No Plastic? No Problem
When it comes to mobile payment options, cost and control concern retailers the most. It’s no wonder, then, that a group of retailers are working together to develop a mobile payment program.
Few details have been revealed about the program, but a representative of a firm working with the retailers confirmed that an effort was underway.
The representative also confirmed reports in The Wall Street Journal that Walmart and Target were among the retailers working on the project. The coalition reportedly contains a mix of large national chains and small local companies, encompassing nearly every vertical segment of the retail spectrum, including hospitality and restaurants.
The desire for retailers to develop their own program was spurred by their displeasure with the other options, according to the representative. “They’re just not happy with what is out there,” he says.
While no timeline has been announced, the representative says retailers were “at an advanced level of discussion.”
“Retailers see a threat from companies like Google, PayPal and the card companies,” says Avivah Litan, vice president and analyst for Gartner Research. “They want to hold the key to mobile payments in the future and not give that key to outside companies.”
Litan believes cost is a key element to retailer acceptance of any mobile service. A new payment option is likely to require upfront investments, as well as per-transaction fees down the road. And she points out that retailers have become distrustful of bank and payments company-controlled payment options that have added to retailer costs in recent years.
“So much money goes to third parties, and the cost to accept payments has been the one piece on retailers’ balance sheets that they can’t control,” Litan says. “And that cost is always going up.”
Having a retail-controlled program would be cost effective for those merchants that can tie their own store-issued cards to a mobile wallet, says Zilvinas Bareisis, senior analyst for Celent, because “they could avoid paying fees to the card companies.”
Still, Bareisis acknowledges that a significant number of consumers will want to continue to use third-party credit or debit cards, so retailers will need to offer consumers the ability to do so when paying with their electronic wallets.
Besides containing costs, control over how the payment is conducted is a concern. Retailers “want to own the customer experience,” Litan says. “As more people make payments using mobile devices, retailers want to make sure it is a positive experience for their customers, and they want some say in how that is done.”
Possibly the biggest concern retailers have with mobile payment options is control over who receives payments data — and how that data is used.
“Companies like Target and Walmart are masters of analytics,” says Andy Schmidt, research director at CEB TowerGroup. “They want control over who has access to information about what their customers are buying.”
Bareisis says “there may be some misplaced distrust in that companies like Google could have access to data about what customers are purchasing with their electronic wallets. While these companies should not be able to get access to that information, retailers ... have a lot of suspicion about who might be able to gather data about their customers.”
Litan agrees that control of data gathered during mobile payment is important to retailers’ marketing endeavors. “Information captured during a retail transaction is more valuable to retailers than any demographic information they can purchase from any outside firm,” she says.
Having a wallet that can facilitate such offers would be of great benefit to many retailers. “When I think of why retailers would want to develop their own mobile wallet, it appears to me that they want the wallet to be the gateway to offering targeted marketing rewards,” says Aaron McPherson, practice director of payments and security for IDC Financial Insights. “That’s where the real competition is.”
He notes that a mobile wallet controlled by the retailer could offer a lot of benefits. “You could give customers an offering while they are right there in the aisle,” McPherson says. “Then the customer could buy the product using the phone while they are still in the aisle.”
Just because there are good reasons for retailers to develop their own programs doesn’t mean a coalition will be successful or that a retailer-driven program would be easy to achieve. For example, Schmidt points to the multiple mobile operating systems that could present any number of technical challenges.
He says they would also have to agree on other standards issues, like if they want to use cell phones to scan product barcodes and then transmit a payment or use near field communication (NFC) technology.
Additionally, multiple retailers with individual mobile wallets could overwhelm consumers. “The whole idea of creating an electronic wallet is to get rid of these overstuffed traditional wallets that are filled with all these different cards,” McPherson says.
For now, many are watching to see what the retailers will come up, and how technology companies developing their own products will respond.
“Mobile payment is the Wild West right now,” Bareisis says, “and there are so many competing initiatives.”