The Future of Mobile Payments: Can’t Tell the Players without a Scorecard
August 21, 2012
The last two weeks have brought us an explosion of new mobile payment groups, initiatives and conversations. If you’re a retailer, you’re either part of one of these groups and initiatives or you’re scratching your head saying “What the heck is going on, and what’s the best way to safely save myself a few sheckels here?”
Let me start by saying that I’m not going to provide a primer on the ins and outs of payment processing. You can find an explanation of the current processing steps here, courtesy of Shift4 (thanks to Jerry Sheldon for pointing this out to me). I also expect Brian Kilcourse, our resident expert, will provide more details in the coming weeks.
The short strokes are that five or six different players “touch” the transaction that starts when a customer presents a non-cash payment and ends when the money lands in your bank account. Each one takes a little nip of money as part of a processing fee. Small retailers tend to pay a higher percentage for each transaction, and mega-retailers pay a smaller percentage, but given their high volumes, they pay a LOT of real dollars in total. For as long as I’ve been in retail, the companies I worked for shopped for the lowest possible fees, sometimes changing processing companies annually. Beyond that, retailers had very little say on the “hows” and “whys” of credit card payments.
And now, welcome to the mobile age. This presents both new consumer expectations and opportunities to disrupt the existing chain. Retailers and vendors alike are jumping on this wagon. Let’s take a look at recent events.
- PayPal and Home Depot: Companies like PayPal that already have consumers’ credit card or bank account info on file are hoping to leverage loyalty. Home Depot has hopped on and is now taking PayPal in all its stores. The advantage for consumers is they don’t have to carry, expose or otherwise remember their credit card numbers. The advantage for Home Depot? I’m sure at least one or two of those five to six links in the chain are cut out of the picture.
- Isis Mobile Wallet: Mobile phone operators recognize that one way or another they’re the new vehicle payments will ride on. Verizon Wireless, AT&T Mobility, and T-Mobile USA have put together a consortium that they hope become consumers’ “wallet” of choice. The technology to be used is called “NFC” or near-field communications. Basically, you tap your phone and go. But wait….it turns out that:
- Apple is joining into the NFC payment fray. Not only did it get its very own NFC patent earlier this year, but in July it bought Authen Tec, a company with a fingerprint scanner that can interact with NFC-applications. This eliminates my personal fear that anyone can pick up my phone, tap and go spend my money.
- Square: Starbucks is warming up to Square, investing in the company that powers so many small businesses and food trucks, and planning to take that form of payment in all Starbucks stores world-wide. Everyone loves Square. It turns your iPhone or iPad into a POS device. Just.Like.That. Will Starbucks try to take Square out of the market and make it proprietary? I confess, I hope not.
- Retailers – not to be outdone, retailers have started not one, but two mobile payment initiatives. First there’s IMI (Integrated Mobile Initiative), the group started by the National Retail Federation in cooperation with retailers and solution providers. This group was just announced a couple of weeks ago and hopes to set mobile payment standards for the industry. Think of it as the standard for “most” retailers. But wait, there’s more. Last week, the official launch of MCX (Merchant Customer Exchange) was announced by a consortium of mega-retailers like Walmart, Target, 7-11 and others. I call this the “RILA” version of mobile payments, although I’m sure some members of the consortium belong to the NRF as well. I’m also sure there are European and Asian consortiums. Everyone loves the smell of money.
- Google Wallet – this is another technology using NFC for your phone, or PayPal-like functionality at home. We haven’t heard a lot from Google in the past few weeks, but you can assume the recent bevy of announcements will drive some kind of response from Google.
This is not meant to be an exhaustive list… but it’s pretty darned mind-boggling. What do I see as the net-net here? For one, I see a few bucks dropping down to retailers’ bottom lines over the coming years as one or another of the mobile payment standards take hold. This might be the first time retailers enthusiastically embrace a brand new technology. There’s that much money here.
On the more sobering side, I have some fears of a major security breach. On the one hand, I like exposing my credit card info to fewer and fewer players. But that makes a potential breach to the “selected players” all the more threatening. I railed a bit about the iTunes security breach earlier this year. Add mobile payments on top of that, and the numbers could be staggering.
So what’s the future of mobile payments? As it turns out, we’ll be hosting a webinar on September 25 to announce our entire 2013 research agenda, and within that call, we’ll discuss the study we’re launching early next year dedicated to this exact topic. We hope you can join us. And further, Brian will provide us with a concise primer on the pros and cons of the various technologies (and who they cut out of the money chain) on the pages of this newsletter soon.