Mobile Payments: Despite the sizzle, not much steak
We decided to test some of the prominent mobile payments solutions currently in the market as part of ongoing research in the mobile payments space (check out this previous post for more info), and the short answer is that mobile payments have a long way to go before they offer a value proposition that rivals cash and credit cards. This is especially true if you’re going out with friends and you actually want to pay them back. It was almost impossible to convince my friends to use a P2P service to split a check instead of using cash and credit cards (and these are people working at Google, Zynga, and other tech companies). One friend still hasn’t claimed the $5 I sent them to cover coffee using Venmo. But, there does seem to be promise in using a phone to pay for physical goods. If you want to get coffee in San Francisco or Berkeley, all you really need is your phone: you can get Sightglass or Ritual coffee and Dynamo doughnuts with Square’s excellent Card Case service, and Starbucks’ mobile card is impressive and accepted at almost all of the chain’s locations. Perhaps this is a sign of good things to come, especially as NFC rolls out to more phones and POS systems.
The results:
Mobile for Physical Goods
P2P Services
Mobile for Physical Goods
These services allow you to buy tangible goods with your mobile device. Except for Dwolla, they all rely on your credit card so they are not truly new payments networks, just new ways of leveraging old payments networks. On the whole, the usability and traction are better than their P2P counterparts. Starbucks’ offering is notable to the extent that it combines loyalty programs and coupons into its service, becoming your mobile Starbucks wallet. This is a preview of what I expect the market to move toward eventually (minus the tie to a single merchant like Starbucks); Google’s recent acquisition of Punch’d and American Express’ partnership with foursquare indicate that the big players are looking for ways to combine deals, loyalty programs, and location awareness into a single wallet solution.
Square
Square comes much closer to the mobile payments ideal than any offering that I tested. Purists will point out that Square still relies on the old payments networks (Visa, MasterCard, etc) to actually make the payment, but from the end-user’s perspective this is an entirely new, awesomely convenient way to pay for things. Once everything is set up, all you need to do is take out your phone, launch the app, select where you’re buying something, and then tell the cashier your name when it’s time to check out. It’s just as fast, if not faster, than cash or a credit card, it (usually) works smoothly, and it just feels like you’ve arrived in the future. Even though this is the best experience by far, it still has some notable limitations. Adoption depends on merchants using Square’s POS system, and even in the Bay Area few do. In addition, you need a separate card for every merchant, and the interface gets cluttered and slightly less easy to use once you get beyond a certain number of merchants. As one merchant I talked to noted, this product is best if you’re a “regular” somewhere, but if you’re always adding new places to your card case it gets less user-friendly pretty quickly.
The app does a decent job listing nearby merchants, but I look forward to better mapping features in future updates. Signing up is simple: once you pay with a credit card at a participating merchant, you click on a link in your SMS receipt to set up an account. The card that you used becomes your card for future tabs, although you can add another card and use that instead.
Starbucks Card
Starbucks was the first major retailer to roll out a mobile payments option, and their solution works well. Once you register a physical (or electronic) Starbucks card, you pull up a barcode when it’s time to pay and scan it at POS after the barista has taken your order. The timing is about the same as a credit card (assuming you don’t have to sign) and faster than cash if you need to get change. It is accepted at almost every Starbucks location, and the app helps you find locations near you.
If you visit Starbucks on a regular basis, this is a great option: you can set the card up to auto-refill from a credit card when the balance dips below a certain amount, Starbucks’ loyalty program rewards are pretty good (free flavors, free refills, discounts, free drinks after a certain number of purchases) and you don’t need to carry around an extra Starbucks card in your wallet.
Dwolla
Unless you need web design services or a quote for a new pool, Dwolla’s mobile offering for physical goods won’t be very useful for users in the Bay Area. Dwolla launched Spots as a revolutionary way to pay for things, but the execution in the two major tech hubs, San Francisco and New York, is sorely lacking. I couldn’t wait to try out the app because the demos look clean, the P2P side works well, and I appreciate the fact that Dwolla does not rely at all on existing payments networks. However, when I tried to find ‘Spots’ nearby, there was nothing that I actually needed or wanted to buy.
I’m sure Dwolla is working hard to improve their merchant base, but I don’t understand why they would launch with the paucity of merchants in these tech hubs: how many people saw their coverage, joined, and then left once they realized there was nothing they could buy that they wanted? The direct to bank account solution is a great way to approach the problem (apart from the set-up burden), but execution in the physical space will be necessary to compete successfully with PayPal for consumer adoption.
