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Companies large and small have been getting into mobile this year. And one market that looks particularly promising is the mobile payment space. Considering that everyone from Twitter founder Jack Dorsey is interested in making a mark on mobile payments, it's curious that no major credit card company has debutted a product yet.
That's changing with Visa's new In2Pay protective iPhone case. The iPhone sleeve turns Apple's smartphone into a credit card machine. Considering Visa's established dominance in the payment space, this product could help position the company in mobile. But it does not eclipse the fact that there is still a big space for innovation if someone can do it all cheaper.
Visa certainly has a leg up when it comes to digital payments. More than 40% of online payments are routed through Visa’s network. Meanwhile, the company bought CyberSource Corp. for $2 billion this spring, a gateway that handles about 25% of online transactions in the United States.
But there's plenty of competition in the burgeoning mobile payment space. In addition to companies like Square and Venmo, PayPal just released a new Bump to pay app for the iPhone.
That said, few consumers are actually using mobile payments right now. And credit card companies like Visa have a huge advantage when it comes to consumer trust.
Square's little phone jack swiper, for instance, seems a little sketchy to the uninitiated. As CNET's Caroline McCarthy wrote last spring after trying to use Square in the wild:"Many of the guests came from industries outside the tech world's eager early-adopter set, were unfamiliar with the buzz surrounding Square, and weren't actually convinced that their donations would be making it to Doctors Without Borders. A few asked for more information and then declined to donate, with one saying it sounded "shady" and adding, "Why don't I just hand you a 10-dollar bill instead?""
Visa's new product is similarly clunky. The sleeve lets users tap to pay with participating retailers, but it puts the burden of payment on the consumer. A large sleeve isn't actually less cumbersome than a credit card to carry around. Are consumers really going to request (or pay for) an iPhone sleeve so that they can make payments on the go? The sleeve also works as an iPhone charger, but it will have to be updated for different iPhone models. It seems like a better integrated product — like PayPal's bump to pay option for instance — will have better luck getting mass adoption.
And then there's the question of payment. According to Wired:
"With this move, Visa seeks to maintain its strong position in the credit and debit payment system, from which it extracts fees from retailers, who pay Visa about 30 cents when you enter in a PIN code or 75 cents when you sign a debit receipt. Under its payWave system, Visa requires a signature for any purchase over $25. When it comes to these iPhone payments, the fees will be set by banks."
Other mobile rates are not quite clear yet. For Square, fees are currently about 2.75% plus 15 cents per sale, or 3.5% plus 15 cents per sale if the card number is typed manually. Considering that mobile opens the door to easy micropayments, it seems like many small businesses and charities will be willing to work with whoever takes the smallest chunk of their revenues.
And there's a big market for an upstart that is willing to undercut the prices of traditional credit card companies. Wired suggests one potential competitor could be Bling Nation:
"Bling Nation claims to undercut fees charged by traditional payment companies, “streamlin[ing] payment processing and reduc[ing] costs by eliminating processing middlemen” such as Visa. The company is focusing first on small regional banks to solve what Bling Nation co-CEO Meyer Malka calls the “chicken and egg problem” of Visa already having so many swipe-free terminals installed nationwide."The problem for newcomers, is that credit card companies are so entrenchment in digital commerce that the mobile transition will be much easier for them. The fact that Visa now offers a mobile product means that many brands will use it. The silver lining is that payment through a mobile device seems especially tailored for tiny payments via individuals.
Visa's mobile product simply translates the traditional credit card/debit system, with all of the related fees and privacy issues that come with it, to the mobile environment. But for small businesses (and individuals) every cent matters. If the mobile trust hurdle can be overcome, there will be plenty of room for other vendors in the mobile payment space.