Bloomberg published a solid piece last night that takes a hard look at the difficult economics of mobile payments. The segment has become an ultra-competitive market where heavyweights like PayPal, Google and the carrier-backed Isis battle for traction both against each other and against a host of startups. So while consumer uptake remains elusive — to be generous — margins are razor-thin, or, in many cases, nonexistent.
That’s a huge problem because business models in mobile payments are substantially more complex than in other kinds of transactions. Each player in the value chain needs to be rewarded, but consumers rightfully aren’t going to pay more for the privilege of using their phones to pay rather than credit cards or cash. The key, as I’ve said many times before, is in adding value to the transaction for both the consumer and the retailer — in the form of loyalty programs, for instance, or targeted mobile coupons. Once consumers have a real reason to use mobile payments, they will reward retailers (and mobile payments providers) who effectively leverage them. Until then, though, it will become a war of attrition that only deep-pocketed companies can survive.