Update on the mobile payment wars (frm NRF): PayPal vs. Google Wallet vs. ISIS vs. NFC vs. ?

I’ve been following the mobile payment wars pretty closely as I believe the outcome of that battle amongst industry behemoths will have serious implications for overall online commerce.  Essentially if consumers settle on one “mobile wallet”, then it seems logical they will want to use that solution for their online purchases as well as offline.

Recently I attended the National Retailer Federation (NRF) Big Show in NY and was surprised by the amount of buzz around mobile payments.  It seemed every POS vendor was talking about it and showing demos of every kind of device being used every kind of in-store experience, including mobile payments.  Of course Google and PayPal/eBay were there in a big way as well.

Also, Howard Schultz from Starbucks (which is the largest mobile payments company right now) recently made some bold statements about Mobile Payments that fit in with our thinking on the topic:

“…the unbelievable way in which mobile payment and mobile commerce is going to change the way in which consumers buy things.”

To that end, Starbucks revealed:

  • In December, Starbucks customers loaded $500m on their prepaid cards (mobile and physical)- up 23% y/y
  • Starbucks has processed 26m mobile transactions since launch 12mo’s ago
  • 25% of customers pay with prepaid (mobile and physical)
  • Mobile is speeding up transaction times, creating shorter lines and enabling SSS growth because there are fewer lines

Clearly if mobile payments are already having this impact @Starbucks, they are set to revolutionize the way people shop on and offline.  Most people agree on that, what we don’t know is what solutions will win and which will lose.

To that end, I wanted to update everyone on the latest changes and of course offer some thoughts on where we are in the Mobile Payment Wars.  The sections of news are:

  • Google Wallet takes some steps back
  • PayPal leaps forward
  • Apple?
  • Isis is more than an Egyptian goddess
  • Analysis – We throw in our $.02!

Note: This part of the industry is full of acronyms, here are two all readers may not know:

  • POS – Point of Sale (also there’s another version of this one, but I’m talking cash registers in this post 😉
  • NFC – Near Field Communications – A technology kind of like BlueTooth that allows your phone to talk securely to a POS and transfer/receive payment info.  John Donahoe recently quipped that it stands for Not For Commerce.

Google Wallet takes a couple steps back


Google Wallet (GW) has had a couple of high profile problems since a very strong launch (we covered here) summarized here in case you didn’t see them:

  • Verizon blocked the GW System (app, etc.) from all their phones, leaving just one phone and one carrier – Sprint / Nexus that is GW compatible.  This clearly isn’t enough to get merchants excited.  Verizon cited that they will focus on ISIS and not allow any other payment system on their phones.
  • Google shuffled their executive ranks on the GW team
  • Most recently, Google announced that their head of payments, Vikas Gupta has left.

Of course Google is Google and you can’t count them out of this battle by any means, but this feels like a one-two-three punch that could put them out of the race for at least 2012.  One wild-card is they are close to closing the Motorola acquisition so now they will have both the hardware and the OS assets, but still if the carriers are blocking them, it remains to be seen how they solve that problem (acquire a carrier?)

PayPal Wallet (PW) takes several leaps forward

While PayPal did take punch to the nose when it lost CEO, Scott Thompson, to Yahoo!, the PayPal Wallet (PW) mobile solution had a bunch of great news in the last 30 days:

  • PayPal had everyone excited that a big announcement was coming and then…
  • Dec 12th, 2011 – Announced PayPal Mobile deals – This was weird as the messaging was confusing and everyone was disappointed it wasn’t a POS announcement and just seemed to be Yet Another Groupon Clone (YAGC)
  • Dec 20th, 2011 – Announced two Swedish retailers were testing PW with NFC.  Everyone was puzzled, was this the big announcement?  Huh?  Sweden?
  • January 6th – Finally PayPal revealed that they were in five HomeDepot stores (all in San Jose evidently).
  • January 19th – On their Q4 results, Donahoe revealed that he had just gotten back from HD with a hammer and tape measure he bought with only his phone and no wallet (but he does have a PayPal card in the photo – go figure)
  • Finally, Office Depot announced last week they are also piloting the program.




