When is a mobile payment a “mobile payment”?
When it’s m-commerce. That’s one of the top-level findings of the MasterCard Mobile Payments Readiness Index (MPRI). The Index rank orders 34 global economies in terms of their readiness to execute on mobile payments across all three configurations—mobile at point of sale (POS), person-to-person payments (P2P), and e-commerce conducted from a mobile device (m-commerce).
In nearly every market, m-commerce is the technology that consumers are actually using.
At Global Insights, the team that produced the MPRI, we like to call m-commerce the gateway technology for mobile payments. M-commerce is not a “mobile payment” in the way POS or certainly P2P is, where the mobile device becomes not only the transaction initiation device, but the actual authentication medium for the mobile payments. That’s why you can plausibly put scare quotes around m-commerce.
But its hybrid nature, in fact, could make m-commerce a powerful tool in the hands of mobile network operators, device makers, financial services institutions, and operating system vendors—all the constituents of the mobile payments value chain.
Any one of these could—in concert with the others—use-m-commerce as a fulcrum for initiating a broad-based mobile payments rollout in a given market.
It’s easy to see why m-commerce occupies the position it does among the three payment types. After 15 years of development, e-commerce is a well-established channel for retail sales. Currently about 7% of total U.S. retail volume, e-commerce is a familiar way to shop that holds no terrors for anybody with a personal computer.
Both smart phones with web-browsing capabilities and tablet computers enable consumers to engage in this familiar form of e-commerce from just about anywhere.
M-commerce is just as attractive for telcos as it is for any other player in mobile payments value chain. Telcos require a much higher degree of integration onto the handset of a smart phone than they ever did supplying connectivity for a wireline Internet connection. The telco, whatever the form of payment, is one of key enablers of smart-phone and tablet computer functionality. Experience gathered today in enabling m-commerce could yield key learnings in enabling P2P and POS payments in the future.
The tablet channel is especially fascinating. According to the Pew Research Center’s Internet and American Life project, over the last Christmas selling season, tablet and e-book sales doubled their U.S. penetration rate. That’s worth repeating. Tablet and e-book penetration in the United States went from 10% to 20% over the holidays, largely thanks to the price points and features of the new iPad and Kindle Fire.
Tablets are in line to match, and in some cases to replace, wireline PCs as the entrance medium to the Internet for a substantial portion of the U.S. population.
Abroad, the success of tablets is, if anything, even more impressive. Fully 38% of Chinese mobile web users access the Internet through tablets exclusively.
The success of the latest iPad and the Kindle Fire is partly due to the devices’ ability to combine the comfort-level of the Internet with the mobility today’s consumers—especially today’s younger consumers—are demanding.
The Mobile Payments Readiness Index found that in country after country, consumers are readier for m-commerce than they are for the relatively exotic alternatives of P2P and POS. In each of the 34 countries we examined, we asked an average of 1,000 consumers three simple questions about each of the three varieties of mobile payments: Have you ever heard of this payment method (familiarity), would you ever conduct a payment using this method (willingness), and have you ever done so (usage).
In the United States, 33% express willingness to use m-commerce, while 12% are currently engaged in m-commerce. That 12% may not sound like much, especially when compared with countries like China, Colombia, and Saudi Arabia, where m-commerce is thriving. But it’s much better than the other payment types: Only 4% have used their mobile device as the actual authentication medium at the point of sale, and only 2% report having engaged in P2P transactions.
These numbers bear comparison with the results from global markets. In China, for example, 19% of respondents reported having engaged in m-commerce, as compared with 10% for POS and 13% for P2P. In Colombia, 14% have engaged in m-commerce, compared with 10% for POS and 8% for P2P. In Saudi Arabia, 26% reported having engaged in mobile commerce, compared with 15% for POS and 24% for P2P.
A market where this global pattern did not hold was Kenya; as on outlier, Kenya is instructive. Number four on the Index—in the Index’s top quintile with the likes of the United States and Japan—Kenya seems an anomaly. After all, a small and not particularly prosperous east African nation doesn’t have the economic environment or infrastructure—all inputs into the MPRI’s final results—of powerhouses like Korea and Canada.
But M-Pesa, the famous P2P money transfer service of Kenya mobile provider Safaricom, has taken off precisely because there is so much lacking in the Kenya payments scene. Consumers there have taken M-Pesa to their hearts because it is secure and convenient.
Under no circumstances is m-commerce unknown or unused in Kenya: 22% of consumers there say they have used mobile devices to initiate payments over the Internet. But it can’t compare with the 68% who have used P2P payments in Kenya. In this and in other ways, it’s rash to draw any conclusions from the experience of an emerging market like Kenya regarding mobile payments in the developed world, and certainly in the United States. M-commerce allows all players in the mobile payments value chain to push into the line of least resistance, and develop skills for the tougher challenges to come.
One thing is certain. The relative popularity of m-commerce puts to bed the idea that P2P is simply for the emerging or developing world, while the other payment media are for the developed world.
The truth is that nobody knows what’s going to happen in mobile payments—besides that it’s going to revolutionize payments globally. That’s the highest-level finding of the Index—it’s early days. But precisely because it is early days, all the constituents in the value chain need to plot their strategy now. And the emergence globally of m-commerce as a gateway technology to mobile payments could provide the platform for a broader-based strategy in the months ahead.
Theodore Iacobuzio is vice president at MasterCard Worldwide. He leads the Global Insights team, which designed and executed the Mobile Payments Readiness Index.