For over a decade we have been promised the ability to make payments anywhere by simply waving our phones at the checkout or between individuals. This has been coming “real soon now” for an embarrassingly long time. When consumers use the service they definitely take to it. Like in Japan where Osaifu-Keitai or mobile wallets are becoming mainstream, or in my home town of Nice in France where contactless mobile payments have been successfully trialed on a city-wide basis with a few thousand resident since 2010. So why are we still waiting for widespread availability of such services?
One major factor is clearly due to competing interests and resulting fragmentation of the market. The move from cash and plastic card payments to mobile payments opens up a big market for new players to get involved, create value and to profit from being in control of a new market. Mobile payments sits at the intersection of different industry groups:
- Financial payment service providers like American Express,
JCB, MasterCard, Visa , etc.
- Mobile telecoms operators like China Mobile, Orange, NTT
DoCoMo, Verizon, Vodafone, etc.
- Mobile phone manufacturers like Apple, HTC, LG, Nokia, RIM,
- Online payment service providers like PayPal, AliPay,
Each of these groups have been jockeying for position to try to be in pole position to own and dominate the mobile payments space and to take the lion’s share of the rewards. All of the individual efforts and competing trials have led to confusion for consumers and merchants and made it difficult for any one
effort to reach critical mass.
Recognizing this, we are now seeing more open collaboration and interoperability across and within some, but not all, of the groups.
The online payment service providers and the mobile phone manufacturers (particularly nowadays with smartphones where it is a software-driven market) seem genetically indisposed to interoperability among their services: they are used to working in markets where relentless competition and one-upmanship is
what moves the industry forward.
The financial payment service providers on the other hand have an understanding that open standards lead to greater adoption and a larger, more efficient market for everyone. This was, after all, why banks and merchants stopped issuing their own plastic payment cards about 50 years ago and went instead for the shared models of American Express, MasterCard, Visa, etc.
Mobile telecoms operators are also collaborating among themselves. Telecoms companies grew up knowing that open collaboration within the industry is essential to what they do: you don’t have to know which phone company your friend subscribes to when you dial their phone number, it just works. Telecoms are now taking this approach into the mobile payments space. They know that retail merchants will not adopt a new payment method that only works with the subscribers of just one mobile operator and therefore excludes maybe three out of four customers in their store. So initiatives like the Isis mobile payments network in the U.S. and other joint worldwide standardization initiatives like those driven by the GSM Association are bringing together mobile operators and payment service providers to try and create critical mass.
But there are two other industry groups that are not yet mentioned enough when mobile payments are discussed: retailers and consumer packaged goods (CPG) companies.
If mobile payment just replaces a cash or card payment with a mobile device payment then what is in it for them? Why should retailers in particular bear the cost of gearing up to support this new payment method?
I believe that mobile payments will have a much better chance of taking off if the industry starts to look beyond simple payments and to change the game with what we at SAP refer to as smart commerce.
When payments move onto a smart device like today’s mobile phones they can start to be seen and managed not as individual, discrete payment events but instead as a stream of interconnected transactions. This is simple to say but it is a profound shift in focus and gives rise to powerful new capabilities.
CPG companies have limited contact today with their end customers. They are always looking for opportunities that allow them to develop closer opt-in relationships with individual customers, to learn about their behavior, to incent them to remain loyal to brands and to try new products. With smart commerce-enabled mobile payments they can have an opportunity to do this by reworking the entire customer loyalty, reward and couponing process using smart mobile phones.
The pricing of an individual item may no longer be determined by the sticker price but instead depend on how often the consumer has bought that item before, whether they have accepted promotional offers to try out a related product, and the location of the town and store where they are shopping. The CPG company can then shift some of their marketing dollars away from mass market promotions with
uncertain ROI and into individualized customer discounts and incentives that deliver direct measurable benefit.
For retailers, services like Groupon and LivingSocial prove stores are willing to discount substantially to gain new customers. But what they really want is to keep those customers – especially the most profitable ones. Again, applying smart commerce allows retailers to dynamically modulate how they price, charge and incent their customers based not just on a single checkout transaction but—if their customers see the benefit in opting-in to get lower prices—it can be based on the complete history of their interactions with that customer.
Mobile payment is not just about convenience and saving a few seconds at the checkout register, it is an opportunity to leverage smart devices and smart software to reinvent how companies do business with their consumers.
Fergus O’Reilly is chief solution expert for the consume to cash set of solutions from SAP