Digital Wallet War Heats Up Again
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As with SIM cards cards, the future of the new digital wallet industry may hang on decisions made in Europe. The decision revolves around the so-called Project Oscar in the United Kingdom. This is a proposed mobile payments system put together by Britain's leading mobile phone operators – Vodafone PLC ADR (NASDAQ: VOD), O2 owned by Spain's Telefonica S.A. ADR (NYSE: TEF) and Everything Everywhere, the merged UK business of Deutsche Telekom and France Telecom.
Warnings about Project Oscar to European Commission regulators in Brussels have been sounded by two US companies, Google (NASDAQ: GOOG) and eBay (NASDAQ: EBAY), which owns PayPal. Both companies, of course, have a lot to lose in the fast-developing mobile payments market if the new system proposed by the European telecom companies becomes the dominant system throughout Europe. The telecom companies have a lot at stake too since they see this sector as the most promising area in their hunt for streams of revenue.
The worry for Google and PayPal is that Project Oscar may make a reality that the payments chip could be built into mobile SIM cards. This would ensure that the mobile operators like Vodafone would have full control over the digital wallet, raising at least the possibility that Google and PayPal would be cut out completely.
Even if the payment chip was built into the phone itself instead of the SIM card, there is a problem for the American companies. A quarter of the mobile phones in the UK are being subsidized by the partners in Project Oscar, meaning that on those phones Google and PayPal could still be shut out if the telecom operators refuse to sell or subsidize those phones.
Paypal may have the most to lose if Project Oscar comes to fruition. It would like to be seen as the leader in the industry as it moves to “define the future of money.” CEO John Donahoe recently said, “PayPal mobile payment volumes continue to be on fire.” A rapidly growing part of PayPal's $1.3 billion in revenues is coming from two areas – overseas markets and through many of its recently-launched mobile payment initiatives.
This tussle is just the latest as players jockey for position in a very profitable market. According to Juniper Research, the global mobile payments sector had already grown to a $240 billion market in 2011 and is forecast to at least triple in size over the next five years. A key part of that global market will be Europe.
Google is launching their Google Wallet service in Europe in the first half of this year in the race to become the most commonly used digital payment method for consumers. Google has said that it has actually been easier to find companies in Europe willing to partner with them on the Google Wallet than it has been in the United States. So it obviously does not want to be behind the eight ball in a key European market like Great Britain.
PayPal spoke for all parties looking to break into the European mobile payment sector when it said “We believe that consumers should be able to choose from a wide range of payment methods [in Europe].” For their part, the European telecom companies stated that Project Oscar “will make it easy for companies of all sizes to create brand-new services that will sit in the mobile wallet.” It remains to be seen who the European Commission sides with and what the decision on the matter will be.
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