Mobile payments – winning the battle or winning the war?

The mobile industry, during the past 6 months, has seen the strongest push towards mobile payments as industry giants such as Apple, Google, and Samsung have been extremely active in bringing their own mobile payment solutions, striving to take the top spot in making people pay with their mobile phones. During these nascent times, it could be anyone’s victory towards mobile payments domination; or is it?

Lets take a look at some of the driving factors that would determine who will take home the trophy.

Generating critical mass

A software or solution is only as good as the user experience it provides. This is especially true for a new solution that hopes to replace a user habit that has been in practice for over a decade. Therefore one of the key drivers for user acceptance and take-up will be the ease of use of a mobile payment solution. Apple has a long history of creating applications and products whose success have been attributed with ease of use and ease of adoption. In the recent years, Google with its Android platform and Samsung with its devices and native applications have been striving to achieve, and in some cases even match, Apple’s excellence in user experience.

Another key factor in generating critical mass for a mobile payment solution is the actual number of smartphones that can support the solution. The more the number of users of a particular platform or device, the more is the potential market for the payment solution within that platform. The Android platform is unquestionably far ahead in this race taking almost 84% of the worldwide smartphone market, according to IDC Smartphone OS Market Share, Q3 2014. Generally speaking, the adoption of new solutions starts in the developed countries and then carries over to the developing world. In the case of U.S., the difference between the Android and iOS market shares is significantly less (52% vs. 42%, respectively) according to comScore MobiLens. Furthermore, Apple thrives on its customer loyalty and seems to have a higher constitution of early adopters of technology. In this context, Apple might manage to push ahead of the curve at least in the early days of mobile payments.

Partners and partnerships

When Apple launched Apple Pay, it seemed that Apple did not have any major competitors at least from those companies that could match Apple’s scale. But things have definitely changed during Q1 of 2015. Samsung acquired LoopPay, a company that enables mobile payments through traditional magnetic credit card readers. This was quickly followed by Google striking a deal with the biggest wireless carriers in the U.S. namely, AT&T Mobility, T-Mobile USA, and Verizon Wireless, to get Google Wallet pre-installed on their Android phones in addition to buying their mobile payments app, Softcard. With these recent moves, the companies put forth viable alternatives to Apple Pay.

LoopPay advocates its compatibility with systems already in place at retailers throughout the U.S. using Magnetic Secure transmission and claims its acceptance at over 10 million stores. It has partnered with more than 10,000 issuers – credit cards, debit cards, and gift cards. In contrast, Apple pay and Google wallet require NFC enabled terminals to be installed at the merchants points of sale. Apple Pay supports 90 point-of-sale issuers. Since the active participation of the merchants, vendors and issuers are pre-requisite to the use of a particular payment technology, ApplePay in particular have a lot of catching up to do.

Complementary devices and services

As described above the biggest advantage of LoopPay is its compatibility with point-of-sale (PoS) machines that are already in place at retailers throughout the US. That is until, the Federal Regulations requiring U.S. businesses to update their PoS machines to be EMV-compliant takes effect. With the new regulation all businesses are required to upgrade by October 2015. It is likely that all the new PoS machines will be enabled with NFC technology. Apple couldn’t have timed their launch of NFC based Apple Pay any better, as it uses industry-standard EMV contactless protocols, and EMV’s stronger security features include the technology that enables Apple Pay. On the other hand, LoopPay clients will be instructed to use physical cards and the pincode to make their purchases since their solution is not compatible with the EMV protocols.

Another complementary device that further enables Apple Pay is the newly announced Apple Watch which can be used to make mobile payment with Apple Pay. The strong marketing engine at Apple and along with the loyal Apple fans, mean a strong forecast for Apple Watch sales, which further aids to the benefit of Apple Pay’s usage.

Other Market forces

Even though Apple Pay faces tough competition from potential payment solutions from Google and Samsung, one key fact to note is that Apple has complete control over its hardware, software, and the ecosystem. Google Wallet and Samsung’s LoopPay solutions belong to the same Android ecosystem. With two competing mobile payment solutions within the same ecosystem, Android users will be forced to pick one solution and thereby fragmenting its market. This will be one key defining element that determines which OS platform wins the mobile payment race.

The initial success of a mobile payment solution in the US is critical for it to garner enough momentum. Therefore, in the coming months we might see the battle of mobile payments primarily fought in the U.S. This will be the proving ground for the solution, as it will also set the stage for the rest of the world and particularly Europe, to follow suit.

Apple has many things going for it and at first glance one might argue that it is well positioned to come out as a clear winner for several reasons – a the loyal customer base, control over hardware, software and ecosystem, multiple solutions fragmenting the Android user base, etc.

But one cannot ignore the effect of 84% market share that the Android platform still commands globally. I believe that Apple would be successful in achieving critical mass and user adoption to mobile payments. Like it has done in the past with the iPod, iPhone, and iPad, Apple with Apple Pay is likely to succeed in changing user behavior and the way we pay for our store purchases. But the question is will it be the leader in mobile payments? I have my doubts. Even if Apple wins the early race in the US and EU, Android’s higher presence in the developing world means more people not using Apple pay and a higher potential market for Android’s payment solution (whichever one prevails). As long as the Android platform caters to the developing world’s low cost smartphone market with a wide selection of smartphone devices and thereby maintaining a higher market share than Apple, it would be a challenge for Apple to become “the winner” in the mobile payment race (as predicted in the Northstream Industry Prediction 2015).


Hari is a Consultant at Northstream


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