How the fragmented world of mobile wallets will sow confusion

Isis, the long awaited mobile wallet joint venture, finally opened for business last week, the latest in a line of competitors rolling out mobile payment plays. But the increasingly crowded field highlights just how fragmented the mobile payment market has become. And that threatens to confuse consumers and merchants and may slow the adoption of mobile wallets in general.

No wallet has emerged that boasts the ubiquitous acceptance of cash or credit. What we have are some apps that work with some merchants, or other apps that only work on specific phones or in certain cities. That means that adopting a mobile payment solution requires consumers to figure out who supports their mobile wallet. And it forces merchants to place bets on which system they think will win out.

Multiple tools for paying with your phone

Dunkin Donuts, mobile paymentsSome of this is expected. Starbucks (s sbux) and Dunkin Donuts have mobile apps that support their thousands of stores. But most mobile apps are pitching themselves as a much broader tool for payments in a lot of locations.

That includes apps such as  Square Wallet, which works in 200,000 locations; most of them small, though Starbucks is on the way. LevelUp is winning over retailers and small chains and is deployed in more than 6,000 locations, while Dwolla is also signing up merchants for its mobile payment system. Meanwhile, TabbedOut is targeting restaurants and has more than 1,000 locations now. Other services like GoPago and PayDragon let you order ahead and skip lines at select businesses.

Google Wallet (s goog), which is primarily limited to Sprint (s s), US Cellular and Virgin devices, boasts support at 200,000 locations, but only about about 20 national retail chains support Google Wallet’s full experience with offers. Isis will also face similar limitations rolling out in trials in Austin, Texas and Salt Lake City, Utah. Both Google Wallet and Isis rely on NFC technology, which also needs to be present in both the handset and point of sale terminal.

Berg Insight has said that only 8 percent of merchants around the world were equipped with NFC hardware last year. That figure will supposedly grow to 53 percent worldwide and 86 percent in North America by 2017.

So, even if you’ve embraced mobile payments, you’re going to have a hard time figuring out where you can use your wallet. That’s why these apps come with directories and maps to show you where you can use a particular wallet app.

Wanted: payment simplicity

Google WalletBut that’s not how people shop and pay. Most consumers just want to go where they want to go and they don’t want to have to consider if the store takes a certain kind of payment.

I was reminded of this when a friend asked me out of the blue for a recommendation on a mobile wallet. My explanation was so long and my qualifications so numerous that she concluded there was no real rush to adopt anything. Wired’s Christina Bonnington’s take on living walletless for a month shows that while it can be done, it’s awfully complicated to survive on mobile wallet apps and payment services.

This is to be expected on some level. Paying for something with your phone, while a topic of discussion in mobile circles, for years, is still a new concept for the masses. You have to start somewhere. And many of these competitors are now out beating the pavement trying to get merchants on board with their system.

But because so many of these approaches require a merchant to adopt updated hardware and often software integration, it’s not easy for a business to know what to do. And many don’t want to adopt multiple tools and so they’ll just sit on the sidelines, waiting for some winners to emerge.

Getting around the mobile wallet confusion

That’s prompting some players to take different strategies. Big retailers like Walmart (s wmt), Target (s tgt), Sears and others banded together in August to create their own payment system called MCX. MCX spokesman Jeremy Mullman told me the retail partners felt compelled to build their own system in part because fragmentation in the mobile payment market provided little hope of a universal payment system.

“If you have 10 places taking payments on five or six different platform it’s no good for anyone. It just confuses consumers,” Mullman said.


MCX’s hope is to win a lot more retailers to its side when it finally opens for business at some point. It has more than 20 partners including Best Buy (s bby), CVS, 7-Eleven, Gap (s gps), Bed, Bath and Beyond and others. But unless it can become the go-to tool for both large and small businesses, it’s just going to be one more wallet app for people to load up.

PayPal (s ebay) is also trying to get out of the mobile wallet confusion by emphasizing that its system is not built around a mobile wallet, but a digital wallet. That allows it to accept digital payments in store without the need for a specific phone. You can pay with a phone number and PIN or pre-paid card with other tools also coming. And with a new deal with Discover (s dfs), PayPal has the potential to open up its payment system to millions of locations that take Discover. Google is also reportedly preparing a physical payment card for Google Wallet, which will help it gain acceptance in places without NFC.

Apple’s Passbook (s aapl), which can store and produce tickets, coupons, loyalty cards and other data, also holds the promise of solving some of the confusion. If the various wallet apps integrate with Passbook, there’s the potential to have the right app show up on your phone when you enter into a store that accepts that particular wallet app. But so far, the Starbucks app is the only app that enables in-store payments through Passbook.

How many payment tools will consumers tolerate?

Consumers will still need to familiarize themselves with a lot of different options if they want to start conducting mobile payments. But that’s assuming that consumers embrace the value proposition of mobile payments. Many are not convinced there’s a lot of benefit to be gained or time saved by using a phone to pay instead of credit or cash.

That’s why most of these systems are stressing extra services like offers and discounts to impress upon people the value of using a mobile payment tool. But with each wallet also offering their own set of offers for participating locations, it’s difficult to know how to take advantage of all the best deals around.

Eventually, we’ll need some consolidation and partnerships to emerge. But it won’t happen right away because so many big players are convinced they’re the ones that can unlock value in mobile payments. Until we see some of these efforts come together and weaker systems die off, the pick-up of mobile payments will be slow. And we won’t see the replacement of cash or credit cards until consumers can feel confident they can transact anywhere with a reasonable number of wallet apps.