Why 2014 could be the year mobile payments explode on the iPhone

Joel Mathis

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Richard Crone had been on the road a few days recently when his smartphone did something unexpected: It started sending him special-offer coupons for breakfast at Starbucks.

Why the sudden largesse? Well, Crone has the Starbucks mobile payment app installed on his phone—and as he traveled the country, buying coffee with that app, it started to learn his habits. Instead of merely acting as a digital wallet, the app also began to serve as the virtual version of a "loyalty card"—one with a more proactive approach than merely offering discounts for money spent.

"I was traveling for a week, made a lot of Starbucks purchases," says Crone, whose consulting company is tracking the rise of the mobile payment sector. "And they started to send me offers for breakfast purchases."

And that Starbucks app is just one indicator that 2014 could be a very good year for mobile payments on the iPhone.

"The payment itself is the starting point," says Matt Kiernan, director of marketing for LevelUp, which offers its own mobile payment and develops white-label payment apps for individual businesses. "Once you start there, you unleash the ability to do all these other great things."

Experts say mobile payments could grow to as much as $6.2 billion this year. While big merchants like Walmart and Target are banding together to create apps, smaller restaurant and coffee chains have already dived in; even New York's Metropolitan Transit Authority has started discussing replacing some of its smart cards with smartphone apps.

"It's all going to hit this year," Crone says.

And while Apple's iPhone isn't even close to cornering the mobile-payments market, the growth of that particular platform is definitely a driving force in the rise of such payments overall.

Growing quickly
Starbucks, of course, has been a pioneer in the mobile payment sector, which now represents a significant portion of the coffee chain's overall business. Maggie Jantzen, a spokeswoman for the company, said the company's app was being used by more than 8 million customers, who have used it to pay more than 11 percent of all transactions at Starbucks' U.S. and Canada stores.

"We are encouraged by how our customers have fully embraced our mobile apps as the most convenient way to pay and to keep tabs on their loyalty rewards," Jantzen says.

But branded apps are just one way consumers will use mobile payments, Crone says. Banks will also develop their own apps--"Mobile banking is growing five times faster than Internet banking," he says--and third-party providers like LevelUp, Square Wallet, Google Wallet, PayPal, and more will continue to grow that business.

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