David Marcus, VP of PayPal mobile, shows off the ‘Here’. Kim White/PayPal
No doubt about it: the mobile payments marketplace is set to explode — and soon. The fuse has been burning for years, lit perhaps by PayPal, perhaps by Apple, perhaps by Near Field Communication (NFC) or other enabling technologies. Whatever the origin, the imminent rise in mobile payment technology is going to change life in a big way.
Players across a spectrum of industries, from retail to wireless, mobile device to financial services, are vying to dominate this next phase in the mobile payment revolution. In the social media realm, for example, Twitter will soon be able to offer its users the ability to Tweet “in the moment” purchase experiences, thanks to the company’s recent purchase of CardSpring, an application platform that allows the creation of promotional offers directly supported by credit cards and other forms of payment. Photo-sharing service SnapChat has unveiled the ability to add location-based logos and other labels to photos — a move that will not only enhance its monetization strategies through corporate branding, but is also likely to spur other eCommerce opportunities in the future.
Facebook, perhaps the most commercially aggressive of the major social media destinations, has plans to process purchase transactions using its own smartphone technology. Soon users will be able to make purchases right from their Facebook mobile app. Just click “buy,” enter your credit card information once, and the item will be on its way — and Facebook will be the more profitable for it.
Social media channels are anxious to support commerce transactions because they need to diversify their income streams beyond advertising. What’s more, they know a great deal about their users’ preferences and habits — and that information has immense value. Bricks-and-mortar merchants, for their part, are collecting the same kind of customer data. For some of the best-known retail names, this is supporting a wide range of mobile payment initiatives.
Starbucks, an early pioneer in mobile payments through its proprietary smartphone app, is going to begin testing a new advance-ordering capability that will allow customers to place (and remember) their favorite orders before ever walking into the store. Domino’s Pizza is currently expanding its Android smartphone payment options to include Google Wallet; and Chipotle, another chain that embraced online ordering in its infancy, is spending millions to equip its stores with in-store payment readers similar to those in place at most Starbucks locations.
Other merchants are looking to mobile apps and devices to facilitate mobile payments. OpenTable, the restaurant reservation app, is testing a capability in New York and San Francisco that allows diners to review their bill, add a tip, make their payment, receive acknowledgement from their server, and have their receipt emailed to them, all from within the OpenTable app. On the other end of the spectrum, Amazon has announced the Fire Phone, a smartphone that lets users scan items in stores and immediately purchase them — a move that will potentially redefine “showrooming” for thousands of bricks-and-mortar retailers.
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As might be expected, payment service providers and at least a few financial institutions are in the game as well. Earlier this year, MasterCard acquired C-SAM, the global digital wallet technology provider behind ISIS and other commercial mobile payment services. Using C-SAM technology, MasterCard intends to accelerate deployment of its MasterPass digital service. Visa has countered with Visa Checkout; its lineup of big-name merchants includes Neiman Marcus, United Airlines, Pizza Hut, Staples and TicketMaster.
PayPal, the leader in digital payments, is moving forward with mobile payments on several fronts. In addition to Pay at Table, a service similar to OpenTable’s mobile payment offering, PayPal is offering mobile payment options with Jamba Juice, ridesharing innovator Uber, and hundreds of other businesses where customers can pay from their phones simply by checking into their PayPal app.
Tech giant Apple, however, may play the biggest card of all later this year. Rumors are increasing that the iPhone 6 will include Near Field Communication technology for contactless payments. Earlier this year, CEO Tim Cook mentioned in an earnings call that the iPhone’s Touch ID capability offers “a big opportunity” for advancements in mobile payments; the company also announced at its Worldwide Developers Conference that it would extend Touch ID to third-party app developers, almost certainly giving payment service providers a key enabling technology. Also giving Apple a strong advantage are the hundreds of millions of credit cards it has on file through its iTunes service.
For virtually anyone interested in making money from the growth in smartphones, mobile payments make sense. Transaction fees trump online content as a means of generating profit — and as time goes on, a larger percentage of customers both online and at the cash register will be expecting the ability to pay through their smartphone. The question is, which direction should merchants take to position themselves for mobile payments?
Small-to-midsize retailers don’t have the means to develop smartphone payment capabilities in-house; for them, linking with a major payment service provider makes sense. PayPal’s mobile payment API (Application Programming Interface) supports pay-by-phone integration within a merchant’s app; another option is to adopt reader or NFC technology at the cash register. One aspect that many merchants don’t realize is that transaction fees are negotiable. With so many companies and institutions competing for merchant business, the market favors the merchant.
Whichever direction online and/or bricks-and-mortar retailers choose, it’s clear that a big step forward in the mobile pay space is imminent. As customers become increasingly comfortable with the idea of leaving their traditional wallets at home, merchants of all stripes need to plan their mobile payment strategy. When this tech wave hits, retailers and e-tailers need to be riding it — not caught in the undertow.
Sumit Mehra is the CTO of Y Media Labs.
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