Is the Digital Wallet Going Analog?
Demitri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The wallet's days are numbered, thanks to the coming boom in mobile payments.
Scrambling to get established in what promises to become a large global business in the next few years, a diverse group of competitors - from mobile phone producers to credit card companies to tech giants - are all jockeying for position as this new payment channel begins to take off.
Predictably, the major tech competitors have focused on technology as the key to taking mobile payments into the mass market. Central to that strategy is a technology called near field communication which involves a secure chip, installed in mobile phones, that can safely store and transmit payment credentials from any mobile device, allowing users to make payments by bumping their phone on special recievers.
But while many in the industry, particularly Google (NASDAQ: GOOG), struggle to get the technology just right, eBay's (NASDAQ: EBAY) PayPal service may just win the day with one of the lowest-tech solutions of all: the number keypad.
The Tri-Fold Deluxe Model
Less than a year ago, Google was beside itself about the potential for mobile payments using phones, probably because the wallet passes CEO Larry Page's "toothbrush" test: it is used by millions of people at least once a day.
At the D9 technology conference last June, company executives talked up their digital solution, Google Wallet, aimed at capturing a big piece of the 80-90 percent of commerce that is still done locally.
The rush to create the standard digital wallet was on, joined also by Visa (NYSE: V) with its V.me service. In the mix, too, are wireless providers AT&T (NYSE: T) and Verizon (NYSE: VZ), with their own mobile payments venture called ISIS. Google's offering, because it includes payment and local promotions, is the most ambitious of the bunch.
About that massive number of in-store transactions that could be tied to local advertising, offers, and search, Google executives said "we're assuming its going to the mobile phone."
But it hasn't gone exactly to Google's plan. Credit card companies have been slow to partner with the service, leaving Google Wallet with a sparse selection of cards. AT&T and Verizon have committed to their own solutions too, leaving the Google service shackled to just a few Android based Sprint phones. Finally, merchants have been slow to adopt the point-of-sale upgrades needed for processing payments at their end.
In short, the Google wallet has had a tough year, to the point that it hardly warranted a mention in the company's most recent earnings call.
The Money Clip
But at least one competitor was more than happy to discuss mobile payments this past quarter: eBay. The company's PayPal service, with an installed base of over 100 million users at the start, introduced two innovations early this year that it hopes will expand its already successful payment service to the offline world.
First, the company released its mobile point-of-sale solution to small businesses. As an attachment that turns any Android or Apple iPhone into a mobile cash register, the card reader accepts all types of payment options and has received an initial response from merchants that the company called "fantastic."
The PayPal service also began rolling out its first retailer based point-of-sale product to Home Depot locations nationally, allowing customers to shop "without their wallets, credit cards or even their mobile phones" by simply keying in their phone number and their PayPal PIN. Critically, the product works with keypads that are already in the store, so there's no need for expensive retailer upgrades.
Brushing off complaints about potential security issues, eBay has been encouraged by the results so far, and plans a major push to promote the service starting next month, with more retailers in the pipeline for next year.
Overall, CEO John Donahoe described the team as "very excited about the off-line opportunity for PayPal," with the potiential to "expand PayPal's served market from a $500 million market to a $10 trillion market."
The mobile payments business is a burgeoning industry with large, global market potential - and competition over it will be fierce in the coming years.
For my money, forget sophisticated radio-frequency technologies, encrypted microchips, and new receivers. The smart cyber-cash is on eBay, the company that's been most successful at stripping technology out of the digital wallet.
Demitri writes about stocks and investing at his blog, Sigma Swan.
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