Could mobile payments market really be worth $630 billion in five years?

Mobile payments have long been dogged by business model challenges, but according to a recent report momentum is growing and could make that market worth as much as $630 billion in five years — a big number that should grab service providers’ attention.

The report from Juniper Research, “Mobile Payments Markets: Strategies & Forecasts 2010-2014,” found that mobile payment methods are gaining steam in both mature and emerging markets. Through one-on-one interviews and 22 case studies across the mobile payments space, the report explores products and services and how service providers are expanding their offerings — and how merchants and customers are getting more comfortable with mobile transactions.

“When you see someone has bought a boat off of their mobile device and an eBay mobile app, you see the potential for spectacular figures,” said Harold Wilcox, who authored the report.

For service providers, the future of mobile payments and m-commerce has always been heavily tied to business models that must solve the problem of working with so many participants across so many local, state, national and international boundaries.

“You can zoom into something like near-field communications [or NFC, in which devices exchange data over small distances] and realize how difficult it has been to figure out how all stakeholders will fit together—whether mobile operators, ticketing agencies, transport companies, financial institutions—each with its own locations and regulations,” Wilcox said. “It’s taking some time to resolve just how to offer customers the services they want at the price points they want, while ensuring everyone makes what they need to so that it’s all worthwhile,”

But as Juniper’s report shows, real progress is being made on many sides of the globe.

In mature markets, merchants, retailers and financial institutions are developing mobile apps to draw in customers. For example, across Europe the combination of ticketing and GPS have spurred “take-me-home” apps that tell people how to get home from wherever they are, and GPS in retail has helped merchants to push coupons discounts to mobile phones to lure customers.

In the U.S., for instance, retailer Gap Inc. has an appthat lets customers peruse various sales and view videos from designers as well as musicians and celebrities. There’s a store geo-locator for shopping on the go, which leverages Gap’s exclusive-to-mobile discounts. The store also increasingly tweets coupons, which users can show a sales clerk from their phones.

Once organizational issues (such as lack of folder systems) and traffic issues on smartphones are resolved, consumers may use even more apps and more merchants may come on board.

As business models and handsets continue to evolve, technologies such as NFC are expected to further extend the possibilities for m-commerce. Android NFC phones are rumored to arrive this year, and Apple’s newly published patent application talks of NFC as a means to getting devices to share resources within a connected “Apple TV Living Room,” in which iPods, iPhones, Apple TVs, Macs, games controllers, printers, DVRs, projectors cameras and remote controls are paired to share resources such as hardware, software and entertainment products.

Peer-to-peer (P2P) is also taking off, as evidenced by recent research from PayPal and NACHA, the Electronic Payments Association. The research finds that demand for electronic P2P payments and transfers is growing rapidly and interest in making these and other payment transactions through an e-payment portal is also strong. The organizations found that 50% of consumers surveyed expressed interest in replacing cash and checks with P2P payments for common needs. Banks will benefit most by promoting P2P payments to online banking and bill payment customers, as well as users of mobile banking services and payments. In the findings, 34% who expressed interest in the portal concept indicated they would be willing to switch to a bank that offers electronic P2P payments as part of an e-payment portal.

The excitement isn’t just building in mature markets, either, as emerging countries are also jumping into m-commerce possibilities. For example, the popularity of M-PESA — Safaricom and Vodafone’s mobile payment mechanism — in Kenya has revolutionized the ways Kenyans manage their money. While only 22% of adults have bank accounts there, 38% of households have at least one M-PESA user. That is opening the door for m-commerce in areas that are under-banked and non-banked.

With appropriate regulatory mechanisms in place, m-commerce may be ultimately as prominent, if not more prominent, then bank-led models, as it opens up transactions to potentially millions of people. In Kenya, mobile money transfers through M-PESA have triggered a merging of segments with the creation of shopping sites that allow people to pay for goods through their phones. The same is true in India, where mobile transactions are taking off through mobile malls, which allow people to shop, send gifts, buy books, buy movie tickets, book travel tickets, recharge mobiles, and do banking through ngpay and PayMate.

With momentum around such services, it doesn’t seem like too big a prediction that the market will hit big numbers by 2014.