PayPal Will Win The Mobile Payments War
Hi all…I originally posted this elsewhere, but received a suggestion I re-post it here.
Also, please note I was unaware at the time of the original post that Square also has a hands-free, card-free option. I’ve never seen it in the wild,which says something about its chances, I think. And now…on with the article.
Mobile Payments has been touted as the next frontier in retail for the past couple of years. Most of the “buzz” has been around a technology called “Near Field Communications” (NFC).
For the layman, NFC is the technology that allows Samsung Galaxy phones to do that cute tap-and-share thing with videos that we see in TV commercials. Everyone from mobile device manufacturers to retailers have hoped and believed this would form the technology foundation for mobile payments. Visitors to last year’s CES (Consumer Electronics Show) reported hundreds of devices with embedded NFC chips. There are real reasons why the industry hopes the technology will catch on, and I’ll get into that in a minute. What the industry forgot to do was ask the consumer. In my view, as a method of payment, NFC is a non-starter. And that’s why PayPal is going to win.
First, a few words about why the retailers and mobile phone providers are drooling over NFC. As usual, the answer is “Follow the money.” When a consumer swipes their credit card at a retail location, a digital journey begins: from the retailer, to a processing switch, to a clearinghouse, to the bank and finally back to the card provider. Every single step on that journey is facilitated by some entity, from the credit card company to the bank, and a “toll” is collected at every stop.
Let’s pretend, for argument’s sake, the total value taken out is 1.5% of the transaction. If the retailer (or merchant in more general terms) can disintermediate just one of the stops along the way, they get that percent back. Or divert it elsewhere. So we see ISIS, a consortium of mobile phone providers hoping to get a piece of the action, and Walmart-backed MCX (Merchant credit exchange) which also hopes to grab a piece of the action.
While the numbers sound small, they can add up quickly. Let’s use Walmart as an example just for fun. Using a baseline annual revenue of $380 billion (I have a hard time even writing that number!), and assume 50% of customers pay with a credit card. If the company is paying a 1.5% fee for each transaction, and can recoup just 25% of that fee, it gets to keep $712.5 million dollars. Essentially free money. Of course, if the mobile phone carriers can divert that money to themselves that’s a lot of free money for them too. Again, they’re not doing much besides passing the data along.
So that all sounds really good, right? No wonder everyone is racing to get in on the action. There’s only one problem. No one stopped to ask the consumer if this was something he or she wanted to do. So far, the answer seems to be “not so much.” I led a panel at a major retail charity event, to benefit RetailROI (more about that in a future article. This group is doing some very important work), and one of the panelists said, “If I have to reach into my pocket for something when I’m checking out, why do I care if it’s a credit card or my phone. It’s still effort on my part.” Yup. That about covers it. And it doesn’t even begin to address the security concerns of having payment in your pocket. But that is secondary to the primary subject: it’s not so desirable.
That’s why my money has always been on PayPal. I’ve used it in Home Depot, and I liked it a lot. All I had to do was enter my mobile phone number and a PIN on the register keypad, and the transaction was complete. I’d hear the reassuring ‘ding’ from my mobile phone in my handbag, and that was that. No muss, no fuss.
Now PayPal has added a new feature, powered by Bluetooth called the “Beacon.” The merchant plugs the Beacon in and it’s ready to interact with the Point of Sale (POS) system. The consumer opts in (an important option) and selects the merchants he or she is willing to interact with. The consumer also is able to pick the hands-free vs. typed confirmation option. Verbal confirmation is all that’s required.
PayPal has sweetened the pot by also offering a location-based service that lets you know nearby merchants that accept this form of payment.
I see this as a winner. In fact, they had me at the Pin Pad. I don’t like exposing my credit card to too many merchants. And I can’t remember my bloody credit card numbers anymore…so it’s so much easier for me to use PayPal and pick the credit card of my choice.
So I’m going to go out on a limb here. As a method of payment, NFC is dead. Someone forgot to ask the consumer what she wanted. And it isn’t that.
What do you guys think?
Another provoking blog Paula. Thanks for sharing!
My main issue is around security of any mobile transaction, and if I can get over that, then I want it to be convenient which means fast. If I have to reach into my wallet or pocket, then the ubiquitous Visa and MasterCard will do (requiring swipe/pin or signature).
An important point here is that companies and consortiums making future bets with financial projections on technology adoption need to always factor in consumer (or user) acceptance and adoption first and foremost. It 'feels' like in this area the winner may not necessarily be the first to innovate but the one that makes my life easier and eliminates my security concerns.
Agreed 100%, Mohamed. One reason I like PayPal (and Square, to be fair) is that I'm exposing my credit card information to fewer companies, which overall reduces my exposure. If I've placed a bad bet, I guess I'll have to live with it, but I like keeping things contained.