One penny solution to mobile payments conundrum

I am pretty sure starbucks must be making money on their scheme - and I am sure other merchants will follow suit eventually.  It will be interesting to see how WEVE will change the dynamics and maybe stimulate consumer demand for more services.

It was another company that I meant there. As for Weve, I don't think they are instrumental to the success of mobile payments in the UK - they operate within the constraints of the current penetration of NFC-enabled phones (or NFC SIMs), i.e. consumer side of the equation.

It is still an open question whether an NFC-enabled phone is a better form factor for mobile payments compared to a plain vanilla contactless bank card.

In either case, enabling consumers with the means to pay is just a (small) part of the story. Making consumers USE that funcionality is a different matter altogether. And then there is an issue of "what's in it for me", as covered in my blog post.

...Telcos are generally 'dumb pipes', despite their efforts to insert themselves into the payments value chain....

...the card schemes have a vested interest in resisting any downward pressures towards a 1p transaction charge....

...to make mobile payments ubiquitous, what we will see is innovation from key players who are already connected to every bank, merchant and consumer in the country....very few organisations match that description....watch this space...

Good comment, Phil.

The "1p" economics are simple: right now, consumers use cash to pay for low-value purchases. None of the payment ecosystem players see any profit from those transactions (not to mention cash-related costs incurred by the retailers). From that perspective, even one penny is better than big fat zero... After all, the true "hard cost" of processing transactions these days is extremely low.

Dwolla is already doing this. It actually charges zero fees for transactions below US$ 10. While the attraction to merchants of such a service is self-evident, I haven't been able to figure out what's in it for the consumer. After all, with credit cards, consumers get deferred payment and rewards, which they don't with Dwolla / equivalent.

Benefit to the consumer: you can use your card to make low-value purchases. In the UK, for example, the minimum card purchase value is £5.

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Dwola is different: like "Pay with Square", they rely on a rather cumbersome customer identification. Using a token (e.g. contactless card) offers ubiquity and speed.

As far as I know, card networks don't permit any floor limits for credit card acceptance even while individual merchants openly flout network rules by setting their own limits. I've actually experienced one merchant accepting credit card payment for GBP 3 and another one denying it for GBP 20. A generic GBP 5 floor is news to me.

It's not a "hard" rule indeed, but rather a "common practice".

Uh oh, in that case, what's to prevent retailers from extending the same "common practice" to this new method of payment? I've always found that retailers want to have their cake and eat it too. Therefore, I don't think a 1p + 1% transaction fee alone will persuade retailers to accept this new MOP or that, when it comes to retailers, anything is that simple.