5 Ways Mobile Will Transform Commerce

David Sims covers the payment and data sectors for O’Reilly Radar and is the author of “ePayments: Emerging Platforms, Embracing Mobile and Confronting Identity.”

Given everything your smartphone does for you now, from mapping the skies to tracking your rides and delivering your website analytics, isn’t it a bit surprising how difficult it is to buy stuff with it? Mobile commerce — like flying cars or domestic robots — is one of those promises that has long seemed just around the corner; a logical next step, but one that has receded into the future before us, like a financial mirage.

At the risk of getting fooled again, I think that’s about to change. Twitter lights up every time Apple hires an engineer with expertise in near field communication (NFC), the wireless technology that will most likely power wave-and-pay mobile systems, and Eric Schmidt showed off tap-and-pay capability in an Android phone at the Web 2.0 Summit last fall. The fastest growing smartphone platform seems determined to roll out payment capability soon, and BlackBerry and WebOS are not far behind.

So what? How will that change your life if, instead of reaching into your wallet or purse to whip out a credit card, you instead wave or tap your mobile? Here are a few thoughts on how this shift will change the way you shop.

1. It Will Make You a More Fascinating Customer

By mashing together geolocation, check-in services, mobile payments and social media, merchants and payment companies will no longer see you as an inert — if well-funded — lump of credit risk sitting at a desk, but as a story of errands, outings, activities, friends, restaurants and bars. The same device with which you check in at Chili’s and upload your party pics now becomes something like your wallet, only more fun — and with a few skeletons in the closet. Credit card companies have long pieced together bits of your charge trail, just to get to know you better and figure out what odds they should place on getting their money back. They know, for example that if you charge frequently at a home improvement center, you’re more likely to pay on time than if, for example, you suddenly start charging at bars and casinos.

Now the story gets more interesting. Let’s say your current weakness is Mexican food, and you’ve become a lunchtime regular at a burrito shop near the office. Come Saturday, if you find yourself driving past a new taco joint on Main Street, you might get a mobile notification inviting you to lunch with a half-off coupon.

If any of this sounds creepy, it might just mean you’re a few years older than the target demographic. In order to avoid alienating customers, all the companies involved in the system — from the telco, through the payment company, and on to the merchant — will want to make sure you’ve opted in to the system. In exchange for that, we can assume you’ll be getting, at the least, discounts on food and merchandise. But don’t count on it: think how many people check in on Foursquare and Gowalla with no hope or expectation of getting anything more than a colorful, 100 pixel badge.

2. Shopping Will Become Even More Social

Social shopping is big; get ready to watch it get bigger as it gets mobile. Groupon’s mobile chief Mihir Shah said in late January that 5 million Groupon iPhone and Android apps had been downloaded in the nine months they had been available. But receiving mobile coupons is only the start of something big. Now imagine if a critical mass of shoppers within a certain range of a store could trigger a bargain.

This comes on the heels of a few experiments already underway, like Foursquare-powered loyalty programs and rewards for first-time or frequent visitors. But there are new benefits, especially for merchants. Imagine if a coffee shop could offer a mobile coupon to someone who checked into its competitor just down the street. That’s a new type of marketing warfare.

This transition will stretch the bounds of what we believe is acceptable for third parties to know about us. As with any economic transaction, it comes down to what you get in return. Where people once complained that it was creepy if an Internet service knew too much about you, we may be about to crash right through that barrier to the other side where users will begin to complain if the service doesn’t know enough about them.

3. It Makes Brick-and-Mortar Digital (and Vice Versa)

When you’re in Best Buy wondering if that’s the best price you’re going to find on an Xbox Kinect, and you scan the barcode with your smartphone, it pulls up a list of online sites offering the same product for a little less and a little more. At that moment, are you shopping in the real world or shopping online? Both, of course. Retail stores know they’ve lost an advantage against online retailers when you no longer have to phone home to comparison shop against Amazon’s best offer.

Things become even more interesting when retailers begin to use the phone to bring you to their physical space. Some of the best examples are roving gourmet catering trucks that tweet not only their menu specials but their location to customers every day, so diners know where to find them and what to expect when they arrive. Geolocation ads are following close behind, inviting likely prospects to retail doorsteps just because they’re in the neighborhood. I may not have a relationship with Trione Vineyards, but ever since I met their marketing person at a party a few months ago and became Foursquare friends, I get an offer to drop by their tasting room any time I check in at a restaurant near their location. Social, just barely, but there it is.

