A Blog by Jonathan Low

 

Jul 16, 2016

Wallet Wars: Who's Going to Convince Consumers To Pay by Phone?

The banks and the retailers could be friends and allies, blanketing the consumer with offers and splitting the profits.

But they're not - and they won't.

Because the ethos is dominance and the only acceptable outcome is winner take all. Even when the victory may be too costly to enjoy for long, especially as consumers remain justifiably skeptical about what's in it for them. JL


Robin Sidel reports in the Wall Street Journal:

For some, developing their own payment apps is a way to keep a firmer grip on customers already using mobile features. Even as the range of mobile payment methods expands, adoption remains below some industry expectations. A survey found that 28% of smartphone users interviewed had made a mobile payment in the prior 12 months. Wallets have proven an inability to demonstrate any meaningful value proposition for a customer
Shoppers have a lot more decisions to make if they want to pay with a phone in the checkout line.
More banks and merchants are developing mobile-payment products for use in stores, joining the likes of Apple Inc. AAPL -0.01 % that have dominated the nascent business. The result is a dizzying range of options for shoppers who must decide which method to use if they want to pay with their phones instead of using traditional plastic cards.
What is unclear is whether more choice will make people more eager to embrace smartphone payments or hold back the emerging technology.
Payment choices range from Wells Fargo WFC -2.51 % & Co., which will launch its mobile-payment application nationwide on Monday, to Cheesecake Factory CAKE -0.60 % Inc., which lets diners pay with their phone at the table with an app called CakePay. Wal-Mart Stores Inc. WMT -0.04 % in late June expanded the rollout of its new payment mechanism that is contained within its shopping app.
MasterCard Inc. MA -0.57 % joined the trend on Thursday, announcing that it is expanding its MasterPass digital-payment platform to let shoppers use the service on their mobile phones at store checkout terminals. MasterCard said a number of lenders are signing up to offer the MasterPass wallet to their customers, including Fifth Third Bancorp, FITB 0.54 % SunTrust Banks Inc. STI -0.82 % and KeyCorp. KEY -0.68 %
And J.P. Morgan Chase JPM 0.09 % & Co. executives have said that bank will unveil its mobile-payment product in coming months.
“It’s an opportunity to take what had been a flat transaction and turn it into a rich and complete mobile experience that has value in it,” said Tom Poole, managing vice president of digital payments at Capital One Financial Corp. COF -1.02 % , which introduced its mobile-payment application last fall.
It is also one that risks befuddling consumers rather than engendering loyalty. That prospect has even caused some to shy away from creating their own products.

Bank of America Corp. BAC 0.07 % , for one, is unconvinced that bank-made payment applications are worthwhile. It doesn’t plan to develop its own product, instead preferring to support those already offered by nonbank providers.
“The road to mobile wallets is fairly littered with a variety of wallets that have proven an inability to demonstrate any meaningful value proposition for a customer,” said David Godsman, head of emerging payments and commerce at Bank of America.
Even as the range of mobile payment methods expands, adoption remains below some industry expectations. A survey released by the Federal Reserve in March found that 28% of smartphone users interviewed in November had made a mobile payment in the prior 12 months. Of them, 33% had used their phones to pay in a store.
For some banks, developing their own payment apps is a way to keep a firmer grip on customers who may already be using the bank’s mobile features to do things like check a balance. The banks also let customers load their cards into nonbank applications from providers like Samsung SSNHZ 0.00 % Electronics Co., Apple and Google Inc.
“We’re not going to pressure people to use the Wells Fargo wallet over Android Pay or Samsung,” said Jim Smith, head of virtual channels at the San Francisco-based bank. He added, though, that Wells Fargo customers who use the bank’s payment app can do things like quickly check their balance before making a purchase.
A recent survey from consulting firm Phoenix Marketing International found that about 84% of credit-card holders were aware of the ability to use a smartphone as a replacement for a plastic card, with 71% of them being aware of Apple Pay. Nearly one-quarter of all the credit-card holders had linked a credit or debit card to payment applications from Apple, Samsung or Google.
Fewer customers were aware of similar products from Capital One or Chase, according to the survey.
The assorted payment methods rely on different technologies at the point of purchase that require consumers to handle the payments differently. The most common method—used by Android, Apple, Capital One and Wells Fargo—uses a technology called near-field communication in which shoppers make payments by holding the device up to a reader on the payment terminal.
Shoppers who use the mobile-payment applications from Wal-Mart and Chase must scan a bar code contained in the app at the payment terminal.
Cheesecake Factory’s CakePay app generates a four-digit code for the diner, who then gives it to the server. The ordered menu items appear on the app, and diners can choose to pay the entire bill on the phone or split it with other diners.
“We wanted to give our guests the ease and convenience of being able to pay when they want to pay,” said David Gordon, president of the restaurant chain that rolled out the payment system nationally within the past month.
Banks are also trying to create ways to make their products more appealing to customers by adding features. Capital One, for example, has an option called “second look” that alerts customers if a tip that is input as part of a payment is unusually large—a sign that there could be a simple math error or that their bank account could have been hacked.
Banks are also testing ways to encourage customers to use their phones by adding loyalty programs and discounts.
But there are limitations in the bank-payment methods. For one thing, the bank payment apps only allow customers to load in cards from that institution. That means if a customer has a debit card from one bank and a credit card from another, they may need two separate wallets from the two institutions.
That restriction is likely to keep Matthew Byers using ApplePay, which allows multiple cards, rather than switching to a bank mobile-payment app. The software developer in Branson, Mo., has cards from American Express Co. AXP 0.27 % , Discover Financial Services DFS -0.03 % and Barclaycard. But, said Mr. Byers, “I just want one place to go and am not going to go into each individual app.”
Chase Pay
Based on QR codes, to launch in coming months
Capital One
‘Second look’ feature warns about unusually large tips
Apple Pay
More than 1,300 lenders allow their cards to work with it
Android Pay
Accepted at over 1 million stores
Wells Fargo Wallet
Announced in May, launches on Monday
Walmart Pay
Works with retailer’s shopping app
Samsung Pay
Can be used at swipe-only and newer terminals
Masterpass
Can now be used for
in-store phone payments
CakePay
Lets diners pay on phones without waiting for server

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