Once ‘Bearish,’ a Payments Researcher Smiles on Mobile Payments

The rapid development of mobile payments in the U.S. is starting to make believers out of skeptics. Boston-based Aite Group LLC, a payments consulting and research firm, had been one of those skeptics, but it released a report on Wednesday predicting U.S. mobile payments of all kinds will total $214 billion by 2015, ballooning from $16 billion this year. That’s an average annual growth rate of 68%.

The projection is based on the firm’s belief that mobile payments will achieve what it calls a “tipping point” next year, leaving behind companies that fail to adopt the form of payment. Aite admits its enthusiasm for mobile payments is newfound. “After years of holding a bearish view on the space, we believe the time has come for all U.S. stakeholders to get serious about mobile payments,” says the report, written by Aite research director Gwenn Bezard.

The upbeat report also comes on the heels of an announcement by the nation’s major mobile carriers that they have started a venture to process mobile payments at retail points of sale. The venture, called Isis, is backed by AT&T Wireless, Verizon Wireless, and T-Mobile USA and will rely on an interactive form of contactless transmission called near-field communication (NFC). Many see Isis not only as a major thrust by the wireless carriers into mobile payments, but also as a way of jump-starting the market by bypassing the established card networks.

Though potentially huge, point-of-sale mobile payments by 2015 will be only the fourth largest of 10 categories of mobile payments charted by the Aite report, growing to $22.6 billion in volume from virtually nothing currently and an estimated $100 million next year. But Bezard tells Digital Transactions News that action in NFC-based payments is a major reason for Aite’s now-bullish projections, which he characterizes as conservative. Another reason, he says, is the rapid popularization of smart phones, which make mobile payments easier to peform.

In fact, Aite sees NFC becoming increasingly available as more and more handset makers install chips. “What’s driving our change of mind [on mobile payments] is that the carriers and handset manufacturers are finally, finally moving on NFC chips,” Bezard says. Though a promising technology, NFC has been held back by a paucity of phones embedded with NFC chips and a long-term stalemate between carriers and card networks over revenue sharing and other issues.

Also holding promise, he says, is that the effort to forge a market for contactless cards has created a contactless infrastructure for mobile payments. “We were very bearish on [contactless cards] because there was very little value over swipe-and-go payment,” says Bezard. “But today the U.S. has the largest contactless acceptance network in the world.” Some 60% of the world’s installed base of contactless readers, he estimates, is in the U.S., though this adds up to fewer than 200,000 devices. “It’s still a tiny, tiny, network, but it’s still there,” he notes. “We have the infrastructure.”

The biggest mobile-payments market five years from now will be bill payment, with $82 billion in volume, the report says. Number two will be mobile acceptance through devices like Square and VeriFone Systems Inc.’s PAYware Mobile, at $54.8 billion. Coming in third will be mobile commerce, which the report defines as e-commerce only over a mobile phone rather than a computer. This market will total $27.3 billion. Coming in fifth, and trailing NFC payments, will be domestic person-to-person transactions, at $13.8 billion. All categories together will mushroom next year to $46 billion and rise another 76% in 2012, the report forecasts.

Banks, merchants, carriers, and others that don’t ride this wave risk being swamped by it, Bezard warns. He likens the position today of mobile payments to that of e-commerce in the mid-1990s. “It’s no longer wishful thinking,” he says. “It’s a massive shift in the market.”