Mobile payments will approach $1 trillion by 2015 in the United States if retailers receive lower payment-processing fees based on a more efficient system, according to projections by International Telecom Strategies’ The Luciano Group.

While recent reports predict that mobile payment spending will reach $214 billion in the U.S. by 2015, that figure depends on the services that dominate the market at that time, but the mobile payments revolution is far more significant than just these new tools.

Some of the largest companies in the world think this system should change, starting now, while other equally large companies think everything should stay the same. These two sides of this format war are already lining up on a battlefield, with consumers and retailers standing in the middle.

Mobile Commerce Daily’s Dan Butcher interviewed David Schropfer, partner at International Telecom Strategies’ The Luciano Group, Red Bank, NJ, and author of “The Smartphone Wallet – Understanding the Disruption Ahead.” Here is what he had to say:

Who are the primary combatants in the impending mobile payments war, and what factors are bringing the conflict to a head?
Generally, the two sides are in the payment system as we know it today—Visa, MasterCard, First Data, Fiserv, etcetera—and all of the other companies that are either using or contemplating using an alternative to the payment system—PayPal, Isis, EnStream and others.

What are some of the key conclusions and takeaways from the book?
The payment system as we know it today was designed in the 1960s and ‘70s. Technology has improved, but the architecture is the same.

Mobile payments have the potential to create a more efficient and less expensive payment system.

A less expensive payment system could mean much lower fees to merchants, and lower retail costs to consumers.

Unfortunately, if these new alternative payment systems do not catch the attention of retailers and consumers during the next five years, we may lose the cost-benefit of the systems for decades.

In other words, consumers and retailers need to know the difference between the two formats, and choose the product that is right for them.

Consumers need to know that mobile payments and mobile loyalty programs will offer them a chance to regain their privacy.

For retailers, mobile payments may represent a chance to cut their credit card fees in half. The same is true for loyalty and reward programs.

Retailer fees for these programs may be significantly reduced by using emerging mobile wallet and mobile payment products, such as the type of product that the new company Isis may deliver.

The reduction of these fees is not because mobile payment companies want to survive on thinner margins.

Instead, these fee reductions will be based on a more efficient infrastructure and architecture.

Our projections reflect that mobile payment spending will be close to $1 Trillion by 2015 in the U.S. if retailers receive lower payment processing fees based on a more efficient system.

What compromises must be made in order to take the mobile payments and commerce ecosystem to the next level?
The alternative payment system companies may need to compromise by working with Visa, MasterCard and the other established payments brands in the near term.

On the other side, Visa and MasterCard may need to consider a more cost-competitive architecture to remain competitive in the long term.

What advice can you give to wireless carriers?
Band together and come up with one standard, just like AT&T, Verizon and T–Mobile did with the creation of Isis.

When Isis launches its services in the United States, they will, by definition, offer one standard for retailers to use.

Imagine if all three of these companies worked separately. Retailers would have to consider the standard and value proposition of three individual systems, in addition to their acquirer network already in use, which would likely lead to retailers choosing  not to work directly with any of the carriers.

With Isis, retailers will need to only create one more vendor relationship to gain access to a product that will work on up to 70 percent of the mobile phones in the US.

Tips for credit card/payments brands and other financial institutions?
Financial institutions need to simply choose to participate, or not, in offers as they develop over the next few years in the mobile payments space.

Credit card schemes and processors, however, need to take a serious look at the smartphone, GSM technology, UICC, Trusted Service Management and other technologies to decide if greater processing efficiencies can be realized.

Advice for and retailers/merchants given the current state of affairs?
Absolutely, positively, do not purchase any ECR or POS equipment until the industry figures out its next set of standards, including NFC, EMV and other elements.

In the meantime, they should read publications like yours to understand how the mobile payments players are developing, and whether or not they will need to partner with a different kind of acquirer in the future.

Final  Take
Dan Butcher, associate editor, Mobile Commerce Daily