Mobile payments ‘tsunami’ is coming to wash away our wallets

SAN FRANCISCO — Someday in the not-so-distant future, you won’t need to carry a wallet.

Smartphones are transforming the way we pay for things online and offline, but mobile payments still have a long way to go before they’re ubiquitous.

People are shopping on their phones more so than ever before, and yet conversion rates remain low. During discussions on the future of mobile payments at MobileBeat 2013 today, executives from PayPal, Stripe, Braintree, and PocketChange shared what obstacles are standing between us and a world in which all you need to buy a beer, a diamond bracelet, or new house is your phone.

PayPal was one of the first companies to enable payments online. The payments giant has been around since 1998 and is now making a big push into offline commerce. PayPal rolled out a Square competitive “dongle,” extended its payment platform into stores, and released a “fully branded cash-loading token” called My Cash Card — all in 2012. PayPal chief technology officer James Barrese said onstage that PayPal is working toward becoming the go-to global digital wallet.

“Admittedly, PayPal got a little off course,” Barrese said. “We slowed down on innovation and took our eye off the ball, but now we are taking an aggressive approach to creating compelling new experiences for our customers and addressing issues created in the past. We reinvented our technology and our product. Now we are reinventing the industry and coming from a fantastic position of strength.”

Barrese said success with mobile payments is all about creating positive experiences for the consumer and solving actual problems. Becoming the dominant digital wallet is a network play — without merchants, you have no consumers; without consumers, you have no merchants. PayPal has a massive global network that includes 100 million active customers, accepts a majority of currencies, and is “operating system agnostic.” Barrese says it’s poised to capitalize on opportunities in emerging as well as mature markets. It also offers a diverse spread of solutions. Mobile payments is an umbrella term that encompasses in-app purchases, real-world point-of-sale purchases made with mobile phones, and paying for something remotely using a phone. PayPal is furiously churning out products that accommodate each.

PayPal’s merchant solutions compete with Braintree and Stripe, which both provide payments gateways for retailers to easily set up credit card processing on their sites. Braintree’s GM of Mobile Aunkur Arya said during the panel that the discussion should be less about the payments and the transactions themselves, and more about enabling commerce.

“Mobile is the primary computing device, but there is still a ton of friction when people have to take out their credit card and put that information in,” he said. “The drop-off rates are as high as 75 percent. The merchants who are winning are those who can create magic, like Uber, HotelTonight, and Postmates. This is a consumer experience issue. Our product, Venmo Touchm is trying to solve that, so you enter a card once with one merchants, and that identity is saved so you can automatically use it with other merchants.”

This morning, Braintree announced a partnership with online bank Simple to roll out its one-touch payment product to all Simple customers, marking its first direct banking integration and a significant step towards seamless mobile payments experience.

Security has also been an obstacle for the adoption of mobile payments, but CEO of PocketChange Ari Mir said that this is becoming a less significant concern.

“There are three waves converging to form the tsunami of mobile payments,” he said. “Consumers are more comfortable with publishing their digital identity publicly. At this point, a majority of consumers have purchased something online with a credit card, and people spend a tremendous amount of time on their phones. Understanding that mobile is synonymous with convenience is what it will take to win.”

Changing the primary methods of payment requires more than taking existing practices and applying them to mobile channels, however. Convenience is key, but Stripe president and cofounder John Collison emphasized that it is also about forging ahead with meaningful innovation that actually provide new value to the consumer.

“When it comes to developing a startup around mobile commerce, the interesting thing to keep in mind is that the companies that have done really well are not companies that take same existing model and graft it into a mobile device or shift over an existing experience,” he said. “It is companies that create a new kind of experience and offer the kinds of services that can only work on a mobile device, and are able to build ongoing payments relationships with consumers.”

Companies that aren’t focused exclusively on mobile commerce still need a mobile presence. It matters less whether they use PayPal, Braintree, Stripe or their own system to enable transactions, and more how they reach consumers and encourage them to buy their products. Creating context and targeted advertising also plays a roll in this conversation During a follow-up breakout session on mobile payments, Tagged director of strategic development Peter Berger said that companies need to maintain a balance between messaging and value, and figuring out that value comes from understanding the user and their immediate needs so you can get them to buy in the first place.

“Every panel today has emphasized the importance of context,” he said. “You can’t deliver messaging en masse anymore, ad inventory needs to be given context at all times. This isn’t just about going to register and closing the deal. It’s about creating a tighter life cycle with notifications, rewards, and ads that move people further down the purchasing pipeline.”

Mobile payments is a rapidly changing and competitive field. As mentioned above, it can be divided into three main parts, but most of the companies in the space have solutions for more than one segment. Braintree is tackling the consumer-facing wallet space with Venmo Touch, Square offers a POS solution and a wallet, and PayPal offers all of the above. Google and MasterCard also provide digital wallets, and Visa recently rolled out a Stripe/Braintree competitor. International competitors like Payleven, iZettle, and mPowa, and a startup called Clinkle that just raised a humongous $25 million seed round also provide competition. The market is fragmented, and until a product emerges as a clear leader, I will continue using my panda wallet.