November 17, 2014
Mobile payments: What it will take
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
Until technology, standards, and security issues get resolved, widespread market adoption of mobile payments won’t happen quickly. Netting out the current state of mobile payments, it seems like "Beta vs. VHS" all over again, and there is no assurance that the best solution will win — or even that there is such a thing as a "best" solution.
And while each of the players — ApplePay, CurrentC, Google Wallet, PayPal, etc. — may be hoping that they will become the "VHS" of mobile payments by virtue of the greatest consumer acceptance, this isn’t video entertainment we’re talking about, it’s people’s money.
I remember asking a C-level executive at Duane Reed (pre-Walgreens), "What kinds of payments does your company support at the point of sale?" His response: "If a customer offers us money, we want to take it. People come from every corner of the planet to our Manhattan stores, and we never want to say ‘no’ to them."
That sounds like a sensible approach. But mobile payment adoption is dependent on a lot of things beyond retailers’ control.
At the recent RVCF (Retail Value Chain Federation) Conference in Scottsdale, Marianne Crowe, VP of payment strategies at the Federal Reserve Bank of Boston, first outlined the reasons why mobile payments aren’t just likely, but inevitable. These include the rapid adoption of smartphone technology, mobile banking (deposits, bill pay, etc.) becoming mainstream, mobile payments for mass transit and online already increasingly common, and a plethora of emerging payment technologies.
At the same time, Ms. Crowe pointed out the biggest inhibitor of all — consumer attitudes about mobile payments (from a Federal Reserve Bank consumer study):
- 76 percent of consumers think cash or the familiar debit/credit card format is easier to use;
- 63 percent of consumers are concerned about the security of mobile phones; and,
- 61 percent "see no benefit."
So, given the state of flux in mobile payments, what should retailers do right now?
"You need to get something into your stores so that consumers can start getting comfortable, whether it’s QR coded like the Starbucks card or NFC contactless," Ms. Crowe said in an interview with RSR. "As better solutions come along or you want to add solutions, you’ll at least have a baseline to work from."
It’s a good time to test "because the volumes of transactions are still relatively low, and the market is still immature." Indeed, one solution isn’t expected to arrive in the next few years because "not every consumer will want to use the same thing," and different options are arriving for iPhone and Android users.
Ms. Crowe’s final words of advice? "Everybody needs to stay calm, and not stifle innovation."
BrainTrust
Recent Discussions
Discussion Questions
Will early adopters gain much of an advantage over competing retailers in mobile payments? Should stores be prepared to accept the wide variety of payment options emerging in the marketplace?
Poll
Ms. Crowe is right, retailers need to stick a toe in the water and begin using mobile payments. Early adopters will, if the payment systems work as advertised, build customer loyalty and be seen as being technologically in sync with their customers. Some customers may never use mobile payments, but a significant number will soon be looking to give them a try.
It depends on the retailer’s customer base. Are your consumers early adopters or trend-setters? If yes, then you need to do immediate sensing to understand their needs and how to adapt your systems to provide the expected POS experience. If no, then you should still begin preparing for the inevitable, and use the opportunity to educate your customers about mobile payments and the benefits. But know that you won’t likely lose a transaction if you don’t accept mobile payments at this early stage.
Electronic payments will most likely see initial acceptance and growth among the fast food and service industry. Users will follow the applications that are secure and easy to use. Including the user’s ability to add and edit security limits for their accounts will increase interest and maturation of this e-commerce technology. Developers need to take a new look at how to make money with these and other payment technologies. Slow to think outside the box, they are hitting the wall on a number of issues that they either do not recognize or refuse to acknowledge. As usual in the electronic industry this will cause the creation and growth of some new superstars in e-commerce and/or information technology devices.
The person who owns the customers will eventually own the mobile transaction experience. My bet is on CurrentC. Everything else is just an extra layer of complexity.
Mobile payments really don’t fit the Beta vs. VHS analogy. The market could only support one platform so either VHS or Beta was going to win. For payments, the market can clearly support multiple payment options (mobile or otherwise), so any combination of them could win or lose.
Retailers need to accept whatever payment options consumers want to use. Which is why MCX’s misguided effort to enforce exclusivity was so poorly received.
Early adopters can have an advantage if being early means they capture marketshare or get consumers to accept their unique value propositions, but being early is not guarantee of success (ask Nokia and RIM about the smartphone market).
I don’t think early adopters will have “first-mover advantage” but I think refusing to accept all options as they are adopted is a really bad move.
Walgreens definitely got a “pop” after CVS and Rite-Aid inexplicably turned Apple Pay (and Google Wallet) off, after inexplicably turning them on (they were already members of MCX, so none of it makes sense to an outside observer). They are now trumpeting themselves as the chain that gives you “choices” and that’s a good message.
Apple Pay has thus far proven to be a fun alternative to credit card payments. It’s also fun to find the bugs, but that’s me …
You’ve gotta give the people choice. Really.
Mobile payments are, as Ms. Crowe stated, “inevitable.” The only question is the rate of adoption and how that will vary by location, demographics and retail segment.
