July 8, 2011

Game Change in Aisle Three

An awful lot of ink has been spilled recently about the imminent arrival of the era of mobile payments. Just what fits under that rubric, however, is a work in progress. “Mobile payments” seems to be a description in search of a definition, and the ultimate opportunity may have nothing to do with “payments.”


PayPal recently announced 100 million “mobile payment users” conducting as much as $10 million in mobile transactions a day. By this definition, a mobile payment is any Web-based transaction conducted from a mobile device.

Square, the hot startup from Twitter founder Jack Dorsey, just raised $100 million in new capital that valued the company at over $1 billion. The Square device plugs into a mobile phone to make it a credit card reader. Sure, it’s “mobile,” and it is “payments,” but is this the growth future of “mobile payments”?

Mobile operators are defining mobile payments as near field communications (NFC) where a chip in the phone registers on an NFC reader much like a credit card swipe. AT&T, T-Mobile and Verizon have banded into the joint venture ISIS which recently announced 2012 trials in Salt Lake City and Austin. ISIS isn’t a substitute for credit cards but rather a new means of storing existing credit card information. Pull up the ISIS app on a smartphone, select the credit card, and wave the phone in front of the NFC terminal.

I must admit, I haven’t figured out what’s wrong with the credit cards in my wallet…or why I want to replace my wallet in the first place. So long as the government requires me to carry a driver’s license I’m going to need something to carry it in. And while I’m doing that, why not a few pieces of plastic as well? The very fact that the much-discussed mobile payment platforms are credit card based illustrates the pervasive power of plastic. It is, after all, a pretty efficient method for conducting commerce; the readers are ubiquitous, the platform is standardized, and the capital cost of the infrastructure is paid for.

I love the idea of waving my phone in front of a point of sale terminal, or using a mobile Web payment platform – but it’s an additive function, not a replacement function.

So, why all the current excitement about mobile payments? Could it be that “mobile payments” has nothing to do with payments at all? Could it be that the power of mobile is not that it can substitute for plastic, but that it holds the ability to change the consumer’s retail experience in far more powerful ways?

David Messenger, head of mobile and online for American Express, recently pointed out the first of those new retail realities. Consumer product companies have moved the responsibility for payment systems from the CTO or CIO to the CMO. It’s no longer about the systems, or even about the money; it’s now about how the IP-based information generated by a purchase can allow marketing dollars to be tracked all the way to the transaction.

If the first opportunity for mobile in the marketplace is as an information optimization mechanism, the second new retail reality is how mobile can also be a vehicle for maximizing transactions both in number and value.

Martha Stewart is in the aisle at Home Depot…every day. Mobile app Scanbuy uses the camera on a phone to connect the consumer directly to Martha. Just snap a photo of the optical code on the label of the Martha Stewart product and a video is downloaded to the phone in which Martha extols the virtue of the product and offers helpful hints – right there in the aisle. So much for the guy in the Home Depot red vest who never quite seems to be around when you need him (as if he could offer Martha’s special tips anyway). Now Martha speaks for herself, and what’s more she owns the relationship with her customer, even though the customer is in someone else’s store.

The Scanbuy application is not “mobile payments” per se, but it is symbolic of the power at the root of what everyone is calling mobile payments. It’s not the payment that is important, but rather the information from the phone and the delivery of additional information to the phone at the point of purchase that is the game-changer.

Jaymee Johnson, ISIS’ head of marketing, explained “mobile payments” this way: “You probably carry a loyalty card that hangs off your keyring…Some people clip coupons too. You swipe once to pay, you swipe a second time with your loyalty card and then maybe you swipe a third time for a coupon…we’re basically putting all those transactions on the phone.” The value of mobile retail isn’t about eliminating swipes, however. Rather, it is about changing the way the information from those swipes is generated and then making that information in-store actionable.

The online world is currently frothing over coupon platforms such as Groupon or Living Social. Imagine that kind of promotional capability as a service on a mobile device and tied to relevant consumer information (on an opt-in basis of course). Such an information-based application is the true power of “mobile payments” – something quite different than “payments” and a lot more than the historical retail experience thanks to the power of “mobile.”