“It’s forcing an evolution in payments,” observed Matthew Katz, CEO of Verifi, a provider of payment protection and management solutions.
To be sure, about one-third of all U.S. retailers now accept Apple Pay, the leading mobile pay platform that is available in a growing array of countries. In fact, in February, Apple reported that the volume of transactions had increased by 500% over 2016. Others, ranging from PayPal to MasterCard Pass, are also experiencing upticks in over-the-air payments.
The upshot? Restaurants and retailers are updating ordering systems and even changing the layout of their stores, while online merchants, including Airbnb and Groupon, are using mobile pay systems, such as Apple Pay, that provide instant verification and transaction processing using a fingerprint.
For CMOs and others in the marketing arena, there are important implications and ramifications. “There are a variety of solutions, and the mobile payment market is fragmented. But it is progressing very quickly, particularly for certain products,” said Rick Oglesby, a payments consultant for Double Diamond Group.
The list includes music, e-books, movies online, along with food and big ticket items in physical stores. There’s also growing use of mobile payments within loyalty programs and emerging ideas, such as reverse-payment systems that accommodate returns.
Making Mobile Pay
When Apple announced its mobile pay wallet in September 2014, it altered the business landscape. Apple Pay introduced a secure, convenient way for consumers to transact using their phones. It was also drop-dead simple to enter credit-card data using image-capture software built into the app. However, merchants were slow to roll out the technology, and they had another problem with adoption: Consumers already had a fairly easy way to pay at point-of-sale terminals--simply swipe a credit card and sign. What’s more, when EMV cards, a.k.a. chip cards, were widely introduced in the U.S. in late 2015, they addressed many security concerns associated with older magnetic stripe technology.
Simply put, it soon became clear that mobile payments weren’t a substitute for a conventional wallet filled with plastic cards. Moreover, they presented new complexities because they can occur in several ways, including mobile-to-mobile, mobile-to-POS, or card-to-mobile device used by a store.
However, times and attitudes are changing. Not only are consumers beginning to use Apple Pay and other electronic systems in a more regular and widespread way, the ecosystem is evolving. “There are two ways to think about mobile pay technology,” stated Matt Asay, vice president of mobile for Adobe (CMO.com’s parent company). “One is simply as a payment device that can be used in the physical world or online; the other is part of a more comprehensive business framework that includes loyalty programs and other interaction points.”
Indeed, certain niche retailers, such as Apple and mobile telecom providers Verizon and AT&T, have eliminated front-of-the-store POS terminals in favor of mobile checkout. “For certain types of stores and online transactions, mobile payments make perfect sense,” said Tim Sloane, vice president of payments at Mercator Advisory Group. When a person has only a single item or two or interacts closely with a sales associate, “It’s possible to take a card at a handheld mobile terminal or use mobile-to-mobile technology to get a person out the door quickly.”
However, this approach is typically not as useful when there’s a shopping cart full of items. It’s also expensive to completely redesign stores, with little or no guarantee of any return on investment.
Starbucks and Uber are among the best examples of a sophisticated closed-loop mobile payment system. The former now makes it possible to order items through the mobile app, arrive at the store a few minutes later, and, for example, pick up a coffee. There’s zero interface after the initial order is placed, and the payment occurs automatically through the app.
Meanwhile, Uber allows users to push a button on their phones, order a car, and rate the driver at the end of the ride. The payment also occurs automatically. “You don’t even think about the payment. The whole process is completely seamless and invisible,” Asay said.
Others are taking notice. A growing number of online payment systems require only a fingerprint to process a transaction and add loyalty points. This feature, popular with merchants, travel sites, and others, eliminates the need for consumers to manually input their personal data and credit card number using a phone interface. It also bypasses the need to store data on a merchant’s server, which introduces a highly secure transaction (though it inhibits the business from obtaining potentially useful data). The general goal, Katz said, is to create as frictionless an experience as possible for the customer but introduce additional value for both the consumer and the business.
Dollars And Sense Approach
As CMOs approach the mobile payment space and attempt to map out a strategy, a few points are clear. First, mobile payments must be thought of as part of a broader digital experience. It’s important to look at how they can be used with everything from speech recognition tools, such as Siri, Cortana, and Alexa, to geolocation data. It’s also critical to figure out how they intersect with marketing, including personalized and contextualized promotions that can easily be converted into purchases and payments. It’s still too difficult for consumers to clip and apply coupons, and many promotions are fraught with challenges, particularly at the point of mobile pay.
Ultimately, “Smart retailers and other businesses must figure out ways to blend physical and digital experience and make it easier to interact,” Katz said.
Second, many ways to use mobile payment technology haven’t been tapped or fully realized yet, Katz said. One promising area: product returns. “The technology exists to scan a barcode on the phone through a retailer’s app or a bank app, preprocess the refund, and then trigger it when the person drops off the item,” he said.
This could reduce or eliminate lines at the return counter or a kiosk and automate what is now a time-consuming and expensive process. Another possibility: a payment app that allows a customer to check in at a restaurant, eat a meal, and then leave. There would be no need to wait for a check and pay. The process would happen automatically--a boon during busy lunch hours--and the customer would receive an e-mail receipt.
But the final destination for mobile payments may be automated checkouts with zero interaction. Amazon is testing zero interface payments at a prototype store in Seattle. Shoppers scan themselves into the Amazon Go store with their smartphones, pick up the items they desire, and simply walk out. Everything is charged to a virtual card, and a receipt is sent to the Amazon app.
“The question,” Sloane said, “is whether this type of technology will leapfrog other payment tools, and systems. Most merchants aren’t ready for this type of revolutionary change--and the marketing and business changes that come with it--but it is clearly on the way.”
There are other challenges, too. For instance, Starbucks, Chipotle, and others with mobile order and fulfilment systems have encountered problems as consumers have shifted to ordering en masse through their phones. In some cases, customers have run into slowdowns during the morning rush hour or peak lunch periods. When orders arrive too fast, everyone winds up waiting a few minutes longer for their coffee or food.
“The POS terminal serves as a regulator, but the mobile order system has no similar controls,” Katz said. “The expectation for people ordering through their devices is that the item will be ready as soon as they reach the pickup counter. Mobile ordering and payments can create very different dynamics and expectations.”
Nevertheless, businesses must begin to think more like the Amazons, Ubers, and Starbucks of the world, Oglesby said. They must find ways to transform mobile payments from a discreet transaction into a value-based framework that touches marketing and more.
“Retailers need to be very experience-focused,” he explained. “People don’t shop to pay; they pay because they have shopped. Mobile payments may be a key part of delivering a unique experience, but the payment should be considered a delivery mechanism. Merchants need to think about how they can better their retail and online environments via the mobile channel, and incorporate the right mobile payments solutions based on that objective.”