Mention mobile commerce in North America, and the common response is a roll of the eyes. It’s not hard to guess why. Back in the heady days of the Internet dot-com bubble, mobile commerce was one of the many buzz words connected with e-commerce whose promise failed to materialize because the hype was premature. Today’s landscape is much different. Several trends are helping to drive momentum for consumer purchases over mobile phones. They include the growth in mobile data services, advances in handsets and operator networks, consumer acceptance of the Internet as a purchasing and payment vehicle, and growing consumer interest in mobile banking.
Discussions of mobile purchases often blur the lines between various types of mobile payment. It is important to take a step back and define mobile commerce if the discussion is to be valid. TowerGroup views mobile commerce as spanning three distinct categories:
Handset-based mobile content purchases (e.g., ringtones, games, music for use on the handset itself).
Purchases of goods and services via the mobile phone browser (e.g., buying a book on Amazon.com).
Purchases completed by near field communication (e.g., micropayments for purchase of newspapers, gum, or other small items by swiping a phone over a point-of-sale terminal at a news kiosk or convenience store).
On-device purchase for on-device use
Content is king in the mobile commerce world and dominates the vast majority of spending via mobile phones. In 2008, 90% of purchases made on the handset will be for content and services to be utilized on the handset itself, and TowerGroup believes the majority of spending will continue to be in this category in the coming years. Handset-based mobile content purchasing is the only category within the mobile purchasing and commerce space that has successfully crossed the chasm of consumer adoption.
With mobile purchases still limited largely to content for the handset, it is therefore premature to say that mobile commerce is mainstream. Rather, it is still very much an emerging service. Some early adopters are using their mobile devices to make purchases, but the volume of commerce is limited in terms of the number of users and in the number of transactions. Progress on the mobile commerce front is evident: Online merchants are working to create WAP versions of their Web sites so they can extend their online presence to the wireless world. They are also working to make the purchasing process easier for consumers by allowing users to store payment information on their Web sites, and they are using mobile advertising to drive traffic.
NFC support lacking
One of the most exciting aspects of mobile commerce involves enabling consumers to use a handset to purchase goods at the physical point of sale. While commerce utilizing NFC in this manner holds great potential and trials continue globally, the underdeveloped ecosystem supporting NFC payments will prevent real uptake in this space in 2008 in the U.S. market. Expansion of this market space will require proliferation of merchant points of sale equipped with NFC payment terminals, broad-based operator support, and widespread consumer adoption of NFC-equipped devices once the other prerequisites are in place.
The end goal of mobile commerce, regardless of stakeholder, is to drive revenue by increasing consumer convenience. In the case of mobile content downloads, the clear winners are operators and content developers. For mobile commerce and point-of-sale transactions at merchant locations, the merchants will derive the benefits of increased sales and convenience resulting from consumers’ conversion from cash to electronic payments for small payments and micropayments (generally defined as $5.00 or less). Credit card associations and electronic payments processors will also benefit from the increased transaction volume.
This year will no doubt bring continued growth in mobile content and services, an increase in purchases made via mobile devices, and further evolution of the mobile payments and purchasing ecosystem and value chain worldwide. Furthermore, key players in the traditional payments and Internet payments space, as well as online retailers will invest in, initiate, and nurture mobile payments strategies. Developments related to NFC are perhaps the murkiest and most difficult to foresee. Few, if any, NFC devices will be in the hands of U.S. consumers by year end, but trials and tests will continue throughout 2008 and into 2009. To be sure, we are only on the cusp of developing the full potential of mobile commerce.
This article is based on research by the Emerging Technologies Service at TowerGroup, a leading research and advisory services firm focused exclusively on the global financial services industry. Analyst Charul Vyas can be reached at cvyas@towergroup.com.
