February 01, 2012

The Mobile Wallet: Smartphones Promise to Ring Up New Retail Opportunities

This article originally appeared in the Feb. 2012 issue of Next Gen Mobility

The Internet has turned the world of retail on its ear.

Sam Goody and Virgin Megastores across the country have been silenced while iTunes turns up the volume. Borders and other bricks-and-mortar booksellers have faded into history as Amazon and e-readers come to the forefront. And local travel agencies struggle to stay aloft while more consumers lean back, relax and make their reservations from home via online portals.

The net makes comparison shopping, and just buying in general, significantly faster and easier. So it’s no surprise that many businesses are pushing – and customers are buying – goods and services both through vendor-specific websites and via new Internet-enabled channels such as Etsy and Groupon.

Nearly $32 billion was spent online during the last two months of 2011, comScore (News - Alert) Inc. reported on Dec. 20. That was a 15 percent increase compared to the same period the previous year. Online spending reached an all-time high the week ended Dec. 18, when $6.3 billion worth of shopping took place over the Internet, up 14 percent from the same week in 2010.

“For the 2011 holiday season to date, 10 individual days have surpassed $1 billion in online retail sales,” comScore said. “Cyber Monday (News - Alert) (Nov. 28) currently ranks as the heaviest online spending day of the season – and in history – at $1.251 billion. Monday, Dec. 5 ranks second at $1.178 billion, followed by Green Monday (Dec. 12) in third with $1.133 billion. Free Shipping Day (Friday, Dec. 16) ranks sixth at $1.072 billion.”

Pair this online buying frenzy with the fact that shoppers increasingly have smartphones in their pockets (234 million Americans age 13 and older use mobile devices, according to comScore), and it’s easy to understand why so many companies – from online search giants, to broadband service providers, to existing payments organizations – are hot to make their mark in the mobile payment space.

As Dan Schulman, group president for enterprise growth at American Express, said during his keynote speech last fall at CTIA in San Diego, you can’t open a paper today without seeing a headline declaring that mobile payments is upon us. Schulman went on to opine that while mobile payment may not actually be upon us, it’s clear that the payments and mobile industries “are on a collision course”, which is pushing companies like American Express to change the way they do business.

Smartphones have put the Internet into consumers’ pockets, so when they’re at a store they have the same information at their fingertips as if they were in front of computer terminals, Schulman said, and that is really changing the thinking of bricks-and-mortar operations. He added that retailers can tap that connectivity in real time by pushing customized promotions to shoppers as they enter a store.

“That is a fundamental shift,” he noted.

To address that shift, American Express has introduced a digital payment platform called Serve. In addition to enabling digital payments, it allows consumer brands and merchants to deliver special offers to mobile devices, supports loyalty programs, enables money management,  and more.

 “It is not an American Express wallet, it is a wallet for consumers,” he said, adding that “it’s not about just digital payments, but enabling digital commerce as well.”

American Express has stated it plans to invest $100 million on its digital commerce initiative, which is based out of Silicon Valley and headed up by former Motorola Mobility Ventures executive Harshul Sanghi.

Meanwhile, Visa has introduced, a PayPal (News - Alert)-like service “that lets you shop without sharing your card account information with the seller when you pay.” A November blog on the Visa website notes the company is working with its financial institution clients and merchants on participation in In the meantime, the company has launched an invitation-only beta of capabilities in the U.S. and Canada, as well as an open beta developer program designed initially for online payment applications. 

“ supports the evolving ways and places people transact,” blogs Jennifer Schulz, Visa’s head of global product strategy, innovation and e-commerce. “It is different than other offerings because it is not online or point-of-sale. It is online and point-of-sale. Wherever and however people shop, they can take with them – just like consumers have one physical wallet, they will be able to have one digital wallet. And of course, it will provide features beyond payments such as transaction alerts and the ability to receive personalized offers. First up: a streamlined online checkout, so consumers can click to buy with the new acceptance mark instead of entering their account information and shipping addresses every time they want to shop from their smartphone, tablet or computer.”

Interestingly, at the same time that a wide field of companies is pushing forward with mobile wallet solutions, PayPal, a pioneer in the online payments arena, is undergoing a significant leadership change. On Jan. 4 it was announced that PayPal President Scott Thompson is leaving the company to fill the CEO post at Yahoo!, which could well have mobile wallet designs of its own. John Donahoe was tapped to serve as PayPal’s interim president. PayPal, which has more than 100 million users, recently updated its Android application, adding support for NFC payments. (NFC stands for near-field communications, the technology expected to power most mobile wallet initiatives.)

