Mobile P2P ‘Could Take off in a Hurry,’ Researcher Notes

Not only do mobile payments between individuals constitute a strong market opportunity in themselves, but they also lay the groundwork for mobile payments to merchants, according to James Van Dyke, founder and principal of Javelin Strategy & Research, which this week released a research report on the mobile person-to-person (P2P) market. “Processors and banks need to be keeping an eye on this one,” he tells Digital Transactions News. “It could take off in a hurry.” That's a message a number of non-bank companies, ranging from startups like Obopay Inc. and established payments processors like PayPal Inc., have already heeded. In the past two years, they've introduced a wide array of services allowing consumers to pay each other. Based on survey responses from nearly 2,200 consumers, Pleasanton, Calif.-based Javelin finds that 9% are likely or very likely to use their mobile phones to pay another person. More than three quarters indicate they are unlikely or very unlikely to make such payments. While these numbers might seem discouraging, Van Dyke says the positive response is depressed by security fears and consumers' tendency in surveys to be poor predictors of what technology they will adopt. Using a handset to make payments “is a significant departure from what people are doing today,” he notes. “People are only good at predicting what they won't do. People don't predict what they will do.” Moreover, mobile P2P payments fill a market need, Van Dyke argues. The technology allows consumers to buy goods from each other without checks, split dinner tabs, and pay off debts quickly and without the technical barriers that can get in the way of handset-based payments to merchants. Javelin's research found the greatest interest?16% likelihood of adoption?in the 35-44 age group. This is a segment, Van Dyke points out, that is young enough to appreciate new technology but also most likely to have the day-to-day financial need for a mobile P2P service. “It replaces cash and checks and fills a lot of everyday needs,” says Van Dyke. At the same time, the service can lead consumers to adopt mobile commerce, or payments to both physical and Web-based merchants, Van Dyke argues. Currently, handset-based contactless payment to brick-and-mortar merchants is under development in the U.S. and faces substantial hurdles, including the need to equip merchants with point-of-sale readers. Van Dyke also points out that even card-based contactless payments sometimes suffer from a factor banks and merchants often overlook: the need to properly train retail clerks. “More often than not a clerk will try to talk you out of using [a contactless card],” he observes. As for mobile payments to merchant sites, Van Dyke says these often bog down in technical difficulties, especially as consumers try to shop before they buy. “It's painful to go into a [mobile] browser, it's an awful experience,” he says. But mobile P2P–which allows a consumer to instruct a bank or processor to transfer funds from a prepaid account or via the automated clearing house to an account belonging to another person–is relatively streamlined, Van Dyke says, paving the way for near-term consumer adoption. The next likely stage, he says, is expedited bill payment, “especially if you combine it with alerts” to the mobile phone. Finally, he says, consumers then will migrate to mobile payments to merchants. The one big hitch in all this is the need to overcome consumers' security concerns. Javelin's research finds 63% of consumers reporting that better security could cause them to use their handsets to make P2P payments. Even among a segment of consumers identified as “tech savvy,” 62% report a strong fear of loss of personal information and 52% are leary of fraudulent transfers. “There are some serious consumer issues to be gotten over,” Van Dyke says. Though banks and processors have their work cut out for them to allay these fears, Van Dyke points out some irony in consumer responses. “Mobile's a pretty safe channel, particularly compared to the Internet,” he notes. “And it offers some security advantages that landline phones don't offer because it's a notification device.”