StorefrontBacktalk: Mobile Payment Brawl – POS Players Vs. Reader Vendors
Through a special arrangement, presented here for discussion is a summary of a current article from StorefrontBacktalk, a site tracking retail technology, e-commerce and mobile commerce.
The battle for control of mobile payments is now pitting the POS players against the reader vendors, with large retail chains squeezed uncomfortably in the middle. It hasn’t taken long for vendor infighting to kick in following the industry’s first serious mobile payment play, from Google late last month. But the real fight–a standardization effort so retailers need only accept one mobile payment system–is still months away.
There are two elements to mobile payment that need that standardization: payment card security and other payment data. The retail need for consistency of payment security will be handled cleanly by the PCI Security Council, whenever it gets around to it, most likely before the end of this year. The more critical area, though, is all of the data involved, whether it’s CRM, giftcards, coupons or anything else.
And a later stage of the data mess will be two-way near field communication (NFC), which is when things will get both interesting and ludicrously complex. If there are multiple competing wallets–say from Google, Apple and ISIS–how easy will it be to deal with all of that data in a homogeneous fashion?
Another couple of crucial retail considerations will be “who does the work?” and “who pays for the work?” Some vendors–eager to prove their value and to make the process as easy as possible for merchants–will push a plan where they will do almost everything and they will do it all outside of the retailer’s environment. But as tempting as that might be, the wisest course for most chains may be to opt to do most of the work themselves.
Two reasons: First, on the security side, the chains will be blamed and held accountable for any breaches, regardless of what contract paperwork says. If you’re going to be blamed because customers’ data is breached after they walk into your store and beam their card information into equipment displaying your brand’s logo, you might as well at least control the operation.
Second, there is the matter of handling the data. This raises the soon-to-be-redefined question of “When is a customer a retail brand customer as opposed to a mobile payment alliance customer?” Google and the others are arguing that they are bringing huge value to retail chains in the form of new revenue. In other words, Google will talk about all of the mobile customers using their phones and their carrier partners that Google delivered to the merchant. Who’s to say that customer wouldn’t have shopped at Walmart or Macy’s anyway?
Either way, how will the chains feel about letting Google (or Apple, ISIS, etc.) have access to tons of customer CRM information? Will that data find its way to the systems of a chain’s most direct rival, even in aggregate or anonymous form? That won’t be preventable. But the more integration work the chain does directly, the more of a feeling of control its executives will have.
Discussion Questions
Discussion Questions: How much control should retailers have over security and data matters when it comes to mobile payments? Do you see any other obstacles toward mobile payments?
The biggest obstacle to mobile payments will be: 1) Security. Consumers won’t stand for privacy breeches and floods of unwanted offers. 2) Standardization: Multiple systems will cost retailers money and could cause mass confusion in the back office.
Let’s hope that retailers are able to work out the back end before too many consumers have mobile payment systems, otherwise, there will be mass confusion.
The rationale behind retailer control of mobile payments is eloquently stated in the article, “…on the security side, the chains will be blamed and held accountable for any breaches, regardless of what contract paperwork says…you might as well at least control the operation.”
It would seem that no organization has yet been able to guarantee security. Identity theft threatens everyone. Retailers who assure their customers that they are trying to protect them will be appreciated and can use that as a marketing point of differentiation.
From an expense perspective I wonder if the insurance companies have an opinion or a variation in premiums that leads retailers in the right direction. At the end of the day, that might be the biggest selling point for choosing an outside vendor over internal operations.
As everyone is learning, the value is in the data. I not only think retailers can afford to turn over payment security concerns to a third party, I think they must. As computer technology becomes more common place more and more hackers will be attempting to break into networks. In this constantly changing environment, it is better to turn over security to someone who specializes in that area. That’s the reason security companies used to pick up the cash (I guess they still do, but how long will that be necessary?).
