After years of choppy waters, the mobile payments tsunami has arrived. It's all hands on deck for mobile phone providers, payment processors, tech heavyweights, and even megaretailers. Most people can agree that the trend holds huge potential, but few can agree who'll benefit most.
Let's take a closer look at the opportunity, who might prove to be the winners and losers, and, more important, how a savvy investor can play this revolution.
A $600 billion market
Over half of adult cell phone owners use their devices while at a store for help with purchasing decisions. And, according to a study from Deloitte, "Regardless of where they use their phones, people who use their smartphones as a shopping aid are more likely to make a purchase than those who do not."
The key for the mobile payments industry is converting consumers from using smartphones as search devices to using them as their means of payment. Nevertheless, the worldwide mobile payments industry is expected to top $600 billion by 2016 (compared to $172 billion this year). That's a lot of virtual swipes of plastic.
How it works
Near-field communications technology uses contactless radio communication that allows you to wave your smartphone in front of a scanner within certain proximity. In its simplest form, NFC acts as a bar code reader. In more complex and integrated forms, it holds the potential to become a personal finance management system, making life more convenient for willing consumers.
Mobile wallet heavyweights
Consumers aren't the only ones who'll potentially benefit. If allowed, payment processors and merchants will gain access to greater mindshare and wallet share of customers. One way an investor can play this trend is to invest in companies with their fingers already firmly in the mobile payment pie, like Google
Another way to seize this opportunity is by investing in megaretailers. Fifteen major retailers with $1 trillion in annual sales among them -- including Wal-Mart, Target, and Best Buy
Think this'll hurt payment processors MasterCard
Setting standards on many fronts, Apple
How the big bet might not pan out
I see some hurdles facing the mobile payments industry. First, a lack of uniformity may create so much confusion among potential users that they simply don't adopt the use of mobile payments at all. Second, the lofty adoption rates are questionable. And third, people may not be comfortable housing financial information on their phones. Of course, people already carry that very information on them; it's just in their wallets, not their (hopefully password-protected) smartphones. Adoption won't be successful until consumers try mobile payments, find that the advantages outweigh the disadvantages, and feel the platforms are secure enough.
Foolish bottom line
While there are many ways to approach the mobile payments revolution, I believe the players that'll rule victorious are the ones that integrate multiple functionalities in a universal, uniform, and easy-to-understand way.
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