The Mobile Payment Market is the Next Frontier

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

Last Thursday, eBay’s (NASDAQ: EBAY) PayPal unit made waves, announcing another move designed to escape the confines of being just an internet payment service. The company will release a credit-card reader that plugs into smart phones, similar to the device offered by popular San Francisco-based startup Square. Square, led by Jack Dorsey of Twitter fame, has quickly become the darling of mobile payment, processing more than $2 billion last year and on track to double that in the next year. Square has even captured the attention of presidential campaigns, with both the Obama and Romney campaigns using its platform to process donations.

Despite the hype surrounding mobile payments, there has been little talk of Intuit’s (NASDAQ: INTU) GoPayment app and dongle, even though they’ve been on the market for the last two years. It’s a shame, because Intuit has something to offer that its competitors do not: a financial management pedigree. The company offers all manner of products tailored for business use, including its QuickBooks software, which is a hit with small businesses, the natural target for all three platforms. Intuit’s platform works seamlessly with its other products, which should give it an advantage with its software base.

Not to be outdone by Square’s success with presidential campaigns, Intuit has also released an update to their app, allowing it to process credit card donations while taking the legally required donor information. Though it sounds minor, the fact that it allows the current app to collect donations sets it apart from its peers; Square actually had to design a new app for use with President Obama’s campaign.

PayPal’s service, named Here, is a direct competitor to both platforms, but comes with the added bonus of processing checks. Square’s service currently doesn’t, which gives PayPal another edge, the first being its dominance of the internet payment landscape. While the prominence of its internet brand is a strength, the company is looking to capture a piece of the 93% of U.S. retail that occurs offline. PayPal is quickly becoming eBay’s most important unit, contributing 38% of the company’s total revenue for 2011; Here should help PayPal contribute even more.

This comes on the heels of PayPal’s other venture into the physical world, a service that allows customers to purchase products in store without cash or a credit-card. The service was tested in multiple Home Depot (NYSE: HD) locations and performed well enough that the company is currently in the process of rolling it out to Home Depot stores nationwide and intends to add 20 additional retailers by the end of the year.

Though Intuit, PayPal, and Square are likely the best known in the space, there is plenty of competition, including Bancard’s Pay Anywhere, which launched last year. This week Pay Anywhere dropped its rate, initiating a price war with its better known competitors. The company originally charged 2.69% and a $0.19 flat fee, but dropped the flat fee in a nod to the ongoing evolution of the market. The change makes Pay Anywhere the cheapest credit card reader platform, with PayPal and Intuit tied at 2.7% and Square the most expensive at 2.75%. Even if the price war determines a clear winner, I suspect it will be a short-term victory, as other companies are lining up to replace cash and card-based payment all together.

As I mentioned earlier, eBay already has a horse in the race, but is joined by the likes of Google (NASDAQ: GOOG), Visa (NYSE: V), and MasterCard (NYSE: MA). Google’s solution, Google Wallet, has already begun showing up, though technology isn’t currently in place for widespread adoption. Google has experienced some security issues and has also had trouble getting carriers to support the effort. Carrier support is essential, particularly since Google Wallet relies on smartphones as a vehicle for the app. An un-supportive carrier cripples the service, like in the case of Verizon, which disabled it on its network. It appears Google has realized as much with Bloomberg reporting the company is considering sharing revenue to spur adoption or, perhaps, just to permit its use. Sharing revenue might be the kick needed to jumpstart widespread adoption.

Visa and MasterCard are both tackling the issue more directly, partnering with carriers from the onset for their mobile payment networks. Thanks to its partnership with Vodafone PLC, Visa’s mobile payment network is available to 398 million customers across five continents. MasterCard’s joint venture with Telefoncia S.A., named Wanda, is designed to operate in 12 Latin American markets providing mobile payment solutions.

Regardless of the various implementations, one thing is clear: The mobile payment market is hotly contested and will become more so. Fees aren’t the only thing at stake; payment networks gather enormous amounts of data, which in some respects is much more valuable than the fees. While the dongle based applications are capturing the market’s imagination now, I’d look to the applications that are further off. Whichever company manages to achieve significant adoption stands to gain enormously.


Motley Fool newsletter services recommend eBay, Google, The Home Depot, Visa and Vodafone Group Plc (ADR). The Motley Fool owns shares of Google and MasterCard. TigerAnalyst owns shares of 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.

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