Paying It Forward

By Jerry Soverinsky

So what, exactly, concerns you most about mobile payments? Is it the tech thing, a feeling that it€™s out of your sphere, and something you need to tolerate rather than direct?

Or is it the price tag? Surely that has you thinking about just how much €" all in €" this is going to cost. POS hardware isn€™t cheap, and with competing players involved, does that mean you€™ll have to double or even triple your investment down the road?

And most important, will your customers even use the thing? Are you going to spend all the time and effort necessary to become an early adopter or driver of the technology only to see your investment go the way of the Betamax tape or floppy disk?

We€™re talking €" again €" about mobile payments. And the question remains: What will you do?

Much has transpired since the May NACS Magazine feature on mobile payments:

In late May, Google introduced Google Wallet. "Today, we€™ve joined with leaders in the industry to build the next generation of mobile commerce," said Stephanie Tilenius, vice president, commerce and payments at Google, in announcing the product and the 20 merchants (Subway, Walgreens and Toys R Us, among others) committed to working with the system.
By the end of May, Google Wallet was in a live testing phase, with full-scale deployment rumored for late summer.
In June, Isis announced the rollout of its mobile commerce program in Austin, Texas, for the first half of 2012 (Isis also announced Salt Lake City, Utah, as another test market for early 2012).
In July, Isis expanded its partnership to include Visa, MasterCard, American Express and Discover, the first mobile payments venture to include all four major card companies.
In August, Google bought Motorola Mobility for $12.5 billion.
Visa has been developing its own digital wallet app, PayWave, which it intends to roll out by the fall.

If you€™re starting to get the feeling that this free-for-all, mad rush resembles the dessert line at an Old Country Buffet you€™re right. And with the major U.S. wireless service providers, the major credit card companies, Google and maybe (probably) Apple all on board, the question is not whether mobile payments will become a reality, but on whose side €" or sides €" you€™ll choose to align yourself. You might even decide to forge a path all your own.

How you decide to proceed, some experts maintain, won€™t just affect payment processing and interchange fees. Rather, your choice is fraught with profound implications on the future of your customer relationships.

The Lineup

As we noted earlier this year, mobile payments are not new: The Japanese have been using their cell phones to make payments since at least 2004, and the technology is relatively mature in South Korea, too. And even in Kenya, according to MarketWatch, roughly 70 percent of adults pay for goods and services with their mobile phones. But whereas consumer adoption in the United States has previously moved at a glacial pace, things are now changing quickly.

Isis
Originally a partnership of just cell phone carriers AT&T, T-Mobile USA and Verizon Wireless, Isis has recently expanded to include all four major card companies. It€™s a daunting alliance: two major industries working together, with marketplace clout that could bully far more than just interchange.

"The news of the day is really around the validation of the Isis model by the four leading payment networks in the United States," said Jaymee Johnson, head of marketing for Isis, shortly after the alliance was announced. "What this means for consumers is that we are building a platform for any existing debit or credit card to be used in their mobile wallet, regardless of network."

Absent from the announcement was any mention of interchange fees, a silence that should be deafening to retailers.

"Isis is very much trying to come off like Google and not talk about fees," said Gray Taylor, cards payments consultant for NACS and executive director of PCATS (Petroleum Convenience Alliance for Technology Standards). "There hasn€™t been any talk about swipe fees, which makes me very nervous."

Swipe fees are one reason PCATS has made mobile payments its number one topic of concern this year, Taylor said, to head off any recurrence of the current payment system where retailers carry little negotiating power with the card companies (imagine the challenge when you add the cell phone carriers to the fight).

Isis is saying little about merchants and is instead focusing on the customer and the benefits mobile payments will bring. Their focus is on what they call a "digital wallet," which boils down to a cell phone platform that carries individual "cards" representing credit cards and merchants. When a customer visits a store and executes a payment (touching his cell phone to a hardware device), the wallet triggers an interaction that prompts the user to select the digital wallet "card" with which to pay. It could be one of the four credit cards in the Isis network or the card of a merchant, who will be required to "rent space" to join the wallet.

Google Wallet

The other major emerging mobile payments player is Google Wallet, which has said it won€™t charge merchants a transaction fee, nor will it charge card issuers to join its mobile wallet platform. On the other hand, like Isis, Google Wallet will focus on the hyper-targeting possibilities inherent in GPS-enabled smartphone technology.

Say a customer enters a gas station €" a station that does not use Isis or Google Wallet €" and as he approaches the pump, he receives a text message: "Visit the station across the street for a four cents per gallon discount."

That€™s right, unless you join Isis or Google Wallet or Visa€™s PayWave or AmEx€™s Serve or any other third-party mobile payment plan, you€™re susceptible to merchants who participate on those platforms and advertise to steer traffic away from your store.

