The Chicken & Egg of Mobile Payment

- March 11, 2011 by Michele Autenrieth Brown, Retail & Finance Account Director

The proliferation of smartphones and the technologies associated with them are changing the way many people work, live and play. With that, GDC is watching a seismic change for both retailers and financial institutions: consumers using smartphones to make point-of-sale purchases.

Though mobile payment is already big in Japan and Europe, the US has seen more of a chicken-and-egg discussion surrounding who will lean into the technology first. Retailers did not want to install scanners with near-field communication (NFC) that’s necessary to read mobile phone signals because the users were not there. Cell providers did not want to develop a NFC product that had no practical application.

But change is coming.

A recent move by Verizon, AT&T and T-Mobile leads us to believe progress is being made. Three of the four biggest US carriers have begun building a mobile payment network called Isis, where people can use smartphones to pay for items directly at a retailer. Two financial institutions, Discover Financial Services and a unit of Barclays, jumped on board. Isis is wisely leaving the door open for other carriers and financial institutions to join the team.

Blackberry and Android phones are expected start producing handsets with NFC chips this year. Rumors are that the next generation iPhone will join the party, only in true Apple fashion, they’ll bring their own proprietary NFC-like platform.

This is game-changing innovation, and if you are not thinking how this affects your business now, the learning curve later could be costly. Here’s how we are thinking about this technology in three ways: how retailers can leverage NFR, the effects on financial institutions, and how customers will or will not embrace the technology.

Retailers will have to make the investment in NFC technology, but it could increase the speed of transactions. That means it could eventually bring their labor costs down -- faster transactions means moving customers through a line faster, and you might not need as many clerks at checkout. There are huge loyalty implications where collecting mobile info can allow geo-targeted marketing that places the right offer in front of the consumer at the right place and at the right time.

Financial institutions that rely on transactional fees collected through credit cards and debit cards will need to rethink their point-of-sale payment strategies or jump onboard the Isis train. The loyalty and marketing opportunities for retail can also translate to banks and credit unions, which can start to better segment offers through the technology.

How will consumers react to converting to a digital wallet? An unofficial survey of smartphone users showed results are mixed. There are the early adopters who are ready to jump in, but a healthy group of others approach this with caution. Even mobile banking apps have been less than reliable when it comes to performance and security. And for those who drop their phones frequently or misplace them, reliability and security are big concerns. Will this be designed with the user in mind?

Isis is expected to start rolling out their proposed system over the next year, and the result can bring a whole new meaning to “what’s in YOUR wallet?”

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