Why much more consolidation is needed in the mobile payments market

PayPal stepped up its mobile payments business this week with the acquisition of StackMob, which provides technology that helps developers build and deploy apps across mobile operating systems. The move, which comes on the heels of PayPal’s $800 million pick-up of the mobile commerce company Braintree Payment Solutions, will not only boost PayPal’s mobile offerings but also should make it easier for developers to integrate its payment services with their own mobile apps.

Consolidation in the mobile payments market continued with reports that Amazon has bought GoPago, a San Francisco-based startup that provides mobile apps and point-of-sale equipment enabling users to pay for merchandise before they pick it up at the store. Amazon has been tight-lipped about the deal, declining even to confirm it thus far, but the move – which centers on GoPago’s technology – may signal the online retailer’s intentions to move into brick-and-mortar mobile payments. Meanwhile, Square continued its shopping spree with the acquisition of Evenly, Lifelock acquired the mobile wallet provider Lemon for a cool $43 million, and mobile payment provider Spindle picked up the mobile marketing startup Yowza for an undisclosed sum.

All within the last week.

Plenty of M&A activity, precious little uptake

Oddly, this M&A feeding frenzy is heating up despite the fact that the U.S. market for proximity mobile payments – phone-powered transactions at the retail counter – continues to spin its wheels. Only Starbucks has garnered any real traction in mobile payments in the U.S., while heavy hitters like Google, PayPal and the carrier-backed Isis have yet ignite any real interest from consumers. So market research firms such as eMarketer have been forced this year to scale back their sky-high forecasts for the space.

There are plenty of reasons for that lack of uptake: The market has been shackled by a variety of competing mobile payments systems and technologies, leaving consumers confused and retailers wondering which “solutions” to embrace. Mobile payments are generally viewed as a hassle, requiring users to download an app and then jump through hoops at the retail counter. Most importantly, the industry has yet to give users a reason to pay for goods and services with their phones rather than credit cards or cash. That was proven once again in a recent survey by Consult Hyperion that found nearly two-thirds of U.S. consumers said they would never use a mobile wallet.

And much more consolidation is coming

Increasing consolidation in the space will help address those problems. While it’s still too early to say which technologies will emerge as “winners” for mobile payments – NFC isn’t dead, despite what you’ve read, even if Bluetooth low energy has become the flavor of the month – the industry will slowly gravitate toward a very small handful of systems as the number of players dwindles. Also, while some vendors are developing stand-alone payment apps in the Starbucks mold, consolidation will hasten the evolution of aggregators who support transactions across a variety of businesses, spurring consumer adoption.

And as the remarkably fragmented market begins to unify, the industry will develop ways to bring value to mobile payments that simply aren’t possible through traditional purchasing models. Loyalty programs are a good start here – as evidenced by the success of Starbucks as well as Apple’s Passbook – but payments systems will increasingly use location data and analytics to deliver highly targeted offers that can be redeemed at the retail counter through mobile payments. Such systems will require the kind of complex business models that can take years to develop, but consolidation will accelerate their evolution.