ITIF Urges Government Involvement to Speed Mobile Payments in U.S.

WASHINGTON, November 19, 2009 – Experts at the Information Technology and Innovation Foundation said Tuesday they are hopeful that mobile payment can catch on in the United States, but admitted that responsibility will fall to governments to provide the catalyst.

“The market cannot do this on its own either in the short term or in the long-term,” said ITIF President Rob Atkinson.

Mobile payment is an expanding alternative to conventional payment methods such as cash or credit card. Popular in Japan and South Korea, the system allows consumers to use their mobile phones to pay for most goods and services.

An expanded form of this system is the mobile wallet which would link personal identification, discount cards, and other information into one device. Mobile payment requires the installation of specialized near-field communication terminals to access the phone information. These terminals are a main obstacle to adoption in the United States.

Broadband adoption in the American market presents a chicken-or-egg paradox. First, business owners are unwilling to pay for installation of expensive point-of-sale terminals unless they are sure to be used.

Second, phone companies are unwilling to develop and produce mobile phones that carry a new technology with potentially limited application in the U.S.

And third, consumers are unwilling to pay for mobile payment enabled phones without a guarantee that the payment method will be universally available in the U.S.

Without one of these parties bending, progress for mobile payment technologies in the U.S. seems unlikely, said ITIF.

“In summary, mobile payments represent a critical information technology system for the US economy to realize,” writes Stephen Ezell, senior analyst with ITIF, in the report, “Explaining International IT Application Leadership: Contactless Mobile Payments”.

“It is not at all clear that market forces alone will get the United States there, or produce the completely open, multifunctional system that we need, certainly not anytime soon,” Ezell wrote. “Therefore, applying lessons from the leading countries, there appears to be a strategic role for the federal government to play in facilitating and accelerating the arrival of mobile payments in the United States.”

In particular, Ezell felt that governments should actively promote deployment by requiring public transit to deploy contactless fare systems throughout the country. He also advocates funding for pilot programs deploying near-field communication infrastructure.

This is necessary because “American companies are more cautious than the Japanese in these kind of situations. [Public-private partnerships] are more acceptable there,” said Mark MacCarthey, Adjunct Professor at Georgetown University.

In response to challenging questions about the role of market competition in the process, Atkinson commented that “if competition was the key factor, we’d have [mobile payment] here already.”

MacCarthey was more optimistic about the potential success of the competition driven market, but when asked later responded, “[competition] might sort it out. Card readers did it right by themselves.” He suggested that government supervised discussion between the different parties might be the solution

The ITIF report recommends the organization of an inter-government working group as well as a private-sector advisory council to introduce by mid-2010 a plan for spurring deployment of an interoperable mobile wallet.

“If we can get 1 percent of the attention that’s being devoted to broadband, we’d get contactless payment within a year,” said Atkinson.