While at NRF, I saw the first and best simulated demonstration of the PayPal solution and captured it for you guys to see here:

As you can see there are a couple of neat features that I haven’t seen really covered anywhere:

  • Like GW, there’s clearly a PayPal Wallet ‘app’ that stores your CC, balance and loyalty cards
  • You can pay three ways:
  1. Swipe a Paypal card – this just has your paypal info on it. This is a new type of card, not a PayPal branded credit-card, but more like a Starbucks card.
  2. Enter your mobile number and secret PIN -This seems like the best bet if you want to go walletless, but other than the phone number, isn’t really ‘mobile/smartphone enabled?’
  3. NFC – If supported by phone+POS (unlikely as only one phone has NFC right now)
  • When you are done the receipt is sent to your phone and the app (PW) reflects the transaction – just like the Starbucks experience and GW demos.

If you want to try this out for real,  have to go to: http://paypal.com/anywhere and sign-up.  That link also includes a handy list of HD’s that are participating.

Coming soon? ISIS 



The big unknown in this whole space is called ISIS.  ISIS is collaboration between the big three carriers: AT+T, Verizon and T-Mobile.  It’s NFC based and details are very scarce, but it does obviously have the support of the carriers.  Here’s what we do know:

  • 100% NFC based
  • Two test cities for 2012 have been announced: SLC and Austin
  • They have a snazzy video that shows a lady paying for subway, shampoo and then self-checking out instantly. She buys a coffee too which seems to be the ‘go to demo’ for this technology.
  • Here’s a merchant data sheet with the usual things you would expect.
  • There’s an ISIS innovation forum in Austin in late Feb where perhaps we’ll learn more. It is mostly ISIS speakers and a definite lack of retailers.

History has shown mixed success with these kinds of co-opetition type efforts, so it will be interesting to see how this one plays out.

Thoughts on Mobile Payment Wars

Before diving into where we are in the Mobile Payment Wars, we have to answer the question – what about the other likely players?

Where does Apple Stand? Amazon? Facebook? Visa, MC, Amex?

Many retailers talk about the ‘big 4’ which are Amazon, Facebook, Google and Apple.  Only Google has announced plans in this space and there’s a lot of speculation that others will enter the fray:

  • Amazon – There are rumors of an Amazon smartphone, but aside from that, I suspect it will be hard for Amazon to convince offline retailers to work with them on Mobile Payments.  Most likely Amazon won’t participate in this particular battle.
  • Apple – Last year when iPhone5 rumors were swirling, NFC was mentioned as part of the new device.  Could we see an iPhone5+NFC this year?  Apple has something like 250m credit-cards on file via iTunes – that plus the device could be a compelling solution, but many think it’s not in Apple’s DNA to fight this battle. They are perhaps the only hardware manufacturer that could strong-arm the carriers (see ISIS) to allow a solution ‘through’.
  • Facebook – It’s a long shot on top of a long shot, but Facebook owns the mobile usage footprint and could leverage that in this battle.  So far, doesn’t seem likely.
  • Visa – Visa has an effort called V.me that I haven’t tracked very closely.  This is the best summary I’ve found.  Seemingly at conflict, Visa is also partnered with Google in GW, so they seem to be hedging their bets.  They also will work with ISIS.
  • MC – They are all over the place.  They have a QkR trial in Australia.  They have an investment in mFoundry for their PayPass POS and they are involved with a SD-card based system called Moneto. They also will work with ISIS.
  • Amex – They are partnering with Verizon (smart) on a service called Serve (details are scant).

Who will win the Mobile Payment Wars?  I don’t know, but there are three factors that are interesting to think about:

  • The buyer experience
  • The Merchant experience
  • Who has the most leverage?

Key Factor 1:  The buyer experience

All the fancy POS in the World won’t make consumers use the system.  It’s got to be convenient for them as well.  The Starbucks datapoint and experience proves that you can make the whole payment process more convenient for consumers and they will adopt it in large numbers.

The most convenient buyer experience in order of most to least convenient is:

  • Tap or scan – Starbucks and NFC are here.
  • Swipe – Paypal is here (+4) along with ATM
  • Phone+PIN – Entering 10+4=14 digits is a bit cumbersome, so I put it behind swiping.

So really I think to have a better experience than ATM+CC, we need the NFC capability.

Key Factor 2: The seller/merchant experience

There are two considerations for retailers:

Retailer Consideration 1: Will it drive sales?

