2016 is setting up to be a pivotal year in the mobile payments race. Two of the nation’s largest retailers, Walmart and Target, are rebooting their strategies and entering the mobile payments fray themselves. At rDialogue, we are hopeful this is a sign that leading U.S. retailers are finally ready to use mobile payments as a key tool to reengineer the in-store customer experience. After all, customer experience is the new loyalty and vice-versa. Great customer experiences build habit, turning occasional customers into loyal customers, while putting payments at the center of loyalty.
Aren’t mobile payments old news?
Yes, they are, but mobile wallets have been much ado about nothing for 10+ years. As Apple, Google, and most recently, Samsung have jumped into the arena, the media buzz has been whipped into a frenzy. With the introduction of the Apple Watch the buzz has escalated to a fever pitch. Unfortunately, the potential for disruption in mobile payments is huge and every player to date has come at it by focusing on just one side of this tricky equation. Apple’s focus, of course, has been the proprietary platform, not the merchant. They’ve built the shiny new gadget all 588M of us want to play with, but customer adoption has failed to take off.
If You Build It, They Will Come…Or Not
There are a couple of issues driving the disappointing adoption numbers. First, there’s nowhere to play. Payments behavior is all about building habit. That’s why credit card companies consistently incent purchases of gasoline and groceries on their cards. If I can only pay at a handful of locations, it makes it pretty tough to establish a new habit. Second, if it ain’t broke, don’t fix it. Since my boring old 1960s era plastic works just fine, what would motivate me to change my behavior? What’s in it for me?
The Merchant Acceptance Dilemma
Until Samsung’s recent introduction of MST technology, retailers needed to invest in new POS hardware to accept mobile payments. In an effort to protect and attract customers’ mobile payments, providers like Apple refuse to share customer information with merchants. This made any POS investment needed to accept Apply Pay not at all compelling. As a result, merchant adoption to date has been limited to those who already had NFC-ready POS hardware. Even the push to EMV (chip + pin cards) has failed to drive mass upgrades by retailers (so far only 37% have installed NFC).
Will 2016 really be any different?
Perhaps. Walmart Pay represents a significant break from Walmart’s initial strategy (and focus of much effort and investment over the past three years) founding the Merchant Customer Exchange (MCX). MCX is a coalition of retailers who, in a bid to declare war on credit card interchange fees, banded together to design an alternative payments system.
Their app, called CurrentC, is currently being piloted in select markets in Ohio. To use the app, customers are asked to create a CurrentC account and connect a checking or debit account. This enables payment through the app at the point of sale with participating retailers. While MCX has managed to sign up an impressive set of retail partners, including Lowe’s and Best Buy, they have overlooked a key stakeholder in the equation − the customer.
I don’t know about you, but as identity theft continues to rise, I become increasingly entrenched and committed in my current payments behavior. In short, I want a credit card and their sophisticated fraud algorithms between me and my purchases. Unfortunately for MCX, their days look numbered.
A Step In The Right Direction
The brilliance of Walmart’s latest move is that they are meeting the customer where they are, by already using the Walmart mobile app (22M use the app in stores every month). They recognize that the customer’s relationship is with the brand, and not a 3rd party like MCX. They are tabling (for now) their focus on margins and coming back to the needs of the customer. Instead of innovating payments to drive cost savings for their business, they have pivoted and built mobile payments to enhance the customer experience.
By integrating with their Savings Catcher loyalty program, they have created a compelling reason for the customer to shift behavior. The keyword here being “shift”, not drastically alter. Their design opens the door to the eventual migration of customers to connect their debit and bank accounts, but still enables them to put a credit card between them and the retailer. It meets Walmart’s need for identifiable transactions, and the customer’s need for fast/easy checkout and security.
We’re hopeful that Target, known for innovation, will take it even further and use mobile payments as a chance to truly redesign my own Target run. They already have robust loyalty programs in both Cartwheel and RedPerks (currently in pilot mode across the U.S.) that can be used to drive shopper behavior. Perhaps they will take a page from Starbucks and integrate these programs with a mobile payments solution to drive adoption. After all, Starbucks is the mobile payments poster child with 20% of transactions made through their mobile app, that’s roughly 9 million customers each week paying with their phone. Given that type of model and potential design, Cartwheel and RedPerks could be prime vehicles for driving adoption.
At rDialogue, we believe in customer-centricity, the idea that brands need to pivot toward the customer in all aspects of the interaction (communications, operations, etc.). Customer expectations have changed. Brands like Starbucks continue to redefine them by offering efficient and soon even more personalized experiences.
Loyalty is increasingly less about a program and rewards and more about the customer experience. We see more and more of our retail clients adopting this customer-centric view of their business. We’ve been watching retail and mobile payments for years waiting for someone to realize the potential of mobile payments.
In the future, best in class retailers will use this tool to…
Truly reengineer the customer experience
Add value in new ways beyond a discount or interchange savings
Shift behavior by integrating existing loyalty programs
Those that do will unlock key strategic benefits…
Build an additional layer of value that ties customers closer to the brand
Establish habit (for the payment method and the brand)
Capture the data needed to better understand and serve customers
Create unique value for the customer that’s stickier and tougher for competitors to replicate