Aggregation Forever

 

Even though mobile wallets appear to be the better bet, card consolidators Coin, Swyp, and Stratos are sticking to their plans.

Thumbing through a wallet trying to find the right payment card or loyalty card to rack up points at the cash register is an age-old experience for many U.S. shoppers. It also happens to be one that a handful of companies are trying to update digitally.

Card aggregators, like Coin Inc., Qvivr Inc.’s Swyp, and Stratos Inc., are hoping to alleviate what they consider to be a headache for most consumers: lugging around multiple cards and then searching for the one they want to use at the point of sale.

Americans, in particular, do tote a lot of cards around. On average, according to a Gallup survey released in 2014, a U.S. consumer has 3.7 credit cards, and 6.7 active loyalty program cards, says the “2015 Loyalty Report” from Bond Brand Loyalty Inc., a unit of Maritz Inc.

The aggregators’ premise is simple: consolidate all of these cards onto one device that is shaped like a card and can be operated in a magnetic-stripe POS terminal. To load their plastic into the device, consumers swipe credit, debit, prepaid, and gift cards through a supplied reader and, as in the case of Coin, capture an image of the front and back of the card. Not all of the card aggregators have image capture.

Then, when the consumer wants to pay at the checkout counter, she finds the Coin, Swyp, or Stratos card, selects the stored payment card on the device, and swipes it through the point-of-sale terminal. The transaction moves along as though the actual card had been passed through the magnetic-stripe reader.

Supporting EMV

The problem the card aggregators want to solve is how to make it easier for consumers to manage their cards at the point of sale. The question for the aggregators, though, is twofold: do consumers see this as a problem, and if they do, would mobile wallets—stored on smart phones—do a better job of providing an easier and more convenient solution?

“We don’t see mobile-wallet technology as being competitive,” says Henry Balanon, chief technology officer and cofounder of Stratos Inc., an Ann Arbor, Mich.-based card aggregator. Stratos charges $95 for an annual membership to its card, which includes upgrades and offers. “From our perspective, we consider what we offer as a fit within mobile payments.”

Stratos is planning to add near-field communication (NFC) capability to its device, but Balanon declined to say when the updated version would be available. Stratos also refused to say how many orders it has received or how many devices it has shipped.

Coin, too, plans to add NFC to its device, which costs $100, but also does not disclose when the updated version will ship. Swyp’s card, available for preorder at $99, has no annual fee, but has an EMV chip built into the card. Swyp, on its Web site, says EMV capability will be added via an over-the-air firmware update. Neither Swyp nor Coin responded to Digital Transactions inquiries.

Adding NFC to the Stratos card also enables credit and debit cards with chips to be used at POS terminals that also have contactless capability. EMV chip cards require dipping the card into the POS terminal and leaving it there until the issuer either authorizes or declines the transaction.

By adding NFC, Stratos intends to make it so its customers can use their chip cards as contactless payments. “We really have a focus on supporting EMV and other technology,” Balanon says, adding that the goal is to make the Stratos user experience as easy and familiar as possible. How easy will be tested this fall as Boston-based Eastern Bank says it will issue an undisclosed number of Stratos cards to some of its customers.

Balanon and Chris Bartenstein, Stratos president, chief operating officer, and a co-founder, are not too concerned about Stratos being eclipsed by mobile wallets, NFC, or EMV.

Consumer awareness of mobile payments is just beginning, Bartenstein says. “For that to accelerate, the entire ecosystem will need to cooperate,” Bartenstein says.

‘A Smarter Buggy Whip’

As Balanon points out, Japan, where consumers have long had mobile-payments services, only 17% of Japanese consumers use their phones for that reason. Many consumers will still choose to use cards, Balanon says. “People just have different preferences.”

The card form factor, too, is not going away any time soon, Bartenstein says. “This is such a new technology,” he says of the card aggregator business model. “Everyone’s pretty early.”

The payment system, especially elements of it that involve consumers, is intrinsically momentum-bound. No one wants to change how consumers pay or how frequently they use electronic payments for fear of disrupting the transaction flow, and thereby potentially crimping the revenue payments companies and retailers make when consumers spend with cards.