Of course, you could pay the platforms to participate, but then they own the dialogue with your customers. They€™re the ones capable of sending the text messages €" they manage the user IDs, passwords and personal information of the registrants. And that€™s the real threat that Isis and Google Wallet and the others pose to retailers €" not unmanageable interchange fees (still a huge concern), but the loss of the customer relationship.

Control the Customer Relationship

"Retailers need to incorporate the control, time-to-market and future-proof trifecta into their own mobile strategies," advised Richard K. Crone, CEO at San Carlos, California-based Crone Consulting LLC, an independent advisory specializing in mobile payments. "This is not to say that Google, Isis and other intermediaries won€™t also play a role, but the savvy c-stores and merchants€¦will need their own offering if they are to preserve and grow their hard-won customer relationships."

And it€™s not just the major retailers who can succeed in this regard (Starbucks€™ mobile app has more than 4 million active users). Crone says retailers of all sizes can take advantage of mobile payment opportunities.

"[W]e expect a few retailers to 'roll their own€™ and a much larger number to purchase or license a mobile payments technology 'platform€™ as they emerge in the market," Crone said, adding that banding together €" via NACS, the National Retail Federation, the Merchants Payments Coalition €" can help with thought leadership. "Many small retailers just aren€™t thinking about this in a strategic way," Crone admitted. Partnership promotions (i.e., carriers, devices, banks, etc.) are another good opportunity.

"[T]he single store has its own strengths," Crone said. "Probably the owner or manager knows many of the regular customers by sight, if not by name€¦The reasons why [customers] prefer to return to those places are the very reasons why [customers] would want that store€™s mobile app and potentially, mobile payments capability."

The One Who Enrolls€¦

One retailer not sitting back and waiting for industry adoption is El Dorado, Arkansas-based Murphy Oil USA, which has launched a proprietary MurPay mobile payment program for use at all of its 1,100-plus gas stations. Tested the fourth quarter of last year, it launched in April of this year, and provides customers with a mobile payment option at the pump that€™s triggered via a text message exchange.

Registration at the company€™s website is simple and straightforward, requiring unique login IDs, a driver€™s license number, checking account information and a cell phone number. Crone lauds the approach: "The one who enrolls is the one who controls."

The program is free and is accompanied by a strong financial incentive: Per-gallon costs are assessed at each station€™s lowest price for fuel from the previous 24 hours, or 3 cents off per gallon, whichever results in the lowest price. Best of all for Murphy Oil: Payment bypasses the card companies and is drawn directly from a customer€™s checking account, eliminating burdensome interchange fees.

"At the time we were developing MurPay, interchange fees were a hot topic and a big issue," said Jay Staggs, director, support services for Murphy Oil. "It€™s no secret when the price of gasoline goes up, the fees go up with it €¦ [interchange fees were] definitely a driving force, along with the desire to be on the cutting edge for our customers. "This is a less expensive transaction for us than traditional cards," Staggs said, "and we want to promote adoption of this technology."

Google Wallet and Isis and the various competitors coming to market will all center around Near-Field Communication (NFC) €" a cell phone is embedded with chip and taps a pad-like hardware device to initiate the payment exchange €" all of which require a smartphone. MurPay, however, works with any texting-capable cell phone €" a far greater pool than just smartphones.

Finally, because the process does not require NFC chip-embedded smartphones, which would have then required dedicated pads to trigger the payment exchange, MurPay incurred zero hardware investment costs. And lest you think such an initiative is only left to a field of specialized vendors: Murphy Oil handled the entire development of MurPay in-house.

"We€™ve got some really smart IT folks €¦ this thing was developed in-house, it€™s patented; we€™re really proud of our innovative IT department," Staggs said. "Unlike a lot of other programs where you have to install hardware at the pumps [at per-pump costs that can run into the thousands of dollars], this program€¦only required a software upgrade at our POS."

True innovation. And a solution that leaves Murphy Oil fully in control of their customer relationships.

The Choice Is Yours

Certainly, some retailers are taking a cautious, wait-and-see approach, still unconvinced that consumer adoption will be meaningful. And they€™re not alone.

"People have so many payment instruments [in the United States] that they don€™t see a strong value in using mobile phones [for payment]," said Sandy Shen, a research director at Gartner, in an interview with MarketWatch.

But even if that€™s so €" if consumers don€™t overwhelmingly adopt mobile payments €" the technology still offers a tremendous upside to retailers.

"Keep in mind, Google Wallet doesn€™t have any users today, but Starbucks has 4 million," Crone said, all of whom are now "contactable before, during and after every purchase" €"tremendous leverage for negotiating rates with banks, offering advertising propositions, or just simply selling lattes.

And if the technology does take off, the question becomes: How many customers do you have? And what are you doing to keep them?

Jerry Soverinsky is a NACS Daily and NACS Magazine contributing writer.

The High Tech Payments Battle
Read our May 2011 cover story on mobile payments to take a look at how this began.