Why mobile payments will never take off

By Felix Salmon
July 3, 2013

Dan Rowinski has a fantastic piece on Clinkle, the latest hot payments startup. (Its $25 million seed round came from Accel Partners, Andreessen Horowitz, Jim Breyer, Marc Benioff, Owen Van Natta, Peter Thiel, and many other members of the Silicon Valley elite.) Rowinski’s message: payments technology is the easy bit. The hard bit is changing behavior.

It’s basically no easier or faster to activate the NFC or QR code in your phone or open an app than it is to dig out some cash from your pocket or pull a plastic card from your wallet. Try it. They’ll each take you basically the same amount of time.

Actually, mobile payments are harder than paying with plastic, at least in my experience: the coffee shop I’ve started frequenting near the Reuters office uses Square, which makes paying with a credit card very easy. More to the point, despite the fact that I’ve tried a couple of times, I have yet to get Square Wallet to actually work there. And in general, whenever I try to pay for something using LevelUp or Square Wallet or some other clever newfangled mobile payment technique, I feel curiously self-conscious and embarrassed about the whole thing. Handing over a card is normal behavior: mobile payments are not. And there’s really no incentive for me to switch.

Even if there was an incentive for me to switch, it would be small: a few cents at best, per caffè macchiato. Which isn’t nearly sufficient. If you look at the success of M-Pesa, in Kenya, there are lots of reasons why it has taken off, including the fact that Safaricom is in many ways a more reliable counterparty than the Kenyan government. But the one advantage it doesn’t have is low cost: it’s actually surprisingly expensive.

More recently, mobile payments have been taking off in a big way in Somalia, similarly because they are much more convenient for all concerned.

Mobile money has drastically reduced the cost of crime and security for consumers, private companies and government offices. The Coca-Cola branch in Somaliland, for example, is the only cashless Coca-Cola company in Africa. About 80 per cent of its sales to its retail distributors are done through Zaad, while the remainder are done by electronic bank transfers.

It’s unclear whether this is going to be good news for Africans, over the long term. If the continent can leapfrog plastic cards and move straight to incorporating everything on one device, that’s great. On the other hand, once they’re established, phone-based payments systems like M-Pesa and Zaad can extract enormous rents, since the barriers to entry are all but insurmountable.

The person behind the counter at my local coffee shop doesn’t care which card I’m using: he probably sees a hundred different cards every day, all of which are competing in their own way to be particularly attractive to consumers. But even if he does accept mobile payments, he’ll only accept one form of them: if he uses Square Wallet he won’t use LevelUp, or Clinkle. That’s why Clinkle got so much seed money: it’s competing in a winner-takes all space, where only one solution can win.

In countries where cards are not ubiquitous, then, and where cash can be hard to obtain, there’s a good chance that mobile payments might take off. But in the US, there are literally billions of cards already. They’re not perfect; certainly they all should have EMV chips, and almost none of them do. But they’re good enough: they’re not so bad that mobile payments offer something clearly superior, or any incentive for consumers to switch.

Look how hard it has been to kill off the check in this country: cards are even more entrenched than checks were, and killing them off will be very, very difficult. In fact, it will be impossible. Which means that mobile payments, although they are sometimes very cool, are going to remain a marginal technology in the US for the foreseeable future.


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I’m not quite as pessimistic about it as you, but I do agree it’s going to be hard to replace credit/debit/payment cards in this country. If anything, using credit cards has actually gotten easier – the local restaurants doing curbside service often have servers equipped with mobile credit card entry/swipe machines, and there’s no reason why you couldn’t come up with some version of one that operates with a tablet and attachable scanner. Even online payment services (particularly PayPal) offer cards for people to use.

As for checks, 95% of the people I see using them in my line of work are older people (the younger people use debit/credit cards).

Posted by TheBrett | Report as abusive

I agree. Where is the convenience? I could perhaps see one or two working in conjunction with cards, just as a cash replacement or ability to load a prepaid card primarily for the unbanked or uncreditworthy but slow to go beyond this. I do disagree there will only be one unless the one actually supports multiple providers. Customers and merchants are wary of monopolies and even credit cards would not have made it without the competition of Visa and Mastercard. The best hope any of these have at making it is providing common access for others.

Posted by MyLord | Report as abusive

Really, the further you get from cash, the more the change is for someone else’s benefit. The goal of these services is not to save the customer time or money, but to get more of the customer’s money to leave their pockets.

Posted by Moopheus | Report as abusive

+1 to MyLord and to Felix.

