By Ben Kaplan, president and CEO, CashStar
Ben Kaplan was featured in Mobile Payments Today’s executive brief 2016 Mobile Payments State of the Industry report. The entirety of Ben’s article is below. The full brief may be purchased here.
Changing habits is not easy, especially when it comes to consumer adoption of new technologies like mobile payments.
While statistics show consumers are downloading mobile payment apps, we all know that it takes a lot to persuade them to adopt new habits, as their preferred and established methods of payment are solidified in their daily routines.
To shift consumers to mobile everything, including mobile payments, merchants and developers must create an added value that is not available to consumers with their current preferences. The notion of paying with your cellphone isn’t going to be enough to persuade consumers to change their ways.
The bottom line is this: Consumers are ready for mobile wallets. Everyone from grandparents to toddlers knows how to use a smartphone. Unlike with e-commerce adoption, which was stalled by consumers not having adequate access to high-speed Internet connections, today’s savvy smartphone user can easily use a mobile wallet app. But it is up to developers and merchants to open consumers’ eyes to the value in mobile so they are compelled to incorporate it into their regular routines.
For consumers, the experience must be strong enough to persuade them to the point where they can’t imagine reverting to their old ways — namely, credit and debit cards and cash. For mobile payments to truly become mainstream, consumers must have a seamless experience that lends itself to easy adoption into their routines. This frictionless experience also must provide added bonus for the consumer to encourage habitual usage.
Who will own this space?
Before we see widespread consumer adoption of mobile payments, this space likely will fragment. We will see the growth of general wallets such as Google Wallet, Android Pay, Samsung Pay and Apple Pay, as well as native merchant apps with payment features, similar to Starbucks’ wildly successful venture.
While these two types of apps battle it out for supremacy, both will look to sway consumers’ usage in their favor. There’s a valuable opportunity for using prepaid commerce in conjunction with loyalty rewards and incentives to drive engagement with the apps. The ability to pay with a mobile device isn’t enough. Consumers want to save money through in-store and digital offers, earn loyalty points toward future purchases and receive real-time promotions; prepaid commerce enables all of that.
Not only can prepaid commerce enable merchants to offer consumers the perks necessary to change their preference over physical wallets, but it also helps developers and merchants drive down the cost of payment processing. When a consumer reloads funds on the wallet, the merchant pays the credit card fees only once, not for each subsequent purchase, thus reducing costs on those future transactions. Simply put, prepaid commerce makes digital gifting easier and drives promotions and loyalty programs, while saving money for merchants on the payment processing front.
Competition is steep
Unfortunately, not everyone can come out a winner in this scenario. Consumers aren’t going to download every single app available — wallet or native — as it ultimately would prove too much to manage. Instead, consumers likely will have a general wallet for most of their needs — storing credit cards, digital gift cards, etc. — while interacting with a select number of native apps based on their favorite brands, loyalty offerings and perks.
The Starbucks app is a great example of how native brands can do it right. By building an app that uses prepaid commerce in a variety of ways, Starbucks has created an app that customers have embraced, relying on its reloadable digital gift cards for payment and taking advantage of the loyalty and promotions programs linked directly to frequent usage of the app. As if those added benefits weren’t enough, Starbucks recently rolled out its mobile order program, enabling customers to order ahead and pay from their mobile phones — skipping right to the head of that long line. Talk about a bonus that will change behavior!
Of course, Starbucks benefits from already being a daily stop for most of its app users, versus a retailer that a customer visits a couple times a year. Such opportunities also exist for many businesses, including the restaurant industry, where quick-service establishments with lower ticket costs and high volume are primed for prepaid commerce opportunities, and grocery, where both frequency and loyalty program usage is high. Additionally, department and big-box retailers can offer tools with the potential to help people budget or manage finances for dependents or employees that make frequent purchases.
Looking forward
We’re experiencing the fragmentation of this space as merchants and technology companies each work to create their own apps. The mobile app wars are on between Apple, Samsung and others, while merchants continue to flounder for the most part, trying to figure out how they fit into the mobile payments world.
It’s the classic chicken-or-the-egg debate: Will consumers adopt mobile payments because merchants provide enticing apps, or do merchants wait until consumer demand is high enough to ensure success? This tension causes a hesitation to fully commit resources. Unfortunately, opportunities are passing by. Merchants need to move forward, because the chicken-and-the-egg debate falls by the wayside if consumers, who are primed for the adoption of this technology, still are gated by the merchants’ lack of viable options.
Soon, this fragmentation and competition will be followed by a consolidation of sorts, as consumers determine their preferences and use the apps that make the most sense in their daily lives. We already have seen some consolidation: Google bought Softcard from the wireless telco carriers and it is now part of Android Pay. Samsung bought LoopPay and it is now part of Samsung Pay. We’re likely to see something along the lines of an 80-20 split — where consumers will rely on general purpose mobile wallets 80 percent of the time, while using native apps the remaining 20 percent.
In the beginning of the year, Forrester predicted that the future of mobile wallets lies beyond payments, especially as the players in this space add marketing value to their offerings. This still stands true as we close out 2015 and look forward to the coming year. Whether the apps are stand-alone wallets or branded native apps, they must integrate value to speed consumer adoption. With prepaid commerce solutions and the advances in today’s technology, they’re armed to do just that.