Every retailer wants to grow so any solution that drives sales will get fast-tracked.  For mobile payments, there are several ways it can increase sales:

  • Speed consumers through checkout
  • Increase the average order value (perhaps with localized deals)
  • Allow retailers to close the loop on consumer transactions.  In this video Donahoe talks about why retailers like Paypal and mentions the data angle. He claims that Paypal gives the retailer more info – line item detail, but I find it hard to believe they don’t get that with credit cards, it’s their cash register that rang everything up, so I think that was a mis-statement.

Retailer Consideration 2: Will it lower costs?

  • Imagine you are a $60b retailer and you are paying credit card companies 2-5% of your sales – that’s a big number.  If you can knock 1% off that rate or more, it’s very big savings.  MONSTER savings.  Since Paypal has ATM, balance and CC as the funding sources, they are able to offer retailers a lower rate than credit card based on the payment mix.
  • Fewer people in checkout – Another big expense for retailers is checkout operators.  With more efficient lines, that’s less people and more savings.
  • Installing expensive hardware at POS is the opposite of lowering costs, so the savings will have to have a quick ROI to justify any investment.

This statement from Home Depot summarizes why they like the PayPal solution which they view as delivering both.

“We believe PayPal’s solution has the potential to improve the checkout experience as we know it today by making it fast, secure and more convenient for the customer while providing savings for Home Depot,” said Dwaine Kimmet, Home Depot’s treasurer and VP of financial services.

To beat PayPal’s headstart on the space, the other solutions are going to have to deliver both – something that hasn’t really been articulated well yet.

Key Factor 3: Who has the most leverage?

Finally, it’s interesting to figure out who has the most leverage in this equation.  Leverage is important, but even if you have the most leverage, you have to build an ecosystem which takes partnering vs. pure leverage.  The alternative is you go around the ‘stack’ of players as PayPal cleverly has.

  • Manufacturers – Manufacturers have very low leverage with the exception of Apple.
  • Mobile OS – Verizon kicking Google Wallet out shows that the OS is a factor and needs to connect the hardware/carrier chain, but the carrier controls the apps on the phones, sells the phones to the consumer and decides what data goes over their network.
  • Carriers – Based on what we’ve seen they seem to be the most powerful player in the ecosystem.  This is what makes ISIS an interesting potential solution, it is the only 100% carrier supported solution.
  • Payment systems – PayPal doesn’t have a lot of leverage, which has helped actually as they had to create a solution that essentially goes around the manufacturers, Mobile OSes and Carriers going direct to retailers and consumers.
  • Credit Card Cos – The credit card companies haven’t flexed their muscles yet, but you can be sure they do not like the Paypal wallet one bit.  They’ve been disintermated online and certainly don’t want to see that happen to the other 90% of retail sales.
  • Retailers – Retailers control the last mile – if they decide for whatever reason they don’t want a certain solution, they can keep it from ever seeing the light of day.  When you think about retailers that can really sway this war, the first one that comes to mind is Walmart.  In fact, if you were Walmart, this is an opportunity to possibly build your own solution.
  • Consumers – Consumers will literally vote with their wallet and as mentioned before, all the cool tech in the World won’t matter a hill of beans if consumers don’t use it – it has to be convenient and add value.
  • POS companies – Finally, none of this will work if the cash register companies don’t participate, but they have little leverage in the equation and will do whatever retailers need/ask for.

From a leverage standpoint, the carriers are the king of the hill and we’ll have to see what happens when the credit card companies flex their muscles, if they do.  Finally with all the complexity, a solution that is a) available now and b) doesn’t require a 10-party system may actually end up winning this thing.

Mobile Payment Wars Cheat Sheet

There are a lot of players with a lot of different solutions and realizing that it can be confusing, we created this handy cheat sheet so you can see at a glance what’s going on in this war.


Looking at this chart and thinking through the consumer, merchant and leverage points, it looks like we have three horse race between PayPal, Google and ISIS (distant third).  But it’s still early days, so while PayPal has won some battles, the war is far from decided.

Conclusions: Who do you think will win?

What do you think – will Apple swing this thing or what about Wal-Mart?  Could the CC companies finally be on their way to being cut out of their fees, or will they have the leverage?

SeekingAlpha Disclosure – I am long Amazon and