Mobile payments are the next frontier of retail technology. New products and services that let consumers pay for products using a smartphone instead of a bank card or cash are emerging. For instance, Starbucks says that last year more than 26 million in-store transactions were paid on mobile phones via the Starbucks Card Mobile App. Customers can use their phones to make purchases at more than 9,000 locations.
Clothing retailer American Eagle Outfitters now accepts mobile payments at select stores via Google Wallet, a mobile app from Google that links to a credit card. Toys R Us, Foot Locker, and Macy's also support Google Wallet.
More mobile payment options are on the way. Isis, a joint venture from AT&T Mobility, T-Mobile USA, and Verizon Wireless will launch mobile payment trials this summer. Meanwhile, The Wall Street Journal recently reported that Target, Wal-Mart, and other retailers are working on a competing mobile payment system.
Startups also are getting into mobile payments. Square, launched by Twitter co-founder Jack Dorsey, recently came out with Card Case, an application that lets customers use their mobile phones to pay retailers.
While there's significant activity around mobile payments, there's also a lot of uncertainty, which is bad news for retailers that must decide where and how to invest. Two questions underpin this uncertainty: Which mobile payment infrastructure will prevail, and will customers adopt the technology in great enough numbers to make it worth a retailer's investment?
Dialing For Dollars
Two models are emerging for the use of mobile devices in place of swiping a card or paying cash. The first requires near field communication, a radio system that lets two or more devices send and receive data at very close range, such as a few centimeters. With this system, a user taps an NFC-equipped smartphone against an NFC-equipped point-of-sale terminal to pay for a transaction. The smartphone also needs a digital wallet app that's preloaded with money from a credit or bank card.
Google Wallet is a good example. It runs on NFC-enabled Android phones, including the Nexus S 4G and Galaxy Nexus devices. At the 2012 Mobile World Congress, Google announced that 10 Sprint smartphone models will support Google Wallet this year. Apple and Research In Motion also are expected to add NFC support to forthcoming devices.
Google Wallet works with MasterCard PayPass, a point-of-sale terminal that supports NFC.
At present, Citi MasterCard is the only credit card that works with Google Wallet, which means purchases made with Google Wallet are charged to a Citi MasterCard account. Alternatively, users can buy a Google Prepaid Card, a virtual card for Google Wallet that's funded using any credit card.
American Eagle Outfitters is experimenting with Google Wallet in some of its stores. "Although it's still early, we consider mobile applications like Google Wallet to be the next frontier for how customers shop and interact with brands," says a spokeswoman for the clothing retailer. "Customers are rarely seen without a mobile phone in their hands." The retailer declined to discuss the project's costs or its impact on the stores' payment infrastructure.
This report includes 15 pages of action-oriented analysis of the mobile payment space. What you'll find:
- In-depth discussion of NFC-based mobile payments
- Pros and cons of the new retail payment options