Yesterday, I participated in an Emerging Issues Forum at the Federal Reserve Board of Governors—they called it “Protecting Consumers in a Mobile Finance World”. Easier said then done. Granted,  the Federal Reserve is trying to focus on the future technological trends impacting consumers, and not just the current issues we face on a daily basis. They are looking for the balance to ensure consumer protection while not stifling innovation—a lofty goal. Let’s hope they are up to the challenge.

While the day was primarily focused on identifying ways to ensure that consumer protection must keep pace with technological change, I wanted to share some interesting data points presented throughout the day.
•    USAA: A strong 14% mobile banking adoption from its 7.4M members which is considerably higher than the largest US banks; $250M deposited through their Remote Deposit Capture application between August 2009 and Jan 1, 2010.
•    E-Bay: $600M processed over the mobile channel in 2009 showing the great opportunity to come from mobile payments
•    Telekom Austria Group: 50% of parking meters are paid in Austria using the mobile channel, 1,700 merchants accept the A1 payments brand run by a consortium of mobile operators
•    Center for Financial Services Innovation: 21M Americans are underbanked according to a 2009 FDIC survey, 64% of underbanked consumers rate location “extremely important” when choosing a financial institution

These statistics highlight the growing presence of mobile banking and payments as well as the opportunity to expand financial services to more segments of the US population.

But the key question of the day was “What should policy makers look for?”

My answer:
Consumers cannot be left unprotected when we are seeing hockey stick growth in mobile banking, and mounting expectations for mobile payments over the next few years. Not only will security and phishing concerns exist, unscrupulous people will try to steal personal information from consumers. All of this points to the need for consumer regulatory protections.

Past experiences in the prepaid card world and the limitations of Reg E and Reg Z have taught policy makers valuable lessons.  In the vain of a great boxer that bobs and weaves, they must be nimble enough to update regulations quickly on both sides of the innovation versus consumer protection equation. Although Washington is not always known for moving quickly, the Federal Reserve should first tackle authentication and security concerns. Regulators should also start by simplifying the state by state licensing requirements, which create difficult environments for start-ups to launch nationwide services and take advantage of economies of scale.

Dec 7th, Google announced its next step in the journey towards enabling an Anywhere lifestyle for both businesses and consumers. Although trials have occurred over the past year, Google is now launching a national campaign by sending out window decals which contain QR codes to over 100,000 local businesses as part of the Favorite Places program. By scanning these QR codes, consumers will be given detailed directions through Google Maps, read detailed reviews of the merchant and possibly even receive a mobile coupon.

Following upon the recent successes of integrating mobile into the Black Friday shopping experience (see blog post by fellow Yankee Group Analyst Dimitriy Mochanov titled “Retailers Beware! The Mobile Shopper is Here!”), proliferation of smartphones and data packages put these capabilities in the hands of the consumer. With this Google Favorite Places announcement, local merchants do not need to invest in a mobile platform to provide reviews or drive foot traffic into the store. Merchants leverage Google’s investment and do not require infrastructure to drive consumers to their store. However, once merchants offer mobile coupons they will need 2D barcode scanning capabilities at the point of sale (PoS) to redeem the coupon from the handset. Now that we’ve gotten the details out of the way, let’s examine what QR codes may mean for general consumers and merchants.

QR codes can provide value but how much value depends on how merchants use them:
• Directions through Google Maps: In this first iteration, Google is providing a consumer with step by step directions to a store. The problem is that the consumer is scanning this QR code once they are already in front of the store. The value to the consumer here is limited. However by integrating the same QR code within your online advertising? Now Google Maps can provide walking and/or driving directions which becomes a real value add to the consumer.
• Ratings & Reviews: Providing reviews for a restaurant or store is limited when the consumer is right outside. Why not just see if the restaurant is crowded or try to visually see the presentation of the food yourself? However the value here for the QR code is to let the consumer read reviews of the level of service provided and intangibles such as cleanliness that the consumer cannot easily observe from outside the establishment.
• Mobile coupons: A consumer is outside your store and has scanned your QR code, but how do you get them to come inside? You have a captive consumer ready to interact so the mobile coupon is the best option to get them inside. The other options discussed above provide information while mobile coupons provide transactions and revenue. Utilize them.

