Mobile Payments Marked by Fragmentation and Increasing Channel Convergence, Says Fed

A report from the Federal Reserve Bank of Boston states that the past two years in the mobile payments market were characterized by an expanding fragmented market environment and frequent technology innovations.

While the U.S. mobile payments market continues to gain traction, it has not grown as steadily as expected, and the likelihood of mass adoption is not high without continued collaboration and open access, according to a new white paper from the Federal Reserve Bank of Boston and the Federal Reserve Bank of Atlanta.

The report, titled "U.S. Mobile Payments Landscape -- Two Years Later" stems from ongoing meetings of the Fed's Mobile Payments Industry Workgroup (MPIW), and is an update of an initial paper released by the group in 2011.

"Much has happened in the two-plus years since the first MPIW report on the U.S. mobile payments landscape was published, and not entirely in the direction many industry stakeholders had anticipated," the report reads. "There have been some unexpected obstacles to mobile payment adoption, some surprises in the mix of players in the market, and some new solutions developed to compete with NFC. It is clear that mobile payments will continue to expand and become a permanent fixture in the payments system. However, without continued collaboration and movement toward open access, the like likelihood of achieving mass adoption and the associated benefits to stakeholders, consumers, and the payment system is uncertain."

The paper further states that the past two years in the mobile payments market were characterized by an expanding fragmented market environment and frequent technology innovations.

“There have been some notable changes in the mobile payments area in the last two years,” said Marianne Crowe, Vice President of the Payment Strategies Group at the Federal Reserve Bank of Boston and co-author of the report. “For instance, the mobile device has become a pivotal driver in creating a dynamic marketplace that is bringing diverse companies and sectors together, both as competitors and collaborators and across traditional boundaries of industry and technology.”

The report points out that competition and collaboration have been essential to moving the mobile payments industry forward, as marked by collaborative efforts among large banks and mobile network operators, card networks, retailers, mobile solution providers, and innovative start-ups. In some instances, stakeholders are experimenting with multiple approaches to see what consumers will use, and what merchants will accept, the Fed states.

While innovation is encouraged in the mobile payments marketplace, various developments have gained importance such as the role of nonbanks, unresolved security and privacy issues, and the increasing role of data monetization, the paper notes. In particular, the report notes that participation by nonbank stakeholders, like mobile solution providers, raises new risk considerations. The report also encourages security providers to anticipate risks and incorporate automated mitigation tools where feasible, such as preloading mobile antivirus software on phones, and leveraging the ability of mobile phones to share real-time data (such as location and customer-entered authentication). The existing security attributes of mobile devices have the potential to make the mobile channel more secure than the online channel against fraud and to repel fraud attacks, the paper claimed.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio