Carriers, software firms maknig mobile-payment decisions clearer.
The dads of tomorrow may no longer open gifts on Father’s Day and find that old standby, the leather wallet. That’s because everything, including paying for gas and a morning cup of joe, is moving to the cell phone—and much sooner than c-store retailers might think. With cell phones already hav-ing built-in e-mail, online banking, photos and video recording, among other features, retail payment seems a foregone conclusion. Well, it has been. And many business-driven forces are now coming together to make the practical implementation a year or two—at most—away.
Some of these elements include:
- The standardization of related technologies.
- Major movement from carriers, cell-phone makers, banks, processors and even software manufacturers to install payment capabilities in phones.
- The growing use of multipur-pose “smart” phones, the sophisti-cation of the public with regards to electronics and the prevalence of cell phones in general.
- The modest cost of entry for retailers.
- The potential for loyalty and marketing ties.
Mobile phones today are an inte-gral part of a consumer’s life, says Todd Ablowitz, president of Double Diamond Group LLC, Centennial, Colo., a consultancy focused on mobile payment. With 5 billion mobile phones in circulation, two- thirds of the world’s people have phones. That’s three times the number with payment cards, he says.
In the United States, mobile payment is entering a preliminary deployment stage, Albowitz says. Significant deals between players both in the telecommunications and transactions fields have all but guaranteed a flood of payment-capable cell phones into the market, with only the retail infrastructure left to tackle.
Retailers need incentives to do something new just as much as consumers do, says Doug Dwyer, chief product officer for Mocapay, a mobile-payments provider based in Denver. For retailers, the larger goal is to “gain control over their customer base by using a mobile program … not just as a way to pay, but a way to capture that consumer.”
Still, urgency exists, according to Ablowitz. “You want to be ahead of consumers, particularly the younger ones who are attracted to mobile phones as a wallet for cash, gift cards, loyalty cards, [etc.],” he says. “Wouldn’t you want to be the first [c-store retailer] to offer something cool?”
FOOT IN THE DOOR
Many retailers are already well on their way to participating in this oncoming payment form, with “contactless” cards having entered the petroleum sector in 1997. Fairfax, Va.-based ExxonMobil typically gets the credit for initiating retailers via its card and key-fob pump-activation rollout of radio-frequency identifica-tion (RFID) technology.
Contactless readers began stream-ing into the market through the next decade, leading to contactless credit cards from Visa and MasterCard in the mid-2000s.
Today, estimates put 600,000 con-tactless readers in stores across retail channels, says Mohammad Khan, founder and president of contactless- payment provider ViVOtech, Santa Clara, Calif. Most belong to brand- name merchants, including 7-Eleven, Chevron and BP, but also regional titans such as Sheetz and Wawa.
Over the next two years, more than a million mobile-payment card readers will flow into stores, Khan says. “There’s been a huge increase in demand for readers,” he says, and the good news is that readers already deployed are capable of accepting phone payment. “Contactless was always designed as a step toward mobile payment when MasterCard and Visa [entered the game],” Ablowitz says. “[It] was going to lead to where a contactless chip would be in all cell phones.”
So many c-store operators already had the understanding they eventually would have mobile payment and “most were hoping they’d have it sooner,” he says.
Today, several mobile-payment for-mats appear to be vying for domi-nance, mirroring the Beta vs. VHS and HD-DVD vs. Blu-Ray evolution in consumer electronics, says Ablowitz.
As mobile-payment platforms began to develop in the early 2000s, infrared and even Bluetooth technolo-gies were in consideration, he says. But infrared technology needed a “line of sight” for the signals to work, while Bluetooth held the possibility of the wrong person being billed, he says.
Today, technologies involving nearby radio waves, bar codes on cell-phone displays and transactions initiated through a phone call are all in play.
“Our goal is to be as flexible as pos-sible with mobile technologies,” says Dwyer of Mocapay. “Having our own gift card and loyalty [programs], we can hook into other [mobile payment] platforms as well as remain agnostic with [monetary] tender types.”