After scanning QR codes this morning on my 2 year old Blackberry Curve, here are my results (which are unscientific but at least show what an average consumer will be up against):
• Size matters: When scanning the QR codes directly from my computer monitor, the size of the code matters. None of the Google Favorite Places in Boston worked with 3 different app readers on my Blackberry Curve. Once I enlarged the size of the code they worked just fine. It appears that the stickers Google is issuing for merchant windows are large enough where this doesn’t become a problem but is still worrisome for merchants looking to integrate mobile into their offline and online marketing strategy.

• Consumers don’t discriminate, neither should technology: With no common standards utilized throughout the US, app readers work on different types of codes. Consumers don’t discriminate between QR codes, Datamatrix codes, or any other proprietary code but the app readers themselves are not universal for all of the various code types. In the mind of the consumer they think “hey, here’s a funky looking code, I’m sure my app reader will work” and not understand the nuances between the technology. If you don’t believe me, read the reviews in the various application stores. The 3rd party app readers have very poor ratings but it is often not a technology problem reading the codes. Consumers are just trying to read interoperable code types.
• Cameras aren’t a limiting factor: Using a 2 year old Blackberry Curve and an original iPhone (without autofocus) to test out various codes, these older camera’s worked just fine. New phones with high resolution cameras and autofocus should experience even lower failure rates.

A whole host of other issues still combat this industry trying to gain popularity anywhere outside of Japan. For QR codes to become popular inside the US very soon merchants will need to deliver value to consumers, whether that is information based or through cost savings. In the end, the merchants are looking to drive transactions and revenue and the best opportunity to do so is with mobile coupons. These coupons will drive price sensitive consumers to open the door and come inside.

Ubiquitous connectivity beckons this holiday season, bringing with it a new wave of Mobile Commerce (M-Commerce). Consumers can soon expect SMS and MMS coupons, the ability to run price comparisons in real time while at the store and even mobile phone shopping from the comfort of home.

According to a recent Yankee Group survey, 14 percent of consumers are interested in mobile transactions, and an additional 18 percent say they may be interested. Yankee Group predicts the mobile coupon market will reach 2.5 million North American consumers by 2013, ballooning the dollar-amount of the market to $2.3 billion.

Today, Andy Castonguay and I hosted a webinar where we dove into trends from our consumer surveys and explored the devices, conveniences and challenges of M-Commerce as mobile is integrated into the retail shopping experience this holiday season.

The webinar runs about an hour: audio (mp3) and slides (pdf).

With the NFC market still as dormant as Jefferson Airplane (talked about for years, still kicking around and never sure when they’ll make another appearance), recent announcements about turning a mobile device into a credit card terminal using applications got me thinking. Will SMB’s lay the groundwork to mobile payments success? The two announcements I’m referring to are from a start-up named Innerfence and the well known developers of Quicken; Intuit. With both of these services, SMB’s will be equipped to type a credit card number, securely transmit the payment details for processing and email or SMS the receipt to a customer.

Initially, I began wondering whether SMB demand even existed for these merchant solutions. After speaking with fellow YG analyst Steve Hilton, the answer was yes and the discussion moved beyond SMB demand. Although these solutions have too many fees (interchange fees, monthly account fees, and setup fees) the fact that a field service worker does not invest in an expensive network connected payment terminal will force SMB’s to consider this solution. Assuming that these services fulfill all PCI compliance regulations, our discussion quickly evolved into one of consumer interest in this solution. While the merchants certainly would see the benefit of a portable credit card solution, would a consumer feel comfortable handling a credit card over to an electrician they found on Craigslist?

This issue of consumer acceptance will plague the usage of these solutions. Although an SMB can launch a credit card transaction service for a nominal cost (Intuit charges $59.95 setup + $19.95 monthly fee and Innerfence charges $49.99 to download the mobile application and $25 monthly fee), a large amount of consumer education is required to ease concerns about the security of these services. Although handing someone your credit card at a restaurant and having them disappear for a few minutes or having a shopkeeper without a broadband or dial-up connection take a paper imprint of your credit card has risks, consumers are conditioned that this is acceptable. It will require years to change those beliefs in the minds of consumers and will limit the acceptance of portable credit card services for the SMB channel.

When we get to NFC, which Yankee Group’s soon to be released forecast expects only 13 million NFC enabled devices in North America by 2013, NFC processes will ease some of the consumer hesitancy in handing over a credit card to a cell-phone-wielding electrician. Having an electrician type your credit card digits into his cell phone feels a lot more risky than the electrician tapping his cell phone against your credit card. Consumers will be able to tap a device against a merchants phone to pay for a service and although it will not eliminate the security concerns, it will eliminate the need to manually type credit card details.