Mobile Payments in the United States at Retail Point of Sale: Current Market and Future Prospects

Although mobile payments are increasingly used in some countries, they have not been adopted widely in the United States so far, despite their potential to add value for consumers and streamline the payments system. After describing a few countries’ experiences, we analyze the prospects for the U.S. market for mobile payments in retail payments, particularly the use of contactless and near-field communication technologies. We identify conditions that have facilitated some success in other countries and barriers to the adoption of mobile payments in the United States. On the demand side, consumers and merchants are well served by the current card system, and face a low expected benefit-cost ratio, at least in the short run. On the supply side, low market concentration and strong competitive forces of banks and mobile carriers make coordination of standards difficult. Furthermore, mobile payments are characterized by a network effects problem: consumers will not demand them until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so. We present some policy recommendations that the Federal Reserve should consider. JEL Classifications: G21, L15, O33 Marianne Crowe is a vice president and Joanna Stavins is a senior economist and policy advisor, both at the Federal Reserve Bank of Boston. Marc Rysman is an associate professor of economics at Boston University and a visiting scholar at the Federal Reserve Bank of Boston. Their e-mail addresses are [email protected], [email protected], and [email protected], respectively. We wish to thank Bruce Claflin, Darin Contini, Jeff Fuhrer, Fabia Gumbau-Brisa, Scott Schuh, Oz Shy, Jim Cunha, and Suzanne Lorant for helpful comments and suggestions. We also wish to thank the large number of people who talked with us, often at great length, about their perceptions of the industry, including members of the following organizations: AT&T, the Federal Reserve Bank of Boston, the CTIA, the Federal Communication Commission, the Federal Trade Commission, the Financial Services Roundtable, the Mobey Forum, Venable LLC, and Verizon. The views expressed in this paper are solely those of the authors and do not reflect official positions of the Federal Reserve Bank of Boston or the Federal Reserve System. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bos.frb.org/economic/ppdp/index.htm. This version: May 17, 2010