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Comment: PayPal will win the mobile payments race

I originally posted a version of this piece on Forbes.com, but thought it was worthwhile to write an updated version of it here. The topic is hot. Mobile Payments has been touted as the next frontier in retail for the past couple of years. Most of the “buzz” has been around “Near Field Communications” (NFC).

As you most likely know, NFC is the technology that allows Samsung Galaxy phones to do that cute tap-and-share thing with videos that we see in TV commercials. Everyone from mobile device manufacturers to retailers have hoped and believed this would form the technology foundation for mobile payments. Visitors to last year’s CES (Consumer Electronics Show) reported hundreds of devices with embedded NFC chips. There are real reasons why the industry hopes the technology will catch on, and I’ll get into that in a minute. What the industry forgot to do was ask the consumer. In my view, as a method of payment, NFC is a non-starter. And that’s why PayPal is going to win.

Of course, we know why retailers and mobile phone providers are drooling over NFC. As usual, the answer is “Follow the money.” Wen a consumer swipes their credit card at a retail location, a digital journey begins: from the retailer, to a processing switch, to a clearinghouse, to the bank and finally back to the card provider. Every single step on that journey is facilitated by some entity, from the credit card company to the bank, and a “toll” is collected at every stop.

If the retailer (or merchant in more general terms) can disintermediate just one of the stops along the way, they get some portion of the interchange fees back. Or if someone (like a mobile phone provider) can divert it elsewhere, they reap the bounty of products sales. So we see ISIS, a consortium of mobile phone providers hoping to get a piece of the action, and Walmart-(and other large retailers) backing MCX (Merchant credit exchange) which also hopes to grab a piece of the action.

It’s essentially free money. They’re really not doing much besides passing the data along.

So that all sounds really good, right? No wonder everyone is racing to get in on the idea. There’s only one problem. No one stopped to ask the consumer if this was something he or she wanted to do. So far, the answer seems to be “not so much.”  I led a panel at the RetailROI Super Saturday event at NRF last year (don’t forget, it’s happening again this year, and it’s a must-attend event), and one of the panelists said, “If I have to reach into my pocket for something when I’m checking out, why do I care if it’s a credit card or my phone. It’s still effort on my part.” Yup. That about covers it. And it doesn’t even begin to address the security concerns of having payment in your pocket. But that is secondary to the primary subject: it’s not so desirable.

That’s why my money has always been on PayPal. I’ve used it in Home Depot, and I liked it a lot. All I had to do was enter my mobile phone number and a PIN on the register keypad, and the transaction was complete. I’d hear the reassuring ‘ding’ from my mobile phone in my handbag, and that was that. No muss, no fuss.

Now PayPal has added new feature, powered by Bluetooth called the “Beacon.” The merchant plugs the Beacon in and it’s ready to interact with the Point of Sale (POS) system. The consumer opts in (an important option) and selects the merchants he or she is willing to interact with. The consumer also is able to pick the hands-free vs. typed confirmation option. Verbal confirmation is all that’s required.

PayPal has sweetened the pot by also offering a location-based service that lets you know nearby merchants that accept this form of payment.

I see this as a winner. In fact, they had me at the Pin Pad. I don’t like exposing my credit card to too many merchants. And I can’t remember the bloody numbers anymore…so it’s so much easier for me to use PayPal and pick the credit card of my choice.

Since I originally wrote a version of this piece for Forbes, I’ve read arguments that say “Oh, multiple technologies can co-exist… this is just about giving the consumer choices.” That’s true in concept. Financially and practically speaking, I’m not sure that’s the way it’s going to play out.

So I’m going to go out on a limb here. As a method of payment, NFC is dead. Someone forgot to ask the consumer what she wanted. And it isn’t that.

This article originally appeared on the RSR Research website at http://www.rsrresearch.com and is reproduced with the organisation's kind permission.