Microsoft’s Payments Gambit Baffles Some, But Others See Hidden Potential

Microsoft Corp. may bring impressive technical chops as it enters the mobile-payments race, but if ever there were a David up against Goliaths, it’s now the Redmond, Wash.-based computing giant.

News broke last week that Microsoft has used a company called Microsoft Payments Inc. to apply for money-transmission licenses with all 50 states and with the U.S. Treasury Department’s Financial Crimes Enforcement Network. Payment capability, according to industry speculation, is most likely to launch with the introduction of the Windows 10 operating system later this year.

But even the broadest outlines of the company’s plans remain unclear, and a Microsoft spokesperson is unwilling to bring them into focus just yet. “As a mobile-first, cloud-first company, Microsoft continues to evolve our offerings to meet the needs of both our commercial customers and consumers.,” the spokesperson said in a statement emailed to Digital Transactions News. “Becoming a money-service business gives us the flexibility to provide new, innovative cloud services to our customers, but we do not have any product announcements at this time.”

What is clear is that Microsoft may be playing a weak hand against formidable competition that includes West Coast rivals Apple Inc., PayPal Inc., and Google Inc., as well as an expected service from the merchant-controlled Merchant Customer Exchange consortium.

Apple Inc.’s Apple Pay service has been in the market since October with an established lineup of supporting issuers, merchants, and processors. Google’s Wallet product has struggled but the online search giant recently acquired the technology assets of the carrier-controlled Softcard mobile-wallet venture. And PayPal is preparing to roll out near-field communication capability with its new wallet app.

Meanwhile, Microsoft has been unable to attract significant share for phones using its mobile operating system. The company’s mobile operating system accounted for 3.6% of mobile subscribers in January, compared to 53.2% for Google’s Android and 41.3% for Apple’s iOS, according to comScore.

As a result, the company’s apparent move to enter mobile payments bewilders some observers. “The penetration of Windows devices is so low globally, it baffles me,” says Nick Holland, a senior analyst who follows mobile payments at Javelin Strategy & Research. “The only possible opportunity is if people miraculously start paying with Surface tablets.”

But other observers see some openings for Microsoft. “They’re late to the mobile game, but better late than never,” says David Bozin, vice president of growth development at Bindo, a New York City-based provider of mobile point-of-sale payment systems. Even with a small market share, Microsoft is “still looking at millions and millions of transactions,” he says.

Bozin figures Microsoft has been planning this move for quite some time, going back well before Apple introduced its popular Apple Pay wallet. “They would have done it any way, but Apple Pay was a kick in the butt.”

And that small share may not matter as much as some think. Following a strategy it has used in other markets, Microsoft may be developing a payments app that can run on competing mobile platforms, says Tim Sloane, an analyst at Mercator Advisory Group, including the open-source Android system. “Payments can be an application that can be ported across Android,” he notes, as, for example, the company’s PowerPoint slide-making software runs on competing operating systems.

With voices in Redmond mum for now, the payments industry will likely have to wait and see how this latest entry plays out. But one thing is already working in Microsoft’s favor, says Bindo’s Bozin: Services like Apple Pay are building out an acceptance network that can only benefit newer players.

“Does Whole Foods want to turn away any payments platform?” he asks.