Who Will Be the Google of Mobile Payments?

The many competing mobile payment schemes in the U.S. have created havoc, according to experts. Banks, the card networks, PayPal, telecom carriers and other players all have skin in the game. But who will emerge as the Google of mobile payments?

In a recent episode of "Saturday Night Live," comedian Seth Meyers pointed out a flaw in the idea of paying for something with a mobile phone: the limits of wireless coverage. "New York's subway is testing a new system that will allow passengers to pay by using an app on their iPhones," he observed during the show's "Weekend Update" skit. "Just make sure you stand to the side so everyone else can get through while you wait to get service. [Pause for dramatic effect.] In the subway."

That mobile payments have entered the zeitgeist is not surprising. The total value of mobile payments globally is expected to reach $170 billion in 2010 and grow to $630 billion in 2014, according to Juniper Research. Gartner estimates that by year-end 2013, 12.5 percent of all e-commerce transactions will be mobile.

Mobile payment trials and providers abound. Aaron McPherson, practice director with IDC Financial Insights (Framingham, Mass.), points out that there are at least four contactless mobile payment schemes under development in the U.S.: a coalition of AT&T, Verizon, T-Mobile, Discover and Barclaycard; a partnership between First Data and Tyfone; another partnership of Visa with DeviceFidelity; and the rumored Apple iPhone contactless payment feature that might arrive next year. Then there are mobile payments services such as PayPal Mobile, Mobile Pay, ZashPay (from Fiserv), Popmoney (from CashEdge), Boku and Square, to name only some.

"It's just a mess," McPherson says. "There are huge numbers of folks involved."

Gwenn Bezard, research director at Aite Group in Boston, calls the mobile payment arena in the U.S. "a science project," noting that the experimenting will continue. "The U.S. is not China -- mobile payments are not driven by the government coming up with one game plan and everything has to flow out in order," he says. "It's a big mess, with a lot of companies trying to get off the ground. That's the process of innovation and competition. Over time we'll find some consolidation; some players will disappear."

While there are a few strong contenders -- including the card networks, the large banks and PayPal -- according to most experts, almost anyone could throw his or her hat in the ring and carry off the prize of mobile payment dominance, the way Google rode off with the search market.

BofA, Other Banks Look to Lead

But MasterCard (Purchase, N.Y.) research conducted in 2009 found that 77 percent of consumers would rather use a P2P payments service offered through their banks than an independent service such as PayPal. And banks have been experimenting with mobile payments in partnership with vendors such as CashEdge, Fiserv, Monitise and Bling Nation, as well as with Visa and MasterCard. In June, for example, New York-based Citi introduced MasterCard PayPass stickers that can be affixed to the back of mobile phones to make contactless payments at about 230,000 U.S. merchants.

"In the U.S., the issuers have an extremely important role to play because that is where people's relationships lie, relationships beyond just payment cards," says Bill Gajda, head of mobile products at San Francisco-based Visa. "In the U.S., you'll see banks extend their payment solutions through mobile devices, and they'll be at the center of providing those new payment types to customers."

Bank of America ($2.5 trillion in assets) is staking a leadership position in the mobile payments space. Michael Upton, e-channels and customer solutions executive at the Charlotte, N.C.-based bank, thinks the financial institution can be the top mobile payment provider "given that we're currently No. 1 overall in mobile banking usage," he says. "We were the first on Apple, the first on Google and first on RIM [makers of the BlackBerry]. We just surpassed 5 million mobile banking customers, which far and away puts us in that leadership position."

According to Upton, "Bank customers are seeking mobile commerce and mobile payment services. It's easy to see that consumers have adopted smartphones with vigor. [According to the GSM Association, a global mobile communications industry group based in London, there were 4 billion mobile phone subscribers globally as of February 2009.] We expect that as hardware prices keep coming down and data plan packages become more affordable, we'll see continued growth in those smart devices."

The bank -- along with MasterCard, Visa and DeviceFidelity -- is participating in the New York City subway contactless payment trial that Seth Meyers lampooned on SNL. Bank of America associates and a few select customers will soon start paying for subway and bus rides with their phones, Upton reports.

"Being engaged in market trials such as the New York trial sends a clear message that this is a space we're committed to, that we're investing in," Upton says, though he declines to say how much the bank is investing. Bank of America's other aim in such trials, he adds, is to learn how users interact with mobile payments -- for instance, how they choose which account to pay from, how comfortable they seem to be with the system's security and navigation, and what enhancements might be required.

The technology behind the NYC subway pilot is Richardson, Texas-based DeviceFidelity's microSD chip. MicroSD is a format for removable flash-memory cards commonly used in mobile phones and digital cameras. The DeviceFidelity card contains a contactless payment program that interacts with contactless terminals. Upton suggests that tests of other models will follow.

"We're employing different techniques to gather statistically relevant data on different test points, to learn consumer preferences," he says. "It's less about the technologies and more about that experience and what's working for the customer."