How Many Mars Missions can the Payments Industry Afford?

Answer: Many!
If you are reading this post, you will probably agree that Apple Pay with EMVCo tokenization was the most significant news of the month. In fact, you might have noticed 2 other news - the rebranding of Isis Wallet to SoftCard, and the announcement of the consumer brand from MCX - CurrentC. Chances are that you might have missed another historic accomplishment in the 'innovation' category - the successful entry of 2 satellites into the Mars orbit. And one of them caught our attention in the context of payments innovations: the Indian Mangalyaan, which cost $74 million, which was developed in record time and succeeded in its first attempt. So, what's the connection with Payments innovation?
Well, the numbers speak for themselves:
Based on publicly available information, we estimated the amount of money spent by the 5 'major' institutional attempts at payments innovation in the US, and found that each of the Top 5 has spent at least $100m in the past few years, without even counting the investments by VC firms in hundreds of 'disruptive innovations in payments/fintech', and without counting the investments by the big banks and payments networks in internal R&D.

In the amount of money that we estimate has been spent on mobile payments experiments, the Indian Space Research Organization could send a few dozen unmanned satellites, at least one to every planet in the solar system, and perhaps WHO could feed every hungry human being on this planet for a year (or more). By our estimates based on some publicly available data (and guesstimates), almost a whopping $4B+ has been spent by the ecosystem trying to solve for mobile payments. Even if the real numbers are half of what we estimate, it is still a staggering statistic given where we have reached so far. People still carry their wallets. Almost everyone.

Sobering indeed!

Let's take a slightly different perspective, just in case we are blinded by the sticker shock. Smartphone owners in the U.S. bought $500 million worth of goods and services using mobile wallet apps in 2012 (Berg Insight). So $4B++ has enabled around 40-50 mn subscribers (Google Wallets' 20 mn, ISIS might have reached 1 mn, Paypal, etc.) to complete around $1 billion transactions (assuming it doubled by now) using their phone. So the industry cost for every 1 dollar of mobile payments transaction is 4 dollars. And this 1 dollar is just gross transaction value, while the wallet companies will make a tiny (very tiny) portion of it. Justified? You decide. For comparison, the same ratio is likely inverted for premium credit card customers and for mobile subscribers. In some scenarios, several hundred dollars are made per dollar of acquisition costs over the lifetime of the subscriber.

Of course, this is brutal capitalism at work, and not all the investments are wasted. Also, except for PayPal, the 'lifetime' of any of the Big 5 Wallets has barely begun. And hopefully, there are tangible learnings for the industry which get re-inserted into the attempts that will finally succeed. We also hope that this top-down mega-investment in payments innovation continues to be balanced by surgical bottom-up investments that will probably yield results that are as good if not better than the 'Top 5'.
We continue to be inspired by what could lie ahead as we find our way into the unknown future universe...of digital payments!

PS: Bill Gates once said that almost all forecasts are wrong. I have tried my best to get the best possible estimates.