I am also doubtful how much the pricing of a mobile payments startup will ultimately undercut Visa/Mastercard/banks or Amex. If a mobile payment service is going to establish a processing network, extend credit to consumers, provide incentives to consumers (reward points or cash back), and police fraud, I struggle to see how much it will undercut current pricing. That’s particularly the case because payments is a business with huge economies of scale. If a new payment system is not going to do all of those things, then it is either relying on portions of the existing payment infrastructure or exacerbating the question of why a consumer would use it. As an example – if my credit card gives me points or cash back, what is my incentive as a consumer to use a mobile payment system that provides neither?

Posted by realist50 | Report as abusive

Agree with everything/everyone.

Why not just put a stamp in my hand? That way I wouldn’t have to reach for my phone, wallet or change. I’d never lose it. I’d know it was unique to me. I wouldn’t/couldn’t need to transfer it when I get a new phone. Once done, never do again so it’s really cheap besides convenient and safe.

I’m sure the rocket scientist in Silicon Valley have already considered it.

Posted by Twinkbait | Report as abusive

Agree with the conclusion re: “marginal technology in the US for the foreseeable future”. But I would gladly bet against mobile payments “never” taking hold as stated in the headline. Never is awfully long time.

Posted by the_pop | Report as abusive

Regarding incentives to switch, those will eventually come from the merchant, not from consumers. If merchants have to pay higher transaction fees to Visa and MasterCard than to a mobile payments processor, they may increasingly refuse credit card payments for small transactions – as they already do in many establishments – in favour of the mobile payments technology. A few cents savings on your daily coffee doesn’t mean much to you, but a few cents times a billion coffees starts to add up for the Starbucks of the world.

Posted by the_pop | Report as abusive

+1 to all comments above, and to Felix: ’twas ever thus. Citi in the late ’90′s trialled an ‘e-cash’ product in the Upper East Side. The challenge was to get sufficient penetration at point of sale, e.g. laundromats, AND to get Citi customers to actually change their behaviour and use it. @_pop’s got it: focus on the acquiring (merchant) side……..

Posted by crocodilechuck | Report as abusive

Barclays in the UK makes a smaller version of its normal contactless debit card, precisely so you can stick it to the back of your phone.

Posted by dsquared | Report as abusive

I believe that mobile payments will take off, but only as a result of other services that sit next to payments. If a mobile wallet had payments, ticketing, vouchers, coupons, etc., then that would be incentive to replace your physical wallet with a digital one. There will be a tipping point in the not-so-distant future, I believe, that will mark a real shift towards our wallets being on our phones. It’ll become habit to store everything on our phone. Cards/payments/cash will follow as that’s all we’ll end up having in our wallets. And where’s the point in that?

Posted by LaraMulady | Report as abusive

Comparing the success of mPesa in Africa with buying a coffee in the US is nonsensical Apples & Pears. Developing economies embrace the solution where there are no ATMs, bank a/c, credit check facilities. An obvious problem solved.

US/EU it is not whether mobile payments will take off but rather what problem are we solving / need highlighting? How about the Fast Track Q at the lunchtime Deli for those paying with mobile or actually spending those Loyalty points that have been gathering dust. Manage your finances, use your mobile bill for micro-payments. There are lots of clever ideas that will ensure the success of mobile payments.

Posted by TweetingInterim | Report as abusive

1. You’re on the phone and want to pay. On most phones/providers, you have to end the call.

2. If you have multiple cards in your wallet, you choose which one, maybe based on its closing date or how much your balance is or points you can earn. That’s pretty easy if you reach in your wallet but harder on your phone.

Posted by jomiku | Report as abusive

Clinkle? Really? The infantilization of the USA continues apace.

Posted by Setty | Report as abusive

The time saved and added convenience is not at the till but when you leave the house i.e. one or two less things to think about bringing – cash, cards, etc.

Posted by riskebiz | Report as abusive

The time saved and convenience is not at the till but the house as it is one or two less things to think about i.e. cash, credit cards, etc.

Posted by riskebiz | Report as abusive

Agree entirely with this article. In fact, I’d go one step further: Almost every mobile wallet – SQUARE, PayPal, Google Wallet etc. – in the market replaces only the plastic form factor of the credit / debit card. Below the surface, they all use the same old credit or debit card as the funding mechanism. So, mobile wallets don’t have a great outlook even in countries where cards are not ubiquituous because, if there’s no card, there’s no mobile wallet.

Posted by sketharaman | Report as abusive

Never is a very long time, you know. For the average journalist it typically means no more than 12 months from now.

Posted by BidnisMan | Report as abusive