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Subway tickets via cell phones a ways away

Mobile commerce has been touted as a major growth prospect for years, but the industry still faces several big hurdles before it takes off in the United States, executives and analysts say.
/ Source: Reuters

Imagine waving your cell phone and being admitted through the turnstile of a subway station, or ordering and paying for a gift without once having to open your wallet or enter a credit-card number.

Yes, you can — just not so much in the United States.

Mobile commerce has been touted as a major growth prospect for years, but the industry still faces several big hurdles before it takes off in the United States, executives and analysts say.

Consumers will likely keep paying the old-fashioned way with cash and credit cards, as mobile commerce has been hampered by cultural reticence, business model concerns and other issues, despite predictions that handsets will replace wallets.

"We're not too many years off where the restaurant will just send the bill to your smart device," eBay chief executive John Donahoe said at the recent Fortune Brainstorm: TECH conference in Pasadena, Calif.

Taking off in Asia
Meanwhile, mobile commerce is taking hold in Asia where almost 500 million mobile transactions will occur in 2009, according to research firm Gartner, versus 34 million in North America.

By 2012, Gartner expects that transactions will grow to 2.4 billion in Asia and 221 million in North America — a potential boon for the telecom carriers that will host such commerce, including the likes of NTT Docomo, which pioneered contactless payments in Japan, or AT&T, which through 2010 enjoys an exclusive arrangement to market Apple's wildly popular iPhone.

In Korea, people can buy gifts on a handset and text friends to pick it up in the store. And in the Philippines, people can get money from families overseas faster and cheaper via text message than by using a bank transfer.

"In Japan, people can wave the phone to take trains, pay for groceries, board the plane and access buildings," said Sandy Shen, a Gartner research director in Shanghai.

"The United States has a well-established fixed and broadband infrastructure" that may hinder systemic change, he added. "People (in the United States) don't feel as much a need for mobile services except for voice and email."

East-West chasm
ABI Research estimates that in North America the retail value of mobile Internet shopping — one form of mobile commerce — will be $544 million this year, but grow four times that to about $1.9 billion in 2010.

"It is definitely starting to move," Marty Beard, president of a unit of Sybase, which designs business and commercial software, said at the conference.

"This is one of those emerging markets influencing developed markets. I think the U.S. kind of tips last on this, but you can see the way it's starting to come," Beard said.

The cultural divide between U.S. and Asian shoppers began with the laptop versus the handset and continued from there, said Ed Moran, director of product innovation for Deloitte.

"In this country it's still the stone age ... Folks here still consider the handset to be the appendix to their digital life. 'Millennials' say their most important device is their handset," Moran said, referring to teenagers and people in their early 20s.

But the obstacles may be more fundamental than culture. An Intel executive said technology and regulatory issues are blocking the widespread usage of contactless payment — one form of mobile commerce — in the United States.

"The device has enough security in it, probably more security than your credit card has today," argued Anand Chandrasekher, with Intel's Ultra Mobility Group.

The industry also needs a business model that takes into account mobile network operators, said Mark Beccue, a senior analyst with ABI Research.

Contactless payments insert mobile operators into the same space as banks, credit-card companies and merchants, Beccue said, raising regulatory issues.

Mobile carriers also have to put chips in handsets to process contactless payments and will want to recoup their investment, he said.