Mobile Payments: The Wave of the Future?
To date, most of the successful examples of mPay-at-POS have been in convenience end-markets with small average order values (AOVs), such as coffee shops and fast food chains, and typically involve closed-loop or prepaid arrangements. mPay-at-POS’s relative lack of adoption at venues with higher-AOV transactions, such as retail stores, presents both a challenge and a significant market opportunity for mPay-at-POS ecosystem players. One likely key to unlocking the potential of mPay-at-POS for higher-AOV transactions is to combine the benefits of brick-and-mortar retail with advances in smart devices to deliver smart pay solutions.
In the United States, mPayments are burgeoning as a valid alternative to cash, checks, and credit and debit card transactions. As mobile technologies proliferate – powered by the complementary technologies of cloud, analytics, and social – mPayments are expected to grow further, driven by a combination of government support, increased smartphone and application usage, and the promise of a better shopping experience.
mPay-at-POS is one specific form of mPayment that allows customers to make payments in a store in much the same way as they would make a standard credit card transaction. This type of payment represents the fastest-growing segment in mPayments, with transaction values expected to grow 34× from 2014 levels to reach USD 118 billion in 2018. mPay-at-POS transactions have two defining features. First, they include a system that uses contactless technologies for making secure payments through a smart device at a POS terminal. And second, they leverage the intrinsic features of the user’s smart device to enable improvements in customer experience and retailer process.
The landscape of mPay-at-POS solutions continues to evolve at a rapid pace. The mPay-at-POSecosystem features several categories of players: makers of retail and POS terminals, payment networks, payment processors, banks, end-consumers, mobile wallet providers, device manufacturers, and providers of contactless payment technologies, as well as government and regulators.
While analysts expect significant volume growth in mPay-at-POS, this ecosystem of companies must capture higher-AOV transactions in order to thrive. For example, the AOV at major branded coffee shops and fast food chains was around USD 3–8 per transaction. Meanwhile, for the major retailers it ranged between USD 33 and 99 per transaction. While the coffee shop’s AOV leaves few absolute dollars for the ecosystem of companies to share in an mPay-at-POS transaction, the retailer’s AOV represents a more lucrative transactional market for mPay-at-POS players.
Drivers and Barriers to Adoption
The widespread use of smartphones and mobile apps, the pressures for efficiency on retailers, and consumers' demands for simplicity, choice, and security and privacy all play into the growing role of mPayments in businesses, communities, and lives. Yet, while these factors will likely drive mPay-at-POS growth, several headwinds also stand in the way of mPay-at-POS's capturing higher-AOV transactions. Technology and telecom players in the mPay-at-POS ecosystem will need to address these limiting factors to unlock the full scale of the mPay-at-POS opportunity.gif
Impetus to move to EuroPay, MasterCard, and Visa (EMV) chip-based cards. While EMV migration may not directly impact mPay-at-POS, the combination of broader POS enablement and EMV chip-based cards may increase consumers' and retailers' willingness to broaden their use of mPay-at-POS transactions. Increased consumer trust and retailer confidence in EMV chip-based card security, coupled with investments in POS terminals and infrastructure, can enhance both the opportunities and scope for mPay-at-POS transactions.
Proliferation of smartphones, wearables, communication technologies, and integrated payment applications. The increasing ubiquity of smartphones, wearables, communication technologies, and integrated payment applications is reflected in findings that show that the next generation of consumers and workforce talent (those aged 18-34) will be increasingly smartphone-savvy and more willing to use mPay-at-POS than prior generations. For mPay-at-POS transactions, smartphones must be equipped with integrated hardware and software to communicate with a range of POS terminals and payment applications. Here, too, advances are being made. Contactless payment technologies such as near-field communication (NFC) are increasingly being embedded in smartphones. NFC-enabled smartphone penetration is expected to rise to 64 percent worldwide by 2018.
Push by major consumer device and POS vendors. A push strategy on the part of some solution providers helped open the doors for mPay-at-POS in its initial years, when consumer uptake was low. While this strategy may have been putting the cart before the horse, mPay-at-POS's adoption and promotion by some well-known consumer device vendors have helped consumers steadily gain confidence in this form of payment.
Multiple fragmented technology standards. The multiplicity of standards for mPay-at-POS exists at three levels: the technology and communications infrastructure, the mobile wallet (predominantly based on applications or the smartphone hardware platform), and financial institutions' payment and settlement mechanisms.
A focus on the financial transaction only. Early-use cases of mPay-at-POS appear to have focused exclusively on completing the financial transaction, failing to capitalize on insights that could be gained from gathering information beyond the transaction data. mPay-at-POS providers could tout the opportunity to use mPay-at-POS systems to capture data beyond the transaction to gain insights into factors such as consumer purchase preferences and behaviors.