Early adopters will have a distinct advantage through their trials and understanding not only of the technologies but the new operational processes and opportunities that mobile payments offer in changing the shopping experience.
Stores need to offer more and not fewer options to their customers. That doesn’t mean give them every option under the sun, but certainly to stay abreast of the mobile payment trends driven by consumer demand, appeal and ease of use.
Don’t expect consumers to suddenly switch to mobile payments. They will slowly migrate over time, never reaching 100 percent participation. It was the same with credit, checks and debit so there’s no reason to think this time will be any different. Accepting multiple tenders is required, so payment systems need to get more sophisticated and hide the details from retailers. There’s no need for retailers to rush in—being a fast-follower is a very valid strategy.
I think that the battle lines being drawn between Apple and MCX may be an indifference to retailer adoption, but in time it will happen because that is the future. Once consumers perceive that mobile pay is easy and safe they will use it.
Retailers need to allow the shopper choices in payment not unlike how they must allow choices in product assortment. What if a retailer restricted choice to just a few items in each category or segment? Would the shopper accept that?
Banks learned this lesson early on as new transaction technologies emerged. They have to offer a variety of ways to transact: Cashier, drive-thru, ATM, internet, etc. If they don’t, they lose business.
Retailers will have to adopt the banking model and allow consumers to transact in a variety of ways depending on their preferences.
“Early adopter” retailers such as Apple and Starbucks are already accepting mobile payments and are helping to educate consumers. And yes, it will give them an advantage to know what works for their associates and consumers and what doesn’t (do people want to pay at the dressing room? Rounder? Aisle? Or is the counter still important?) Consumers seem quite comfortable with NFC and Square (and other) credit card payments made using a tablet or phone to “swipe” their cards. And they use ticketless boarding passes at airlines. So it seems the barrier for credit cards is getting the card information into the phone in the first place rather than the idea of paying with the phone.
Smartphone payment systems are new and the winners have not been identified. In the U.S. 51 percent of the population has a smartphone. Approximately 48 percent of the population has one or more credit/debit cards, yet the majority of retail transactions in number and value are with a card. When we look at the credit cards, Visa has 45 percent, MasterCard 23 percent, American Express 27 percent and Discover five percent market share. For debit cards it is Visa at 70 percent and MasterCard at 30 percent.
On the smartphone side Apple has 42 percent market share, but here there are non-phone companies with applications. For retailers, they must closely watch their customer base and structural changes like kids given allowance money via their smartphone. If your customers don’t ask to use Discover, the retailer does not accept it. The same will be true here. Retailers should push for a common interface and follow the customer.
The only advantage early adopters might see is learning what customers like and don’t. In the mobile payment space, he who offers the choice that the consumer wants to use, will get the sale.
And that’s my 2 cents!
The POS payment standards battle may come down to user transparency.
Retailers will want to be able to accept any form of currency the shopper wants to offer. That used to seem like a daunting technical challenge, but I’m becoming convinced that what matters most is the fulfillment software behind those NFC-enabled card reader terminals.
Regardless of which electronic wallet I choose to “tap” with or which card I choose to swipe, the transaction should flow unimpeded. That means it is incumbent upon Apple Pay, CurrentC, Google Wallet, PayPal, Softcard and any others that emerge to provide easy-to-administer plug-ins for most POS systems.
With multiple players vying for this market, that sets up a potential price competition for transaction fees. Getting on board early may bring a retailer a small boost to net profits. More important, however, is a friction-free payment experience for shoppers.
Early adopters and those who rely on frequent weekly purchases will win the competition. It’s a consumer behavior issue…I’ll predict that whichever emerging payment method Starbucks accepts will eventually win.
Not all stores need to be prepared for new payment methods, not all have the consumers that are early adopters or that would benefit from an emergent payment option. Ultimately it’s about consumer convenience and all the methods mentioned above will require major behavior changes before they become convenient.
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Ms. Crowe is right, retailers need to stick a toe in the water and begin using mobile payments. Early adopters will, if the payment systems work as advertised, build customer loyalty and be seen as being technologically in sync with their customers. Some customers may never use mobile payments, but a significant number will soon be looking to give them a try.
It depends on the retailer’s customer base. Are your consumers early adopters or trend-setters? If yes, then you need to do immediate sensing to understand their needs and how to adapt your systems to provide the expected POS experience. If no, then you should still begin preparing for the inevitable, and use the opportunity to educate your customers about mobile payments and the benefits. But know that you won’t likely lose a transaction if you don’t accept mobile payments at this early stage.
Electronic payments will most likely see initial acceptance and growth among the fast food and service industry. Users will follow the applications that are secure and easy to use. Including the user’s ability to add and edit security limits for their accounts will increase interest and maturation of this e-commerce technology. Developers need to take a new look at how to make money with these and other payment technologies. Slow to think outside the box, they are hitting the wall on a number of issues that they either do not recognize or refuse to acknowledge. As usual in the electronic industry this will cause the creation and growth of some new superstars in e-commerce and/or information technology devices.
The person who owns the customers will eventually own the mobile transaction experience. My bet is on CurrentC. Everything else is just an extra layer of complexity.
