In its second-largest acquisition, Amazon buys the company for $970 million.
The fast-food chain prepares for mobile payments.
A key ingredient to widespread adoption of contactless payments made by tapping a smartphone against a reader is ensuring there are enough places for consumers to use the technology.
That’s why MasterCard Inc.’s announcement today that more than 7,000 Subway restaurant locations will accept the card brand’s PayPass contactless payment by the end of the first quarter of 2012 is noteworthy, says Richard Crone, CEO of payments advisory firm Crone Consulting LLC. “Subway wants to leapfrog into accepting mobile payments,” Crone says.
MasterCard introduced PayPass in 2002 for use in tap-and-go credit and debit cards, and Google Inc. built compatibility with PayPass into Google Wallet, the first smartphone-enabled mobile payment scheme to reach consumers. To use the service, a consumer must add at least one payment method, such as a Citibank MasterCard credit card, into the Google Wallet app so the app has access to funds. Then, she can tap the phone against a reader to buy a sandwich just as if she used a conventional card that had a contactless chip in it.
Until today, Subway restaurants only accepted cash and conventional credit and debit cards. Subway has not previously accepted any form of contactless payment, a Subway spokeswoman says.
Google Wallet relies on Near Field Communication, a technology that enables a two-way connection between an NFC device and an NFC reader, which can be used to make a mobile payment or redeem a mobile coupon. Google lists Subway as a supporting merchant “coming soon” on the Google Wallet web site.
“This is important because Google and its partners are taking the first step in making digital payments on your phone a reality,” a Subway spokeswoman says. “We believe Google Wallet will save consumers time and money as they shop and will give merchants like us new ways to forge lasting relationships with customers.”
Google Wallet only is available with Nexus S 4G phones sold through Sprint. Between 400,000 and 500,000 of those phones have been sold, says Mark Beccue, senior analyst, consumer mobility, at ABI Research. Google is not disclosing the number of Google Wallet accounts.
Other companies, including Visa Inc., Isis and American Express Co.’s Serve, are close behind with their own programs.
Merchant acceptance is vital, Crone says. Indeed, the 7,000 Subway locations announced today represent 28.5% of the 24,551 U.S. subway restaurants. Approximately, 150,000 U.S. merchant locations accept PayPass transactions, Google says. By comparison, there are at least six million U.S. locations where consumers can use a conventional payment card, Crone explains.
The cost of an NFC payment terminal is one impediment to wider use of NFC phones to make in-store payments, Crone says. An NFC-compatible payment terminal may cost between $400 and $500, making Subway’s move a potential $2.8 million investment. Subway would not disclose the company’s cost.