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Could consumer confusion over mobile payments dampen holiday growth?

While mobile commerce sales are expected to experience a nice bump during the upcoming holiday season, it may be another story for mobile payments, which continue to face several challenges and a slow build.

There is significant hype surrounding mobile payments – using a phone in store to complete a purchase at the point of sale – drawing the attention of financial institutions, technology companies, retailers and others who are looking to grab a piece of the pie with their own solutions. However, another year has passed without a clear winner in the mobile payments space – if anything, the landscape is more confusing today than it was a year ago.

“I don’t expect any large amount of mobile-enabled POS payments this holiday season,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“Frankly, there is no universal approach that is easily understood by consumers,” he said.

“Without simplicity, coverage and value, mobile payments will struggle to grab a foothold, let alone scale.”

Payments solutions proliferate
The issue of the complexity of the mobile payments transaction is something that solution providers have been struggling with for some time.

What is new is the growing number of players in the mobile payments space, each with its own solution that hopes to gain consumer and retail adoption. This development has the potential to dampen mobile payments adoption simply because of the confusion it brings to the marketplace.

“There are a lot of mobile payments entries – we are getting towards triple digits in the number of companies,” said Nick Holland, senior analyst at Yankee Group, Boston. “Things are accelerating it would appear.

“There is almost an overkill – it is hard to know which one to go for,” he said. “There are almost too many choice out there – particularly from a retailer’s standpoint.”

Small role for NFC
It is clear that mobile payments are becoming increasingly popular with consumers. A recent report from IDC found that 34 percent of survey respondents had made a purchase using their mobile phone compared to 19 percent a year earlier.

Contactless payments using near-field communications technology enabling a smartphone owner to tap their phone at the point-of-sale to make a purchase are expected to grow significantly in the next few years but are not likely to have much of an impact on the upcoming holiday season.

“NFC is a powerful new way to trigger consumer interactions via mobile, but it will not play a role this holiday season in actual payments for physical goods,” said Wilson Kerr, vice president of business development and sales at Unbound Commerce, Boston.

“Too few consumers have NFC in their phones and too few retailers are set-up to accept payments this way,” he said. “This will be changing.”

No clear winner
With a growing array of options available to consumers for paying in-store with a mobile phone, no single solution has emerged as a clear winner.

The IDC report found that mobile applications are responsible for most of the mobile payments volume, with close to 50 percent of those who have paid for a purchase via mobile having used a mobile app at the point-of-sale, such as Starbucks offers. The numbers were slightly lower for mobile browser, contactless and SMS.

This suggests that consumers are experimenting with mobile payments but have not yet made them a part of their everyday shopping habits.

“PayPal is pushing hard and the Isis team is joining forces with credit card companies,” Mr. Kerr said. “Google will likely make a run at it with Google Wallet as well.

“Square is a business-to-business play, but their effect on enabling mobile payments is a big one,” he said. “And Starbucks remains the one to watch, in terms of consumer adoption.

“Consumers need to be shown that mobile payments are safe, secure, and that this solution represents an easier way to pay for something, versus swiping a credit card. The promise is there but the devil is in the details.”

Mobile commerce purchases – where a user makes a purchase online via a smartphone – are gaining traction faster than mobile payments because consumers are used to shopping online and no significant change in infrastructure or consumer habit is required.

“Mobile commerce is growing fast and most people have bought something on their smartphone, via a mobile-optimized version of a Web site,” Mr. Kerr said.

“Mobile payments are complex and hard to implement, because they involve so many moving pieces,” he said.

“The promise of mobile payments is huge, so this has attracted many big players to the space. But this also makes it a crowded, confusing and complex.”

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York