This is Part II of Retail TouchPoints’ payment update, a three-part report uncovering the latest developments in EMV, mobile payment and mobile POS. This installment will discuss the latest news in mobile wallets, such as Google Wallet and Isis. Part III, which will focus on payment plug-ins and in-store mobile solutions, will appear in the May 1 newsletter. You can view Part I here.
During 2011, Near Field Communication (NFC) technology was a hot topic among retailers and solution providers. With smartphone penetration deepening, industry analysts had spotlighted NFC’s growing importance among consumers, especially in travel and retail store locations, and its potential for mobile payments.
In summer 2011, Juniper Research revealed in its “NFC Retail Marketing & Mobile Payments Report” that the NFC market was expected to reach $50 billion in revenues worldwide by 2014. Juniper also predicted that as many as 20 countries would be utilizing NFC between 2011 and 2012.
However, NFC has had a slow start, with Google Wallet and Isis struggling to obtain retailer mindshare. Mobile handset vendors also have failed to release a sufficient amount of NFC-compatible smartphone devices, stalling the market even further.
But new predictions from ABI Research indicate that the market will soon increase, with NFC attach rates on smartphones reaching 47% by 2015. Moreover, 552 million NFC-enabled handsets are forecasted to ship in 2016 alone, a substantial increase from 34 million in 2011. New findings provided in Juniper Research’s “Mobile Commerce Markets” report, released in March 2012, also point to a promising future for mobile-based transactions, with NFC payments expected to reach $74 billion by the end of 2015.
Yet despite updated forecasts of significant growth in the NFC market, retailers still are struggling to determine the enterprise-wide benefits of revamping POS systems to allow contactless mobile payment. Therefore, it is imperative that mobile hardware and solution providers make the value proposition of investment clear to merchants.
“The issues regarding acceptance of mobile payment rely on interoperability, which still is the biggest risk for merchants” said John Devlin, Senior Practice/Group Director of AutoID and Smart Cards for ABI Research. “ The issues around getting secure standards to market are gone; now it’s a matter of incorporating the point-of-sale terminals, devices and hardware. If things aren’t seamless and interoperable, retailers will be much more reticent about supporting NFC. They don't want customers trying to use NFC and have it not work,” he stated.
“Last year, discussions among retailers focused on whether mobile payment was for them, what it could provide to an organization, and how retailers can implement it,” Devlin added. “Generally, mobile payment wasn’t clear to merchants, and it still hasn’t been defined effectively. Some retailers want to do it but they’re not sure how to approach it and are still unsure of the overall benefits; that part of the message is still missing.”
A clear value proposition of leveraging mobile wallets is the direct connection to understanding customer demographics, psychographics, preferences and shopping behaviors, according to Richard Mader, Executive Director of the Association for Retail Technology Standards (ARTS). By linking cross-channel information such as social data, and browsing and buying history, retailers will be able to deliver more tailored offers and messages to shoppers via their mobile devices, he stated.
“If retailers link payments to loyalty systems, they can capture data about any customer at the point-of-sale,” Mader said. “That loyalty connection is going to make mobile payment more effective. Customer convenience is a big factor as well — specifically, the ability to carry all credit and loyalty cards on one device. I think in the near future retailers will be unveiling other innovative incentives for consumers to use a mobile wallet as opposed to a leather one.”
Mobile Wallets Struggle To Win Consumer Sentiment
When Google Wallet first was released in May 2011, retailers and industry analysts were buzzing about the payment paradigm: consumers’ wallets were moving to smartphones, and loyalty and punch cards, coupons and offers would soon follow. Although retailers such as American Eagle and Walgreens are educating consumers on the perks of the technology, adoption hasn’t been as intense as anticipated.
The concept of holding multiple credit and loyalty cards within a single device is a top selling point of digital wallets, but the process of accessing payment information may be inconvenient for consumers, which in turn is hindering adoption.
