And the Winner of the Mobile Payment Wars Is...
Tom is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
…no one, yet. Mobile payment technology, despite its relative immaturity, has already proven to be one of the first practical smartphone functions for consumers and retailers of varying sizes alike. However, even with the quantity and the individual strength of the players looking to push into the mobile payment space, there has yet to be the emergence of a clear industry technology standard or a leading service provider.
Paypal’s (owned by eBay (NASDAQ: EBAY)) recent mobile payment news update does show that the corporation is making very meaningful strides forward with its current capabilities. The e-payment provider, with 110 million worldwide consumers, has recently announced two key updates:
- Partnership with VeriFone (NYSE: PAY)
Point-of-sale (POS) equipment manufacturer VeriFone’s customer base encompasses 80% of the top 200 largest retailers in the United States. The agreement between the two corporations will provide PayPal access to over 1 million high volume POS terminals through multiple checkout methods. The 110+ million PayPal consumers (and counting) can log into their accounts to pay for items or use PayPal Access cards (think pre-paid debit card that links to PayPal accounts). Likewise, the relationship will have the option to venture into other payment technologies including near-field communications (NFC) as the payment method becomes more prevalent in the marketplace.
- New Retailer Partners:
Part of the reason why it has been relatively slow going for PayPal in the mobile payment market thus far is its chicken/egg quandary. The corporation needs the buy-in from smartphone users and large retailing partners, and the capturing of one party relies on the simultaneous capturing of the other. Without a wide base of consumers using their mobile payment options, larger retailing partners are unlikely to get extremely excited about the PayPal service, and vice versa. The corporation did recently announce a rather meaningful expansion with sixteen new retailing partners. The standouts among the list include larger merchandise pushers like:
Apparel: Abercrombie and Fitch, Aeropostale, American Eagle, Foot Locker, JC Penney
Consumer Goods: Barnes and Noble, Rooms to Go, Toys ‘R’ Us, Office Depot, Jamba Juice
PayPal has intentions of having partnerships with twenty large retailers by the end of 2012, and seems to be making baby steps in terms of solving the (thus far) problematic chicken/egg hurdle. In addition to the updates highlighted above, the corporation has also partnered with four software providers that can provide access to up to 50,000 small and medium sized domestic merchants. Despite the seemingly huge splash into the mobile payment space, however, PayPal is simply playing catch-up with Google (NASDAQ: GOOG) thus far.
The sixteen large retailing partners with which PayPal has recently teamed collectively operate around 16,000 stores worldwide. Even with the potential addition of up to 50,000 small and medium sized retailers, PayPal’s total POS footprint is but a fraction of Google’s current 140,000 tally.
Google’s mobile payment venture is not without serious limitations, however. The Google Wallet program is a huge bet on the widespread acceptance of NFC technology, which is still a very small component of the total mobile payment pie. Although the speed of acceptance is rapidly growing – 80 million smartphones in 2012 will contain the technology, up from 35 million in 2011 – it represents a fraction of the 630+ million smartphones that are expected to be sold this year.
Similarly, larger carriers have blocked Google’s ability to experience a meaningful push forward. The corporation currently has a buy-in from the nation’s third largest carrier in Sprint, but a mobile payment joint venture between Verizon (NYSE: VZ), AT&T (NYSE: T), and T-Mobile have made the larger carriers block the Google app from a large majority of the smartphones sold today.
This scenario highlights some of the biggest problems in the mobile payment industry today – too many players are looking to achieve the same basic end goal and there is not enough incentive for one party to “play nice” with the competition because of the lack of a firm industry technology standard. Likewise, smaller, niche-filling competition is rapidly closing up the small/medium sized merchant end of the spectrum. The much smaller competitor in Square, for instance, recently announced last month that it hit an annualized $5 billion in mobile payment volume, up from $4 billion in March and $2 billion in October 2011. The level of growth is amazing considering the much larger (and better funded) PayPal is only expected to do around $7 billion in mobile payment volume this year.
What does all of this imply for PayPal? The division of eBay may have recently announced several important news tidbits regarding its mobile payment growth, yet when looking at the big picture, it is hardly going to generate a disproportionately large profit anytime soon. At a projected $7 billion in mobile payment volume expected for 2012, PayPal will rake in less than $200 million on its top line – peanuts compared to average analyst estimates for $16+ billion in eBay revenues this year. A comparable story will also hold true for the other players looking to make a buck in the mobile payment space for the foreseeable future as “progress points” are continued to be distributed evenly among the corporations.
gibbstom13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and VeriFone Holdings. Motley Fool newsletter services recommend eBay and Google. 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.