Are Mobile Payments the Next Big Thing?

Given the option between buying something at a brick and mortar store or online, I choose online 9 times out of 10. Yet, for all the benefits of buying online, there is still one major annoyance…checkout. I hate checkout flows. No matter how much sites work to simplify and streamline the process, the simple fact remains…they suck. There are dozens of fields to meticulously fill out, lest you wish to be slapped in the face with errors or worse, have the transaction be “flagged for review” sentencing it to customer service purgatory.

Now, I would understand if things simply had to be this way, if it were a legal requirement, but it isn’t. Checkout in the real world is dramatically faster and easier. It has advanced to the point of simply sliding your card then walking out the door goodies in tow. You don’t have to manually type your card number, enter a security code, or enter your full address. Why can’t online and offline be the same?

Paying by mobile phone is the closest you can get to just sliding your card. Having paid for a few things on Facebook with my phone, I can tell you the experience was almost magical.

Paying by mobile is easy. You enter your phone number, wait for a text message, then either respond with ‘y’ or enter a special code included in the text (varies by provider). And that’s it. When I pay by credit card I pull out my wallet every time. I simply can’t remember my credit card number, expiration date, and security for all three of my cards. But, I can remember my seven digit phone number. This removes even more friction from the process.

Not only are mobile payments better at the user level, they benefit from a massive natural market. Billions of people have phones with SMS capabilities, dwarfing those with credit cards. This simple fact illustrates the power mobile payments have to expand the market of online commerce. Just as fiat money allowed for more trade to occur after its invention thousands of years ago, mobile payments make it possible for billions more people to participate in online commerce.

There have certainly been attempts to solve this problem in the recent past, however none have addressed the systemic issues that plague the introduction of a new payments method. Alternative payment systems concocted over the years have had the fatal flaw of requiring you to explicitly signup for them and then link to your bank account or existing credit card. These were not actually new payment methods, rather mere wrappers of existing systems. PayPal is the lone survivor of the hundreds of attempts at this flawed model. However, mobile payments are a truly new way to pay. There is no need to signup for a new account or link anything; you already have a relationship with your phone’s carrier.

There are currently 3 major players in the space: ZongBoku and Obopay. Each works with many carriers across the globe, have millions of users, and constantly integrate with more games, stores, and social networks to offer users an alternative to credit cards and PayPal.

Mobile payments obviously have numerous inherent benefits, but they are currently being hobbled. Hobbled by carriers. The fees they charge are exorbitantly high. Carriers see the huge opportunity and they want their cut, a massive one at that. Visa and MasterCard have been able to build multi-billion dollar businesses on 2% fees, yet the carriers are currently commanding fees as high as 50%. This is the limiting factor to mobile payments exploding in popularity. Until the fees come down, mobile payments will be relegated to making it easier to buy virtual goods on Facebook.

I want mobile payments to succeed. The experience is fantastic and finally makes buying things online more efficient, at every step, then in stores. I can only hope the carriers will realize they are stifling growth to their own detriment. We are on the cusp of something big.

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