Mobile Payments: Nothing Worth Investing In Just Yet

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Includes: EBAY, GOOG, INTU, MA, V
by: Stone Fox Capital

After recently writing articles (I, II) about mobile advertising, it seemed appropriate and interesting to check out the mobile payments industry next.

With smartphones and tablets now widespread, the mobile payments industry appears ripe for major growth in the next 5 years. Normally being ahead of the curve on mobile adoption, I actually found myself very uninformed on mobile payments. Maybe the central part of the country is just behind on this technology adoption as I've yet to run across a small business owner using a mobile card reader.

For now, the industry is very fragmented with numerous developments underway. Not to mention that concepts of whether mobile payments means the customer or the business uses the mobile device are mixed.

The potential in this sector has attracted big boys including Intuit (INTU), the PayPal division of Ebay (EBAY), and Google (GOOG) to develop various solutions. Also, traditional payment processors MasterCard (MA) and Visa (V) are working with various mobile payment systems so not to be left out. Numerous startups are working on solutions with Square the most visible.

This list doesn't even include various wireless providers working on solutions and the fragmentation surely means several key players have been missed in my research.

Below is a review of the major initiatives and the investment potential of each one:

Intuit GoPayments:

Intuit provides a card reader that plugs into mobile devices that can accept credit card payments and deposit the cash directly into a checking account. The company charges a fee for each use. See the comparison to Square from PCWorld.

Intuit has a market cap of $18 billion and annual revenue for fiscal year 2012 of over $4.2B. Direction of the stock will remain largely dominated by TurboTax and QuickBooks applications leaving limited upside from mobile payments for now.

PayPal Mobile/Here

PayPal offers a couple of mobile solutions that are a part of the new Payments system. Mobile provides consumers with the ability to securely pay and receive money via a mobile phone. Here provides a card reader that plugs into mobile devices that can accept credit card payments along with checks and PayPal. This appears to be similar to the offerings of Intuit and Square with additional features.

PayPal is a division within eBay which has a market cap of $45B. With revenue approaching $14B from the original auction site and non-mobile payment solutions, it will be a long time before these new mobile options are meaningful to the bottom line.

For 2011, PayPal processed $118B in payments though only $4B were mobile payments.

Google Wallet:

Exclusive payment system between Google and MasterCard that lets consumers use a contact-less system involving readers or scanners that pick up a chip in the credit card that allows for payment on their Android-based smartphones. Consumers aim their smartphone at the reader, which then transfers money off their MasterCard account. Google gets a percentage of the transaction from MasterCard.

Google has a market cap over $205B making the thought of ever investing in it based on mobile payments alone impossible.

Square

Similar to GoPayment and now Here, Square provides a card reader that plugs into mobile devices that accepts credit card payments and deposits the cash directly into a checking account.

It's a private company with an estimated market value of $1B that expects to process $4B in mobile payments. It provides the best focused mobile payments investment option for private investors though it faces enormous competition in a area in which consumers aren't always enthralled with startups.

Where To Invest?

Unfortunately, no publicly focused investment opportunities exist. Most of the solutions are small parts of large companies and Square isn't public yet. For now, my search has hit a dead end, but the opportunity is too large to stop researching.

In the end, it might just be MasterCard and Visa that win as more transactions of small businesses transform from paper or check to credit cards. It appears that either consumers will make mobile payments directly with credit cards or payoff a PayPal balance likewise.

So while the technology and payment method might be new, for now all investment roads lead back to mega cap companies with little reason to invest in for mobile payments alone.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Please consults your financial advisor before making any investment decisions.