Focus on features versus benefits. Most current mPay-at-POS solution providers have yet to successfully link stand-alone retail features to benefits like personalized pricing; the opportunity to do so may help mPay-at-POS providers further encourage adoption by consumers. For retailers, meanwhile, analytics capabilities coupled with metadata collected before, during, and after a transaction can yield deeper consumer insights - a benefit that can help retailers more effectively determine product selection, brand assortment, store management, inventory, and in-store and off-store promotions.
Tipping the Scales toward mPay-at-POS Solutions
For mPay-at-POS to become common for higher-AOV transactions at brick-and mortar retail stores, the drivers encouraging mPay-at-POS use need to outweigh the barriers to adoption. The following six strategies can help CEOs, CFOs, and product/R&D management executives at technology and telecom companies address the barriers to adoption and tip the scales in favor of the drivers.
Make the process simpler and easier than pulling out a card. The credit and debit card industry has set the standard for simplicity and convenience in the retail payments industry. For mPay-at-POS to gain mass adoption in retail, the ecosystem of mPay-at-POS technology and telecom carriers should develop solutions that are more convenient and no more complex for consumers than paying with a plastic card.
Build ecosystem connections around technological platforms. Common technology platforms and standards are essential to increasing the â€¨interoperability and interconnectivity of the mPay-at-POS ecosystem. One way to drive standardization is to build ecosystem connections around specific technology platforms that are already in widespread use.
Use AI and IoT to expand scope beyond the transaction. Through the Internet of Things (IoT), artificial intelligence (AI) applications can work in tandem with mobile wallets to keep the consumer abreast of a particular retailer's offers and discounts. This can offer consumers a solution to the difficulty of keeping track of the loyalty cards in one's wallet and help them get the most benefit out of their purchases.
Involve consumers and retailers in product design and development. Capturing the voice of the customer during product design and development can help mPay-at-POS solution providers create solutions that consumers are likely to actually use. mPay-at-POS providers can gather consumer insights to inform product design as well as beta test product prototypes to gauge consumer reaction. It will be particularly important to engage younger consumers (aged 18-34), who are more smartphone savvy and willing to use mPay-at-POS than older consumers while simultaneously being more demanding of their applications and user experience.
Use collective intelligence to strengthen security and privacy. Consumers are more likely to purchase from companies that they believe protect their personal information. For retailers, the cost of security breaches can be significant, especially in light of the imminent shift in liability to retailers for security around non-EMV POS systems. mPay-at-POS solution providers should treat security as an ecosystem concern.
Move from incremental to disruptive change. In the United States, mPay-at-POS providers can continue to look at payment alternatives with an eye to replacing cards and not just the wallet. To accelerate the process, they may be able to learn from the telecom industry's experience in emerging markets, where some telecom companies have successfully skipped a generation of technology and tradition by bringing unbanked and under-banked customers into the payment ecosystem. Telecom players have an opportunity to provide mobile financial services, including mobile payments, to the pool of under-banked and unbanked US smartphone owners. Targeting this market could allow millions to convert their mobile phone accounts into mobile banks and avail themselves of the benefits of mobile payments across a variety of situations.
Shaping the Future Payments Landscape
Ongoing enhancements in technology, payment applications, and digital wallets that deliver convenience, security, and cost benefits to mPay-at-POS adopters can engender greater penetration and higher-AOV transactions for mPay-at-POS. The cool factor of mPay-at-POS is also likely to appeal to the next generation of consumers, for whom mPay-at-POS will be an established technology. But for mPay-at-POS to progress further on the path toward ubiquity, mPay-at-POS solution providers will need to use the right levers to help address key factors that can favorably influence large-scale acceptance by both consumers and retailers. While mPay-at-POS may never completely replace traditional credit and debit cards, mPay-at-POS providers can take steps now to shape the future payments landscape.
Steps for mPay-at-POS solution providers to consider
Make the mPay-at-POS process simpler and easier than pulling out a card. Convenience, speed, and ease of use are keys to driving consumer adoption.Build ecosystem connections around technological platforms. One way to drive standardization - and thus encourage mPay-at-POS adoption - is to take advantage of mobile operating systems as platforms around which to build alliances.
Use artificial intelligence and the IoT to expand scope beyond the purchase transaction. Virtual assistants and sensors could not only further simplify the mPay-at-POS transaction process, but also deliver additional value in the form of greater personalization to consumers and deeper insights to retailers. Involve consumers and retailers in product design and development. Capturing the voice of the customer during product design and development can help mPay-at-POS solution providers create solutions that consumers are likely to actually use. Also important is to consider retailers' needs.
Use collective intelligence to strengthen security and privacy. Treat security as an ecosystem issue, and work with other ecosystem participants to develop and implement solutions such as tokenization and biometric identification.
Move from incremental to disruptive change. Many unbanked or under-banked US consumers own smartphones, making this population an attractive target for mobile financial services, including mPay-at-POS solutions.
This article is based on a report by Deloitte.