The Future of Mobile Payments

In my earlier post, I talked about the different methods mobile app developers can monetize their apps. Discussing the comparisons between free vs. paid apps, in-app purchases, and e-commerce apps. 

In this post I’d like to look towards the future. How can mobile developers best utilize the latest mobile e-commerce technology that’s being rolled out?

So what are the key mobile app e-commerce payment options looking like going forward in 2015? Well, according to Business Insider, mobile payments will likely be up to 15 percent of total payment volume in the US by 2019, meaning $818 Billion in transactions. It’s not surprising that all the major mobile tech companies are looking to provide mobile payment solutions for consumers, merchants, and mobile app developers. Here are some of the main options:

Samsung Pay

One of the somewhat surprising announcements at March’s annual gathering of the mobile tech industry at the Mobile World Congress in Barcelona, was Samsung’s announcement of their own payment mechanism called, Samsung Pay, (Really? Never would have guessed). The announcement is based on their acquisition of LoopPay in February, and it will be included on their new devices, also announced at the show.

Android Pay

This is a new payments mechanism targeted at mobile app developers with an API layer to support secure payments for companies on Android both in physical retail stores and in mobile apps. Google Wallet will continue as a separate product aimed at consumers.

Google also bought the assets of ISIS (renamed SoftCard), which had been an effort by the three major carriers in the US to implement their own alternative mobile payments mechanism. This represents another reason why mobile payments were slow to take off in the US because the carriers were eager to try and get a slice of the business for themselves, which they had started to roll out in a few select US cities. But the carriers weren’t having much more luck than Google, and with Apple getting into the fray with their system, the carriers were finally willing to see the writing on the wall and threw in the towel.

Apple Watch

Speaking of Apple, despite never going to MWC, they still stole the show with the Apple Watch announcement by saying that you would be able to make payments simply by tapping on your Apple Watch. This isn’t particularly interesting or innovative because it still requires that you have your iOS device with you, which already has Apple Pay on it. So the watch is really just a way of triggering the payment from your phone. If it is relying on the phone to connect to the terminal via the NFC chip, then the phone will have to be within several inches of the terminal to make the connection. This kind of defeats the purpose of using your watch in the first place.


Not to be left out, now that PayPal is separating from eBay, they announced at MWC that they will be acquiring Paydiant, a startup developing technology for NFC-enabled card readers. They are planning to launch by the end of 2015 with card company CapitalOne, Subway, and MCX. Of course, potential success will depend on the number of retailers upgrading to NFC capable terminals beyond the current 220,000 already in the US, but as we saw earlier in the article, there are strong incentives coming for that.


Microsoft seems to be intent upon launching their own mobile payments system to compete with ApplePay and Google Wallet/Pay. The thought is is it’ll be included in Windows 10 OS and Windows Phones, but they are the underdog here and will have a seriously uphill battle particularly on the phone side given their small penetration and that desktop/laptop sales are flat if not decreasing.

Bottom Line

So, what does it all mean for mobile app developers?

The key thing to remember, which is where this all started, is conversion rates are vital to achieving your desired business outcomes. Since most enterprises are not in the mobile app business itself, their applications are designed to help monetize their products and services. The key to improving that monetization is to make all aspects of the payment possible as smooth and as simple as possible for the consumer. The less information the consumer has to enter, the better the conversion rate. Factors limiting mobile payments are primarily related to trust and convenience concerns and the critical mass of availability and adoption.

The new payment options will continue to be slow to take, but you need to start learning about them and preparing and planning for how you will utilize them in your apps and for your industry. Once we get into 2016 and beyond, it’s likely we could see rapid acceleration of mobile payment adoption.

Comparing Mobile App Monetization and Payments Methods

Just to set the stage for this blog post, according to BCG, Banks handled $410 Trillion (yes, with a T) dollars in non-cash payments in 2013.

These days, nearly all businesses are becoming software-defined, and much of that software business is increasingly becoming mobile business. According to a recent report by Akamai called the State of the Internet, “The volume of mobile data traffic jumped by 54 percent year over year, and grew 11 percent quarter over quarter”.

For mobile application developers, one of your key metrics to be concerned about is conversions. The whole reason you developed your app in the first place is to achieve a particular outcome. The conversion rate measures the number of customers/users that complete or accomplish a desired outcome. Of course, the desired outcome will vary greatly depending on the type of app you are developing. This typically means the desired outcome is trying to monetize your app in some fashion.

In this article, we’ll review the main monetization mechanism for mobile applications and the related options for payments. There are four types of monetization/payment strategies for mobile applications: direct, indirect, hybrid, and e-commerce payments. These options derive from the basic mechanics of how nearly all of the major mobile application stores operate.

Direct (Paid) App Monetization

When submitting your app to the App Store, you need to decide whether this will be a free, or paid app.

Now, if you choose the direct monetization mechanism, things are relatively simple and straight forward. The customer pays for your app, downloads it and you get paid directly by the App Store. Their cut of the fee is usually a 70/30 split between you and the App Store. In this case, you know your earnings are directly proportional to number of downloads you get. Your main task now is to try and drive as many downloads as you can by whatever means you can (usually marketing and promotion through any number of channels such as your website, paid search, Facebook App Install ads, etc.). How best to promote your app is a whole other topic in and of itself.