That is a major reason analysts wonder about the viability of physical card-based aggregation services.

“Unless a payment method greatly decreases friction, consumers aren’t going to adopt it,” says Thad Peterson, senior analyst at Boston-based Aite Group LLC. The problem with card aggregators, he says, is that they don’t decrease the friction involved in making a payment with a credit or debit card.

Consumers still have to carry a wallet for their drivers’ licenses, and many merchants will want to see the actual card, he says. That’s based on a test Aite performed with some merchants, he adds.

Similarly, card-aggregation services baffle Nick Holland, head of mobile at Javelin Strategy and Research, a Pleasanton, Calif.-based payments consultancy. “Every year for the past 10 years, someone has come out with something like this and they never work out,” Holland says.

The best example of that, perhaps, is Clinkle. It garnered significant interest in 2013, raising $25 million from investors as it set out to replace the physical wallet. But in 2013, it launched Treats, a peer-to-peer payment service. “They’re trying to make a smarter buggy whip,” Holland says. “That’s not where things are going.”

Considering the pace of mobile-wallet adoption, some might understand why the backers of Stratos, Coin, and Swyp continue to work away on their card-aggregator services. Initiated in earnest four years ago—in the smart-phone form factor—with the launch of Google Inc.’s Google Wallet, mobile-payments services, which require a mobile wallet to store the payment cards, have left a majority of consumers cold. That’s despite the hoopla surrounding new services like Apple Pay.

Most consumers—68.2%—do not use mobile payments via a smart phone or smart watch, found an August survey of 18,000 U.S. consumers by merchant-services provider Harbortouch.

Mobile wallets and card aggregators alike can store multiple credit and debit cards, and in many instances prepaid and loyalty cards. Some mobile wallets, such as Apple Inc.’s Apple Pay, do not yet have a loyalty function. Mobile wallets, however, can be developed to generate offers based on the consumer’s cards and shopping behavior, a level of sophistication not available to pure card-storage devices.

Mobile wallets, says Aite’s Peterson, do help decrease purchasing friction. “They make it much simpler to do a transaction,” he says. Some, like Apple Pay, enable consumers to use a fingerprint as an authentication method. With the Apple Watch, just a tap on a button initiates a mobile payment, assuming the iPhone associated with the Watch is close.

“Mobile wallets are going to take over,” Peterson says. Teens who become adults in 10 years to 15 years will have their phones in hand or their smart watches, he says. “That’s clearly the way it’s going to go.” Harbortouch’s survey found that 18-to-24-year-old consumers had the highest use—42.1%—of mobile payments. In comparison, only 21.5% of those 45-to-54 years old use mobile payments.

Another argument against card-aggregator services is that consumer behavior, when it comes to using credit and debit cards, is deeply ingrained. “I fail to see why people would buy this when it’s not a problem to carry your wallet with you anyway,” Holland says. “We’re so indexed to the entrenched legacy system of cards and cash.”

As evidence, he points out that Javelin research finds just 1% of transactions made at the point of sale are made as mobile payments. “It’s not solving something that justifies the cost of owning or the cost of subscription.”

And, adding NFC likely won’t make such services any more attractive to consumers, especially as NFC-enabled smart phones continue to proliferate. “If it’s going to have NFC, it’s redundant,” Holland says.

‘Smart, Secure Payments’

NFC, too, may not be able to help EMV chip cards stored on an aggregator device negotiate a transaction, Peterson says. EMV thwarts counterfeit card makers by enabling the card’s EMV application and the issuer’s back-end system to verify the credentials of each system.

EMV chip cards generate a cryptogram unique to each transaction, which, when the actual card is dipped into the POS terminal, is easily and securely sent to the issuer for review.

The potential problem, Peterson says, is how the cryptogram for the actual EMV chip will be generated via the card aggregator device to use in an NFC payment. Will the issuer accept it? “I’m not sure, even with NFC, they can handle EMV transactions,” he says.

Where does this place card-aggregator services? At Stratos, executives are optimistic. “From our perspective, Stratos is for anyone looking to make smart and secure payments,” says Balanon, including tech-savvy consumers, business professionals, and frequent travelers.