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What does the closure of O2 Wallet say about the future of mobile payments?

Well so much for that — less than two years after Telefonica(s tef)’s U.K. carrier O2 launched its mobile wallet service, it’s shutting the service down. In a Thursday statement on its site, the company said O2 Wallet would cease to exist at the end of March, “to give us time to look into new and better ways to help people manage their money on the move, both in the U.K. and abroad.”

O2 Wallet allowed users to transfer sums of money (£1-£500, or $1.64-$820) to other users, to compare online prices by scanning barcodes on physical products, and to pay for things in person using a companion contactless Visa(s v) card. The app didn’t draw on mobile devices’ contactless NFC capabilities, although O2 said this feature was under development.

So what killed it? That depends on who you ask.

An O2 spokesman pointed to several developments over at the parent company – in 2013, Telefonica set up a mobile payments joint venture with Spanish banks Santander and CaixaBank while also signing up Monitise as a technology partner. O2 is also part of the Weve joint venture, alongside EE and Vodafone(s vod), which will take in mobile payments, advertising and loyalty schemes.

However, one thing strikes me as rather weird about this version of events: why kill O2 Wallet before Weve properly launches? Why not just transfer over the users, rather than starting from scratch?

According to Windsor Holden, research director over at Juniper Research, this may be because the operators aren’t quite sure yet what they’re doing in the mobile commerce space.

“The operators want to get involved in mobile commerce, but there are so many different stake-holders involved in this, and so many potential channels,” he told me on Friday. “The optimal business models have yet to be decided on, the consumers are still unconvinced about the security … but most of all the consumers are unaware of [mobile payment services].”

A key problem here, Holden suggested, is the failure of NFC to take off as a contactless payments technology. Apple(s aapl)’s refusal to incorporate NFC into its devices surely plays a part here, but even the use of NFC in contactless bank cards hasn’t become widespread outside of a couple of countries, notably Poland and Australia.

Holden also pointed to Google(s goog)’s recent adoption of host card emulation, making it easier to emulate a payment card in an NFC-capable Android phone without any carrier involvement. “The potential there is for operators to get bypassed from the value chain,” he said. “Maybe the operators are getting wind of this and are having second thoughts.”

“O2’s been heavily involved as a sole player in the mobile wallet business and, for it at this stage to say ‘Hang on, we’re canceling our service,’ that to my mind shows deep doubts in their ability to communicate the benefits of this technology and make money out of it,” he added. “People aren’t putting money on their handsets. If you’ve got a card, people would just use that — why hassle with an extra step? If you’ve got means of paying that are not fundamentally flawed, why move to alternatives?”

It’s probably too early to tell, but I think it’s safe to say we’re still waiting for someone to prove that mobile wallets are a viable mass-market proposition.

8 Responses to “What does the closure of O2 Wallet say about the future of mobile payments?”

  1. Michael

    Very sad 02 wallet had to end was one of best cards I’ve had very simple to register and manage also operate Never had any problem with it
    Just hope that 02 comes up with somthig very similar very soon Feel list without it
    Thanks for the great service you gave

  2. Daniel Angel

    Fundamentally the O2 wallet did not offer much value to consumers: it wasn’t for proximity payments as it did not feature NFC (it was part of the original plan) and its utility for making online payments through mobile retailers was also limited.

    An unfortunate example of an MNO believing that scale and marketing spend can compensate for lack of compelling customer proposition. Not that O2 are unique in making this mistake, it is a common misconception across MNOs in many markets.

    Weve should be the answer in the UK, let’s hope that the shareholders and their parent companies can bring mobile proximity payments to many UK customers and put their differences and internal agendas to the side.

    The key will be colaborating with the banks, TfL and others. Here’s to being able to virtualise my existing credit and debit cards on my phone soon. For now you can still have the strange pleasure of surprising retailers by paying with your phone from EE however it is via a pre-paid account as with the O2 wallet.

  3. I think the closure of the O2 Wallet holds a lot of lessons for mobile operators as they attempt to get involved in the mobile payments space. While it worked for Safaricom in Kenya (where one MNO dominates the market), this doesn’t mean that the single-MNO-led mobile wallet model will work in more competitive markets. I don’t think this means that MNOs cannot participate in mobile payments altogether, but they need to collaborate with other industry partners (or even rivals) to develop a wallet that is interoperable across all operators, operating systems and handsets. The challenge here is finding the right business model that appeases all partners.

    I wrote an article on the topic for Mondato, if you are interested in reading more!

  4. Passed the “coolness of being involved in Mobile Payment” …one needs to understand that Payments are low margin/big liability businesses …not designed for many existing players. Carriers have much more comfortable margins with close to zero liabilities. If you are used to 50$ ARPU…is just incompatible with a ridiculous 0.3% (at best) on top of Cards Networks.

    Add to this, consumers don’t much care about all these Wallets …that you need to refill anyway from a bank account (redundant) or with a credit card (even worse).

    Last, it does not fix the main problem for all of us: how to get enough money for all our wants & needs. Credit Cards solved this …with “instant credit”. All these Wallets haven’t added anything new on this “area”. Users will join your Wallet or payment network …if you come up with “Payment Plans” …not just “fancy, mobile processing technologies”.

  5. The O2 wallet experience was shockingly badly designed. I literally couldn’t register because it was the most complicated and terrible user experience ever conceived. My guess is that this is the real reason it was closed; there were no users and certainly no active users, therefore having little to no return on operating costs for O2.

  6. Here there is no failure of NFC rather a failure to use it properly. Both here and in the USA it is the mobile carriers who wish to control the use of NFC payment applications on their devices. If Google Wallet or a similar application from card companies themselves were introduced without ties to mobile carriers, the adoption would be much greater.

    What we need is to loosen the grip of carriers on how consumers can use their mobile devices. By this I mean which applications can be installed etc.

  7. Julian Ehrhardt

    What I believe it says is that people don’t expect their telco, especially those with an extremely poor data security record, to be offering them poorly designed mobile banking/wallet services.