For Ablowitz, the hands-down technology that’s taken the lead is called near-frequency communica-tions (NFC). Ablowitz, who once worked for ViVOtech, a provider of NFC solutions, says the ability to place the phone within an inch of the reader and “tap” to initiate a transac-tion is the easiest, most reliable for-mat in the field.
Standardization of NFC technol-ogy about a year ago helped fuel its expansion. Soon the handset mak-ers came on board. Now suppliers from different points of the mobile- payment cycle are creating coalitions and developing strategies to market, he says. He mentions a few:
Carriers. Late last year, three major carriers, T-Mobile, Verizon Wireless and AT&T, along with Bar-clays Bank and Discover Financial Services, announced the creation of a consortium, called ISIS, to develop a mobile-payment network. The collaboration would extend mobile payment to 200 million users via the Discover payment system.
Operating-System Firms. Within the same time frame as the ISIS announcement, Google Inc. said Android phones would have NFC, while many reports put Apple’s iPhone, RIM’s BlackBerry and Nokia phones all on the same path.
Banks. Not wanting to be left behind, numerous banks are deter-mining their strategies on fitting into the NFC equation. “Google is moving, as is Black-berry. … The big players are in the game,” Khan says. “Retailers need to understand what’s happening.”
For retailers wondering what the next steps for them might be, Ablowitz suggests contacting their transaction processors, because many of the options are currently being deter-mined. Mobile-payment readers are not back-breakers in terms of expense, in the range of $100 to $150 per register. Once the equipment is in place, the next step would be training employees.
But Ablowitz and others suggest that accepting mobile payment is only a sliver of the potential that exists, “because it’s software, you can load in as many gift and loyalty cards as you want,” he says. “You don’t have a key chain of cards for the grocer, the apparel store and the shoe store. It’s all on the phone with a chip that’s intelligent enough to recognize, home in and interact with the reader to pull the right one out. It’s a virtual wallet and a mobile wallet.”
One in-field scenario might involve doughnuts. “You [as a retailer] may realize you have leftover dough-nuts from the morning rush,” he says. “Now you could send a message to someone in the area who’s opted in, a message that [the customer] can get 50% off doughnuts in a special offer. That customer comes into the store, taps [the phone] on the point-of-sale, and the reader knows to take off the discount.” The bigger message, say those involved in the evolution of mobile payment, is how to use the technol-ogy to promote a retailer’s brand. “You have to ask yourself, ‘How do I … build a mobile brand with consumers?’ ” Ablowitz says. “With change and disruption, there’s oppor-tunity. If you’re the first [to market], and you deal with carriers to get your loyalty program in place now, you have a more compelling offer.”
A Question of Security
As mobile-phone payment nudges into the retail sector, both consumers and operators raise the question of security. Todd Ablowitz of Double Diamond Group, Centennial, Colo., says mobile-phone payments are more secure than magnetic-striped cards in a number of ways:
- Codes Change. For mobile payments, codes used to hide credit-card information change with every transaction.
- Faster Consumer Response. Ablowitz suggests that consumers are hyper-aware of their cell phones as opposed to their wallets. “When the typical consumer loses a wallet, it can take up to 24 hours before they realize it. For a cell phone, it’s a half-hour.”
- Quicker Cutoff. With a wallet, a consumer has to call all the credit-card companies to shut down payment. When a phone gets turned off, all cards are turned off.
Steps Toward Mobile Payment
Retailers looking into mobile payment might want to review these steps:
- Consider Demographics. The more sophisticated the consumer, the sooner mobile payment may be a feasible option. Think urban vs. rural. Do a lot of your customers have smart phones or flip phones?
- Contact Your Processor. See what their options are regarding price, equipment and service.
- Purchase a Reader. These typically cost about $100 per register.
- Train Your Employees. They need to understand the business arrangement and what they must do. Also be wary not to train too early, because employ-ees may forget what they’ve learned.