The Future of Mobile Payments

The seemingly unstoppable flood to construct robust mobile payment options may be hitting a dam with a recent tack-on to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill was signed into law last summer by President Barack Obama and the Federal Reserve finalized its plans for implementation this past month.

Part of the polished product included the 11th-hour addition of "The Durbin Amendment," which has mobile carriers worried about the viability of already-announced mobile payment platforms. The amendment would cut bank fees for credit payment from the 44-cent average today to 12 cents. The addition is intended to lower costs for businesses, but it also reduces incentive for banks to create additional credit payment platforms for mobile users.

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AT&T’s Head of Business Solutions, John Stankey directly blamed the Durbin amendment for a potential slowing of current and future mobile payment platforms.

"Some changes in the banking laws occurred with the amendments that were put in with the Dodd-Frank bill," Stankey told Reuters. "... As transaction fees were limited and things were changed, it kind of changed the business model."

Limiting fees could drop debit processing fee revenues at least $13 billion dollars per year to start. Banking lobbyists continue to fight the changes, but implementation is fast approaching this July. Mobile payment leaders’ recent actions seem to reflect resignation in the inevitability of change, though.

Despite a bold public face – "We believe [payment convergence] is here, primarily driven by the mobile phone," said Jim McCarthy, head of global products for Visa, in a conference call last week – Visa is scaling back its original mobile payment plans. MasterCard is too. Both are working with Isis, the company that announced last November it would be working with AT&T, Verizon Wireless and T-Mobile USA to build a new mobile payment processing network.

Still, confidence abounds in the future of mobile payment options. The Gartner Institute put the number of 2010 mobile payment users at 108.6 million and expects that number to grow. Other analysts see the annual value of mobile payments to exceed $44 billion by 2015.

"[This] will fundamentally change the way we interact with merchants," McCarthy said.

Market research firm GfK found that eBay-owned online payment system PayPal is primed to lead the charge of mobile payment systems as the study showed strong consumer trust in the system’s handling of personal financial data.

"When we think of trust or security, we probably default to a brand that's been around for a long time," Ryan Garner, author of the report, told Reuters. "In this case, people have put their trust in a very new company."

In addition to trust, another commonly-cited barrier to entry for mobile payment is the absence of supporting infrastructure. Mobile payment for smaller items relies on near field communications (NFC) readers. Currently, only one phone has NFC capabilities and few businesses have readers in place.

The release of Google’s latest Android operating platform, however, has opened the door for a cavalcade of NFC-ready smartphone that are slated to hit the market soon. Telecoms analysis firm Juniper Research forecasts that one in every five smartphones world-wide will have the NFC chip by 2014.

"Reliability, security and interoperability are critical to drive the electronification of payments," McCarthy said.