Mobile payments really don’t fit the Beta vs. VHS analogy. The market could only support one platform so either VHS or Beta was going to win. For payments, the market can clearly support multiple payment options (mobile or otherwise), so any combination of them could win or lose.
Retailers need to accept whatever payment options consumers want to use. Which is why MCX’s misguided effort to enforce exclusivity was so poorly received.
Early adopters can have an advantage if being early means they capture marketshare or get consumers to accept their unique value propositions, but being early is not guarantee of success (ask Nokia and RIM about the smartphone market).
I don’t think early adopters will have “first-mover advantage” but I think refusing to accept all options as they are adopted is a really bad move.
Walgreens definitely got a “pop” after CVS and Rite-Aid inexplicably turned Apple Pay (and Google Wallet) off, after inexplicably turning them on (they were already members of MCX, so none of it makes sense to an outside observer). They are now trumpeting themselves as the chain that gives you “choices” and that’s a good message.
Apple Pay has thus far proven to be a fun alternative to credit card payments. It’s also fun to find the bugs, but that’s me …
You’ve gotta give the people choice. Really.
Mobile payments are, as Ms. Crowe stated, “inevitable.” The only question is the rate of adoption and how that will vary by location, demographics and retail segment.
Early adopters will have a distinct advantage through their trials and understanding not only of the technologies but the new operational processes and opportunities that mobile payments offer in changing the shopping experience.
Stores need to offer more and not fewer options to their customers. That doesn’t mean give them every option under the sun, but certainly to stay abreast of the mobile payment trends driven by consumer demand, appeal and ease of use.
Don’t expect consumers to suddenly switch to mobile payments. They will slowly migrate over time, never reaching 100 percent participation. It was the same with credit, checks and debit so there’s no reason to think this time will be any different. Accepting multiple tenders is required, so payment systems need to get more sophisticated and hide the details from retailers. There’s no need for retailers to rush in—being a fast-follower is a very valid strategy.
I think that the battle lines being drawn between Apple and MCX may be an indifference to retailer adoption, but in time it will happen because that is the future. Once consumers perceive that mobile pay is easy and safe they will use it.
Retailers need to allow the shopper choices in payment not unlike how they must allow choices in product assortment. What if a retailer restricted choice to just a few items in each category or segment? Would the shopper accept that?
Banks learned this lesson early on as new transaction technologies emerged. They have to offer a variety of ways to transact: Cashier, drive-thru, ATM, internet, etc. If they don’t, they lose business.
Retailers will have to adopt the banking model and allow consumers to transact in a variety of ways depending on their preferences.
“Early adopter” retailers such as Apple and Starbucks are already accepting mobile payments and are helping to educate consumers. And yes, it will give them an advantage to know what works for their associates and consumers and what doesn’t (do people want to pay at the dressing room? Rounder? Aisle? Or is the counter still important?) Consumers seem quite comfortable with NFC and Square (and other) credit card payments made using a tablet or phone to “swipe” their cards. And they use ticketless boarding passes at airlines. So it seems the barrier for credit cards is getting the card information into the phone in the first place rather than the idea of paying with the phone.
Smartphone payment systems are new and the winners have not been identified. In the U.S. 51 percent of the population has a smartphone. Approximately 48 percent of the population has one or more credit/debit cards, yet the majority of retail transactions in number and value are with a card. When we look at the credit cards, Visa has 45 percent, MasterCard 23 percent, American Express 27 percent and Discover five percent market share. For debit cards it is Visa at 70 percent and MasterCard at 30 percent.
On the smartphone side Apple has 42 percent market share, but here there are non-phone companies with applications. For retailers, they must closely watch their customer base and structural changes like kids given allowance money via their smartphone. If your customers don’t ask to use Discover, the retailer does not accept it. The same will be true here. Retailers should push for a common interface and follow the customer.
The only advantage early adopters might see is learning what customers like and don’t. In the mobile payment space, he who offers the choice that the consumer wants to use, will get the sale.
And that’s my 2 cents!
The POS payment standards battle may come down to user transparency.
Retailers will want to be able to accept any form of currency the shopper wants to offer. That used to seem like a daunting technical challenge, but I’m becoming convinced that what matters most is the fulfillment software behind those NFC-enabled card reader terminals.
Regardless of which electronic wallet I choose to “tap” with or which card I choose to swipe, the transaction should flow unimpeded. That means it is incumbent upon Apple Pay, CurrentC, Google Wallet, PayPal, Softcard and any others that emerge to provide easy-to-administer plug-ins for most POS systems.
With multiple players vying for this market, that sets up a potential price competition for transaction fees. Getting on board early may bring a retailer a small boost to net profits. More important, however, is a friction-free payment experience for shoppers.
Early adopters and those who rely on frequent weekly purchases will win the competition. It’s a consumer behavior issue…I’ll predict that whichever emerging payment method Starbucks accepts will eventually win.
Not all stores need to be prepared for new payment methods, not all have the consumers that are early adopters or that would benefit from an emergent payment option. Ultimately it’s about consumer convenience and all the methods mentioned above will require major behavior changes before they become convenient.