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April 6, 2015

Mobile payments must solve fragmentation to succeed

Analysis: Pyramid Research report recommends consolidation.

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With the smartphone likely to ensure that one day every human on the planet has a palm-size computer in their back pocket, the financial industry is increasingly looking to banish hard currency and even credit cards in favour of mobile payments.

Last year the entrance of Apple into the mobile payments marketplace brought the trend into the mainstream. Yet a report from Pyramid Research has revealed that the stampede towards the potentially lucrative market is leading to the kind of fracturing common to many facets of IT.

"One of the key challenges presently facing the mobile payments market is the high level of market fragmentation, defined both by the multiplicity of platforms/solutions technologies being deployed and by the increasing range of service configurations being offered," wrote Ozgur Aytar, research director and author of the report.

The effect of this, she argues, is to slow acceptance from merchants and make it more difficult for providers to gain scale. Such an issue is compounded by the immaturity of the sector, with security suspicions driving consumer reluctance to take up the technology.

Despite this there are signs that people are starting to experiment with mobile payments. A global survey conducted by Pyramid showed that just over half of financial executives worldwide have used mobile payments in some form, a trend led by Asia-Pacific in which 58% have done so.

Further data from the survey does however show that this use is limited. For 79% of respondents mobile payments accounted for less than a quarter of their total purchases, with almost half using the technology less than 10% of the time.

It is not all despair for the industry, however. Fragmentation is a familiar problem in technology, the industry often drawing in an excess of start-ups and established players whenever a new trend emerges. As such technology has two off-the-rack solutions: negotiate standards or consolidate the market.

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Payment processing firms like MasterCard are already looking to implement standards in mobile payments, but Aytar believes that this will not be a full solution to the burgeoning complexities. "We expect the market to reach a point where consolidation among players and solutions becomes the best way to drive address this issue," she wrote.

This should not be expected any time soon, mind. A third of the financial executives across the world believed that they would not be likely to increase their use of mobile payments in the next six months, though the story was more positive in developing regions which have less access to stable finance.

As such Aytar offers two pieces of advice for payment firms looking to attract more customers: "Mobile operators should evaluate alternative ways to increase participation in the m-payments ecosystem either through the carrier billing channel or via partnerships with financial or retail players."

The full report can be purchased from Pyramid Research at the group’s website.

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