TabbedOut
TabbedOut does exist in the Bay Area, but only at one restaurant (Tres Agaves Tequila Bar). Tequila is great, but I almost never find myself down near the ballpark in SOMA, and in a few weeks of daily life would never have come close to being able to test the service without a substantial trek out of my way. So, while TabbedOut sounds like a great platform and has great reviews, I (and probably most other Bay Area residents) won’t get to see for ourselves until it rolls out to a wider merchant base.
P2P
P2P payments services mainly come in handy in two instances: transfers planned far in advance and often recurring (rent, utilities, etc. sharing among housemates) or transfers needed instantaneously (settle a quick bet, split a bill at dinner). Mobile is particularly suited to the latter, and thus we judged these services mainly on how easy it is to use them spur-of-the-moment, in cases where you would usually use cash or an IOU note.
In general, all the services are easy to use in this case if you already have an account set up with them: all require a fairly extensive registration process that isn’t easy to complete on a small touchscreen, and getting money out when its sent to you invariably requires your bank account information. Unfortunately, most people don’t have an account set up, and it’s hard to convince them that it’s easier than just having an implicit IOU or using cash. This gives PayPal a unique advantage: because it is used on the internet, more people already have PayPal than have any other service, which makes them more likely to actually like the idea of using PayPal mobile. I expect this network effect to be the deciding factor in this space: user experience is essentially interchangeable (good once you have an account-all services have almost exactly the same number of screens involved in a transfer), but nobody I know wants to set up extra accounts that they use just for cash transfer when other services let them buy from merchants, too.
Venmo
Venmo is probably the best mobile P2P service I came across, and is the only one I would seriously consider using instead of cash. It has a great interface that facilitates quick transactions, and it’s easy to load your account from your credit card. They also have the best social integration: weekly updates cover your friends’ activities, the Facebook/Twitter integration is easy and flawless, and it’s easy to broadcast each payment across your networks. You can even designate trusted friends who can pull money from your account without your permission. If you expect to be transferring money back and forth between Venmo accounts, there’s no need to attach a direct deposit bank account, and all you need is a credit card to initially load the service. In addition, this is the only service where all transactions are free.
PayPal
If you already use PayPal pretty consistently, the app is easy to use and allows you to do both peer to peer transactions and make mobile web purchases. However, the integration with Facebook and other social networks is limited, so sending money to a friend who doesn’t have PayPal is slightly more difficult. If you send money from a credit card instead of your bank account or PayPal balance, the fee is 2.9% of the transaction + $.30 US, which can be assumed by either party (sender is the default).
Dwolla
Not at all suitable for quick payments unless you already have it set up because adding money to the service requires authenticating your bank account, which takes time, and there’s no option to add a credit card. The social integration is good, so it’s easy to pick people to send money to, but to redeem payment the recipient must also enter their bank account details. If Dwolla were useful for something apart from peer to peer transfers, this wouldn’t be an issue. But when there are no Spots in my area, and most of my friends already have PayPal, there is little incentive to create a Dwolla account for paying my share of the PG&E bill to my roommate. The flat $.25 fee per transaction (can be assumed by either party but receiver is the default) is low, but Venmo and PayPal’s equivalent service are both free.
Obopay
I attempted to create an account with Obopay but, despite entering my debit card number and SSN, was told that my existence couldn’t be verified. The same thing happened to my friend who tried to use the service. While it is important that these services maintain security standards to avoid misuse, the method Obopay uses seems unnecessary and hurts usability. I don’t have a credit card (only debit linked to my bank account), nor do many of my friends, which means that Obopay requires us to fax in a copy of our driver’s license in order to use the service. When there are plenty of other secure services out there that don’t require this, why should we be bothered to scan and fax our licenses to settle a $40 dinner bill?
Thoughts
As NFC moves into more phones and POS systems, more services will be as usable as Square’s and phone payments should become a viable alternative to credit cards especially for small purchases. I expect this to be a necessary catalyst for P2P transactions to really take off: right now most people don’t have any payment system installed, and have no desire to add an app and hand out credit card info just to split a utility bill or bar tab. However, if everyone is using their Google/Apple/Square/PayPal wallet for transactions with stores, then sending over a few bucks for coffee won’t require anyone downloading a new app and adding account info. Of course, this means trouble for those services that hope to exist solely as P2P platforms.