Of course, when it comes to online search giants, it’s Google that has made clear its aspirations for the mobile wallet. Indeed, Google is looking to expand its vast online empire further still with the addition of the Google Wallet app.

The company in May announced its partners on the effort include Citi, MasterCard, First Data and Sprint. The first Google Wallet field tests were in New York and San Francisco and involved retailers, Coca-Cola vending machines and taxis. And Google Wallet service launched in September.

Google Wallet initially allows mobile devices to store loyalty cards, offers and credit cards (including Citi, MasterCard, and a virtual Google Prepaid card), and later will enable virtual transit (although that’s now available in select areas) and boarding passes and other tickets. Google Wallet is accepted anywhere PayPass MasterCard accounts are accepted, which includes more than 124,000 merchants nationally and more than 311,000 globally.

Additionally, Google is collaborating with point-of-sale systems companies and top retail brands to create SingleTap, a Google Wallet feature allowing consumers to pay for an item using a credit card or gift card, redeem promotions and earn loyalty points. Google partners on this front include Hypercom, Ingenico, VeriFone, VIVOTech and others. Retailers participating in SingleTap include American Eagle Outfitters, Bloomingdale’s, Champs Sports, The Container Store, Duane Reade, Einstein Bros. Bagels, Foot Locker, Guess, Jamba Juice, Macy’s, Noah’s Bagels, Peet’s Coffee & Tea, RadioShack, Subway, Toys“R”Us and Walgreens.

ISIS, a venture of AT&T Mobility, T-Mobile USA and Verizon (News - Alert) Wireless, is the other big mobile wallet push in the U.S. AT&T, ISIS and Verizon all declined Next Gen Mobility’s requests for an interview. However, ISIS reportedly expects to launch in two cities toward the middle of this year.

The fact that Google is ahead by a nose in the mobile wallet space may help explain why Verizon moved to block Google Wallet from its Galaxy Nexus smartphone. The telco said it doesn’t block apps, but has voiced security concerns about Google Wallet.

Punches are flying in both directions between the Google Wallet and ISIS camps.

An October piece on reported that “Dickson Chu, global head of digital networks and mobile at Citi, alleged at BAI Retail Delivery in San Diego that the U.S. carriers’ ISIS mPayment venture is ‘a divisive distraction to the ultimate goal of mass-market m-payments.’”

“It's unclear what they are trying to achieve, other than extract a toll as gatekeepers,” quotes Chu as saying. “There's so much more that they could it is they are just hampering the development of NFC as a mass-market commercial proposition.”

Nick Holland, senior analyst at Yankee Group (News - Alert), meanwhile, is quoted in a December blog on the consulting firm’s website saying: “Clearly the use of the word ‘open’ has some limitations when two direct competitors face off, and for all the talk about interoperability and enjoying windy walks together, Isis and Google are fighting for the same turf. Google will have an uphill struggle getting its mobile wallet onto the handsets of MNOs involved in Isis, as long predicted. However, with Isis struggling to even make pilot stage – recent news indicates that 2012 launch dates are being delayed – it could be that rapid consumer uptake of Google Wallet necessitates a change in operator loyalties. Further, it isn't a two-horse race.Will MNOs block all competitive mobile wallet initiatives, a move that could be seen as myopic at best?

“Ultimately, consumers will want their mobile wallet to replicate their physical wallet and we expect operators will be forced to follow consumer uptake rather than dictating which wallet mobile shoppers use,” Holland continued. “If Isis can scale quickly, then there is a chance it can become the wallet of choice. If not, operators should consider revenue models based around enabling third-party mobile wallets, handset sales and data traffic. Despite the restrictions operators look set to impose on Google Wallet and others, this move may not yet save Isis from becoming Icarus.”

And Rich Nespola, chairman and CEO of consulting firm TMNG Global, recently told Next Gen Mobility that Isis and Google Wallet are similar in that they both are secure app-based solutions that rely on NFC-enabled phones that are compatible with NFC readers at points of sale at brick-and-mortar retailers. “The key difference,” he said, “is that Isis’s revenue model is based on taking a percentage of transactions, while Google Wallet’s is based on aggregating customer data and serving mobile advertising to users.

“Both Isis and Google Wallet seek to be the dominant standard,” Nespola added.

Widespread availability of the mobile wallet in Japan demonstrates the huge revenue potential for mobile money in the U.S., which is the world’s largest credit card market by far, he continued. “Even a tiny slice of global or U.S. credit or debit card transactions presents a significant revenue opportunity,” said Nespola. “With no established dominant player in the U.S., telecoms, IT companies, credit card makers and handset makers all see a market up for grabs.”

Edited by Stefania Viscusi

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