Mobile payments is starting over. When the Google Wallet launched on September 20, 2011, the first test of a remarkable new financial ecosystem began. But despite the apparent success of traditional mobile payments products like M-PESA in Kenya and South Africa, Google and rival Isis have decided to rewrite the business model – and for good reason. Actually, four good reasons:

1. Significant revenue is available from the advertising, retention and rewards programs, leaving the usual payments fees to the payments companies.
2. The payments ecosystem cannot afford new categories. The-existing players are companies with considerable resources and the willingness to use their resources thwarting a new category of entrants.
3. Regulatory changes are already pressuring known revenue streams, increasing the motivation for existing players in the payments ecosystem to protect position.
4. Cash is resilient to other tender types in developed worlds, not so in developing countries.

As a result, both Isis and the Google Wallet products are creating a  strategy which lets the payment ecosystem continue to charge and earn as much as possible from the payments business. The new revenue these companies seek to earn comes from two
vulnerable industries: advertising and loyalty. Google, with its extreme interest in data collection and distribution, will likely seek new revenue from that channel also.
The strategies of these two companies, which are likely to be eventually joined by Apple and Amazon in their approach, has substantially slowed mobile commerce development in the rest of the developed world. Even Japan, which has used an NFC-like technology for most of the last decade, is highly interested in understanding the results of the American
experiments before committing to a long-term strategy. And they are not in a hurry. The only short-range communication standard with approval from the International Standards Organization is ISO/IEC 14443, known simply as Near- Field Communications or NFC. To use either the Google Wallet or Isis product as they are currently understood, the customer will either need a phone with an NFC chip built in (which is in exactly one model out of hundreds of models of mobile phones in the US –
The Samsung Nexus S) and merchants will need to invest in NFC readers at their cash registers (also known as POS terminals).

Whether the US experiments succeed or fail, one thing is certain – the unenhanced peer-to-peer payments systems like M-PESA have no chance to reach the mainstream of the US or any developed country. The environment is simply too hostile from entrenched payments incumbents, and from feature-rich new services. A different breed of service that includes advertising and rewards programs as well as data services will vastly overshadow stand-alone mobile payments products. These new services
are called “mobile commerce.”

The overriding conclusion is that the winning mobile commerce business model, inclusive of the mobile commerce players that will prevail in the long term, may be decided months or years before mobile commerce begins to penetrate the general transaction volume in developed markets.

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