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Will in-app purchases break open the mobile payment market?

Sep 25, 2013 Dave King

At this point, it almost sounds like a broken record, but financial experts continue to forecast a spike in mobile payments. To date, there has indeed been growth in the field but it has been relatively modest. Despite the slow adoption rate, many electronic payment predictions still outline a significant jump in mobile payments for the coming years.

Data recently released by Gartner suggests that the mobile application market may be the catalyst mobile payments need to enter the mainstream. The source reported that mobile app downloads will top 102 billion this year, a significant increase from the 64 billion apps downloaded by smartphone and tablet users in 2012.

However, what's more important to note in terms of mobile payments is that the source indicated in-app purchases (IAPs) will account for 17 percent of app store revenues this year. In 2012, just 11 percent of app revenues came from in-app transactions as opposed to the actual purchase of an application or program.

By 2017, the source predicted that IAPs will be responsible for 48 percent of app store buying.

"We see that users are not put off by the fact that they have already paid for an app, and are willing to spend more if they are happy with the experience, said Brian Blau of Gartner. "As a result, we believe that IAP is a promising and sustainable monetization method because it encourages performance-based purchasing."

Mobile payment outlook mixed
Despite the expected IAP growth, the overall outlook for the mobile payment market remains cloudy. The market took a major hit recently when Capital One decided to end its partnership with Isis, according to GigaOM.

Isis appeared to be poised to become a major player in the market, forging partnerships with a number of large payment transaction companies and banks. For the last few years, one of the barriers to widespread mobile pay adoption has been market fragmentation. Retailers have hesitated to adopt mobile platforms because the high number of processing companies made it difficult for businesses to offer mobile solutions to a large number of customers.

GigaOM speculated that the move by Capital One could indicate that banks are losing faith with Isis. Potentially, the development could force other banks and financial firms to end their commitment with Isis and develop their own mobile payment systems, further bogging down the market with excessive competition.