M-Commerce: Stop Pushing Payments. Start Building Commerce

Why aren’t consumers all that excited about mobile payments? Maybe it’s because providers are focusing on payments when what consumers want is a lot broader than that. Call it an Integrated App.

By René M. Pelegero

Remember the days when we had to look at newspapers to find out which movies were playing at our favorite theater? Do you also recollect when we had to wait for the local TV news to find out about tomorrow’s weather? Or recall the frustration we felt when we forgot to set the VCR to record our favorite TV show and then could only hope to catch the episode in reruns?

And how about running to the library or dashing to the bookstore to buy a book when you were working on a school or business project? Ahhh, those were the days … NOT!

Now, thanks to computers and the Internet, we can see immediately which movies are playing in theaters and even buy tickets on Fandango and movietickets.com. We can check the weather all over the globe instantly, courtesy of Weather.com and various TV news Web sites.

We can watch our favorite TV shows and movies at our convenience because of sites like Hulu or Netflix. And we can think of the time and gas we save from not going to the library or bookstore by using Google and Amazon.com.

The Internet connectivity that allows us to be more efficient in our lives is being further enhanced by the introduction of mobile phones, which are now complementing computers as connectivity devices. Since, unlike computers, we carry them everywhere, mobile phones have the potential to alter our lives even more dramatically than computers did in the way we find and buy stuff, as well as how we pay for goods and services in physical stores.

Much More Than Payments

And yet, even though mobile payments have garnered a lot of media and industry attention, U.S. consumers do not seem to be all that excited. A survey commissioned by American Banker in 2011 showed that 62% of credit card consumers with smart phones considered mobile wallets “very unimportant” or “somewhat unimportant.”

Similarly, the technology-research firm Gartner Inc. reported that only 16% of consumers indicated that they were likely to use their mobile phones to buy in-store.

Based on these results, mobile payments still have a long way to go. Why?

Several reasons. The first challenge is fragmentation. Among the better known brands offering mobile payments are Google Inc., PayPal Inc., Visa Inc., the Isis joint venture from the major telecom companies, Starbucks Inc., and American Express Co. Additionally, one must also consider possible mobile-payment initiatives from large, well established brands like Apple Inc., and Amazon.com—all of whom could launch mobile payments leveraging their huge customer bases.

However, while the big brand names get all the attention, many other companies are already offering working mobile-payment solutions that allow consumers to pay for parking, charge the purchase of digital goods to telephone bills, and use feature (non-smart) phones to make purchases at coffee shops, fast-food restaurants, and other merchants. Unfortunately, none of these choices is compatible with any of the others.

But fragmentation isn’t even the biggest reason for consumer apathy. That distinction goes to the lack of a compelling value proposition. Yes, as consumers, we would likely agree that using our phone is more convenient than pulling a card out of our wallets and that we would notice our mobile phone missing faster than we would our wallet. Still, trading our credit cards for phones does not seem attractive enough to drive us to the inflection point.

Companies engaged in mobile payments are so focused on payments that they may be missing the point that consumers want solutions for their overall commerce activity, not just payments. To borrow a line from the political scene, it’s about m-commerce, stupid! The industry needs to focus on m-commerce and consumers’ and merchants’ needs, exploring how mobile-phone technologies can be used to add value to the overall end-to-end buying experience.

The Integrated App

Imagine the following scenario. Joe is driving through town when he spots a new gelato shop he has heard good things about. He finds a nearby parking spot and is unconcerned that it is a metered spot even though he does not have loose change.

He pulls out his mobile phone, launches his Integrated App, scans the QR code in the meter, and selects the length of time he wants to park for. Joe likes his new smart phone but recalls that he could have made the same transaction using SMS with his old phone.

The gelato turns out to be fantastic and Joe decides to buy a quart. As he prepares to check out, his Integrated App advises him that he has a discount coupon, which he received via e-mail the previous week, to get a second quart at half off. Joe grabs another quart of a different flavor and enters the discount as an additional tender.

To check out, the Integrated App generates a bar code, which incorporates the discount and which the gelato merchant’s point-of-sale scanner reads. This exchange causes the POS to send a message to the Integrated App’s service provider to authorize the payment. No credit card number is sent from Joe’s phone to the merchant’s POS.

The service provider checks Joe’s payment settings. Even though he has a credit card stored, Joe prefers to make low-value payments like this one from his checking account and, because he does not want to pay a debit card use fee, he has authorized his service provider to directly debit his checking account.

Joe receives a message on his mobile asking him for his PIN to authenticate and confirm the payment. When the service provider receives Joe’s PIN, the transaction is approved and the merchant gets an immediate confirmation of payment in a message similar to a credit card authorization reply. The merchant receives the funds the following day through an automated clearing house credit initiated by the service provider in the same manner as a credit card payment, but at a much lower cost.

