MCX isn’t the first retailer(s) to try either controlling the mobile wallet or creating their own. The question at this point is should they even be concerned. All retailers have concerns about the mobile wallet, but some of the key concerns are really not problems. But they may become problems if retailers decide to jump into the mobile wallet game.
Let’s look at just five concerns, and why they aren’t the problems retailers should be putting the energy into solving:
I’m always hearing about how Google, the carriers (e.g. Isis) or any other upcoming mobile wallet is going to steal data that the retailers don’t want to share. This is a misconception. Mobile wallets don’t get any more information than the retailers are already giving out today. If you use a plastic credit card today at a POS, financial institutions in the payment chain know who the customer is, how much they are spending, where, what time, etc. What they don’t know is what individual items you bought. That’s no different than what you can do with the mobile wallet today, or will in the future.
I hope retailers and consumers already realize that many players in the payment ecosystem sell this data to other companies. These companies buy marketing data from banks the same way they buy it from Google. They then combine the information using different data mining techniques to generate targeted advertising and marketing.
Some retailers have used the argument that the mobile wallet will have access to all the cards and all the retail locations that consumers go. This would then give that mobile wallet providers an advantage since they would know everywhere a consumer shops. In the U.S., as in most countries, people mainly use one card for everything. This will not change anytime soon. Retailers are worrying about problems that either are the norm today or will be very unlikely in the future.
So what’s the difference if Google or Isis have access to the same data that others can get from elsewhere today? The answer is really nothing.
Some retailers hope that transaction fees could be reduced if they control or influence their own mobile wallet. The problem for retailers is that controlling or making their own mobile wallet means they run the risk of increased overhead costs and dramatic costs from liabilities.
The truth is that mobile payment technology is dramatically more secure than what's currently available. So reducing liability will indeed help make the case to have their transaction fees lowered. I am not saying that this will happen because FIs will feel warm and squishy inside, but rather because it makes the legal case for them to reduce transaction fees. After all, the two main arguments for transaction fees are the cost of infrastructure and the cost of security/liability. Technology will reduce both of these, so it will be hard for FIs to keep charging the same transaction fee when the cost of business has gone down.
Thus, if merchants simply accept the mobile wallet with open arms they position themselves in a stronger position to negotiate better pricing than advancing their own solution.
Let’s make this clear: standards for mobile payments are already here. If retailers want to make their own wallet, or get involved in influencing one, their responsibility to adhere to those standards increases. But if they simply let Google or Isis worry about those standards the only thing they have to worry about is really left to the processors, ISOs and merchant service providers they currently use.
With the magstripe today, the merchant vendors are already responsible for many of the industry standards or drive initiatives such as PCI. Retailers will only add to their current headaches if they jump into the mobile payments game.
Trust me. I’ve been doing this for well over a decade. And my background is in mechanical and aerospace engineering. I am a 'Rocket Scientist." And even I get a headache with the complexity and bureaucracy of payments. Retailers, please do come in and join the insane party and make it more insane.
It’s taken years to get the industry to where we are, and the technology and infrastructure are sound and ready to go. It’s a certainty that in the U.S., mobile payment adoption will grow dramatically this year. Standards are there and retailers need not be concerned with standards since products like Paypass and Paywave have been around for years and work the same at every retailer.
Many retailers say there needs to be at least half the population using mobile payments before they really need to be concerned with them. One should always be prepared ahead of time for change, rather than playing catch-up, waiting on mobile payments now means retailers are already behind. The competition is most likely already offering it.
Here’s a number that may be surprising: 1 in 6 POS terminals in the U.S. already have mobile payments capabilities. And many of the leaders in different retail verticals are currently enabled for mobile payments. Just a few examples:
- Pharmacy – CVS
- Sporting goods – Sports Authority
- Shoes – Foot Locker
- Quick service restaurant – McDonalds
- Office supplies – Office Depot
- Electronics – Best Buy
- Entertainment venue – Yankee Stadium
- Convenience store– 7/11
- Department store – Macy’s
The list actually goes on and on. It shows many retailers are accepting mobile payments today and the number is growing fast.
As for phones, 95 percent of the smart phone models released in the last 6 months have all been NFC-enabled. Nine out of 10 phone makers are shipping NFC phones and we have an average 18 month replacement rate in the U.S. Between March 2011 and March 2012, the U.S. went from 34 percent of the market owning smartphones to 52 percent. That’s just 12 months. Between the summer of 2011 to the summer of 2012, NFC-enabled phones went from 300,000 units worldwide to more than 20,000,000. We’ve finished the year with over 100 million units now shipped worldwide, with NFC.
Ubiquity is coming much faster than one might realize.
The reality is that ubiquity isn’t what retailers are really looking for. Mobile payments isn’t here to replace plastic cards or cash anytime soon. It’s another tool for payment. But it is one that can help generate more sales. And for the key demographics who spend, it’s the next generation of payment tools.
Lost marketing opportunities
A certain big box retailer once told me that they didn’t want to use Google Wallet because they were afraid that Google would use the information and, while that customer was in the store, offer that customer a coupon to go to a competitor. This is highly unlikely. If Google wanted to do this they could do it with any one of a number of their current apps. They don't need access to the Google Wallet.
In truth, Google can buy the payment data, mix it with their own offering, and generate competitive advertising in the aisle today – without the Google Wallet. It’s called showrooming.
Frankly, the problem of a competitor accessing and using a retailer's data on a consumer's phone is already here today. The mobile wallet will neither make this problem better or worse. The mobile wallet does not make it more or less likely that a consumer will open a wallet app to see a coupon or advertisement for a competing retailer while in a competitor's retail location.
Since retailers are already dealing with showrooming. The mobile wallet is not the gateway to more problems. In fact, there are things that the mobile wallet can do for retailers that no other tool can do.
One example is loyalty cards. One retailer's loyalty card is a loyalty card only for that retailer. It’s not like Target can create a loyalty card that can be used in Walmart or vice versa. Retailers have absolute control of their loyalty cards, and all the mobile wallets available today can integrate the retailer's loyalty card.
Solve the real problems
At the end of the day, retailers are going to have to accept mobile payments. And they shouldn’t wait any longer to move aggressively into it. The first phase of retailers being forced to upgrade terminals will start this April. Other retailers are already using terminals that accept mobile payments, and there are tens of millions of NFC-enabled smartphones with that number growing rapidly.
So retailers need to stop creating problems that are either not there or out of their control and start focusing on things they can control and do need to improve.
In the U.S., hundreds of billions of dollars are lost each year due to poor customer service. How about improving that? Mobile devices are new and great tools to start developing better ways for people to interact with retailers. Retailers shouldn’t be worrying about how mobile wallets might create a problem; they should start worrying about how mobile devices can solve existing problems.
Einar Rosenberg is a recognized expert in mobile payments who has written multiple papers and spoken internationally on the topics of NFC, RFID, location-based services and Bluetooth. Mr. Rosenberg is currently the CTO of Narian Technologies.