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In a Good Omen for Mobile Payments, Location-Based Services Attract Handset Users
September 8, 2011


The smart-phone revolution and its importance for mobile payments are well-known to payments executives. What might be less known, but perhaps just as important, is the extent to which consumers rely on mobile devices for so-called location-based information services.

A new report from the Pew Internet & American Life Project, Washington, D.C., has found that about 20% of U.S. adults uses a smart phone to access a location-based service or a so-called geo-social site, or a social network in which the user “checks in” with his or her location. Mobile-payments initiatives are increasingly coming to rely on such services to help deliver offers that can be timely and relevant and trigger a payment.

Among smart-phone users, some 55% now use the device to get directions or recommendations from location-based services. These services can tailor recommendations to the user’s precise location as indicated by his handset. Such services include map services relying on GPS capabilities or services that offer reviews of stores, restaurants, attractions, and the like. Twelve percent, meanwhile, are users of geo-social networks like Foursquare or Gowalla, according to the Pew report.

The most likely users of geo-location and geo-social services, Pew found, are young adults with college educations and household incomes of $75,000 a year or more.

Of course, not all handset users are smart-phone owners. Pew’s study also found that, overall, 23% of all adults use a cell phone to get directions or ratings that are linked to their location at the time. The fraction of adults who use a phone to check in with a geo-social site is 4%, Pew says. While such usage appears significant, its rate of growth is hard to estimate, as this is the first time Pew has gathered usage data on location-based information services. Pew surveyed 2,277 adults in April and May.

Mobile-payments backers are looking to use location-based services to help deliver discounts, coupons, and other rewards to consumers while they are in the aisle and can use them right away, leading to more payments usage. Mobile-payments initiatives from established players like Google Inc. and startups like Aislebuyer Inc. rely heavily on such capabilities to deliver relevant and immediately useful rewards.

At the same time, some experts predict that mobile wallets will leverage location-based capability to automatically serve up payment methods according to incentives offered by the store or methods favored by the user at that location. George Peabody, director of the emerging technology advisory service at Mercator Advisory Group, Maynard, Mass., foresees such a scenario in a report released this week, “Fighting for Position: the Mobile Wallet Wars.”

While much of the payments business has been preoccupied with the potential for near-field communication (NFC), a short-range data-transmission protocol, to propel mobile payments into the mainstream, Peabody argues that so-called smart wallets are just as important. “They combine the preferred payment method with available incentives for easy presentment at checkout,” he says in the report.

At the same time, targeted incentives made possible by location-based awareness spurs buying activity by consumers, pressuring merchants to install NFC readers. Currently, only an estimated 125,000 merchant locations have put in such equipment, a stumbling block for NFC development.

But non-payment transactions, Peabody says, will give merchants the justification they need to invest in readers. He points to the scenario where consumers check in as they enter a store by tapping an NFC phone on a reader. This “transaction” identifies the customer to the merchant and can give permission to send offers while the customer is in the store. “Tech-forward merchants will give their right arm to know who you are when you walk in the store,” Peabody tells Digital Transactions News.


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