Mobile Payments: How Much Should I Care, and When?

By Brett Conradt,

Mobile payments have been growing impressively, but recent estimates suggest they represent less than 1% of total global retail sales. Many retail executives may be wondering whether the technology is worth investing in right now. Before getting into the issues to consider, let’s start with some background.

Mobile payments typically involve a device such as a smartphone that houses all of a consumer’s credit cards and other information, such as store loyalty programs and shopping preferences. Instead of sliding a traditional credit card through a slot or handing over cash, they generally wave or touch their device to some type of receiver that is integrated into the cash register processing system (unlike some other free-standing technologies that may both send and receive credit card payments over smartphones)

What’s been holding mobile payments back?
A range of players are all offering competing mobile payment solutions, including credit-card issuers, payment networks like Visa and MasterCard, alternative payment systems like PayPal, social networks, as well as mobile service providers and phone technology companies. The choice of options can be overwhelming as well as inconvenient, since consumers need different payment systems for various places they shop.

A few of the mobile-payment services have started to gain critical mass. But from a user perspective, none have a clear technical advantage; each has its own pluses and minuses, and they all vary in terms of which retailers accept them. Unlike credit cards, where retailers can accept those from multiple providers because they’re all processed through the same systems, different mobile payment technologies can require different types of readers, with the new hardware further eating up already precious retail counter space.

It will ultimately come down to which service wins the broadest adoption. Adoption is a two-part, self-reinforcing cycle, as consumers and retailers nudge each other in one direction or another. From a consumer perspective, the choice starts very simply with which solution lets an individual shop at more of his or her favorite places. But there is also the question of partnerships and benefits and, to some degree, even brand cache — that elusive “cool” factor. In the same way that a credit card company might partner with an airline to develop programs designed to lure frequent fliers, we’re seeing the development of targeted reward systems offering extra services, discounts, or free items based on individual consumer preferences.

For a merchant looking to dip its toe in the water, it’s the flip side of the same question: which service will bring the most customers through my doors? That doesn’t mean simply which application has the most users. It’s a far more granular analysis of what your particular customer segments and competitors are now using or most likely to use.

A new mobile-payment offering on the horizon is being developed by retailers for retailers. Merchant Customer Exchange, or MCX for short, started with a consortium led by Wal-Mart, Target, Best Buy and CVS, and others. Many of the retail participants have been early users of other mobile-payment formats. They understand firsthand the current systems’ shortcomings and can seek to address them in their own offering. With an emphasis on consumer convenience, MCX has built a network designed to meet all the typical needs in a day of errands, from shopping, to stopping for lunch, to filling the car with gas on the way home.

Still, there is no guarantee that this approach will prove to be the magic bullet. With no clear winner in terms of how and when this race will end, what should retailers who are still on the sidelines or just dipping their toe in the water be thinking about today?

Retailer decision points

Based on our extensive work with numerous retail clients, Stax has identified several considerations that can help define how quickly you need to act:

  • Size. As a starting point, a retailer’s size might suggest a speed of adoption, as well as the appropriate mobile-payment solution. For example, technologies using mainstream devices such as iPads as receivers are relatively easy and low risk for smaller retailers to adopt, since the cost of individual receiving terminals is low. Buying those same devices for checkouts across a large retail chain would represent a meaningful investment. Conversely, solutions built around scanning a bar code may only require some programming modification to the scanning equipment that large retailers already have — and that smaller ones may not.
  • Cost. Equipment cost, logistics, and space requirements can vary among mobile payment technologies. If a chain is undecided about which technology to try, understanding these issues relative to that chain’s particular constraints can help drive decision making.
  • Tipping point. At what threshold does this start to matter to me? Each retailer will need to set its own hurdle at which it would consider mobile payments substantive, whether based on number of users, transaction volume, or share of wallet.
  • Competitors. Even if mobile-payment adoption isn’t economically attractive to specific merchant at the moment, it must be aware of what competitors or doing, to understand whether there’s a risk of losing customers to the chain down the street that’s ready and willing to take their mobiles payments today.

Customers. Most important, of course: every retailer needs to understand what’s going on with its customer base. For example, if a chain’s shoppers tend to be early adopters already using mobile-payment technology, it may have no choice but moving ahead. Similarly, weighing the relative costs of the different mobile-payment apps has little relevance if a chain’s customers have already migrated toward a particular solution. Cost may be king, but not when your core clientele is at risk.

Mobile payments are definitely something to keep an eye on over the horizon, particularly the new MCX consortium. Using the above framework and information from the signposts will let you know when you should get in to test and learn, so you can scale up to meet the customer needs.

Brett Conradt is a director in the Chicago office of Stax Inc., a global strategy consulting firm. He has expertise in consumer and retail markets and financial services (particularly in payments), as well as technical markets such as transportation, medical, software, and industrial/manufacturing. He can be reached at

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