The Smart Phone as Mobile Wallet

Over the next few blogs I’d like to share some thoughts on smart phones and how they may affect the convenience industry.  This isn’t going to be about social media and the advantages/disadvantages of getting your message out to phone holders or the need to engage with them on Facebook, Twitter, or the dozens of other platforms.

Rather, I’d like to talk about three other trends – smart phone based payment systems, in-store customer interaction through smart phones, and whether “showrooming” (if you don’t know what this term means then you will soon) is going to be a threat or help to our business.

I think that the most important impact of the smart phone will be as a payment system for making purchases in the store.  Typically, this type of payment system is referred to as a “mobile wallet” and removes cash and the direct processing of credit cards from the purchase transaction.

The term “mobile wallet” usually covers four different types of payment systems, all of which have their own proprietary systems and networks: SMS based transactions, direct mobile billings, mobile web payments (WAP), and contactless near field communications (NFC).  While most of these technologies are relatively new to US retailing, some have been around for almost a decade in other countries.

SMS based transactions use text messaging to make a payment.  The customer sends a text message to a number designated by the retailer to authorize payment.  In return she receives a PIN code to enter into a device at the store that finalizes the purchase and the amount is deducted from the customer’s bank account or is charged to their credit card.

With mobile direct billings, the retailer sends a payment request to a secure website and the customer authenticates the payment online.  The amount is then directly billed to the customer’s phone bill.  No banks or third party processers are involved in the transaction.

Mobil Web payments use WAP (wireless application protocol) to make payments through a website or a phone app.  The process works similarly to mobile direct billing but can also include the use of credit card charges or payment through third party operators such as Paypal.

Finally, there is contactless near field communications.  This technology is hardware dependent and uses transponders in certain smart phones to send a radio message to a receiving device located in the store.  This technology is probably making the most progress in the US at the moment and is being marketed under the ISIS brand.  The payment is linked to a pre-registered credit card.

All of these technologies are stand alone and require different infrastructure to be effective.  At the moment, there is not a clear standard as to which type of payment system will become the retailing standard, although a big push is being made by the NFC folks.

The bottom line is that all of these technologies remove cash and credit card handling from the purchase transaction.  This has several benefits for the retailer (if you put aside the cost of implementing one of these programs because they all have a cost).

Not using cash or credit cards reduces the amount of time needed to ring up the sale that adds to the speed of service.  Not handling cash reduces the security risk of keeping money in the register and frees up team members’ time – no more counting cash and checking drop safes on shift changes.  Customers are no longer having to find the right amount of money or being concerned about the security of their credit card when handing it over to a clerk or swiping it through a machine.  And, finally, it’s possible that some of the data collected through the transaction can be harvested to provide the retailer with a way to interact with the customer.

Is any of this right for you?  It may still be early days to make a decision but eventually we are all going to be using an electronic payment system.  It is will be the same evolution as the rise of credit and debit cards and the demise of checks.  The best strategy is to watch how the market develops to see which technology is best for your business.