Is There a Mobile Wallet in Your Future?

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Chances are that you haven’t used your smartphone yet to pay for anything in a retail store or restaurant — except maybe some lattes at Starbucks — despite all of hoopla surrounding so-called “mobile wallet”initiatives like Google Wallet and ISIS. Yet some analysts now predict a surge in in-store mobile payments within the next couple of years. Indeed, PayPal has just updated its Android, iPhone and Windows Phone apps with POS (point-of-sale) purchases in mind. Just last week, the Subway sandwich store chain unveiled plans to launch an in-store purchasing app later this year. Meanwhile, dozens of major retailers– including household names like Best Buy, 7 Eleven, and Dunkin’ Donuts — have banded together into a group called the Merchant Customer Exchange (MCX) so as to build their own app.

“Mobile proximity payments or in-store mobile payments are a long way from becoming mainstream, but Forrester expects significant uptake to begin in 2015,” said Denee Carrington, a senior analyst at Forrester Research, in a Q&A with Brighthand. Specifically, Forrester projects that in-store mobile payments will boom from $549 million in 2012 to $41 billion in 2017.

On the other hand, mobile remote payments (also known as mCommerce) via Mobile Web browsers and apps are already thriving. Some restaurants, for example, have come out with apps for ordering food over the web. By placing an advance order with a mobile app from Five Guys,  you can go straight to the pickup station to get your burgers and fries, instead of standing in line to put in your order at the restaurant, noted Richard Crone, founder and CEO of Crone Consulting, in an interview with Brighthand. “And around here, at least, those lines can go practically out the door,” he quipped.

“mCommerce has had fewer barriers to adoption,” Carrington told Brighthand. “It  doesn’t require anything new or special on the part of the consumer or merchant. It’s a natural extension from eCommerce relationships. In many cases, cards on file from eCommerce transactions have been there for a consumer to use as a merchant makes mCommerce available.”

Consumers Are Using Their Smartphones To Shop, But Not To Buy 

Consumers are also using their smartphones inside of stores — for just about every conceivable purpose except actually buying things. “With the app for the Apple Store, Apple shows you a picture of the special and tells you where to meet them in the store to see it,” according to Crone. Shoppers also use apps to fill out shopping lists, scan in product information, and navigate their way around the store.

Starbucks has seen spectacular growth with its vaunted 2D bar code solution for POS purchases, he said. In August, Starbucks announced plans to replace the existing app with the Pay with Square Wallet. For the most part, however, in-store mobile payments are still in their infancy.

According to a recent study by Mobile Payments Today, 60 percent of respondents said that they shop on their mobile devices, up from 41 percent the year before. Yet only 25 percent had ever paid via mobile device inside a store, and only 18 percent had scanned a QR code to make a payment.

Retailers Don’t Want  ‘Intermediaries’ in Their Way

What’s behind the slow adoption? As Crone sees it, merchants are resisting NFC-reliant solutions such as ISIS, which require “dependencies” on wireless carriers, as well as Google Wallet and any other intermediary approaches which force them to share or relinquish access to the customer information that can be gathered through in-store mobile payments.

“Merchants want the ‘big data’ because it provides a pathway to a CRM (customer relationship management) model. That way, they can personalize the shopping experience and make it more relevant to the individual consumer,” said the analyst.

Shoppers Seek Reasons Not To Use Credit Cards

At the same time, consumers need to perceive some advantage to using their phone instead of a credit card. “Mobile payment use and interest is growing, but there needs to be a compelling reason to launch a payment app at at checkout. Greater automation in the the couponing and loyalty programs to enable consumers to get a discount with a purchase will help move the needle of consumer adoption of mobile payments,” said Karen Augustine, manager of the CustomerMonitor Survey Series at Mercator Advisory Group, in a recent report.

PayPal’s Chances in Retail Stores: Stellar or Slim?

Due to factors like these, as well as others, Forrester’s Carrington is upbeat about PayPal’s chances in retail stores. Paypal is now poised to embed value-added services such as in-store offers, Pay at Table, and instant credit through Bill Me Later, according to the analyst.

Also, Google Wallet has faded away as a competitor. “Google’s focus is no longer on in-store payments because of the failure of Google Wallet for proximity mobile payments. Google is now focused on eCommerce and mCommerce, PayPal’s sweet spot.  Google tried eCommerce before with Google Checkout which they ultimately shut down,” she said.

“PayPal is better known and more trusted by consumers and merchants than Google for payments. PayPal has an established base of users whereas Google Wallet does not. PayPal already has many accepting merchants, Google Wallet could not build that online with Google Checkout or offline with Google Wallet, but Google is still trying.”

For his part, Crone is less optimistic about PayPal’s prospects. “PayPal uses card readers at the POS. The store doesn’t need to buy new readers, but a software update is required. Users need to put in their phone numbers and PINs, and some consumers are leery of that. Also, many find all of this to be a little slow and cumbersome,” he told Brighthand.

Security and privacy concerns might also be interfering with adoption of  in-store mobile payments. In a new study sponsored by SAP, about half of consumers said they worry that in-store mobile payments might compromise their personal information and bank accounts. About half said that they see in-store payments as a hassle, and 40 percent fret about maintaining an Internet connection at the POS.

More Approaches Now in the Wings

Now in the wings is a new in-store payments solution from Subway slated for availability by the end of the year. Details are still sketchy, but Subway’s POS solution will use an app from Paydiant which is usually branded by the merchant. The app lets the consumer use a smartphone to read a QR code, which identifies the transaction and is displayed on the merchant’s terminal or monitor. The code triggers the app to get the consumer to choose from payment credentials housed on Paydiant servers.

Also down the road is the new solution from the MCX. In April, the retailers’ consortium announced that software developer Gemalto will create a smartphone app to support the initiative, in addition to a developer kit enabling retailers to embed the app into their existing applications.

“Retailers don’t want to be warehouses. They try to differentiate on the basis of products and services. For that to happen, they need to be able to interject their own UIs (user interfaces),” Crone remarked.

In any case, NFC is never likely to go very far in the US, analysts agree. “Cloud-based and 2D barcode payments, etc. will have more success than traditional NFC, again because of fewer barriers to adoption,” Carrington observed.

In fact, the initial MCX mobile wallet will be “primarily barcode and cloud-based,” according to a written statement from the retailers’ group.

“Cloud-based solutions are the safest. The merchant never receives the credit card number — just a token,” Crone told Brighthand. ISIS, in contrast, stores encrypted credit card numbers on a supposedly secure element of the phone.

Barcode methods come in various flavors, Crone observed. Starbucks’ long-time 2D barcode solution has relied on a “barcode presentment” model which requires the store to have readers in place.

Under a different strategy known as “barcode reader,” however, users scan barcodes with the cameras on their phones. “This is much easier to deploy, because the stores doesn’t need readers,” the analyst contended.


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