Everyone in the payments, telecommunications & technology industries knows that the magstripe card in your wallet isn't really a form of payment: it is just machine-readable alias to an account ledger maintained on some big server somewhere.  And this plastic form-factor alias is pretty lame - its  dumb, blind, deaf, mute, and indiscreet: no processing power, no user I/O,  compromise modes too numerous and sophomoric to cite here, and limited, moribund functionality exclusively controlled by those who "own the rails" - currently the major card brands and their issuing/acquiring banks.   All industry participants have intuitively known, for 10+ years now, that an mWallet could do so much more, so much better, for so many more.  So  why haven't mPayments become ubiquitous, or at least visible yet? 

There are many contributing economic, regulatory and technology factors at play, but  for those of us developing mobile applications, providing value-added payment services, or powering a mobile community that requires mPayments, only 2 of these factors really matter (as in really matter in that guttural, can-I-make-payroll, can-I-close-my-next-financing-round kind of a way):

(# 1)  The Carriers and the Banks/Card Associations have yet to figure out a way to play nicely together for the benefit of their mutual clients. The delay has been driven by the usual suspects of fear and greed.  But a third factor is at play:  the entrenched belief by both entities that they possess the exclusive divinely-anointed right to provide mobile payments.  Progress is being made, but it could easily be another 3 to 5 years for truces to be negotiated and dust to settle in various regions around the world on this point. 

(# 2)  There honestly hasn't been a big enough "itch to scratch" for a David to emerge and take advantage of the innovation inertia represented by the Goliaths dueling it out over point #1.   Think about it...of the 30+ payment transactions most of us make in the course of a month, how many did you make with your mobile phone in April 2008?  If you live in North America, my guess is 0.  Was your life noticeably inconvenienced by this fact?  Probably not - - - your  mobile phone travels with you in the real world, not the internet world.   And in the real world there are already lots of mostly convenient ways for you to pay for most things, most of the time:  credit, debit, cash, cheque, not to mention that attractive, seasonally-themed starbucks card. 

In my opinion, PayPal has grown from a David into a Goliath in its own right with 58 million account holders around the world, because PayPal actually did scratch a big itch.  By introducing a service which allowed individuals to accept credit cards for eBay transactions, PayPal electronified a payment which had previously been negotiated with paper.  Both the payor and the payee derived significant benefit from this innovation, so the service took off despite the requirement for folks to sign up for yet another account, and trust an unknown startup with their money.  Contrast this to the business challenges of rolling out RFID payment at the POS, which competes with perfectly good existing electronic alternatives, is expensive to deploy, requires a change in consumer behaviour, and does not reduce payment fees for merchants.  Unless anchored by mass rapid transit like the Octopus system in Hong Kong, it would be perilous for an independent provider to attempt compete against the card brands on RFID. 

Despite the gloom and doom, there are some interesting niche opportunities out there which are addressable by even very small nimble players, and some really big itches that are begging to be scratched by companies willing to be in it for the long haul.  

The very biggest itch by far is the fact that there are more than 1 Billion+ people around the world who do have a mobile phone, but who do not have a bank or card account.  So 1 Billion+ people are by definition settling their 30+ transactions a month via paper.  Each of these 1 Billion+ people have a friend/family member/local merchant who does have an account maintained on some server somewhere in the world, so the mobile phone becomes the common denominator which can link all transaction participants.  This potential, for the evolution of prepaid mobile minutes into a form of exchangable currency, has already been demonstrated via the M-PESA service in Kenya and the SMART system in the Philippines.   This very big opportunity has not gone unnoticed by the major players, but smaller companies that can help local carriers and local banks replicate these types of programs in a manner which are localized for each country's unique regulatory, commerce, and consumer environments stand to reap significant rewards.

Also, the slow but steady and inevitable roll out of RFID at the POS provides some interesting opportunities for new market entrants to provide real value-added services which surround the transaction, but are not attempting to displace an entrenched consumer behaviour.  For example:  why shouldn't an information-rich receipt be available to consumers for every transaction they make, at every POS, regardless of the payment method they use?  If I was on a business trip and I could swing my cell phone in front of the airport shop's reader to record the purchase of the cone I buy before I buy before I board my long, food-free flight home, that would be 1 less $4.00 cash business expense that I'm too damn lazy to ever both to claim.   Value for me.  Why shouldn't the merchant, (with appropriate opt-in controls, of course) be able me to tempt me back with an upsell to a banana split offer the next time I'm in that airport?  Value for him.  This is an example of a service which

1.      doesn't yet exist

2.      provides value to both the business and consumer transaction participants,

3.      is up for grabs for a new instrument-neutral provider, since Visa is unlikely to launch a service which adds value to a mastercard or cash transaction .

In closing, my advice to mobile application developers and payment startups would run strongly against trying to "own" the consumer's mWallet handset application.  You risk becoming collateral damage in brand and market warfare waged way above your head.  At the end of the day, to be useful,  a payment system has to actually update 2 account ledgers maintained on 2 big servers located in 2 places somewhere in the world.  And it has to do this securely, privately, cost effectively, and in a compliant manner.  If you can plug into as many existing settlement networks, either directly or via a payment services aggregation provider, you will deliver more value to your customers than all the mWallet device eye candy that has been developed to date.

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