As mobile discovery and deal platforms gain traction and bridge online and retail experiences, an even bigger shift is gearing up as mobile payments enter the equation. Nearly all of today’s major tech players, telcos, and financial players, a host of start-ups, and even retailers themselves are gearing up for the sea change of mobile wallets. Store loyalty programs and new systems that make it even easier to pay online are paving the way for mobile payments. What’s at stake here is much more than a form factor shift from plastic swipes to mobile taps. Mobile wallets are gearing up to provide a comprehensive system to research, shop, track, and transact, accelerating all forms of digital payment for all kinds of things — including low-value items like magazines and coffee — and obviating the need to handle cash.
Simplified E-commerce as a Gateway to Mobile
In the US and Europe, e-commerce has evolved dramatically, and leaders are succeeding in removing the friction between online browsing and completing transactions. New tools for merchants and consumers, inspired by the simplicity of Amazon’s One-Click, are making online payment even easier, while paving the way to fluid, secure, mobile transactions.
• MasterCard PayPass Wallet mobile/online wallet solution allows people to securely store all credit card, personal, and shipping info. It’s designed to speed up online checkout with online merchants who have adopted the open-source system; in the future, it will be compatible with NFC-based mobile wallets. Visa’s V.me is a similar solution.
• Card.io (acquired by eBay) and rival Jumio are toolkits that merchants can use to speed up the process of inputting credit card numbers. Instead of manually typing the digits, users of Card.io-enabled apps can simply hold up their credit card to their phone’s camera or computer’s webcam.
Loyalty, Convenience, and Retail Payment
With consumers increasingly using their handsets to shop, navigate, and make purchasing decisions, location-based loyalty apps enable companies to reward those customers with personalized offers at the most critical times. It’s no surprise that Apple has put rewards and loyalty at the center of its Passbook feature: it introduces the iPhone as a store of value in the consumer’s mind, without raising the security flag of payments.
• Apple Passbook, introduced with iOS 6, stores all of a user’s boarding passes, store loyalty cards, coupons, and movie tickets, and brings relevant passes to the user’s lock screen when needed — presenting a boarding pass as the user steps into the airport, for example. While launch partners included airlines and ticket vendors like Fandango and Ticketmaster, brands including Walgreens, American Express, and Target have rushed to link their loyalty and rewards programs to Passbook. Sephora claims that 87,000 users downloaded its Passbook-integrated app just one week after the feature was released.
• The Starbucks Card mobile app was first introduced as a loyalty scheme, and the coffee chain was a leader in bringing mobile payments into its apps. As of fall 2012, thanks to a strategic investment in Square, Starbucks is accepting payments through Square’s mobile app. Starbucks won’t support the “pay-with-your-name” feature, and integration of the Starbucks Card loyalty program with Square’s is further down the road.
• LevelUp is another promising upstart in the mobile payments arena, one that is banking heavily on bringing value to merchants through loyalty programs and data about consumer behavior. In fact, in July 2012, LevelUp cut its merchant transaction fees from 2% to zero. Its business model is to help merchants track the effectiveness of their marketing efforts. LevelUp has also “white labeled” its service so any merchant can build its own mobile payment app.
NFC and the Rise of the Mobile Wallets
Near-field communication (NFC), the technology that powers mobile payments in Japan, contactless public transportation payments (like London’s Oyster card), and other applications is slowly making its way onto smartphones beyond Asia. Major initiatives like Google Wallet are indeed based on NFC, but given the current hardware gap, many players are focusing on short-term solutions like barcode-based mobile payments.
• Windows Phone Wallet is a new feature launched with Windows Phone 8. Similar to Passbook, it integrates loyalty cards, boarding passes, and other services and then takes integration a few steps further with credit and debit cards along with NFC functionality. Users can either scan a code or tap to make transactions via NFC. The Wallet hub also integrates deals from vendors and works across applications for mapping and much more.
• With its drop-dead simplicity and wildfire adoption (more than one million merchants before the service turned two in May 2012), Square is widely regarded as one of the most disruptive forces in the financial industry. As of September 2012, Square announced it was processing $8 billion in annual payments, and the company is poised to move out of its hip, indie merchant niche and work with national retailers. mPowa (UK) and iZettle (Scandinavia) are Square’s key European competitors.
• Walmart, Target, 7-Eleven, and Sunoco are hoping to get in on the action with the introduction of the Merchant Customer Exchange, an early-stage retail mobile payment initiative. Other players in this increasingly complex and fragmented space include the long-awaited telecom joint venture Isis, PayPal Here, Groupon Payments, BOKU, Zong, and dozens of smaller start-ups.
Online Payments without Plastic
For individuals who are financially marginalized or too young to own a credit card, there is a growing need for solutions that enable them to buy online without a card.
• Mig33 is a mobile social network of over 50 million users, with a strong presence in countries like Indonesia, Nepal, and Afghanistan. Users can chat, play games, and buy virtual goods; credits are purchased from a network of street merchants in Southeast Asia.
• Thailand’s True Money and US-based PayNearMe both provide compelling ways for the “unbanked” to use cash payments for online goods, money transfers, phone purchases, or loan repayments, or to pay utility bills with hard cash at thousands of 7-Eleven stores.