NEW YORK (MainStreet) Just a year or two ago, people were talking as though we'd never use cash again. From Square Wallet to Google Wallet, mobile payments was all the rage, and we seemed to be at the dawn of an entirely new era.
Also See: Google Wallet, RIP?
Flash forward to 2014, and Square Wallet has been disbanded. Google Wallet is widely seen as a failure, especially in comparison to its grand vision. Is the new wave of mobile payment startups over, or will we simply have to iterate on the concept? What does the future hold for the digital wallet? Its widespread adoption looks to be glacial for the foreseeable future.
Internet Week New York recently hosted a panel on this topic moderated by Ellis Hamburger of The Verge, featuring Matt Hamilton, a software engineer at Venmo; Mark Egerman, co-founder of Cover; and Tatyana Zlotsky, vice president of digital marketing and innovation at American Express.
Also See: The Confessions of a Wannabe Venmo User Who Resigns to Cash
Are Mobile Payments the Death of Credit Cards?
First and foremost, all the panelists seemed to agree that credit cards are not facing an imminent demise.
"Swiping a card is easy," Zlotsky says. "The time it requires is really small, and the value the customer gets is big. They get security, fraud protection, loyalty perks, membership."
In the near term, she's not worried about the obsolescence of the plastic. Uber, for example, really transformed the auto experience for the customer because the company solved consumer pain point: when taking a taxi, you don't want to have to wait to summon it and pay for it after the ride. But still taxis exist and fill a widespread need. Mobile payments, though perhaps more "frictionless," simply haven't revolutionized transactions enough.
"Maybe you also just want to get out of that restaurant, but online payment platforms didn't change the process at all," Zlotsky said.
One problem with mobile payments is reliability. After all, phones die and credit cards aren't dependent on battery life.
"Effectively, credit cards provide an interest-free loan for 30 days, plus points," Egerman said. "For the consumer it's phenomenal if you pay off the balance. Credit cards do a lot of things. If anyone is going to [replace] them, they'd need to do all those things and have instant distribution channels. It took a lot for credit cards to get here, and they're not going to disappear overnight."
"It's interesting we call it a credit card," says Hamilton. "It's really just credit, but we're talking about the medium. In the future we're going in the direction where you don't just interact from a physical point of view."
Where Early Pioneers Went Wrongand What Can Be Improved
One big barrier to entry for a new medium is adoption. If the process of converting to a new platform is very difficult, people and businesses won't do it.
"Peer-to-peer payments are a little easier to make easy," says Hamilton. "It's harder to make a person-to-merchant experience great, because there are so many different merchants and requirements and wants and needs and preferences."
Hamilton said when he signed up for Google Wallet, it was difficult and inconvenient; that led him to neglect and then abandon the service. And that impact of the user experience shouldn't be underrated.
"I think Square was a bigger failure than most people realized, because not only did few use it, those who did had a bad experience," Egerman said. "If you tried to use Square Wallet at Starbucks (which forged a partnership with Square to much fanfare), the cashier froze up and couldn't do it. The employee would have to get the manager, and now you are the person bottlenecking that line. It's hard for one product to impact people so badly."
Placement is also very important. Coffee shops are bad place for a product like this to exist, Egerman contends, because typically the pain point isn't in the ordering process, but in waiting in line for your coffee. Introducing Square to Starbucks didn't alleviate any existing pain points, but rather complicated the checkout process and added a new pain point.
"It introduced friction to an otherwise working system," Egerman said. "The history of payments started at Diners Club, in a single vertical, and then it grew. You can't start [by trying to take over an] entire economy."
The successful mobile payment startup, he contends, will start in a specialized sector where there's a true need for the service and grow from there.
One major pitfall for these ventures is overestimating the product's value, says Egerman.
"Entrepreneurs and founders vastly overstate how much [consumers] care about their products," he said. "On counters at [coffee shops and other small businesses], there are all these loyalty or discovery program stickers. It's like a graveyard of failed products."
The key, he says, is to focus on the customer experience.
Egerman points to American Express as one company that successfully transitioned from a niche market to a widespread reach.
"It used to be Amex was for nice restaurants and hotels, and the idea it could be used at the corner bodega was ridiculous," he said. "But once it was established, it could move down-market. With a B2C mobile payment program, you have to start at the top and build relationships. That won't happen overnight."
Hardware or Software?
The panelists at Internet Week primarily represented software solutions, but there's a great deal of innovation on the hardware front, too. For example, Loop enables consumers to make payments through their phones. So that begs a question: will the future of mobile payments require us to incorporate some new crucial hardware device into our lives, or will it primarily innovate through software? For example, will new pieces of hardware be helpful, or can programs build upon existing features of our devices, such as built-in GPS?
"Venmo doesn't seem to be super interested in the hardware space, though we've played around with it," Hamilton says. "At one hack-a-thon, some people hacked a Venmo vending machine, but the crux of [whether to invest in hardware] is based on how easy it is for a merchant to integrate, how safe it is for the user, like with the Target breach, and . . . a huge focus on security."
Egerman notes that hardware quickly becomes obsolete, so some technologies risk being leapfrogged by newer solutions.
"The idea that you can force change while building a two-sided network is ridiculous," he says. "Otherwise you have to have a monopoly . . . no one [in the U.S.] is situated to force hardware, software and device changes all at once. Square thought it could replace every merchant point of service with an iPad, but if you think you can force merchants to use your systems alone, then you won't last. You have to ride the wave of whatever hardware changes come."
The companies that already have market share with existing technologies may be best positioned to pioneer new hardware solutions.
"I read that Apple [is considering the release of] NFC-related software," Zlotsky said. "I'm not an engineer so I can't speak to the details but I know iPhones are 40% of the market, so if they do something it'll be big and important. They already have hundreds of millions of credit cards on file so they could just turn it on."
In the end, the future of mobile payments remains uncertain, but what is clear is that many startups are tackling the broad issues in the space and constantly questioning how our livesand payment processescan become more seamless. Will we soon be swiping our phones at the grocery store? Only time will tell.
--Written by Allison Kade for MainStreet