Endpoint: Two Mistakes in the Mobile-Merchant Market

 

So far, mobile-acceptance products for merchants have been limited to cards. Meanwhile, entrants in this market from outside the payments business tend to be long on tech but short on security. Both factors spell trouble, says Bill Clark.

 

The skyrocketing popularity of card-based mobile-payment solutions is certainly impressive, but is this endeavor enough to satisfy the evolving requirements of both consumers and merchants? Frankly, the answer is, “No.”

 

Bill Clark is president of Spindle Mobile Inc., Scottsdale, Ariz.

 

 

 

While most of us may recall the phrase, “Follow the Money!” as the key clue to unlock the coverup in the classic film “All the President’s Men,” it is also appropriate for describing the escalating excitement and attention that has permeated the mobile-payments space.

 

The recent bevy of activity by investors, financial institutions, mobile operators, and other providers certainly indicates that there is real opportunity in this space. The key, as with most innovation, is to ensure that technology matches market needs. From this perspective, it may be a while before we can say with some certainty which solutions have the breadth and maturity to make a lasting impression in the market.

 

Just within the past 12 months, we’ve seen steady growth in what is often called the alternative-payments space. There has been a lot of press coverage for mobile-payment providers like Square, which recently closed yet another round of funding, and an increased market acceptance of alternative-payment channels such as PayPal, which anticipates handling some $3 billion in mobile sales this year. There are many factors contributing to this explosion, including the willingness of American consumers to pay for low-cost purchases by credit card, and use of portals like eBay and Craigslist, which propel the alternative-payments space.

 

From most accounts, there’s no end in sight. Google and American Express are only the most recent entrants into an increasingly crowded playing field. While AmEx’s closed-network solution appears to be a strategy to promulgate the use of its debit card, it is really the introduction of Google into mobile commerce that has caused the greater seismic shift in investors’ collective thinking. If a bright, visionary company like Google makes a play in payments, they surmise, then there really must be something to this market.

 

Profound Benefits

 

Indeed there is. The growth of smart-phone adoption—something Google is all too familiar with, as evidenced by the success of its Android platform—is one of the biggest catalysts for this market shift. In fact, most analysts expect to see smart-phone sales surpass standard browser-enabled feature phones perhaps as soon as late 2011. The proliferation of these devices is one of the biggest game changers the industry has ever seen.

 

When these smart phones are used as payment terminals, they become a highly reliable tool that enables virtually anyone to become a card-accepting merchant—in any location—through either peripheral swipe devices or by keying in credit card details.

 

As a result, mobile merchants, who may have dismissed accepting card payments in the past due to the high cost of made-for-purpose terminals or unfamiliarity with the responsibilities and risks of card acceptance, are warming up to the idea that taking cards can actually improve business across the board. For legions of merchants, from home-repair professionals to taxi and limousine drivers to seasonal merchants that sell wares at craft fairs and holiday shows, mobile card acceptance offers a number of profound bottom-line benefits.

 

More and more of these merchants are receiving these messages loud and clear. Accepting cards means enhancing customer service by giving consumers the option to pay with the instrument that suits them best. And for many merchants, card payments are a much better alternative from a security and processing standpoint. A reduction in the amount of cash a merchant carries means that he is a less likely target for theft—or worse—and he doesn’t have to deal with the cumbersome headache of counting, validating, and transporting a large number of bills and coins to the office and then to the bank.

 

Boxed-in Customers

 

The skyrocketing popularity of card-based mobile-payment solutions is certainly impressive, but is this endeavor enough to satisfy the evolving requirements of both consumers and merchants? Frankly, the answer is “no.” While the use of credit and debit cards absolutely accounts for a large percentage of transactions, providers that focus on one type of payment instrument are missing the big picture, and are likely to repeat the mistakes of the past by locking customers into a particular form of payment.

 

For example, check acceptance, automated clearing house transfers, and other forms of payments continue to have an important and still-relevant role in the payments ecosystem. From a technology standpoint, merchants who accept card-based payments through smart-phone devices also have the ability to take checks using these very same devices. And consumers, whose habits and preferences are the real basis for all of these new technologies, shouldn’t have to feel boxed into a specific form of payment just to satisfy a provider’s core competency.

 

All payment forms, including card-based, check, ACH, and alternative platforms, should be accessed across any number of mobile devices, regardless of whether it’s an iPhone, Android, BlackBerry, or Windows Mobile device. The key is to provide a seamless and consistent user experience that transcends technology, while giving both the merchant and the consumer the reliability and security they demand.

 

Most of the new providers in the industry, whether they enter through the mobility or alternative-payments avenues, bring a high degree of innovation and creativity to the market. They know how to make smart-phone applications appealing and intuitive, and can design payment portals that are as advanced and user-friendly as any industry veteran can.

 

Still, while some of the new providers do have a background in the payments industry, a lot of recent entrants are most experienced in writing software and in the app-development process, and are not particularly well-versed in the mundane—yet highly important—mechanics of compliance and security.

 

This lack of awareness regarding data protection and privacy on the part of a provider could spell trouble for both the merchant and the consumer. Most agreements with traditional providers, like merchant-acquiring banks, insulate the merchant from liability when using their platform, and provide clear directives to ensure that data privacy and security mandates are met. This, in turn, gives the merchant the confidence to accept card payments, knowing full well that their provider has the expertise to ensure they are fully compliant. As a result, merchants should move cautiously and with the full understanding that industry newbies may not have the same security and compliance DNA as traditional payments providers.

 

Catastrophic Failure

 

There’s no doubt that the payments game has changed—for merchants, for consumers, for traditional financial services providers, and for the newest entrants into this exciting and potentially lucrative space.

 

But it’s important to keep in mind that while the newest innovations are exciting and compelling to the user, any solution will only be as good as the transactional security and data protection it provides. Any failure in this regard could be catastrophic for the merchant and service provider.

 

And although many providers shine a spotlight on card acceptance as the key functionality for new offerings, it would be a mistake to discount the widespread appeal of check and ACH acceptance, or alternative payments.

 

Providers that can provide a consistent, seamless, and secure payment experience across all of these media are best suited to serve the tens of thousands of merchants who are looking closely at m-commerce as a means to improve sales, reduce expenses, and keep pace with sophisticated consumer demands.