With mobile wallet announcements pouring out of last week's Mobile World Congress, the market for m-commerce is undoubtedly gaining momentum. News from the show included a new mobile payments partnership between Visa and Vodafone, a multi-year agreement between Visa and Intel and the launch of various devices embedded with near-field communications (NFC) technology from the likes of Samsung, LG and Research In Motion.

While NFC technology is now widely available, there are still a number of hurdles for the industry to overcome before it can enter the mainstream. The latest report by Radius Global Market Research reveals that most American consumers are still sceptical of smartphone-generated payment solutions, with 86 percent citing concerns about security or fraud – and uptake in the US is much higher than in Europe.

In emerging markets, however, mobile wallet technology is thriving, according to Ovum analyst Angel Dobardziev. This is because large numbers of people in Africa and Asia have no bank accounts, so mobile wallets are the only way to exchange money electronically. But in developed markets, where mobile payment technology is regarded as a novelty rather than a necessity, will m-commerce ever enter the mainstream?

Achieving critical mass

Near-field communications – also known as contactless payments or 'wave and pay' – is best known in the UK for its use in Transport for London's (TfL) Oyster cards. It allows consumers to carry out transactions by simply touching their phones to a point-of-sale (POS) terminal in a shop. Around 35 million NFC-enabled phones were shipped in 2011, according to IMS Research. However, a report by WorldPay in July revealed that, on average, each contactless point-of-sale terminal in the UK is only used four to five times per month.

Dobardziev explains that, in order for mobile wallets to reach critical mass, the consumer needs to know that this form of payment will be accepted anywhere they go. With the economy the way it is at the moment, many retailers lack the incentive to invest in NFC terminals, because existing payment solutions work well and – as Ovum's recent Making Money from Mobile Money report revealed – margins on mobile payments are very small.

“A lot of the pieces in the ecosystem are not fully in place. For example, the revenue sharing mechanisms between the retailers, the banks and the telcos have not yet been worked out. Where will the money come from? Will it be the same as in the card payment world, where the commissions are standardised and well understood, or will it be different?” asks Dobardziev. “We have seen that a number of telcos have unrealistic expectations in terms of revenues that can be generated from this.”

Moreover, there are a number of different ways that mobile wallets can be provided. One way is to embed NFC technology onto the SIM card, which allows the telco to control the wallet; another is to embed it onto the device chip itself, so manufacturers like Apple and Nokia can charge rental fees. A further option is to provide NFC through the device's Micro SD slot, whereby external players control and process the transactions.

A new model for providing mobile wallets could also be emerging, with the news that a group of US retailers are planning to develop their own mobile payments system. Juniper Research analyst David Snow describes this as “the missing piece in the mobile wallet ecosystem”.

“Retailers are being expected to play their part in the market and start accepting mobile NFC payments through their POS terminals. However, the news that large retailers such as Walmart and Target are planning their own wallets shows that retailers are not just going to do what is expected of them as the last sector to be consulted; but that they want to drive the market their own way, not on the dictated terms of the other two players,” says Snow.

Dobardziev expects the SIM-based model to prevail, because telcos have the most intimate knowledge of their customers, and also because this model allows consumers to take their wallets with them if they decide to switch devices. However, Google Wallet, which is arguably the most successful mobile wallet offering on the market today, uses device-based NFC. This could result in users having multiple wallets on their phones from various different providers – just as we have multiple credit cards from different banks today.