VeriFone Systems (PAY) and NXP Semiconductors (NXPI): These are two of the arms merchants in mobile wallets. VeriFone sells the terminals that retailers use to accept cards. It's already looking at a major upgrade cycle, since the credit card companies say U.S. retailers must have terminals with "Europay, MasterCard and Visa" security systems by 2015. A shift to mobile wallets would add another layer to the upgrade cycle.
VeriFone also offers a wireless credit-card terminal that wait staff can take to restaurant tables for payment. If payment by mobile phones takes off, demand for this would kick in, since diners might be reluctant to hand over their phones to a stranger to carry off to complete a transaction, says Benowitz.
NXP provides the chips that help secure and power "near field communication," known as NFC, one of the technologies used by mobile wallets to make transactions in stores. Right now, this is a small portion of the company's revenue. "But it could be meaningful if NFC mobile wallets take off," says Michael Scanlon, an analyst with the John Hancock Balanced Fund (SVBAX).
LevelUp: This promising startup entices retailers to use its mobile wallet by picking up their credit card fees, which LevelUp CEO Priebatsch describes as a "tax that sucks value out of businesses." LevelUp then uses detailed information on consumers to offer targeted promotions, collecting a fee from retailers for the service. It's the purest play here on mobile wallets -- or will be, if and when it goes public.
LevelUp is small, but it's one to watch; Google has funded it, and it is growing fast. The current user base of a half-a-million consumers will double in the second quarter of 2013, the company says. It's a private company now. But watch for the initial public offering.
Wal-Mart andLowe's (LOW): These two retailers helped create a company called Merchant Customer Exchange last summer. MCX will set up a payment platform that participating retailers can customize to offer their own mobile wallets.
The ability to push deals to customers via a mobile wallet plays right into Wal-Mart's core "everyday low prices" strategy and helps it deal with competition from dollar stores, which have been winning over Wal-Mart customers. Lowe's will continue to benefit from strength in the housing sector and efforts to improve merchandising and customer service. The mobile wallet will help Lowe's get deals to price-conscious customers.
Verizon Communications (VZ -0.57%, news) and AT&T (T -0.54%, news): Even if their mobile wallet offering, Isis Mobile Wallet, doesn't work out, these phone companies will benefit from this trend, since they'll make smartphones and data plans even more important to consumers.
The New York Times (NYT), A.H. Belo (AHC), and McClatchy (MNI): Newspaper companies like these have been hammered by the shift toward online, search-related advertising. An increase in personalized marketing on mobile devices will have retailers moving even more ad spending away from newspapers. "The whole business model for mobile wallets is based on shifting dollars away from mass media campaigns that are a waste because they reach the wrong eyes," says Mike Boush, an e-business marketing vice president at Discover Financial Services (DFS).
Again, the key here is the detailed level of intelligence on consumers that mobile wallets provide to retailers. "Unlike a newspaper, where you put an ad out and you have no idea if it attracted new customers, we have analytics that show retailers earn $18 for every new customer they spend $1 attracting," says Priebatsch, of LevelUp.
MasterCard, Visa (V) American Express (AXP) and Discover: Credit card companies will win in the short term because businesses like Square are helping small retailers use mobile devices as credit card terminals. This converts cash payments to credit card transactions, points out McPherson of IDC.
And American Express offers a digital wallet that’s been successful so far. Called Serve, this wallet can link to any credit card, and you can use it for personal banking. American Express has about 3 million people using this service, and 80% of them are new customers, says Joanna Lambert, a senior vice president for strategy at American Express. That's a win.
But long term, credit card companies face the risk that mobile wallets will edge them out of retail transactions, though credit card companies say this won't happen. "We don't look at the mobile wallet as something that is an existential threat," says Anderson of MasterCard. McPherson, at IDC, agrees, noting that bank transfers are cumbersome for retail sales, since they settle overnight. Plus credit card companies play a key role in fraud prevention, which is more difficult with bank transfers, says Jeff Miles, the worldwide vice president for mobile transactions at NXP.
But Priebatsch, at LevelUp, disagrees with the takeaway that credit card companies are safe. "Those are all solvable obstacles," he says. If he's right, mobile wallets may ultimately cut credit card companies out of retail transactions. "Absolutely it's a viable scenario," says Priebatsch. "I think eventually we do get rid of credit cards."
That's still far off, if it happens at all, so I wouldn't short credit card company stocks tomorrow because of mobile wallets. But it's a threat worth watching. After all, credit cards would not be the first old-line business eviscerated by the Internet and innovators on the Web, like Google, a key investor in LevelUp.
On the other hand, what do you buy if you want in on this trend? There may not be a pure play on mobile wallets until LevelUp goes public -- and that could be a good one, depending on how it is priced. But if mobile wallets start to take off in 2013 as I suspect, the trend will definitely help Google, eBay, VeriFone, and NXP; retailers such as Wal-Mart and Lowe's; and longer term, Verizon and AT&T.
At the time of publication, Michael Brush did not own or control shares of any company or fund mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
