Interest in Mobile Payments Increasing

Stephen DeAngelis

August 20, 2012

A year ago the question was being asked, “Will It Be Years Before Mobile Payments from Digital Wallets Take Off in Retail? SupplyChainBrain, 17 August 2011] The article stated, “If the digital future pans out the way that leading banks, credit card issuers, wireless carriers and tech companies hope, [mobile payments] could become common. Folks rarely leave home without their keys, wallets and cell phones. The thinking behind the next advancement in mobile payments — and it’s likely to take years before this vision goes mainstream — is that all three can be merged into one.” Retailers, it appears, aren’t willing to wait years to make mobile payments more ubiquitous. You probably saw the recent announcement that “a group of the largest US retailers, including Walmart, Target and Best Buy, … plans to create a joint mobile wallet service.” [“Large US retailers to create mobile wallet,” by Maija Palmer, Financial Times, 14 August 2012] Palmer reports:

“Merchant Customer Exchange (MCX), the joint company formed by more than a dozen retailers, will compete with initiatives such as Google Wallet and Isis, which is backed by mobile operators AT&T, Verizon and T-Mobile. Last week Starbucks also announced a partnership with mobile payment start-up Square.”

Michael A. Cook, vice president and assistant treasurer of Wal-Mart, told New York Times‘ reporter Brian X. Chen, “We believe that merchants are in the best positions to deliver mobile payments to billions of people.” [“Big Retailers Plan Effort for Mobile Purchases,” 15 August 2012] He reminded Chen that the retailers involved in MCX “have $1 trillion in annual sales.” Both Palmer and Chen noted that the announcement about the establishment of MCX came close on the heels of Starbucks announced partnership with Square. Chen indicated that some retailers were concerned that Starbucks would have too much “influence over how Square’s payment system was developed.”

Chen, like Palmer, also notes that the mobile payment field is getting crowded and that could cause a problem. He explains:

“While competition in a market is typically a good thing, giving consumers many different options to make a mobile payment could leave them baffled. Charles S. Golvin, a Forrester analyst who focuses on mobile technology, said that in order for a mobile wallet product to gain traction, it would need to be an open system that allowed customers to pay for anything, anywhere. ‘You need to remove this possibility of the customer scratching their head as they walk in and saying, “Gee, I wonder if I’ll be able to pay here with X, Y or Z?”‘ he said. ‘That consideration, if it’s present, is a buzzkill.’ Mr. Golvin said the newly announced merchants’ payment network seemed as if it could gain traction with customers who shop regularly at the businesses that are part of the group. But he added that it did not seem likely to generate a compelling product that would give the idea of mobile payments the push it needed. ‘It does not strike me as a driver for the fundamental shift to mobile payments that the industry at large is counting on,’ he said.”

When the Starbucks/Square announcement was made, Claire Cain Miller wrote, “Though smartphone payments have a long way to go before they replace wallets altogether, Starbucks’s adoption of Square will catapult the start-up’s technology onto street corners nationwide, and is the clearest sign yet that mobile payments could become mainstream.” [“Starbucks and Square to Team Up,” New York Times, 8 August 2012] Miller continued:

“Google, PayPal, Sprint and Microsoft and start-ups like Scvngr and GoPago [also] are trying to offer mobile payments. But they have been slow to catch on because they require the cooperation of many players, including retailers, credit card companies, banks, cellphone carriers and phone makers. And Americans have been just as happy to pull out their credit cards as their cellphones to make a payment.”

In addition to being confused by the array of mobile payment systems being introduced, I suspect that many consumers still question the security of such transactions. Miller reported that “Denee Carrington, a Forrester analyst who recently wrote a report on mobile payments, said that mobile payment providers would need to offer a compelling, safe and convenient experience for shoppers, and that the applications would have to make good use of their personal data, like spending habits, to offer valuable services.” She continued:

“Forrester estimates that 30 percent of American mobile phone owners are interested in using mobile payments, based on a survey polling about 7,600 adults in the United States. It found that younger consumers are the most amenable to using mobile wallets. Still, it predicts that it will take another three to five years before mobile payments reach critical mass in the domestic market.”

It will be interesting to see if MCX speeds up that timeline. Another reason that retailers are hoping that mobile payments catch on is because they give them another way to fight “showrooming.” Reporting on PayPal’s efforts in this area, Adam Blair writes:

“A few retailers are already testing such location-based and action-based targeting, but if PayPal continues to move aggressively into the physical retail space, many more retailers could take advantage of their payment infrastructure to influence shopper behavior in their stores. It would be another weapon in retailers’ ongoing efforts to keep from turning into ‘showrooms’ for their lower-priced competitors.” [“Is PayPal’s Home Depot Pilot a Game-Changer? Retail Info Systems News, 24 January 2012]

Since Target has been aggressively fighting showrooming, it comes as no surprise that it is a partner in MCX (see my posts entitled Showrooming and Product Customization and The Battle Against “Showrooming” Continues). Because so many big retailers are involved, MCX will be in a strong position to garner support from any other stakeholders that will want in on the action. Palmer explains why getting stakeholders together is such a difficult task. She writes:

“Mobile phone operators, retailers, banks and technology companies are all competing to run mobile phone payment services, which each group keen to be the one to control the direct relationship to the customer. Retailers are also concerned the
y will be stung by hefty transaction fees if another group, such as banks or mobile operators, controls the payment network.”

The reason that a significant amount of jostling for position is going on is that the potential market for mobile payments is large. Palmer reports, “Gartner, the research company expects the number of mobile transactions to increase to $600bn by 2016, up from $172bn this year.” To achieve that forecast, will take a lot of work. As Adam Blair notes, “Changing the way consumers pay for purchases has traditionally been a slow process, requiring lots and lots of education and motivation.”

Twenty-five years ago Roger Zelazny predicted that by now we would be living in a cashless society. He wrote and placed the following prediction in a time capsule that was opened this year: “It is good to see that a cashless, checkless society has just about come to pass.” [“Sci-Fi writers of the past predict life in 2012,” by David Szondy, Gizmag, 5 August 2012] Although that prediction was close, Zelazny was way off on the rest of his predictions. He wrote:

“[It is good to see …] that automation has transformed offices and robotics manufacturing in mainly beneficial ways, including telecommuting, that defense spending has finally slowed for a few of the right reasons, that population growth has also slowed and that biotechnology has transformed, agriculture and industry – all of this resulting in an older, slightly conservative, but longer-lived and healthier society possessed of more leisure and a wider range of educational and recreational options in which to enjoy it – and it is very good at last to see this much industry located off-planet, this many permanent space residents and increased exploration of the solar system.”

Back in the real world, the staff at Consumer Goods Technology (CGT) asserts that mobile phones and tablets represent the new face of shopping and that “traditional boundaries between physical (‘bricks and mortar’) retailing and online retailing are blurring as mobile bridges the gap.” [“Mobile Shopping Creates a $15B Opportunity,” 8 November 2011] We are indeed entering a new, if not revolutionary, world in which mobile devices are going to play a large role.