Joe is happy with the transaction. It went smoothly and he received a discount as well. He also is satisfied that none of his financial information was shared with the merchant. Additionally, he is glad that the Integrated App will automatically upload the receipt information from this purchase to his Personal Finance Manager, eliminating his weekend chore of entering receipt information.

Mike, the gelato merchant, is also happy. He was able to add on the discounted sale of a second quart at the POS, and the process was as fast as a credit card transaction. Using an intelligent device such as a tablet computer at the POS, Mike can actively manage his marketing campaigns and check coupon redemption in real time, minimizing the possibility of fraud and eliminating the manual work of looking up printouts.

Mike can also get information back from the Integrated App service provider on whether a customer is new or repeat and, if the latter, he can offer discounts or “free” products in recognition of the customer’s loyalty. With this new device, Mike not only accepts a new, potentially less expensive method of payment but also he can continue accepting credit cards through a card reader adapter.

NFC Is Not the Answer

Many other functions could be included in an Integrated App. Geolocation services could direct consumers to the closest (or least expensive) location to find a desired product. Also, with the proper permissions in place, a merchant could send discount coupons in real time to consumers who happen to be near a merchant’s store.

Another highly desired function from a consumer perspective is a coupon-management facility so that coupon availability and value are evaluated when searching for a product or checking out at the POS.

You may argue that most of these functions are already available through different mobile-phone applications, and this is a correct perception. The point of the scenario about Joe and Mike is to demonstrate that integration delivers value that extends far beyond payments and that a comprehensive solution providing a compelling proposition to both consumers and merchants simply does not exist in the marketplace yet.

Wait, you may say, isn’t near-field communication (NFC) the answer? Visa and MasterCard have stated their support for NFC, a short-range, two-way communication protocol, and are pushing the industry in that direction. Unfortunately, NFC doesn’t solve the compatibility problem between the multiple wallets, and implementation has been difficult because of the different agendas being pursued by the different players.

NFC preserves the current card- based processing infrastructure because it only shifts the transfer of data to the POS from card to phone. Largely because NFC does not offer any value-added functions, merchants are having a hard time justifying any investment in NFC readers, which is a major obstacle to adoption.

Notice that in Joe’s gelato scenario, NFC is not used at all. QR and bar codes and SMS are adequate for many applications, especially low-value payments. Additionally, financial and payment information, like a credit card number, does not need to be stored in the phone or transmitted between phone and POS. Likewise, Bluetooth, infrared, “bump” technology, and even a mobile phone’s audio signals can also be used to establish secure communications and initiate a payment transaction between a consumer’s mobile device and a merchant’s enhanced POS device.

In this context, NFC just is another communication alternative and little else. In fact, NFC contributes very little to the larger wish list from consumers and merchants who do not particularly care about underlying technologies.

Hugely Rewarding Payoff

So what is the future for mobile payments? Well, despite its drawbacks, NFC—by virtue of brute force and the marketing power of the card schemes—could be the winner.

For it to be successful, though, issuers, acquirers, phone manufacturers, and carriers must agree to a single scheme. This is very hard to do, as the recent decision by Verizon Wireless to keep Google Wallet out of the Verizon Galaxy Nexus phone demonstrated (Verizon is a participant in Isis, a competing mobile-payments system).

In the past, the marketing power of Visa and MasterCard could have made NFC the de facto solution. Now, merchants have other options, and they will have to be convinced of the value of investing in NFC readers. In fact, even though it preserves the current card-processing infrastructure, NFC actually could become an inhibitor to the creation of new, more efficient and innovative mobile-commerce products.

An alternative outcome is for a visionary player to deliver a compelling value proposition by integrating the many functions discussed here to make m-commerce more exciting and attractive.

The challenge for these providers is not technical but a lack of business knowledge: Payments companies know payments but know little of offers and coupons; couponing companies know all about discounts and vouchers, but do not know much about payments; and neither of these parties may know how to integrate geolocation with payments and coupons.

In addition, these companies need to become payment aggregators and invest in upgrading and integrating POS environments. A daunting task, to be sure, but the payoff would be hugely rewarding.

We are beginning to see some signs of convergence by virtue of recent acquisitions. However, much work remains to deliver on the potential of mobile commerce.

Adding value all around is the key for merchants and consumers to reach the adoption tipping point. Industry players must remember that, at the end of the day, it really is not about m-payments, but about m-commerce.

 

René M. Pelegero is president and managing director of Retail Payments Global Consulting (RPGC) Group LLC, Woodinville, Wash. Reach him at renep@rpgc.com.