3 Opportunities For Exposure To The Growing Mobile Payment Industry

At the end of 2013, Business Insider forecast that the total value of global offline transactions facilitated by mobile devices would reach approximately $1.5T by 2017, up from $120B in 2012. In the U.S. specifically, the transaction value will reach $244B in 2017, up from $15B during 2012. The potential for growth has sparked a number of high profile acquisitions, and analysts expect the mobile payment industry to be one of the leading M&A spaces during the next 12 months. Here are a few of the currently available options for exposure to the industry.

eBay Inc (NASDAQ:EBAY))

The first exposure on the list in eBay, Inc. In September last year, eBay's PayPal announced its contribution to the mobile payment space, Beacon. Beacon leverages the readily available PayPal app to enable mobile payments in stores that accept PayPal payments. Mobile device users can "check in" to a retail location using the PayPal application. At the point of sale (POS), a USB device enables existing POS hardware to detect customers that have checked in to the location. The POS hardware displays a photograph and details of the customer to the merchant, and when a customer indicates they wish to pay for an item, the merchant selects the applicable details and the system automatically debits the customer's PayPal account.

The advantage of the PayPal system does not stop at hassle-free transactions. Contrary to a number of other alternatives, beacon uses Bluetooth Low Energy (BLE). BLE allows Beacon to communicate with mobile devices, and vice versa, using a fraction of the energy of near field communication and GPRS technology. This helps the technology to overcome one of the hurdles to industry growth, battery power. In addition, PayPal does not have to overcome another of the major hurdles to mass adoption, security concerns. More than $110M individuals have already trusted the company with their personal and financial details, which should make rolling out the technology much smoother than it otherwise would have been.

Beacon is not yet available, but PayPal expect to roll out the system throughout summer 2014. EBay offers investors a relatively low risk exposure to the industry, with the company's other business operations serving as a buffer if mass adoption of the concept fails or another company's technology takes market leadership.

Starbucks Corporation (NASDAQ:SBUX))

 Starbucks has developed its own in-house payment system, accessible through its mobile application. Customers who wish to pay using their mobile phones preload their Starbucks application account from their credit card. At POS the application generates a QR code, and the retailer scans the code to initiate a transfer of funds from the customer's account to the location's account.
During a Q2 2013 earnings call, Starbucks CEO Howard Schultz reported the application has more than 10M active users, and is approaching 4M payment transactions per week. , accounting for more than 10% of total U.S. tender. In addition, because the system is rooted in prepay, mobile payment allows the company to capture more than 30% of its revenues before customers enter a location.
Starbucks offers investors a different type of exposure to the industry than eBay. The PayPal system relies on widespread adoption of the concept by both retailers and consumers. This could take a number of years. The Starbucks system however, is already active, and the company need only achieve adoption among its customers.

New Media Insight Group, Inc. (NMEDD)

The final addition to the list is New Media Insight Group. Once again, this addition differs from the previous two, in that the company approaches the mobile device payment system with a focus on adoption incentive, both from the perspective of the retailer and the consumer.

New Media Insight Group has developed a system called mCards. Similar to the Starbucks approach, mCards is a mobile device application based system that consumers can use to pay for goods and services at POS. This is where the similarity ends, however.

Consumers download and link their credit card to the mCards application. When they reach POS at a participating location, the application generates an "mCard", which has a preset maximum value and displays the standard details of a traditional credit card (16-digit number, expiry data and three digit CSC code). The retailer uses these details with their existing card processing hardware, and the application debits the customers linked credit card to complete the transaction.

As mentioned, New Media Insight Group has taken steps to incentivize use of its mCards system, and promote adoption. From the consumer perspective, the system involves a loyalty aspect. When they use the system to pay for goods and services at a participating location, the retailer offers rewards and discounts on futures transactions. From retailer perspective, in addition to the ability to create branded loyalty programs, New Media Insight Group offers a "Merchant Dashboard", which allows the retailer to track the spending habits of its customers, and analyze data specific to their business.
Additionally, the company offers a third party marketing feature whereby the retailer can pay marketers to drive customers to their location. The retailer compensates marketers on a per-transaction basis through a tailored compensation plan.

The mCards system also addresses the security concerns that surround a number of the alternative mobile payment options. The mCard functions similarly to a prepaid credit card, meaning even if someone did steal the mCard number and its corresponding details, they wouldn’t be able to transact with it because mCards are a single-use form of payment. Additionally, because merchants can either key the card number into their existing credit card terminals or use an NFC or QR code scan, there is no risk of data being stolen from swiping the card.

New Media Insight Group offers direct exposure to the potentially huge mobile payments industry. Traditionally a marketer, the company switched its focus to mobile payment systems during 2013, in anticipation of widespread adoption. If validated, the switch offers early investors a chance to benefit from a large potential upside in the company's stock. There is risk involved however. The same focus that links New Media Insight Group's stock to the growth of industry also links it to industry stagnation. If the mobile payment concept fails to grow as expected, any holding in New Media Insight Group could deteriorate in value.

Conclusion

If expert opinion proves correct, mobile device payments will revolutionize the way consumers and retailers interact. Many companies have realized the industry's potential, and are already taking steps to establish themselves as an early mover. This widespread interest offers investors a plethora of options when it comes to gaining exposure, each with a different take on the technology, and the processes involved. The three options covered in this piece illustrate this variety, and any one could become market leaders in the space before 2017.