Consumer behaviorists are mulling a new question: Will they swipe, tap, Tweet or text?
Whichever they choose, consumers, particularly the much sought after Millennials, are looking for new ways to pay. We’re approaching a tipping point where mobile payment systems, or mobile wallets, will move into the mainstream with cash, credit and debit cards becoming as archaic as stone tools.
An article in a recent issue of BCG Perspectives by The Boston Consulting Group put it this way: “Never in the history of the payments industry has there been a time of such disruption and opportunity across regions. Digital technologies will upset the competitive order and the role that payments play both in the operations of businesses and in the daily lives of consumers.”
This payment sea change may take a while because the mobile market is not only in disruption, but in chaos. We are at the beginning of what some experts have termed the “Wallet Wars” with hundreds of apps flooding the retail market, promising everything from absolute data security to the ultimate in customer convenience.
Just tap your smartphone or wearable on a reader at the checkout and you’re good to go. Maybe.
For now, this bewildering hodgepodge of systems is overpromising and underdelivering and, as is often the case, many will bite the proverbial dust. On the plus side, this will thin the herd, making it easier for consumers and retailers to choose the most viable options.
But a war is brewing on another front between retailers who are developing their own digital wallets to cut costs and increase customer loyalty, and e-commerce powerhouses like Apple, Amazon, Google, PayPal, AT&T’s Softcard, Visa and MasterCard.
For the moment, let’s stay away from the “what ifs…” and look at the facts. This year alone “proximity payments” will double to $3.5 billion, accelerating through 2016 as more consumers are exposed to it, according to a report by eMarketer.
Although only about 13.5% of people have used it, mobile payments are expected to become commonplace over the next five years simply because it’s easier than using a credit card.
In fact, a JWT survey found that 62% of Millennials would have no problem connecting their payment information to the app or service of a retailer they frequently use.
But the US is clearly lagging. Globally, mobile payments will account for about $721 billion in retail transactions by 2017 with 450 million users. In addition to continued penetration of smartphones, development of wearable technology like watches and rings or biometrics could spark mobile payment usage even further.
And in a partnership with Twitter, French banking group BPCE will enable consumers to Tweet funds to one another through its S-Money mobile wallet operation. Even the controversial crypto-currency Bitcoin is gaining traction among people who have lost faith in governments and banking systems.
Among retailers, cost will drive adoption. Mobile payments are expected to save retailers in developed countries an estimated $150 billion annually in swipe fees, according to a report by Morgan Stanley. In other words, the returns more than justify any upfront investment.
The good news is that retailers seem willing to shed the bunker mentality they acquired during the recession and start spending on new facilities and remodels. This means installation of more front-end systems using Near Field Communications (NFC) that can accommodate “tap and pay” technology.
However, here’s the age-old conundrum: Retailers won’t invest in technology unless they’re sure consumers will use it, and consumers can’t use it until retailers install it.
The other scenario that plagues everyone and every system is the ever-present threat of hacking. If cyber-criminals can compromise the Department of Defense and the White House, how difficult would it be to get into your iPhone or into the corner deli where you buy your morning coffee? This is one reason retailers are developing their own systems and shying away from passing along customer data to third parties.
The Space Race
For the moment, however, Apple Pay seems to be the favorite son in the race for supremacy in the mobile space. It’s what some observers feel is the most “elegant” and simplest solution out there at the moment.
Consumers just load a credit card number on their phones and tap it on a sensor at the checkout. For added security, Apple creates a unique code for each transaction and credit card numbers are not saved. The more secure consumers feel and the fewer steps they have to take in making a transaction, the better they like it. These factors have not been lost on retailers like Macy’s, Walgreens, Petco, Whole Foods and Staples who are among the growing cadre of retailers that have jumped on the Apple cart.
Retailers like Tesco, Auchan, Walmart, CVS, Rite Aid and Starbucks, whose app already has over 10 million users, are salivating over the idea of linking the mobile wallet to customer loyalty programs, giving them the ability to monetize more data.
For example, Auchan, Europe’s fifth largest retailer introduced its “Flash and Pay” system about a year ago. This system combined payments with coupons and loyalty cards and even has a shopping list feature.
Starbucks is going a step further as it expands beyond its own network. As Chairman and CEO Howard Schultz said: “The mobile payments platform has given us a higher degree of frequency and a higher degree of loyalty… the question is how we can leverage that beyond our stores.”
Given that, it’s not much of a stretch to imagine Starbucks linking its own system with those of other retailers, movie theaters, fast food restaurants, airlines, railroads and so on.
A payment alternative is a brand spanking new mobile payment platform called CurrentC, a pilot program operated by The Merchant Customer Exchange (MCX), a retailer supported program spearheaded by Walmart that is competing with Apple Pay and Google Wallet.
The problem is that the system has already been hacked. This could make consumers very skittish about joining, since CurrentC requires shoppers to register with a social security number and links directly to their bank account rather than their credit card.
And the latest grist for the digital rumor mill is that CVS and Rite Aid shut down their own NFC terminals in order to discourage use of Apple Pay and Google Wallet, thus giving the drug chain more time to develop its own. If true, it’s a rather shortsighted approach that could turn around and bite them.
Both chains are part of MCX, which is running the controversial CurrentC app. Dekkers Davidson, CEO of MCX, is confident that the exchange can protect consumer data. But in the wake of massive breaches at retailers like Target, Neiman Marcus and Home Depot, consumers are not beating down doors to use an app that connects directly to their bank accounts. Additionally, it’s been said that CurrentC current iteration is far more difficult to use than Apple Pay.
However, it’s a better solution than individual retailers developing proprietary payment apps. That’s when customer convenience goes out the window. This is what MCX was meant to avoid. In Europe, where over 200 different payment platforms are said to have evolved, German-based Yapital, a universal payment app for retailers, hopes to survive the crush in much the same way as MCX.
Neither CurrentC nor Apple Pay are going to break the bank or credit card companies who will still play a major role in processing payments – even if physical cards become relics.
Although Apple seems to have declared itself the early winner in the wallet wars, consumers will choose their own side. They are waiting to hear two simple words – seamless and secure.