Payments Views

Jacqueline Chilton

We Can See Mobile Payments from Here!

I attended the Mobile Contactless Payment Innovation Summit in San Francisco last week. The audience included representatives from payments companies, enablers, solution providers and merchants all engaged in mobile payments. Given the constant rate of innovation in mobile payments and recent network incentives for EMV in the US, there was a great deal to talk about.

At Glenbrook we help companies across the payments value chain to understand the future of the market; both the rate of adoption and the value proposition of new offerings are critical. As a result, I was delighted to moderate a panel on mobile and contactless payment innovation with panelists Marc Warshawsky of Bank of America, Peter Ho of Wells Fargo, Ed Busby from ISIS and Oscar Muñoz from CHARGE Anywhere.

Here are some key issues discussed both by the panel and at the event:

Heightened Expectations – As mobile smartphone adoption has exploded, the expectation of mobile payments has grown exponentially. Yet challenges related to technology standards, business models and merchant implementations have slowed progress. Some felt the problem is in consumer education and adoption , but clearly the mobile value proposition has yet to be discovered and defined.

Role of NFC – Throughout the conference, there were vocal detractors and advocates for NFC. Visa, MC and Discover have each laid out a contactless roadmap, providing financial incentives for merchants to deploy contactless (NFC) terminals. The technology is reasonably mature and effective with extensive trials around the globe; ISIS and Google Wallet are examples in the US. Trials demonstrate consistent consumer enthusiasm but handset manufacturers still rarely have NFC chips in new phone models. Why the delay? Most think the problem is in the business model. As long as carriers, handset manufacturers and banks are unclear on how they will realize incremental revenues from mobile payment, there is a hesitation to deploy at scale.

Mobile beyond NFC – Patrick Gauthier from PayPal started his presentation emphasizing the difference between NFC and mobile wallets. He demonstrated that there are other ways to access the wallet. With more active accounts than American Express has cards in hand, PayPal’s cloud-based model is a significant alternative to the physical card-centric NFC approach. Peter Ho discussed Wells Fargo’s experiences with using In2Pay microSD card for Visa payWave transactions attached to a Wells Fargo account as compared to NFC. Either technology supports the desired interaction and he suggested the decisions were more around creating the right consumer experience. Other alternatives to NFC include the barcode model (also known as the Starbucks Example). One constraint to adoption of mobile is the speed at which merchants can implement the technology at POS. Merchants have to sort through the hype, identify mandates and ultimately prioritize their investments.

Are we just sticking a credit card on the phone? – Card issuers in particular were concerned with enabling card transactions over the phone. These models are expensive to merchants as they move card present, in store transactions to what they expect will be card not present interchange. So is there value in a mobile transaction and perhaps even room for more fees? Value in a mobile payment needs to be found in the added functionality brought from the phone. Location, data, computing power and Internet capabilities augment the in-store transaction. Bill Gajda from Visa was clear “it’s about more than replacing a swipe with a tap”.

Wallet advocates advise merchants that there are huge benefits from advertising and customer acquisition through coupons that would make mobile wallets worthwhile. This quote is representative of the merchant perspective: “All the mobile wallet vendors come and tell me they can spend my gross margin faster than the next guy”. Wallet providers want merchants to fund an enticing coupon to drive adoption of their wallet. Merchants at the conference shared a clear message that this was not appealing and the thought of adding a coupon to give a customer already in or near their store a discount to use a more expensive payment method seemed, dare I say, ridiculous. Wallet providers need to shift their strategy to help merchants drive incremental revenues not through expensive customer acquisition but through customer retention and larger baskets. The value is in loyalty – as distinct from one-time free stuff.

Are payments broken? – The question was asked, “If swipe transactions are not broken, why are we trying to fix it”. Perhaps contactless was an unnecessary innovation in the US where magnetic stripe card transactions are fast, ubiquitous and convenient even with real-time authorization. The quote attributed to Henry Ford seems apt “If I had asked my customers what they wanted, they would have asked for a faster horse”. So what will be the killer app that motivates adoption of mobile payments that so far is not there for contactless cards? In my point of view, somewhere in the link to loyalty programs and points collecting behavior may be the driver of consumer adoption.

Is Innovation in the hands of the consumer? – Card Issuers and ISIS are clearly looking at the underlying needs of consumers. Perhaps, suggested Marc Warshawsky from Bank of America, when Henry Ford’s customers asked for a faster horse, they were indeed explaining that innovation was needed to get places faster. The challenge is: Do consumers have unmet needs with swipe card transactions? They have efficient, ubiquitous payment, no fees, zero liability and loyalty points.

PayPal expressed that customers still want to save time and save money. Hence, PayPal’s effort are directed at simplicity, convenience and control. Mobile payments will grow “in the short term for it’s novelty, in the medium term it’s convenience, in the long term it’s value” according to Ed Busby of ISIS. If the consumers are already content, where does the value come from?

Mobile lets us move from transaction to interaction. – Payment is more than a one-way activity driven by the purchasing consumer. Payment is about enabling two way interaction between consumers and merchants. The shopping experience is changing as consumers use their phones in store and merchants adopt new technology. Is the checkout lane past its prime? Citing examples from the Apple Stores and a pre-ordering pilot underway at McDonalds some dare to ask the question. Marc Warshawsky, Bank of America said it clearly, “Start with the experience you want to create and let the technology and business models follow.” There is a whole conversation to be had around loyalty and wallets beyond coupons. Mobile payments enablers need to let commerce drive payment not vice versa. As we at Glenbrook often observe, it’s how payments fit in a mobile world, not what are mobile payments.

Overall. The conference was worthwhile with a bounty of information for participants to discuss and digest. Tom Poole of Capital One said “we are entering the neo-Cambrian age of mobile payments”. Prior to the Cambrian era, life was small and simple and then there was a vast increase in diverse forms of life. We are on the cusp of great change. There will be many more announcements and even more reasons to attend conferences – even on your birthday.