If there is any single issue that will drive any retailer away from a retail payments system it is higher cost per transaction. Forcing a retailer to spend $200 or so per payment terminal also is a huge barrier to adoption. Blocking a merchant’s ability to use a form of payment such as a branded credit card also is a disincentive, particularly since the merchant’s own branded vehicles potentially can provide more information about the customer, and the customer’s preferences, than any third party form of payment.
It appears Isis has stumbled with retailers because its proposed payment system provides all three barriers, says Richard Crone, Crone Consulting principal and payments consultant.
And Crone agrees that, as tough as it would have been to overcome those obstacles, any other revenue model Isis now might adopt could fight Isis facing both well-funded giants such as Google, Apple, PayPal and Amazon, or any number of startups, sufficiently well funded to pose a significant challenge to “near field communications” as the communication method for any number of payment-related systems and applications.
In fact, Crone believes a number of carrier-independent approaches from well-funded start-ups not requiring NFC “could make NFC obsolete.”
“Maybe you don’t need the NFC approach,” says Crone. “There are 16 different ways the communications function can be handled.”
Starbucks, for example, represents the “most successful new payment method, ever,” Crone says. Starbucks reached one million mobile payments processed in 30 days. “Nobody else ever has received those kind of numbers in that short a period of time.” And all Starbucks did was build on the existing prepaid Starbucks card and 2D barcodes. Starbucks has signed up more than three million of their customers for the program, and they likely include some of the best customers Starbucks has.
Customer contact is the real advantage, he argues. When a merchant accepts payment from a standard credit or debit card, the data the merchant can capture is slim. The Starbucks approach provides a clear contrast.
When a customer registers for the Starbucks mobile payment service, the customer states their preferences and supplies contact information. As a result, Starbucks can communicate with their customers, before and after any transaction.
Starbucks also enjoys lower transaction costs, as it is prepaid system where customers load credits into their accounts ahead of time.
It might not be incorrect, in essence, to argue that, if merchants were starting today with a payment technology system, they wouldn’t even buy point of sale terminals. They’d simply leverage the technology the customers pay for, including using the customer’s communication services, and process directly from a smart phone, Crone says.
Retailers need a payment strategy, and a a mobile strategy, that provides incentives for customers to use the forms of payment that build loyalty, make customers contactable and provide lower costs. That doesn’t mean abandoning a “portfolio” approach. After all, people still will want the freedom to pay using cash, credit card, debit card, check or gift card. But among those options, retailers benefit when they can use the payment system to build loyalty, knowledge of their customer preferences and gain the ability to add marketing services on top. When possible, transaction costs might also be lower taking that approach.
That doesn’t mean NFC won’t find applications, or that Isis cannot ensure itself some role in the mobile payments business. NFC requires a secure element that carriers want embedded in the subscriber information module. Carriers control the SIM, so they would still be gatekeepers when NFC is used.
“So even if they open up to card associations, they control the loading of credentials,” says Crone. But various players in the ecosystem will contest the location of that loadable data, arguing that it should not be in the SIM, but elsewhere in the device. Device manufacturers, for example, would prefer that approach, as it makes their devices more valuable.
With Isis apparently withdrawing from an effort to compete directly with Visa and MasterCard, it will obviously have to find some other role. But competitors who do not necessarily want to be limited by using NFC, the SIM or getting the carrier’s permission now will have new incentives to push their rival systems in the marketplace.
In a way, Isis had been casting a bit of a shadow over rival approaches. Now, it appears we are headed for a period of wider experimentation, with many participants looking at ways to create payment systems providing higher marketing value, advertising or promotion platforms or customer niches, such as mobile merchants, smaller merchants or merchants primarily seeking loyalty program advantages.
Nor is it entirely clear that the “best” strategy is the “most ubiquitous, most widely used” approach. Large retailers might well conclude that they are best served by their own branded programs, using forms of payment limited to their own establishments and venues. They still will accept all the other popular forms of payment, so they give up nothing to gain the advantages of approaches such as that taken by Starbucks, which is to create a program usable only at Starbucks.
With the shade apparently removed, lots of smaller plants will get sunlight.
Less than a year after Starbucks launched an app that allows mobile payments, it has hosted 26 million such transactions on iOS, BlackBerry and Android. Roughly one in four Starbucks card transactions is now executed using contactless mobile payment.
