BrainTrust Query: What can we learn from Japan's mobile wallet challenges?
As mobile phone technologies ramp up in sophistication, an application enjoying increased interest from retailers and marketers alike is the "mobile wallet." Put simply, mobile wallets, also known as "wallet phones," enable users to make "contactless" purchases via their mobile phone. They work similarly to credit cards, but the financial information is stored within your mobile phone for anytime access.
Besides the obvious benefit of not having to lug around a bulky wallet, mobile wallets allow users access to information stored in their cell phone at any point in time, examples being cash balances or transaction records. Moreover, the online nature of mobile wallets enables cell phones to be used as membership cards for clubs and loyalty programs, employee ID access cards, and even as a substitute for physical tickets for events or transportation venues such trains, buses and airplanes - with no card issuing costs.
But the rollout of mobile wallets has been slow partly due to cost issues as well as security concerns, and there are lessons to be learned from its adoption in other countries. Card Technology Magazine, in its April issue, highlighted some of the existing hurdles to further adoption in Japan, a country seen as the earliest adopter of this technology.
As with many rollouts, a key problem is that there still aren't enough places for consumers to use this technology, even though it's been available for over two years. About 100,000 terminals and readers have been deployed with retail merchants, not counting multiple brands accepted at the same shop or restaurant. That's a small number considering Japan's vast retail market. Additionally, equipping a POS terminal properly to accept mobile payments is pricey, currently around US$425. Finally, some consumers find the registration process too difficult.
Other problems have to do with the technology. Japan has struggled to solve difficulties personalizing phones over the air as well how to enable a better experience for downloading mobile wallet applications to the phone - a process that can take over an hour. Due to this, contactless mobile payment applications are now preloaded onto many of the handsets, a move that has increased the number of registered users significantly.
Another challenge is that contactless payment in Japan has no standard application, in part because contactless phones and cards use a nonstandard technology, FeliCa, from Sony. As a result, consumers may find a contactless POS terminal will not accept the brand of contactless credit or e-cash that they are carrying.
Regardless of the hurdles, many are confident that the industry will forge ahead steadily. One of Japan's largest retailers, The Aeon Group, has already installed iD terminals in about 90 stores with readers supporting more than one brand of contactless payment. Seven-Eleven Japan, McDonald's and many other brands are set to follow suit with multi-brand applications.
Phone penetration also appears hopeful, as leading Japanese mobile operator NTT DoCoMo and its competitors together have sold nearly 30 million phones since 2004, with 40 million projected by March 2008 - all having mobile payment pre-loaded and ready for instant registration. The goal? Capitalize on the estimated 60 trillion yen (US$514 billion) Japanese consumers spend every year on low-value, primarily cash purchases.
With more participating outlets and an easier downloading and registration service, Japan's wallet-phone backers are intent to take on the slow task of changing the behavior of tens of millions of subscribers to their services.
Discussion Questions: Is the U.S prepared to launch contactless mobile payments and reach adoption more quickly than Japan? What Japanese lessons should we pay close attention to? Is this new technology even desirable in the US or is it yet another sexy tool that's more hype than reality?
[Author's commentary] Mobile wallets hold real promise and we're seeing more and more chatter about them in RetailWire discussions. PayPal Mobile is making strong inroads and the technology company SanDisk is also doing some interesting things via Flash memory cards that access credit card mobile payments via a system called ClickandBuy.
While most of the mobile payments in the U.S. are being used for traditional call-to-action activities via short codes to purchase ring tones or other digital products, there's talk of Text to Buy codes that can be punched in to buy any product, anywhere - even from a closed store window. More and more flavors of functionality will emerge and we need to be ready with a point of view on how to deploy them.
As exciting as the promise of mobile contact payment is, I wonder if we will be able to jump around the challenges seen in Japan as well as apparent security concerns. It seems reasonable that a concerted effort with key retailers, mobile carriers, phone manufacturers and banks would get us there sooner than later. Also, as with all media, the functionality and offering needs to be relevant to the context of the shopper and what makes sense for them to do - when, where and how.