There are a growing number of business parallels between the advent of mobile commerce and the development of IP-based voice services in the telecom business. Highly-successful mobile money systems will demonstrate clear value, for both consumers and retailers, it is clear. That also was true for VoIP.
What already seems quite clear is that simply adding a new form of payment, namely the ability to link a credit or debit card account to a mobile phone, and then swipe the phone to make a retail payment, has limited incremental value, in most cases. Many would say that was true of early PC-only VoIP, as well.
PayPal’s (News - Alert) approach to mobile payments and mobile wallet therefore hinges on changing the payment experience in other ways. Sound familiar? VoIP proponents long argued that it was not the lower prices or “free calling,” but the different user experience that mattered. In the payments business, there is a wrinkle, though. Retailers care about the cost of transactions; end users generally do not.
In other words, the “customer” for any mobile commerce platform is partly the retailer or merchant, and only partly the end user. And the value to be supplied is different. Retailers want lower transaction costs. End users will care about other new features, since they don't directly pay for the transaction costs.
Where VoIP had to offer a new experience and price changes for the end user only, mobile commerce has to offer price advantages only for retailers. But the better user experience will be crucial to get end users to adopt the new platforms. In that sense, re-imagining the use of money in a mobile payments context is a “two-sided” effort where VoIP only had to change experience for end users. For that reason, it will be more complicated to change money than VoIP, one might well argue.
Among the more interesting approaches PayPal is taking is the separation of transaction from payment method.
If you have experience with the impact of the open systems interconnect model on telecom business models, namely the separation of formerly-bundled “access” and “application,” you might understand what could be possible if retail transactions and payment methods become unbundled from each other.
The most-obvious change is a shift of revenue to “over the top” players able to support transactions that clear the same way as a cash, check or debit card payment might, from the retailer perspective, but might be quite different as a payments function.
For example, if a consumer wanted to use airline miles, in part, and a coupon or gift card, in part, PayPal would create ways for consumers to do that. The retailer would still receive the “cash,” but PayPal might handle all the account management details needed to convert miles into cash.
Many consumers have virtual “funds” used to buy groceries and pay bills. PayPal could enable users to “debit” specific accounts when shopping.
In other cases, when making a major purchase, a consumer might prefer to pay in installments, but not use a credit instrument. PayPal will enable installment payments. The merchant is paid up front, but PayPal will essentially become the banker, allowing the user to pay over time.
There are other features related to shopping that will become part of the PayPal wallet, such as integrating shopping lists, searching for items and comparing prices. Take it a step further and then imagine an automated way to connect a list with location with availability, prices and then available time on your schedule.
“PayPal is not about replacing a card swipe with a phone tap at point of sale. We are reimagining money to free it in its digital form,” says Sam Shrauger, PayPal VP.
Many of the features will start to appear in in May 2012.
Edited by Jennifer Russell