Offers and invitations are only one way that merchants can leverage mobile traffic to make things happen. Analysis of Twitter and checkin stats increasingly provide valuable customer service data that businesses can use to plan and promote.

And of course, the mobile device as a payment tool works both ways. Intuit, Square and other companies offer simple payment hardware and software that lets sellers big and small collect payment over the mobile phone. Square and Intuit’s target audience includes very small vendors — farmers markets, house cleaners, the Etsy crowd — who may not want to fork out for full fledged credit card processing systems. And once merchants get used to collecting payments over the phone, who’s to say that mobile won’t free them from the register the same way it frees office drones from the cube? Remember the first time the Apple sales person checked you out with their iPhone, right where you stood? Beyond the cool factor of not having to line up to pay, there’s no doubt that having more floor space for merchandise rather than registers is a plus.

4. Attackers and Incumbents Will Tussle

Disruptive technologies often serve as a wedge used by attackers to work their way into markets, and not incidentally to edge incumbents out of the action. One of the most striking examples in the mobile industry been the recent dethroning of Nokia as the world’s most popular mobile platform. Nokia, which rose to the top of the market by creating sleek phones with great reception and long battery life, blinked for a moment and found that the game had suddenly changed. The playing field had shifted from practical functionality to phones with apps that can do fun things, like help you find cool places to go, shop, and share stuff with your friends. Now, Nokia must leap from a burning platform (in the words of its new CEO Stephen Elop) into icy waters if it wants to thrive again.

We’ll also see disruption among the players who handle financial transactions. Apple, Google, and Paypal — hardly lightweights as is — will begin to take more and more of the transaction pie from current transaction leaders Visa, MasterCard, and the banks. They have a ways to go on this. PayPal’s transaction volume is far behind that of Visa and MasterCard, and PayPal may never offer lines of credit. Still, the convenience of mobile payment systems baked directly into phone platforms will ultimately entice many users to put down the plastic in favor of using debit or credit systems processed through their mobile phones. The growth curve of phones running Google’s Android operating system is inspiring, and no one is dismissing Apple’s 160 million iTunes customers or Amazon’s 130 million (give or take a few million). And let’s not forget that telecoms like Verizon, AT&T, Vodafone, Telefonica and T-mobile will all want their cut of mobile commerce pie, too.

The incumbents aren’t laying down, but the momentum could be with the attackers, and given the hurdle that any mobile payment will need to cross to convince users to shift from the wallet to the phone, it seems likely that the companies already most experienced at getting us to love our devices could be more successful in getting us to use them this way.

5. Your Mobile Phone Will Become Your Identity

Since the day you unfolded your first Nokia brick phone or raised the antenna on your Motorola, mobile phone use has been a courtship. Your phone is your diary of sentimental text messages, photo albums, e-mails, your music library, fitness tracker and Angry Birds scorecard. In a very short time, it is likely to be your wallet as well, enabling purchases not only online but in the physical world. It will provide a record (no doubt filtered, processed, and synched with Quicken or Mint) of these transactions.

With all this personal data and financial transaction history, it becomes pointless to argue that your mobile number isn’t as much a proxy for your identity as, say your social security number or driver’s license is. Those government issued cards may be more official, but your mobile-financial identity is certain to be more representative of who you really are – it’s used more frequently and more closely tied with the things, places, and people you love. It’s also tied more closely with your social graph and the map of your connections and haunts, thus bridging the gap between your mobile and other online identities.

Given how important the paying mobile phone will become, we’ll want to ramp up the security on it. Passcodes to unlock, methods to find, and systems to “blow up” the data in mobile devices are already in place. Deeper levels of security are not far behind, including biometric recognition (thumbprint or retina) and methods that employ multiple levels of scrutiny – for example, your password, location, and some private bit of data. And if that’s not enough, work is underway into voice recognition and “gait analysis,” the ability to acquaint your phone with the way you walk so that if someone else tries to walk away with it, the device locks up.

How are some of these mobile trends affecting your lifestyle? Let us know your thoughts in the comments.