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Mobile Wallets: Too Much of a Good Thing?

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Do you dream of a shopping experience whereby you will be able to leave your bulky wallet at home, paying for everything with your smartphone? If so, here's some not-so-great news: The consensus of opinion seems to be that mobile payment is a technology that is stuck in a rut, spinning its digital wheels while consumers largely ignore it.

I have to admit, after following the sector for several months, I'm beginning to agree that this is the case. It is amazing that an industry that is so closely tied to shopping behavior, uses the latest and greatest gadgetry of which everyone seems so fond, and even has its own marketing committee can still be met with such overwhelming apathy. It seems, from what I've read, that the purchasing public's attitude toward mobile payments can be summed up in one syllable: eh. Despite the current lack of interest, however, I think the industry will eventually come through -- not in its current format, but with one clear winner.

Lots of media coverage, yet no real adoption by end users
Scarcely a week goes by without some new announcement in this sector, whether it be a new player jumping in the pool or a new consortium or partnership sure to make mobile wallets and digital payments the next new thing that will be embraced by all. Yet inertia prevails.

The Mobile Payments Committee, formed this past summer, is charged with educating everyone and his brother about all of the wonderful benefits of mobile payments. Imbued with the hefty presences of major communication companies like T-Mobile, AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Sprint Nextel (NYSE: S  ) , as well as payment heavies MasterCard (NYSE: MA  ) , Visa (NYSE: V  ) , and Capital One (NYSE: COF  ) , it seemed a sure bet that the coalition's voice would be heard, and soon. The reality? Not a peep.

While the committee gets its ducks in a row, new initiatives are springing up. A fairly new partnership between brew-king Starbucks (Nasdaq: SBUX  ) and private e-payments company Square promises to be a real profit-sharing enterprise, while eBay's (Nasdaq: EBAY  ) PayPal unit, the reigning king of digital payments, recently entered into separate deals with Discover Financial (NYSE: DFS  ) and McDonald's (NYSE: MCD  ) .

At the same time, older projects are finally getting some traction. After several postponements, the mobile wallet project Isis -- which partners Verizon, AT&T, and T-Mobile -- seems to be ready for prime time, with its oft-announced pilot program finally scheduled for Oct. 22. 

Banks are also beginning to get into the mobile payments field. Bank of America (NYSE: BAC  ) , one of the more adventurous of the big banks when it comes to mobile, has just signed up with new e-payments company Paydiant, whose system is currently being trialed by workers on the bank's home turf in Charlotte. PNC Bank (NYSE: PNC  ) , on the other hand, has joined forces with Visa to offer a new digital wallet product.

Why is acceptance so low?
Yet only 9% of smartphone users have used an e-payment system within the past year. Lack of acceptance surely isn't due to an aversion to alternative payment systems. According to, 80% of U.S. consumers use a debit card, and 78% have at least one credit card. Similarly, Americans love their smartphones as well: A study released in July showed that nearly 55% of all mobile phone users chose a smartphone over a traditional cell phone.

That's a pretty impressive penetration rate on its own, but is even more amazing when you consider that a prior survey, conducted this past March, showed smartphone owners as 50.4% of mobile phone subscribers. So it's certainly not a lack of smartphone popularity that is holding consumers back.

So why, with all of these digital payment options flying around, won't one of them stick? Perhaps that's the problem: There are just too darn many of these offerings around, and none of them are utilitarian enough to foster widespread adoption.

A recent DailyFinance article touches on this very issue, mentioning how simple it is to pull out a debit or credit card, swipe, and be on your way. This is the popular and convenient payment method that mobile wallets strive to usurp, and the market simply hasn't come up with anything that's even a smidge better ... so far.

Given time, a victor will emerge
Is new research, which concludes that the value of transactions conducted via mobile will expand from a paltry $640 million in 2012 to $62 billion by 2016, full of beans? Are we all destined to cart around overstuffed physical wallets forever?

For the time being, the answer is probably yes -- until a sector shakeout provides a widely accepted system that is attractive and convenient to both merchants and shoppers. That is where the market should be putting the emphasis, not on trying to substitute an electronic wallet for an actual one. After all, not many of us will be tempted to leave our favorite wallet at home when we go shopping -- at least not until someone comes up with a way to load driver's license information onto a mobile wallet, too.

In time, I believe a dominant system will prevail, and the company or consortium that is behind it will prosper like crazy. After all, who would have thought, at the dawn of the Internet age, that within a generation we would be doing much of our banking, bill paying, shopping, and digital letter-writing on the web?

This is a sector well worth watching, and I think that the next few years will be critical. Adoption may be slow, but it will arrive -- and to the victor will go the spoils.

Despite its problems, B of A has many irons in the fire, many of which are of great interest to investors. To learn more about the most-talked-about bank out there, check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

Fool contributor Amanda Alix has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America, MasterCard, McDonald's, PNC Financial Services, and Starbucks and has options on Starbucks. Motley Fool newsletter services recommend eBay, McDonald's, Starbucks, AT&T, and Visa. Try any of our Foolish newsletter services free for 30 days.

We Fools don't 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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  • Report this Comment On October 23, 2012, at 11:24 AM, NobodysFool2011 wrote:

    Thinking of how fast Smartphones have become widely adopted and how fast they are evolving, one has to wonder if mobile payment systems have time before the next technology comes along and changes everything.

    You also have to realize it's taken 30+ years for consumers to get used to using credit or debit cards. Plenty of people still use cash and we've all been stuck behind the old lady at the grocery store writing a check.

    While I do see great potential in mobile payments such as somebody using Square at a trad show to process credit cards, and for people buying apps or on-device services, I just don't see it happening at the check-out counter.

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