Mobile Payments: It's Early in the Revolution, but Not Too Early to Invest
Merchants deciding on point-of-sale (POS) solutions are beginning to rethink traditional needs and soon-to-be-irrelevant hardware terminals. Cloud POS solutions are the wave of the future as consumers continue to embrace using mobile devices to complete transactions. It's still early days for the mobile-payment industry, but it's not too early to recognize some of the leaders and the exciting investment opportunities they present.
Still in an early phase, but not for much longer
Gartner has predicted that worldwide mobile-payment transaction value will reach $235.4 billion in 2013 -- a 44% increase from 2012. The number of mobile-payment users worldwide will reach 245.2 million by the end of the year, up from 200.8 million in 2012.
The market, while relatively small today, is expected to see tremendous growth in coming years. "We expect global mobile-transaction volume and value to average 35% annual growth between 2012-2017, and we are forecasting a market worth $721 billion with more than 450 million users by 2017," said Gartner research director Sandy Shen.
With little doubt that the traditional, no-frills POS terminals will soon be a thing of the past, Foolish investors can benefit if Gartner's estimates prove to be accurate.
Expanding from online to offline
In September, eBay's PayPal announced the release of its software solution Beacon, which aims to compete with near-field communication, "contactless" payment systems. Ebay CEO John Donahoe described the product and its features during the company's recent conference call:
PayPal Beacon, which utilizes Bluetooth low energy technology, is simple for merchants to use with or without existing point-of-sale systems. Beacon will enable consumers to easily pay at their favorite stores hands-free without having to open their PayPal app or take out their smartphone. It's another way PayPal is reinventing the shopping experience.
PayPal has begun to pilot Beacon-enabled shopping experiences, and a full rollout is expected for 2014. As part of the announcement of Beacon, PayPal has given developers open access to the in-store application programming interface to provide customers with a customized shopping experience.
PayPal can succeed over newcomers, as it holds a tremendous advantage -- millions of PayPal users already trust the online wallet with their personal information. Users have trusted the company in the past with sensitive information and are more likely trust new technology coming from a reputable company.
Paula Rosenblum of RSR Research has pegged PayPal to be a future winner in the mobile-payment field, simply because of its ease of use. "I don't like exposing my credit card to too many merchants. And I can't remember my bloody credit card numbers anymore," Rosenblum wrote in an article for Forbes. She further explained, "It's so much easier for me to use PayPal and pick the credit card of my choice."
You can already buy coffee with your mobile device
Many Foolish investors underestimate the importance of Starbucks' mobile app and its payment process. Starbucks uses scanning technology to read QR codes from customers' mobile-payment apps.
During the company's recent conference call, management announced that it is seeing more than 4 million mobile transactions per week and that more than 8 million customers are using the app. The mobile app now accounts for 11% of transactions.
Starbucks CEO Howard Shultz described the app as being "far away the clear leader in mobile payment," stressing its importance for "adding so much value to the Starbucks brand and our financial performance."
Marqeta, a small start-up that powers the new Facebook Card, commented that the success of Starbucks' mobile efforts lies in the fact that its card is prepaid. "35% of [Starbucks'] revenue is captured before anyone walks in the door," said Marqeta CEO Jason Gardner.
Patiently waiting on the sidelines
MasterCard is likely to benefit the most from a mobile-payment processing system, given that the company's infrastructure and expertise is already in place.
The company maintains an index that tracks a country's likelihood to embrace the future of payment technology. "The MasterCard Mobile Payments Readiness Index is a data-driven, quantitative survey of the global mobile payments landscape," according to MasterCard Worldwide Insight.
MasterCard has performed in-depth analyses and studies in dozens of countries. The company has deduced which countries are ready for mass adoption and which are not. For example, "MasterCard believes that, while Singapore is well-positioned for all types of mobile payments, more of an effort must be made to communicate the value of mobile payments to consumers."
MasterCard is displaying tremendous patience by sitting on the sidelines, assembling the necessary components to be deployed when the market is ready. During a second-quarter 2013 conference call, CEO Ajay Banga commented on the company's partnership with mobile providers, which is necessary for mass adoption:
So there you can see 30-odd deals that mobile telecom operators in the last two years, we had none three or four years ago in fact the dialogue used to be, how they wouldn't need the banks and the networks to be able to grow I think that demonstrates clearly that we have been able to show that our product set and technology adapted to mobile payments can work with them.
Finally, management has offered impressive growth projections for the next few years. The company hopes to deliver 11% to 14% net revenue CAGR and at least 20% EPS CAGR from 2013 to 2015. Even though mass adoption of mobile payment is a few years away, the company is growing tremendously today.
Foolish investors would be smart to recognize MasterCard as an adaptable company that has with many years of growth still ahead.
In the Gartner study, the analysts noted that "people are not purchasing as much because the buying experience on mobile devices has yet to be optimized."
This indicates the market for mobile payments is wide open, with the possibility of several winners emerging, giving investors the opportunity to jump in today before the industry takes off.
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The article Mobile Payments: It's Early in the Revolution, but Not Too Early to Invest originally appeared on Fool.com.Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends eBay, MasterCard, and Starbucks. The Motley Fool owns shares of eBay, MasterCard, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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