The Complexities of Mobile

Payments 3.0

The rate of adoption of in-store mobile-phone-based payments is a critical issue facing merchants. How best to respond to it is a complex problem with some major unknowns.

Recent studies indicate that nearly half of consumers would prefer to use their own mobile device when shopping in a store. They want look up prices and product information as well as pay for their purchases. The consumer’s willingness to try mobile-phone-based checkout is enhanced by offers of financial incentives and rewards in return for sharing their personal data, though many are looking only for convenience.

Indeed, the rise in mobile payments’ popularity for uses other than purchases is a contributing factor in the anticipated rise in adoption of mobile-phone-based in-store payments.

However, the merchants, which are operating on thin margins, are trying to justify the IT investment necessary to adopt mobile-phone-based payments. Those with newer systems, and especially those merchants with cloud-based technology, have an advantage and may become the first movers. Some feel that using mobile devices in the checkout process could be less expensive compared to traditional point-of-sale terminals at the device level. But the difficulty lies in replacing legacy POS infrastructure to support mobile-phone-based in-store services.

In 2014 fraud of all types cost U.S. retailers close to $32 billion, of which roughly half was perpetrated using compromised payment card accounts. Mobile payments will increase the security of payments compared to magnetic-stripe cards (something of a pyrrhic advantage, given the onset of EMV chip cards) but it could also make customer data more vulnerable if data ancillary to the payment is not carefully protected while it transits the end-to-end system.

However, security alone will not make a mobile-phone-based POS system competitive. Seamlessness, scalability, and revenue-generating opportunities need also to be present. Given that the conversion to EMV chip cards will require modifying terminals and software, there is a window of opportunity for merchants to absorb the additional cost of implementing new types of payment terminals, including going to mobile tablet “terminals” as well as going to a cloud-based business model.

A big problem is that the market remains so fragmented that it is hard to decide which form of mobile-phone-based payments to piggy-back onto EMV conversion. If retraining checkout clerks were a one-time cost, it could be absorbed over a period of time. The reality is that, as customer preferences change and coalesce, and retailers change their systems to match, multiple retrainings of store staff will be required.

This is not to mention the additional problem of the checkout staff remembering which processes and protocols go with which payment type: “Will that be cash, check, credit card, debit card, NFC, QR code, or ACH?”

Merchants repeatedly cite customer convenience and satisfaction as a primary benefit when considering changing their payments-acceptance infrastructure. For customers, the problem isn’t their being confused about how to use the mobile-payment option they’ve installed. Their confusion is around knowing which merchants accept payments made by mobile phone and then figuring out which subset of them accepts the particular kind of mobile payment the consumer has installed. One retail executive has said it is going to be like playing paper, stone, scissors between the customer and the clerk.

Compared to the puzzle of getting it right when converting to mobile for payment acceptance, one would think the ACH vs. credit card decision would be a no-brainer for the merchant: the ACH fixed price per transaction trumps the card system’s variable price-per-transaction at well below the typical transaction value.

The expected rush to ACH-based POS, however, hasn’t been a rush so much as an amble, partly because, in many cases, it is being implemented as an integrated part of a proprietary loyalty program. We’re seeing the loyalty-card/ACH model heavily in the grocery sector, a business that has the lowest number of customers shopping on mobile devices but that has the highest-cost checkout/payment process. With the coming of faster ACH and earlier funds availability, the ACH checkout use case only improves.

—George Warfel • george.warfel@edgardunn.com

n n

 

n