Jumping on the Mobile Payments Bandwagon

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With millions of customers depending on their smartphones for many interactions, savvy organizations are taking the plunge into accepting mobile payments and preparing for when digital wallets become as commonplace as credit cards.

Mobile phones have evolved rapidly in the past years. No longer are they solely considered as devices to make a phone call or send a text message, but instead are nowadays more akin to portable computers. Customers have come to rely on their mobile phones and in fact the word nomophobia, meaning "no mobile phone phobia" was recently coined by the U.K. post office.

The use of mobile phones has developed to fit customers' quest for simple and convenient interactions. As smartphone technology continues to progress, organizations are looking for ways to leverage these devices not only as a means of interacting with customers wherever they are and at any time, but also to give them an easy way to transact.

A survey conducted by Nielsen in the first quarter of 2012 showed that almost 80 percent of smartphone and tablet owners in the United States had used these devices for shopping-related activities, with smartphones being used more while on the go. The majority-73 percent-have used their phones to locate a store, while 62 percent were checking an item's price online.

"More and more interactions are going mobile," notes Bruce Kasanoff, managing director of NowPossible and co-author of Smart Customers, Stupid Companies. In fact, the more mobile-forward customers are leveraging their smartphones for another reason-to make payments. A survey released by IDC Financial Insights last year found that mobile payments are becoming vastly more common. In fact, a third of customers in the United States had used their smartphones to make a payment. According to IDC Financial Insights, more than half of customers who had used their mobile phones to make a payment had used PayPal Mobile.

Although the concept of the mobile wallet is gaining traction, a ComScore study, Digital Wallet Road Map 2013, shows that only 51 percent of U.S. customers are aware of the digital wallet outside of PayPal. Asked where they would prefer to use a digital wallet, only 9 percent of customers said they would prefer to use it in a physical store, as opposed to 15 percent who would rather use a mobile wallet for online purchases.

Making mobile payments safe

According to ComScore's study, security remains a main concern for customers, making it a potential barrier to using mobile payments. Marc Barach, CMO at Jumio, believes that the next big step forward for organizations will revolve around providing safe and quick ways for customers to make purchases directly from their smartphones. "Purchases on mobile are exploding and the issue is making sure you deliver the best user experience and security," he notes.

Jason Fulmines, director of mobile at Travelocity, says customers are more and more comfortable using their phones to make purchases, especially when they're on the move, for example booking a last-minute trip or accommodation. One of the major barriers for customers making a purchase online is the difficulty to enter their credit card details. Aware that travelers are seeking simple and quick interactions, Travelocity implemented Jumio technology within its lastminute.com mobile app, allowing customers to use their phone camera to take a photo of their credit card and self-populating the needed fields. Fulmines says a sizeable percentage of customers who use their phones to make a booking are using this function, which also includes layers of security to make sure that travelers are confident to make a payment.

While security is a big concern for customers, ComScore found that many are still unaware of safety features that could protect them when using a digital wallet. For example, only half of customers who reviewed a digital wallet website realized that a locking feature was available for their protection.

Despite a seeming reluctance by customers to use their smartphones as an extension of their credit cards, technology experts are forging ahead and developing the technology, and some retailers are becoming early adapters.

Caroline Bell, one of the owners of Manhattan and Brooklyn coffee shop chain Caf?rumpy, says the organization is preparing itself for a potential boom in customers who want to use a mobile wallet. In 2011, the organization implemented mobile payment system Square, which turns a mobile phone or tablet into a cash register. Further, customers who download the Square Wallet App can not only use their smartphones to make direct payments, but also to interact with Caf?rumpy. In fact, Bell notes that clients are able to use the app to check the menu, which changes frequently.

A new way of marketing

According to Sarah Friar, Square's CFO, the use of a mobile wallet will allow retailers to get a very granular view of their customers' shopping habits, allowing them to personalize their interactions and make very relevant offers. While addressing the National Retail Federation's Retail Big Show 2013 in January, Friar uses the example of a coffee shop which is seeing low foot traffic on a rainy day and can send customers who did not visit the outlet on that day an offer for a pastry or other perishable item which would otherwise have been thrown away.

Henry Helgeson, CEO of Merchant Warehouse, believes that the mobile wallet will eventually become commonly used. "This is not only an opportunity to make payments easy, but also a new way of marketing," he says. Low traffic retailers, for example, will be able to leverage geo-location targeting to gain more visibility among people in the area who aren't aware of the business.

But with different wallets available, retailers will have to find a way to accept all types of payments. "Otherwise they might miss the opportunity to connect with the other users," Helgeson notes. Further, it's important to aggregate data from different modes of payment, both traditional and new, ensuring that customers using more than one system won't be targeted with different offers.

One organization that's leveraging new technology to accept new modes of payment is By Brooklyn Fine Goods. "The world of payments is changing rapidly and I want customers to view me as being cutting edge," says owner Gaia DiLoreto. She stresses the need to give customers options, allowing them to pay in the way they feel most comfortable. DiLoreto implemented Merchant Warehouse' Genius system last November and is prepared for when mobile wallets become widely adopted. While she hasn't come across any customers who use mobile wallets, she believes that this will be the next natural step. "We're prepared for when it happens," she notes. In the meantime, having a streamlined payment system is allowing DiLoreto to collect data, allowing her to understand which customers she should target with offers.

"Smartphone technology is the ultimate CRM tool since it's always on and always with the customer," notes Eric Leiserson, senior market analyst for Fiserv. Recent research by Fiserv shows that last year 41 percent more smartphone owners paid a bill through their mobile devices than in 2011. This indicates a growing trend which will continue to grow. "Smartphone adoption will continue to grow and mobile payments are the next logical step," Leiserson notes. He believes that many businesses are keeping their eye on Apple to make a move in the mobile wallet market, which could accelerate consumer adoption.

Finally, we are moving towards a time when most objects, even household items like refrigerators and vehicles, are being connected to the Internet and to each other. This phenomenon means that customers will communicate with organizations or even make orders directly from these items. Kasanoff notes that this will lead to customers paying for commodities and service in very small incremental payments, for example getting data in your vehicle. "You need a highly efficient way to process small payments," he says. If payments are being made directly from these devices, it will bring about a new definition to digital payments, with the possibility of turning almost everything into a wallet.

EXPERT OPINION
EXPERT OPINION