The Upcoming Payment Wars

2007 will be the year that the payment wars begin, and it won't be limited to papal and Google. The groundwork is being layed for the upcoming payment battles, with many emerging companies entering the market, especially in the mobile payments space. Visa USA recently conducted a consumer survey, and 61% of participants between the ages of 25 and 34 said they were interested in using their cell phone to make purchases. Respondents also indicated they are twice as likely to carry their mobile phone than cash; this jumps to 4x for consumers in the 25 - 34 age range.

"These numbers indicate that mobile phones for U.S. consumers are becoming more a part of their everyday lives," said Michele Janes, Director of Product Innovation at Visa. "The new technology lets them do more with their phones. For banks, I think this means consumers will start demanding more applications designed for their phones."

The ecosystem of technology, financial systems, and consumer demand are now in synch, making the conditions ripe for a lucrative emerging market. "Over the past six to 12 months, we've seen a drastic increase in interest among [card] issuers in mobile payments," she relates. "Several of our issuers are asking about this."

There are several start-up companies well-positioned to take advantage of this emerging market, including Obopay, MobileLime, Get Scoot, and KushCash. These companies are raising significant amount of VC funding. Obopay received $10MM in March from Redpoint Ventures, Onset Ventures, and Richmond Capital and KushCash recently raised $12MM in private investment.

The competition is fierce and it is too early to tell who will emerge as winners or losers, but one company that I find particularly attractive is TextPayMe. This Redmond, WA based company was founded by two former Microsoft employees. The service is extremely easy to use: simply send a text message with amount and recipient's phone number and within minutes you receive an automated confirmation call confirming the funds were transferred.

Although I disagree, there are those who think mobile payments doesn't offer a strong value proposition compared to conventional payment methods.

“I think what needs to happen is that there needs to be a compelling reason for why I want this,” said Julie Ask, a wireless analyst at JupiterResearch. “What are the scenarios that I need to be traveling so lightly that I don’t need to take my wallet with me? It’s got to be more convenient than paying with cash, coins, or credit cards today.”