The big difference between mag-stripe/Chip and PIN interaction and that of a mobile NFC payment is that I can contextualize the interaction before, during and after the payment. That might be as simple as updating your account balance in real-time, or it might be about integrating offers and loyalty into the payment experience. Square is obviously counting on that as a driver for cardcase.
The challenge Visa faces right now is building context. The wallet is just a plug-in for payments. Where Google (Offers), Apple (iAd), Groupon, Foursquare and others are threatening is the context of those payments.
That’s where I can influence a payment based on location or a trigger.
That’s where I can steal you away using a competitor’s wallet.
That’s where I can circumvent a traditional payment interaction and avoid using the traditional POS all together.
That’s where I OWN the customer.
Visa has made a great start with their acquisition of some very solid tech in the form of Fundamo, but they’re not there yet. My greatest concern is they’ll wait for banks to add the context, and banks are even slower at doing this stuff than visa is…