First to a Mobile Payment Application Wins!

The web has empowered consumers and made brand loyalty an antique notion. But large retailers are betting that a universally adopted mobile-payment...
Taylor ProvostSeptember 7, 2012

Why is Wal-Mart trying to develop a mobile-payment app that can be used at Target? Why is Target working with Wal-Mart to develop an app that can be used to pay for diapers at CVS? Wal-Mart, Target, and CVS all sell diapers. Why should they work together? And why would they be trying to embed loyalty programs and coupons into the app?

Simple. They want people to use it.

No mobile-payment app will be very popular if only a few merchants accept it. And customers — who have been empowered by web search and, with their smartphones, can compare prices right in your store — won’t use it if it provides no advantages over a credit card other than the short-lived kick of using their phones for something new.

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“If you have a digital wallet enhanced with features, like price transparency, coupons, and offers, you’ve got a compelling use case,” says Teresa Epperson, managing director of AlixPartners’s financial-services practice, which tracks consumer interest in mobile payments. Without such incentives, she adds, mobile payment is too similar to swiping a debit or credit card to catch on.

“What we’re seeing is a trend toward consumers wanting more transparency around pricing and comparing products from one provider to another,” continues Epperson. “Mobile has accelerated and intensified that. Now you have consumers with an unprecedented degree of control no matter where they are.” It is, she says, a challenging situation for retailers.

But a mobile-payment app with a good loyalty tie-in could help businesses take some of that control back, or so some major retailers are hoping.

In August, Wal-Mart, Best Buy, 7-Eleven, CVS, Publix, and 11 other large retailers announced the creation of a Merchant Customer Exchange that will allow customers to pay and receive deals using a mobile device at their stores. They hope more companies will participate in the coming months. The initial focus of MCX (development of the actual applications is said to be under way) is to offer merchants a mobile-payment option capable of seamlessly integrating consumer offers, promotions, and loyalty programs into an application that will, they say, be offered through any smartphone operating system.

There are currently a number of established mobile-payment apps, primarily adopted by smaller businesses, that contain rewards for consumers who use them. Boston food-truck company Bon Me does between 125 and 150 mobile-payment transactions a day using Level Up, a mobile-payment start-up. Level Up offers Bon Me a zero interchange rate per transaction in exchange for a fraction of the credits the application provides to customers, who can then redeem them at the Bon Me trucks. Bon Me co-owner Patrick Lynch, who heads up finance for the 33-employee company, says he initially signed on to Level Up because the ability to tie a marketing campaign directly to transactions appealed to him.

“The loyalty programs are something Level Up provides as part of the service for customers. Then they have social media and other marketing, and that’s a service for us,” he says.

Discounts are well and good for consumers, but Lynch says he’s found they cut into his top line when all the credits are being redeemed at his most popular location.

“It seems silly to be giving $75 in discounts a day at [our busiest location],” he says. “I’d rather have a way to tell customers we’ll give them discounts if they come to slower places where there are shorter lines. It’s not dynamic right now.”

Consequently, Lynch says he’s looking for a mobile-payment provider that can offer a program more tailored to his business.

Unlike consumer-focused mobile-payment providers like Google Wallet, Square, and Level Up, MCX is emphasizing its usefulness to merchants as well as to customers. Mike Cook, corporate vice president and treasurer at Wal-Mart, said at the time of MCX’s announcement that it would “deliver an efficiency-enhancing mobile solution available to all merchant categories, including retail stores, casual dining, petroleum, and e-commerce.”

Cook was unavailable for further comment at press time, but MCX spokesperson Jeremy Mullman says MCX aims to provide a customizable mobile-payment option for merchants. And while the current MCX roster is all big-name companies that will have the payment technology built into their existing applications, Mullman says MCX plans to offer a free-standing app for smaller merchants.

“[MCX] works only if it’s widely accepted, so it will be for small and midsize merchants as well,” he says. “We know it needs to work just as well or better for them than it does for the big guys or it won’t be adopted.”

There’s a lot at stake, says Epperson, who likens the race among banks, credit-card companies, start-ups, tech giants like Google, and now MCX to be first with a broadly adopted mobile-payment application to the California Gold Rush. The first to hit pay dirt can stake a claim and dominate the way customers interact with businesses. But if merchants of all sizes aren’t equally incentivized to accept those mobile payments, MCX could turn out to be fool’s gold.

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