Can Kohl's help mobile payments get off the launch pad?

Oct. 27, 2016 | by Tim Spenny

It may not be much of a stretch to speculate that the Kohl's Pay feature within the retailer's app – with 14 million downloads and counting – will be a hit. Given consumers' reluctance to embrace in-store mobile payment options in the U.S. (MCX anyone?), this represents a pretty awesome success story. But I am willing to take things a step further and predict that Kohl's Pay will become the gold standard for successful retail mobile payments strategies.

Here's why.

Much like the most successful mobile payment program, from Starbucks, the success of Kohl's Pay boils down to one word: coupons. (Or, in Kohl’s vernacular, Kohl's Cash powered by Yes2You.)

The perception of getting a bargain is maybe the most compelling carrot for driving consumer behavior in general – and mobile payments are no exception. Combining a loyal customer base with attractive offers, via coupons, has worked well for Starbucks – and Kohl's is betting it can do the same.

So what is in it for Kohl's customers, beyond the savings they can already get from other types of digital or paper coupons?  

Shoppers can automatically redeem the rewards they've collected in the app's mobile wallet in one transaction, seamlessly. No more fumbling for paper coupons or your Kohl's Cash; and, in addition, consumers receive special offers through Kohl's Pay.

Returns should be much easier, as well, given the app's ability to access store purchase history. In addition, the app allows users to browse Kohl's full online inventory, read reviews, compare prices, and more.

How are people using their phones to shop?

Of course, Kohl's Pay – and all other mobile-payment systems – face inherent resistance from U.S. consumers. GfK's FutureBuy Research in the U.S. shows that 1 out of 3 shoppers, 37 percent, use their smartphones to shop in-store; but when it comes to paying in a brick-and-mortar setting, consumers use mobile payments for only 2.2 percent of transactions, representing a massive opportunity gap.

The Kohl's app helps consumers with some of their most common smartphone shopping tasks: comparing prices, redeeming online coupons, accessing product information and online reviews, and making purchases.

With 25 million active Kohl's charge card holders, and 58 percent of total sales coming from the retailer's proprietary credit card, Kohl's has a large pool of loyal card customers to target with its app  (which can only be used with Kohl's private label card).

But smartphone ownership and mobile payment usage are most prevalent among younger generations and more tech savvy consumers, while Kohl's customers typically skew older and less affluent. This may create significant adoption and usage roadblocks.

To overcome these challenges, Kohl's will have to employ several of the tactics that helped build its loyalty program:

  • Implement heavy in-store advertising and compelling offers to encourage download and use of Kohl's Pay.
  • Create a 'mobile payment only' checkout lane; when other customers see how quickly the line moves, adoption will follow.
  • Incorporate beacon technology to allow for micro-geolocational offers; when you are browsing sneakers, an offer for shoes is delivered through your phone
  • Launch in-store smart kiosks to allow customers to self-checkout, browse inventory, read reviews, and more.
  • Eventually Kohl's may want to allow cards other than its own into the app, thus expanding its potential universe beyond the retailer's 25 million card holders. 

Being first to market still matters and Kohl's is the first major retailer to make a huge bet on its ability to connect with its customer base through an improved in-store experience. If Kohl's is successful – and I think it will be – the chain could cause a cascading effect in the retail industry and become the go-to mobile payments case study – maybe even replacing Starbucks, finally!


Topics: Contactless / NFC, In-App Payments, Mobile/Digital Wallet, POS, Retail, Trends / Statistics


Tim Spenny / Tim is a Vice President of Financial Services Consulting at GfK Research focused primarily on Cards and Payments.
View Tim Spenny's profile on LinkedIn

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