U.S. Mobile Payments Market to Boom due to Strong Network Effect
Researches have shown that current mobile-based payment in the United States hover around $50 billion a year and is expected to rise $142 billion in volume by 2019. In the past few years, technology companies have raced to create their own forms of mobile wallets. Companies such as Google, PayPal, and AT&T all created their individual versions of a mobile payment option, but none of which really gained mainstream traction in an immature market. As smartphone technology develops and mobile security improves, people will rely and expect more and more from their phones. Now Apple, the most valuable technology enterprise in the world, will introduce its first major e-commerce product via Apple Pay, which will accelerate much of the growth of in-person mobile payments.
Research has indicated that there will be a tipping point within the next five years that will bring mobile payments into the main stream. This tipping point would be akin to an equilibrium point discussed in class, which states that once a tipping point equilibrium percentage of a population starts using mobile payments services, that percentage will rise to the second, more stable equilibrium percentage. When the percentages of user population is between these two equilibrium points, the market network effect will result in an upward pressure on the consumption of mobile payment service from consumers who have not yet used this technology but will wish they had, which would in turn drive demand upward.
The largest area of growth in mobile market is projected to be in remote mobile payments, which are purchases made via apps and mobile websites. Such payments also include peer-to-peer payments made possible by services such as Venmo and Square Cash. As these services grow popular, peer-to-peer payment apps enjoy a strong network effect of direct benefit, where as more people adopt the app, the service itself becomes more valuable as you can send money to more friends, and user growth accelerates. Once a few of someone’s contacts adopt a service such as Venmo, it will be just a matter of time before they get their friends on it, since they have an interest in getting more of their social circle to accept payments on it. Overall, the growth of mobile payments in the next five years will largely due to the strong network effect present in the nature of mobile payments.