“If you have your phone, you have to unlock it, wave it in front of the reader, and possibly enter a PIN,” explained David Hogan, Executive Director of Heartland Payment Systems and former CIO of the NRF. “This actually takes longer versus swiping/tapping a card. I see the benefit of having multiple cards on your mobile wallet, but there has to be more to it for the consumer, and for the merchant, before retailers invest in mobile payment.”
Currently, Google Wallet is only available on Samsung Galaxy Nexus phones from Sprint, which is preventing implementation even further. However, Google, Inc. currently is pursuing multiple regulatory measures to purchase Motorola Mobility, for $12.5 billion; this would provide the company with manufacturing operations and allow it to develop its own line of smartphones, according to Reuters. The U.S. and U.K. have approved the purchase, while European regulators in China, Israel and Taiwan have yet to finalize their decisions.
Isis also is fighting to pique interest among retailers and consumers with its Isis Cash Card, a “tap-to-pay” technology. This approach to the digital wallet is designed to allow customers to transfer funds from debit accounts and upload credit card information. Currently, Capital One Cash, BarclayCard and Chase Freedom debit and credit cards are compatible with the Isis Cash Card, as well as consumers’ loyalty cards and offers from participating retailers. Isis is a joint venture between AT&T, Verizon and T-mobile. To increase support and adoption among retailers, Isis has partnered with multiple POS solution providers, including VeriFone, Ingenico, ViVOtech and Equinox Payments.
“Isis is trying to gear up for the Isis Cash Card’s official launch in stores sometime this summer,” explained Andrew Morris, Director of Market Platform Dynamics, a management consulting firm. “There also has been news from Isis about issuers and wireless network companies coming on board, but no announcements about merchants.”
Big-name retailers, including Home Depot, Target and Walmart, are in talks to partner on a merchant-run mobile payment system, which will decrease cost-per-transaction and help retailers be seen as more trustworthy to consumers who are considering purchases via smartphone devices. Currently, there are no further reports regarding the form of mobile payment being deployed, its methodology or technology, nor if this development actually will occur.
“Regardless of whether this merchant-run payment network comes to be, its development is a clear sign that the existing providers [of NFC solutions] haven’t provided a value proposition that is appealing enough to the large merchants to feel their needs will be met through NFC,” Morris said.
While Google Wallet and Isis are facing multiple hurdles in standing out in the large payment space, their overall reputations are bound to pique retailer interest and provide an opportunity to reach mobilized consumers, according to Mader.
“For the first time ever, we have some really big companies, such as Google, that are interested in what’s happening in the mobile payment space, and have the money and clout to go up against the card brands,” Mader explained. “However, the real change occurring with mobile is that the consumer is truly in charge. Today’s retailers claim to be customer-centric, but if they’re not implementing the technology or providing the services consumers want via mobile, social and the web, shoppers are going to go elsewhere.”
Starbucks Reaches 42 Million Mobile Payments With Branded App
While many retailers still are striving to determine an optimal strategy, Starbucks has successfully cracked the mobile payment code with a closed-loop, branded approach.
During December 2011, the coffee merchant reached 26 million processed transactions via its Starbucks Card app for iPhone, iPod Touch, Android and BlackBerry, according to recent coverage from Retail TouchPoints. Since then, a VentureBeat interview with Adam Brotman, Starbucks’ Chief Digital Officer, revealed that adoption is growing at a rapid pace: Starbucks already has reached 42 million mobile payment processes across locations in Canada, the U.K. and U.S.
The payment app allows customers to load money onto the card through a debit account transfer, and spend it using their mobilized Starbucks Card. Then, baristas simply scan a 2D barcode displayed on the screen to complete a transaction. The app is integrated to loyalty cards, allowing customers to access points and rewards quickly and seamlessly.
“Starbucks mobilized its pre-paid card, didn’t use NFC at all, made its payment offerings better, and did it all on its own,” Morris explained. “This easy-to-use approach makes the app a wise investment that is beneficial to both the merchant and its loyal customers.”
Part III of the Retail TouchPoints payment update will publish in the May 1 newsletter.