Too many cooks ruining the mobile-payments soup

Nearly a decade ago, Sony and NTT DoCoMo (Japan’s largest mobile carrier) launched a joint venture centered on a contactless payment technology from Sony. FeliCa, as the technology is dubbed, was embedded in DoCoMo handsets and enjoyed rapid acceptance — it is the foundation of Osaifu-Keitai, which has become the de facto standard for mobile payments. Osaifu-Ketai received a huge boost when it was integrated with the payment system of Tokyo’s massive train system; it is now supported by competing carriers as well as financial institutions and credit card companies. Japan’s three largest operators, in fact, are working together to ensure a smooth transition to NFC, which is widely viewed as the next-generation technology for supporting mobile payments.

Contrast that forward-looking cooperation with the state of mobile payments in the United States, where a host of heavyweights are hoping consumers will flock to their proprietary solutions. Verizon Wireless, AT&T and T-Mobile USA last week used the South by Southwest stage to showcase Isis, their joint venture based on NFC. Google is reportedly pressuring app developers to use its Google Wallet, warning them that their wares will be tossed out of Android Market if they use other payment methods. PayPal is aggressively pushing its mobile payment offering into 2,000 Home Depot stores and last week announced a partnership with Tabbedout to enable users to pay their bills in bars and restaurants. Meanwhile, Square is expanding beyond its mobile credit card reader to enable hands-free payments in stores, and countless startups are also vying for a piece of the pie.

The  packed mobile wallet bandwagon looks to get even more crowded in the near future, according to a recent report from The Wall Street Journal. A consortium of two dozen retailers including Wal-Mart and Target are developing their own mobile payment system, according to the Journal, in an effort to grab more revenues and increase customer loyalty.

But the retailers’ initiative is more likely to increase customer confusion, adding to a surfeit of “solutions” will only shackle a market. Consumers simply won’t download a half-dozen individual apps, then fire up the right one based on where they’re shopping or what they’re buying. And retailers who don’t offer their own systems won’t invest time or money to support a wide variety of mobile payment services.

Mobile payments already face some serious challenges: Point-of-sale systems still have to be built out, NFC-enabled smartphones must see increased penetration, and business models must be established that reward every player in the value chain. The mobile wallet must be as quick and easy to use as cash or credit cards, and consumers must have confidence that their transactions are secure. And as I’ve argued before, they must feature apps that consumers actually find valuable if they’re going to reach for their phones rather than their wallets. Those apps can include everything from loyalty cards that reward users as they spend to location-based offers that are sent to consumers within a certain proximity of the store.

Each of the major initiatives so far has a chance to overcome those hurdles, but it’s far too early to predict who will succeed. The field will consolidate over the next year or two as some losers drop out and other players join forces. But there isn’t much room for winners in this space – consumers won’t embrace more than a few, and retailers won’t support many – so we’ll see one or two initiatives emerge from the pack. Until then, though, we shouldn’t expect massive uptake of multiple payment systems. Because if there’s one lesson we can take from Japan, it’s that mobile payments will fly only when the entire ecosystem rallies around a very limited number of solutions.

Question of the week

Which U.S. mobile payment system will emerge as a winner?