Mobile Payments: Why The Future Isn't Now

Brian Fung has a good piece up at The Washington Post entitled "The Google Wallet card proves the world isn't ready for mobile payments." He writes:

Even when NFC failed to take off, other alternatives sprung up. Square Wallet is a pretty elegant way of handling mobile payments (you just give your name at the register and go). Yet apparently enough people still prefer paying by card that Google thinks it's a worthwhile audience to go after.

I think it's worth taking a minute to understand why people still prefer paying with plastic.

Everett Rogers developed a standard model for measuring the rate at which new technologies will achive mass use in a population, then published his findings in the 1962 classic Diffusion of Innovations. Rogers believed that a market will accept or reject an innovation based on five criteria:

  • Relative Advantage - How much better is the new technology than the old technology?
  • Compatibility - How well does the new technology work with established values, norms, and infrastructure?
  • Complexity - How easy or hard to use is the new technology?
  • Trialability - How easily can a user to test the new technology?
  • Observability - How visible is the new technology in daily life?

A technology that is obviously superior, compatible with existing norms, easy to use, easy to test, and highly visible will diffuse rapidly. One that is not, will not. Smartphones, for example, have diffused rapidly. Landline telephones did not.

How do mobile payment systems rank against these five criteria? Not well, actually. The relative advantage is debatable (they're more convenient than carrying a physical wallet, but not that much more convenient). They're arguably more complex, at least from the user's perspective. They're easy to try if you're in a city like San Francisco or New York, but not so much if you're in Peoria. And you don't see them often in everyday life if you're not living in a tech hub.

But the biggest reason that mobile payments haven't caught on yet is their general incompability with both established user habits and, more importantly, infrastructure. We live in a world that is built around processing plastic, and even if we could immediately convince every buyer that digital wallets were in every way superior to their physical counterparts, we'd still have to overcome the inertia that existing systems impose. POS terminals around the country would have to replaced, which costs money. Workforces would have to be retrained, which costs time and energy. That does not happen overnight, or even over just a couple of years. And that's before we address the fact that there exists no market standard for digital payment processing. Square, PayPal, Google, Intuit, Belly, and more each have their own way of doing things, and each of them has some kind of built-in lock-in for users. In a world that bridges multiple payment platforms, the one product that is universally compatible and accepted is a plastic card.

That's why I'm high on Coin and Square, and not so bullish on the rest of the field. Coin addresses the problem on the buyer's end, while Square's Register addresses it (mostly) on the seller's. They both do so by leveraging existing habits and infrastructure to make the transition as easy as possible for users, not for tech companies hocking their wares.

I do think that the digital wallet is too good an idea to not eventually achieve mass adoption, but there's just not a case for the sort of rapid diffusion for which companies entering the space seem to be hoping. We're stuck with plastic for the time being. It's best to make the most of the situation.