While you may not have replaced your wallet with your smartphone just yet, there’s no denying that the universe of mobile payments is growing by leaps and bounds. According to recent research from eMarketer, the total value of proximity mobile payments in the US - that is, point-of-sale transactions that use mobile phones as a payment method - will grow a whopping 210 per cent in 2016 with 37.5 million US mobile payment users and $US27 billion in total transactions.
Not surprisingly, major industry players are betting big on those numbers in order to potentially become the top choice of consumers ready to tap their device instead of swiping their credit card at checkout. Technology leaders including Apple, Google (with its Android Pay) and Samsung are already front-and-center in the mobile payments space, while Amazon has already dipped its toes in and rumors have long been flying about Facebook’s efforts.
Banks such as Chase and Capital One have rolled out mobile wallets, while top retailers such as Walmart have put their own skin in the game — as well as MCX, the consortium of retailers (including Walmart) who have long been developing their own merchant-payment program, CurrentC, that is still only in a beta stage after wide-launch delays last year.
Clearly, consumers have more mobile payments choices than ever in 2016, but some experts maintain that none of these major-player options are a slam-dunk so far. “Apple Pay hasn’t really taken off so far, nor have any of these mobile wallets taken off in a big, meaningful way,” says Rajul Rana, CTO and partner at technology consultancy Liquidhub.
In addition, it’s unclear which of the offerings — among the “open loop” networks such as Apple Pay, Android Pay and Samsung Pay or the “closed loop” networks of retailers and banks — will be left standing in the long run. According to Bill Lewis, vice president of consulting at Capgemini, a “Darwinian shakeout” is on the way, with an “invisible negotiation” happening across influencers of mobile payments — customers, retailers, banks, credit card companies, technology providers and even payment processors. “There are leaders, but it’s not entirely clear which one or two will rise to the top,” he says.
What is clear, however, is what is at stake — the consumer, both through data insights and their long-term loyalty. Retailers such as Walmart, which recently introduced its Walmart Pay option through its mobile app, certainly may want to save the 2 per cent interchange fee they pay to issuing banks by encouraging customers to move towards ACH payments. But what they are really looking for is consumer data insights, says Lewis. “The ‘open’ systems such as Apple Pay, Android Pay and Samsung Pay may not always provide retailers with the transaction insights they need to compete in the offline brick-and-mortar space,” he explains.
Large banks such as Chase, which is busy pitching its new Chase Pay product to merchants before rolling it out to its millions of customers by mid-year, are working to keep mobile payments under their own umbrella and boost customer loyalty in the process. We believe in consumer choice,” says Jennifer Roberts, president of Strategic Alliances & Loyalty Solutions for Chase. “We recognize that some customers will absolutely love the Apple experience and our cards will be in Apple Pay, but others will trust our bank to offer a digital wallet.”
Adding value to mobile payments
With all of the mobile payment options flooding the market, experts say the biggest players will have to rise beyond simply offering a digital wallet. “Consumers want more,” says Rana. “What is the value-add if they use your payment mechanism?”
According to Lewis, the three biggest must-haves will be security, ease-of-use and loyalty. Security, he explains, is table-stakes for any mobile payments solution: “That is the price of admission.” As for ease-of-use, the open-loop payment providers, whose offerings can be used anywhere, have the edge.
That leaves loyalty up for grabs. Retailers and banks are beginning to offer loyalty card rewards and coupons with their mobile payment options to sweeten their offerings. Starbucks, for example, has long been a leader in combining its mobile payments and loyalty offering in its My Starbucks Rewards app. Chase Pay will offer merchants the opportunity to connect their loyalty programs directly into the payment experience. And even an open-loop network such as Apple Pay has integrated with Walgreens’ loyalty program.
Retailers also need to understand the preferences of their customers when it comes to what mobile payments options they offer. “CIOs need to be setting up pilots to test some of these alternate payment providers and see how resonates with their current customers,” says Lewis. “It’s not just about picking one and rolling it out everywhere, It’s more about understanding what your customer is asking to do at the POS.”
We’re still at the beginning of the journey
In the next year or so, there will be more attempts to come up with wallets in every category, says Rana — more technology players, banks and retailers will try their hand. “It’s not a short game, it’s a long-term play over the next five years,” he cautions. “It’s very difficult to say who will win — I’m sure there can be multiple winners. There are different scenarios in which various players can have an edge.”
Particularly intriguing, says Lewis, is Samsung Pay’s Magnetic Secure Transmission technology, which allows customers to make a mobile payment at any terminal with a magnetic stripe reader. “I think that’s a very interesting development that starts to solve for both security and ease,” he says.
For now, retailers will have to cater to multiple mobile payment options. “They can’t just accept Apple Pay, they have to offer Apple, Android and a couple of others,” says Rana. “Consumers will dictate some of these choices, and merchants may get some incentives.”
As for the major players, they recognize the need to get in — and stay in. “Customers are trying these mobile payments options,” Chase’s Robert’s adds. “If you’re not out in the space, you’re losing the opportunity to see how customers are behaving and to capture that spend.”