"If you build it, who will care?"
That pretty much sums up the last few years in the mobile payments space, as banks scrambled to remain relevant and mobile carriers tried to grab a piece of the pie. So began the mobile wallet revolution – the answer to the question nobody asked.
The Big Kahuna of the mega-wallets – or at east the poster child for wasted effort – is Isis, the mutli-vendor project with a fat budget and a roster of tier 1 backers, including Chase, Wells Fargo, and three of the Big Four carriers. Isis is adding users, and brands we know are seeing a trickle of transactions, but at its core, the program is not creating much new value.
The problem is that Isis and its kin aren't offering anything particularly new. Users are comfortable with swipe cards, which, thanks to Square, work just about anywhere. In theory, a mobile wallet is more secure than a magnetic stripe card, but even in a post-Target world, security isn't a big customer concern. Plus, the banks' own move to EMV cards over the next few years should address most card-present fraud issues. So while massive incentives might boost short-term adoption, the long-term picture is pretty gray. Your swipe card works everywhere, every time. Isis doesn't – and if you're on Sprint or an iPhone (unless you want to a buy a special case), you're not even invited to the game.
As independents like Loop and Coin have shown us, there's some incremental value to be squeezed out of streamlining the existing payment process. Still, while reducing the number of cards in your pocket is helpful, it's not exactly a disruptive transformation.
So who's going to bring us the next round of knock-your-socks-off innovation? In her recent Sector RoadMap: the U.S. mobile payment market in 2014 report, Kristina Yee identified five companies poised to shake up the market in the next 24 months. Not a single bank or carrier made the cut.
Three of the five are names you know. From its iBeacons to its wireless payment patents to the announcement of support for 3rd-party iTouch developers, Apple has the pieces it needs to build a mobile payments ecosystem. Sure, the payments would probably settle through a bank, like most iTunes purchases, but they wouldn't have to. Facebook has the country's largest captive mobile audience, experience in quasi-currencies, and now, with the hiring of former PayPal President David Marcus, a payment heavy in charge. And Microsoft, for all its lumbering, has a compelling cross-platform story, a mobile OS, and an army of young, mobile-friendly Xbox users who love impulse buys.
The last two are the most interesting for the industry as a whole. Cardis attacks a very real problem – microtransactions – in a way that can offer merchants of low-priced goods tangible value and lower transaction fees. And as Yee points out, Cardis is "able to operate outside of MasterCard's or Visa's networks, an advantage that provides the company with significant flexibility for hedging its bets in the future." The final disruptor, Bitpay, provides a settlement bridge between traditional and alternative currencies, which – love them or hate them – are here to stay.
And that brings us back to Isis. If the banks and carriers want to remain relevant, they need to create something fundamentally new. Instead of trying to migrate existing merchants and card users to a new platform, why not provide new services to new users? Look to what Safaricom has done with the M-pesa in Kenya, where it accounts for a third of the country's GNP, and serves as a model for mobile money services for the unbanked. What can North American providers learn from that?
I'm not suggesting that Wells Fargo and Verizon form a Bitcoin exchange, and banking as we know it will be here for some time, but the carriers and banks need to look beyond swipe card 2.0. There's an enormous market of cash-based services for the unbanked and underbanked in the United States, and if they don't back the winning mobile solution, Walmart, Western Union, someone else will.