On the other hand, the customer data and transaction details that can also be captured via electronic payment are a different issue. Here is where the retailer can combine physical security that keeps their internal data off of the public network with some encryption to provide privacy. In any case, since they don’t need all the payment data (ie. passwords and security codes) to keep a customer history file, a breach would not result in unauthorized payments. And customer purchase behavior is where the value is generated. But often,in order to get a total picture of a customer, the retailer may want more than just their own data. Then the challenge becomes how much are they willing to share in order to get more information from credit card companies or other third party aggregators. If the retailer has chosen to sponsor a branded credit card, how much of their transaction data ownership have they relinquished? These are all choices with multiple answers, but the payment data should still be handled by third parties.
Companies that maintain customer accounts with personal financials will be 100% accountable for any loses as IT transactions expand in method and use. Small & medium businesses facing the costs of business continuity, transaction security, disaster recovery and the cost of expanding and maintaining software and hardware secure communications are in for some heavy cost increases starting now. These increases will drive most of these businesses to remove or reduce store and office square footage while expanding warehouse distribution, third party IT relationships, e-commerce sites and IT sales and marketing specialists. Companies like AT&T, PAYPAL, and EBAY will no doubt be contracted and/or legislated to assume these responsibilities with close government(s) scrutiny. Please note that we are only in the infancy of global e-commerce, not even on our feet.
The truth is that mobile is actually more secure than current debit and credit card payment methods. What adds to the issue, however, is that it’s not just our banking information on our mobile device. It’s also contacts, family information, address and contact info and other potentially sensitive information.
It’s going to take a while and undoubtedly a few major lawsuits to work it all through and get consumers comfortable but it’s going to happen. My bet is that in 5 years it will be ubiquitous.
I agree with Bill. The value is really in the data. The challenges around technology will be addressed, but the point of difference will come from how well businesses understand their customers and how well they respond to meet the needs of their customers. This will come from their data (an increasingly combined with other data too).
Retailers will need to think carefully about how they want data shared to ensure this prized asset is not sold off to their competitors. Once they solve this, they can’t stop there, though I fear many will! They will need to leverage the data to continue to prove to customers that they are the retailer deserving of the customer! This becomes an insight, activation and organization challenge that few retailers are well prepared for.
Unfortunately for retailers and other businesses that don’t demonstrate effective use of data, customers will not only be able to vote with their wallets, but in future they may also be able to vote with their data…and share it with other businesses who use it more effectively.
Payments via mobile phones are inevitable and just around the corner. For retailers, this innovation will be a matter of replacing worn-out PIN pads at routine intervals. Current models have NFC readers built-in, which will allow mobile payments to be accepted with a “tap” and cleared using standard processes.
As iPhone, Android, RIM and Microsoft have already announced, NFC capability will be a standard element in mobile phones reaching the market next year. All that remains is the wallet “app.” Google announced first but, it’s solution is not impressive; far more sophisticated alternatives are ready to enter the market within weeks–and I’m not talking about Apple.
Meanwhile the ISIS consortium (essentially ATT and Verizon) is making a power play to gain control over payment clearing in the mobile era. The big banks and credit card companies eye this warily since they have vested interests in preserving the status quo.
This sets the scene for a bloody battle over interchange fees. Merchants have long complained they are too high. In a mobile payment world, there may be new payment clearing alternatives on the horizon that will alter the economics of debit and credit card clearing, as well as coupons and rebates. No wonder the telcos are salivating and the banks are digging in their heels.
To make this scenario even more complex, this article raises the accompanying issue of data security. That’s a whole ‘nother can o’ worms, but it’s safe to say that no innovation in mobile payments can succeed if it opens a back door into the consumer’s back pocket.
So where does this leave the retailer? Each chain will need to decide how soon it will accept mobile payments and coupons. Frequent shopper programs will face pressure to provide virtual cards for e-wallet apps. There may be an opportunity to trim interchange and coupon clearing costs on the horizon.
I actually have a bit of faith in the industry around this topic. Perhaps it’s blind faith though, going back to other key standards challenges like the original electronic payments, UPCs, etc., somehow the planets aligned and everyone collaborated. Now, even internationally, there is hope for standards. So, I believe mobile payments will follow that history. Should retailers control the data security? They should have specific responsibilities. However, there are also more stakeholders that have to assume some of the risk.