There are two main problems with the direct paid monetization model. The first problem is many users are reluctant or outright unwilling to pay for an app upfront just from the app store description and a few screen shots. This reluctance also varies depending on the platform. For example, iPhone users tend to be more willing to pay for apps upfront than Android users (regardless of the OEM of the device).

The second problem, especially for most enterprises, is selling mobile apps is not your core business. Rather, your company may be in any industry (Finance, Healthcare, Travel, Insurance, Automotive, Transportation, Services, Retail, etc.) and the mobile application is just a way for a customer to more easily and conveniently interact with or obtain your company’s services or products. Moreover, if you are in another industry, then the paid app store mechanism probably won’t even work for you because the margins on your products or services can probably not allow a 30% cut to be taken by the app store operator.

Indirect (Free) App Monetization

Given the resistance of consumers to pay for apps up front or your business is something other than selling mobile apps, the next monetization strategy if the indirect method of giving your app away for free and making money another way.

Obviously, it’s a lot easier to get a larger number of people to download your app if it is free. Although it is still incumbent upon you to market your app to build your audience. The most common monetization strategy for free apps is either to monetize the audience itself or to provide some other mechanism to make money from your customers.

If you do have a large audience of consumers, the most natural way to monetize that audience is to sell ads.

The mobile app advertising ecosystem has become increasingly sophisticated. All of the major platform providers have their own ad systems that app developers can integrate, and there are any number of third-party advertising networks that you can use. Many of these networks have advanced algorithms to try and match the availability of supply of ad opportunities with demand for ad placements through a process called real-time bidding and programmatic buying that seek to optimize revenue for the app developer and costs/exposure for the advertiser.

The trick for the app developer is to balance the need to make money from ads against the perceived annoyance of having to see ads by the user. The problem is even though mobile phone screens have been getting bigger, it is still a relatively very small piece of real estate through which they can interact with your content. Too many ads and you may cause users to abandon or even delete your app, or simply interact with your app less frequently. Which will be fewer opportunities for you to earn money from ads for that user.

In order to try and address these issues, there has been a lot of innovation in the mobile app ad industry to try and find ways to make mobile ads more amenable to app users. For example, the use of video ads had seen large increases because video tends to be more interesting to users than other types of banner type ads. However, you still have the same problem if the content of the video is irrelevant to a particular user, it could be even more annoying to them. Abandoning a video jeopardizes your monetization since some require their ad to be fully watched. Another option growing in popularity is “rewarded” ads where, by watching an ad or performing some sort of an action, the user is rewarded with some value that can be used within a game such as credits or virtual goods or currency.

Hybrid (Freemium) App Monetization

Perhaps one of the most popular monetization strategies is the hybrid, most often referred to as the freemium, model. In this approach, the app itself is free to download and use, making it much easier to build a larger audience. So how does the app developer make money? Well, only certain functionality is available for free. The basic functionality may be all that is needed for many users, but for some smaller percentage of users, they will want the additional features that can only be purchased and unlocked from within the app. For game type apps, the paid content may unlock advanced levels or make it possible to play faster, or without the interruption of ads, or to get better weapons or goods such as clothing. For other types of applications, the advanced features may consist of “pro” capabilities, like larger storage, or file sizes, or speeds, etc.

While the conversion rates for the freemium model can vary widely depending on the type of app, it’s not uncommon for the percentage of users who pay for in-app content to be in the single digits. Regardless, if the audience is large, even that small rate of paid usage can produce excellent monetization for the savvy developer.

E-commerce App Monetization

The main challenge with the e-commerce monetization model is your business has to have some other billing relationship with the customer independent of the app store. The reason this can be a challenge is if you don’t already have a pre-existing relationship with the customer, then obtaining the customer’s billing information through the mobile app itself tends to have a much lower conversion rate than it does if the information is initially obtained through some other channel, usually a desktop/laptop web app/site.

The reason for this is the well-proven phenomenon it’s still relatively inconvenient to enter a significant amount of information via a smartphone interface. In fact the probability of them completing the task drops off exponentially with the amount of information the user has to enter.

The main vehicle for e-commerce payments is with credit or debit cards. This is one of the factors that explains why iOS users tend to monetize better than Android users, because Apple did a much better job of collecting users credit card information in iTunes long before it even introduced the iPhone. Once Apple already had a significant number of credit cards for iTunes, it was natural to extend the mechanism for the purchase of apps in the App Store.

Unfortunately, Google did not have an equivalent system when they launched Android, and they’ve never been able to make as much progress. Also, at some level, consumers had a psychological expectation, set with search on the web, that services from Google are free, so why should they pay for anything? One could also argue that Google’s main reason for promulgating Android was to protect its search business and more and more consumers were moving to mobile devices as their primary on-line activity, so it has been suggested that direct commerce was always a secondary priority for Android.

While customers are becoming increasingly comfortable with online commerce, there are still many who are afraid of fraud, identity theft, or hacking (especially given some of the recent well-publicized incidents). These people are unwilling to give their credentials inside mobile app or to have them stored in an account with the vendor. This means that they have to enter their information each time, so it isn’t stored, but that also means that they are less likely to complete a transaction.

Given these challenges, the technology industry has been working hard to come up with mechanisms to make all of these issues and concerns easier both for consumers and vendors.