Billions Are At Stake with Mobile Payments

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Imagine for a moment the convenience of having a cell phone that acts like an all-in-one device.  Kind of like a tech-savvy Swiss Army Knife.  If Google (NASDAQ: GOOG) has its way, you won’t need to take anything from your home except your smartphone.  Your music, contacts, social media, and even money – everything but our car keys – will be accessible with a few touches of the fingertip.

Google built Google Wallet to allow smartphone users to pay anywhere, anytime with their smartphone. The process is simple. Using NFC – near field communication, the process whereby two devices can exchange information – Google Wallet permits users to pay for goods by punching a few buttons and swiping their phone.  No cash or credit card needed.  And the best part?  Thieves would have to crack your phone’s password to gain access.

Card companies MasterCard (NYSE: MA), Visa (NYSE: V), and American Express love the idea because it will increase their revenues.  Mobile payments permit customers to load their credit card, such as a MasterCard, Visa, or American Express, onto the phone and then pay using the card.  Every time the phone is swiped, the card company extracts a fee from the vendor.  Customers who find it easier to swipe their phone than to pay with cash will earn fees for the credit card company every time they do so.  

In particular, major credit card companies see mobile payments as an opportunity to spur consumers to slide their plastic cards more often – but without actually having to slide it.  The result is higher revenues and profits for the card companies, because consumers will choose the convenience of paying with their smart phones (and thus their credit cards) instead of cash.

The card companies also have an interest in mobile payments because they are safer.  Cards will be harder to steal, thieves will have to beef-up techniques to steal numbers, as they can no longer place a coding strip in the credit card slots.  Of course theft will evolve, likely to the point where thieves use NFC to steal data, but in the short run it looks to be safer.

Mobile’s Biggest Supporters

Sprint (NYSE: S), the third-largest mobile carrier by customers, has a small array of phones that support NFC communication, a must for mobile payment systems like Google Wallet.  In this regard, Sprint is ahead of the market.  If the mobile market takes off and Sprint phones sell quickly, investors long Sprint may be among the first to profit.

Sprint is one of the only providers that has phones with the updated mobile wallet feature.  However, there is a major downside.  No one really cares.  If you believe that the mobile payment space is bound to boom, Sprint is a good investment choice.  In the short-term, however, the mobile payment space is stagnant.

Mobile paying has yet to gain traction, but that could change with Nokia’s (NYSE: NOK) new Lumia phones.  Nokia’s Lumia 920 and 820 smart phones both come equipped with NFC, a feature that even Apple’s new iPhone 5 does not have.  Like Sprint, Nokia is another logical company for investors to park money if they believe that mobile payments will spike.  Should users flock to mobile payments, they will likely eye a Nokia phone for their next purchase.  But again, the short-term prospects look unlikely.

Both investors and phone users have kept their eyes on Nokia's new products for months, and Nokia has an opportunity to push mobile payments using its NFC feature.  Surprisingly, the near-term success of mobile payments rests on the shaky shoulders of a recovering phone maker.

Major Millions

Technology companies, banks, and merchants have put up billions to craft the infrastructure for mobile payments, and they are intent on helping the nascent industry to its feet.  Of course Google is a forerunner, but major network providers are also on board.

AT&T, T-Mobile, Verizon, and Vodafone teamed for a joint venture, called Isis, which planned to test its mobile payment service in Austin, Texas.  However, the project is currently on pause.  Also, hundreds of millions have been showered on start-up companies who are developing payment systems that use NFC technology, as well as QR-code readers or text messages. 

To sum up, the industry is very small, but the investment dollars are very big – meaning that once all the phone makers are on board, the payment system could explode.

In all, mobile payment systems would be a positive for consumers, credit card companies, and even merchants; who would likely see an influx of impulse purchases.  Smart phone users can already stream music, watch videos, and surf the web.  To make the device truly all-in-one, it lacks only two things: digital car keys and mobile payments.

And I’m betting that mobile payments take off first.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and MasterCard. Motley Fool newsletter services recommend Google and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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