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Juicing Mobile Payments

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Technology seems to change almost in the blink of an eye these days. Ten years ago few of us had cell phones; last year, data from the Pew Internet and American Life Project showed that 56 percent of Americans had a smartphone. Mobile wallets, too, have been percolating for almost a decade but have yet to gain widespread saturation in the retail market.

Mobile payments first appeared in 1997 when a few vending machines in Helsinki, Finland, were enabled to accept payment via text message. The latest variation is the “touchless” system that requires users to do little more than swipe their phones across a reader. One iteration, the Isis Mobile Wallet, allows consumers to create a “digital wallet” loaded with payment options, loyalty programs and discount offers. Usage of the free app isn’t widespread but is growing daily — the system can now be used at a number of national retailers like CVS, Office Depot and Petco.

In mid-November Jamba Juice began giving away a free small smoothie or 12 oz. juice daily to every customer with an Isis app on her phone; the promotion will continue until the restaurant has given away 1 million free drinks.

“We knew this would resonate well with our customers because they’re already tech-savvy,” Jamba Juice CTO Robert Notte says. “Digital wallets are a great brand fit for Jamba. It’s cool, quick and convenient.”

He says they have so far been very pleased with redemption rates and that most locations are seeing weekly gains of 30 percent in the number of customers using mobile payments.

Technology drives adoption

While touchless payments totaled only $4 billion in 2012, they will grow to $191 billion annually by 2017, according to an October 2012 report from market research firm ABI Research. Isis chief sales officer Jim Stapleton says the Europay MasterCard Visa mandate being pushed by credit card issuers will fuel the growth.

As proposed for the United States, EMV would be more secure than current magnetic stripe technology but less secure than chip-and-PIN systems favored by retailers because it would still allow a fraud-prone signature to be used rather than a secure personal identification number. Retailers aren’t necessarily interested in spending billions to replace perfectly functioning card readers with ones that don’t offer full security but card companies are nonetheless using changes in their agreements to force a change. Whichever system is installed, however, the equipment is expected to be compatible with smartphone payments.

“The EMV mandate will change things,” Stapleton says. “There is already a healthy base of readers out there but there is a deadline coming where these readers have to be replaced and 85 percent of terminals will be touchless-enabled by the year 2016.”

In addition, more consumer phones will soon support the technology. According to “EMV: The Catalyst for a New U.S. Payment Ecosystem,” a report by MasterCard Advisors, only a small fraction of smartphones in the United States are enabled to support touchless payments. But based on carriers’ push to include near field communication capabilities and the replacement rate of phones by consumers (1.7 years for the average American), the report projected that 50 percent of smartphones will be NFC-enabled by 2015.

The Isis Mobile Wallet is one of the few not tied to a specific merchant or financial institution. Stapleton says many retailer-produced wallets are gaining traction but have limited use because they are only good for that retailer.

“This is an open platform for any bank, issuer [or] merchant to participate in and leverage,” he says. “It provides value for the consumer and commerce for the retailer.”

With recent high-profile data breaches at major retailers, consumers are taking a closer look at card security. Stapleton says Isis is proactive on educating consumers that the system offers a higher level of security than a physical credit or debit card. Cards used in the wallet have the same lost or stolen safeguards as the plastic version. The wallet itself is PIN-protected and has the ability to be remotely frozen if the phone is lost or stolen. Sensitive payment information is stored on a special chip in the phone and a unique ID is used for each payment transaction, making counterfeit use of the card more difficult. Actual account numbers do not appear on the app or phone.

Consumer, retailer benefits

In a typical transaction, a consumer might have to use a debit or credit card, a loyalty card and a coupon. The Isis Mobile Wallet combines all of those elements in one easy-to-use application.

“It takes all the friction out of the process and makes it easy for the consumer to pay, use loyalty and do everything with [one swipe],” Stapleton says.

The Jamba Juice promotion is just an example of what is possible with the app. Promotions appear on a dedicated page in the app, allowing consumers to select their favorites or see what is available in the area based on their location. Users can also get rewards from banks and credit cards: One current promotion allows consumers to earn 20 percent cash back every time they use Isis to swipe pay through their American Express Serve account.

For retailers, Stapleton says the biggest benefits are related to consumer engagement and the ability to mobilize non-digital loyalty. He says Verizon, AT&T and T-Mobile represent almost 75 percent of cell-enabled consumers in the United States and deploy millions of handsets every year. Many of the carriers’ new handsets are now pre-loaded with Isis, thus giving an ongoing boost to deployment. As cell companies are often eager to promote the wallet capabilities as a selling feature of their product, they also cross-promote retailers by displaying offers.

All three carriers are currently promoting Isis on their websites and at point-of-sale locations where consumers buy phones. Notte says Jamba Juice has used the strategy with the cell providers to display cross-promotional marketing materials in stores. It creates a unique partnership for not only Isis and mobile service providers but retailers as well.

“At the local level, we have encouraged our stores to partner with T-Mobile, Verizon and AT&T,” Notte says. “Someone sees our signage about the wallet, we direct them to the [cell carriers]. And vice versa: Someone buys a new phone and sees they can get a free smoothie or juice at Jamba.”

He says there is also a “big data” benefit to digital wallets because consumers are more inclined to use the loyalty program, giving the retailer better insight into purchasing patterns and consumer behavior.