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MAG Sponsor Spotlight: Mobile Payments Strategy Considerations for Retailers (MAG Quarterly- Volume Five, Issue One)

Christopher Mallardi
By Christopher Mallardi, Senior Director, Retail Payments, Global Retail Payments

March 2, 2017

The emergence of mobile payments can no longer be ignored.  Merchants interested in optimizing their customer experience, loyalty program and omni-channel sales strategies must start evaluating their objective, strategy and resources now.

Retail Mobile Payment: It’s not Chicken or Egg anymore

Over the past few years, many technology companies have tried to push consumers and merchants alike to adopt mobile payments. The fact is, adoption by both has been slow, but steady, since 2014. Not insignificantly because of the lack of consistency in loyalty rewards integration for even the most popular payment apps.  However, recent data indicates customers are showing a greater appetite for using this form of payment.

Customers are relying more and more on mobile devices when shopping.  Both in pre-purchase consideration and while in-store.  So, mobile payment at the register is a logical conclusion to the customer purchase journey rather than putting the phone away and pulling out a traditional card. Not to mention the omni-channel approach where the customer simply purchases via mobile device.

Savvy, affluent customers are overcoming the acceptance puzzle while also recognizing the benefits of mobile payments, namely convenience, security and loyalty.  So, the riddle of the origin of the chicken has been cracked but what does that mean for the market and specifically for retailers.

A recent report from American Banker, showed that banks have started to focus on mobile payments because customers are starting to prefer using mobile payments to swiping or inserting their cards into a point-of-sale device.  The processing time of EMV transactions has been a driver for mobile adoption.

Steer your own ship

So, retailers are quickly realizing they must address the rising tide of consumer use of mobile for shopping, offers and ultimately payment.  However, in many cases mobile payments works to disintermediate the customer from the retailer. In fact, because of the security of mobile payments and the lack of loyalty integration retailers may have less data on their customers than when they swipe a card.

And here is where the urgency for retailers to develop a comprehensive mobile strategy becomes critical. Will retailers simply enable the native wallets and cede that customer ground to the technology companies, will they partner with the native wallets to incorporate their existing customer rewards programs into them in order to keep that hand hold on their customer relationships without the need to build or buy mobile payment technology.  Or will retailers see payments as an integral part of the customer experience and want to manage and influence it directly rather than abdicate that role to disruptive technology companies.

Retailers of all sizes have taken up that challenge and chosen the latter path.  Kohl’s, Exxon, Walmart, Cumberland Farms and others have decided that their customer loyalty programs, integrated into their mobile apps are the best path to managing their own destiny around payment acceptance both now and into the future.  This strategy allows them the flexibility to change ingrained customer payment behavior, increase the speed and lessen the obtrusiveness of the physical act of payment and most importantly maintain control of the entire customer experience.

This path is far from the easiest, but good things rarely are.  Rather it is the only scenario where retailers can direct the payment conversations and technology partnerships that will be beneficial to them and their customers over the long term.

Aside from having clear cut objectives and well-conceived, customer focused strategy, there are some considerations to this approach that retailers need to assess.  First, is buy vs. build. There are several financial technology companies that can deliver large pieces of the necessary technology to make mobile payments work.  If capital costs and speed to market are critical considerations this approach makes a lot of sense.  Integrations and security are another area where outside expertise may be beneficial or even required depending on loyalty program, processor and mobile application developers.  Making certain that your customers payment data is managed securely and processed correctly and in a timely manner may require new skill sets in the technology area.  And finally, payment and engagement as a platform.  Third parties are likely to be better able to develop a payment system that allows third-party participation by publishing SDKs or APIs. This will enable partnership opportunities that can create more value for customers and new revenue opportunities for merchants.

Merchants still on the fence about mobile payment strategy need to look at consumer trends now so they are ready as customers start asking. Considering the pace of innovation and customer’s eagerness to move more of their lives online, it stands to reason that widespread use of mobile payments will only grow, and wise merchants will keep themselves positioned to offer solutions that meet their customer’s demand or risk losing them to a better shopping experience elsewhere.