A Forrester Research report analyzes the early successes and failures of Apple’s mobile payments system.
Summit merchant panelists have questions but no answers.
It’s like déjà vu all over again. Mobile payment backers want to displace cash by offering consumers a way to pay by tapping a mobile phone against a payment terminal. But retailers speaking at this week’s Mobile Contactless Payment Innovations Summit in Chicago balked at adopting new technology without proven business cases.
In the mid-2000s, Visa Inc., MasterCard Inc. and American Express Co. all introduced contactless payment cards that consumers could tap against a payment terminal to complete a transaction. Years later, the number of merchant locations that accept such transactions number 140,000 out of an estimated 11 million overall locations.
Today, the card brands are working toward putting tap-and-pay capabilities, along with offers and coupons, into smartphones. But retailers would face expensive upgrades to their payment systems without assurances sales will follow. A compatible payment terminal might cost between $400 and $500, experts say.
But, the allure of combining tap-and-pay with mobile coupons and loyalty programs in smartphones could entice consumers in a way that a contactless payment card alone could not. Only one such mobile payments application currently is available for a smartphone. Google Inc. introduced its Google Wallet this summer, but it works with only one phone and only on the Sprint network.
Radio Shack Corp., for one, would want to ensure such a scheme could work without disrupting sales, said Daniel Liberman, Radio Shack senior vice president for its retail services division, who spoke during a panel session at the summit. “We want to make sure we’re not overpromising from a performance standpoint,” Liberman said. He wants to know when the right time is to support such advanced mobile commerce schemes. “Are we trying to find adoption on a massive scale in five years,” he asked.
One enticement for retailers might be a lower interchange rate for contactless transactions, but the card brands do not provide that in the United States. Visa Europe, however, sets the interchange rate, the fee merchants pay banks that issue payment cards, in the United Kingdom for contactless payments at a lower rate for transactions of less than £15, or $23.64, than for payments made with a conventional card.
If a smartphone-based payment can be secured, then could contactless transactions be less expensive? Malcolm Nunes, senior manager of financial services at The Home Depot Inc., asked fellow panelist Mung Ki Woo, group executive for mobile emerging payments at MasterCard. Woo declined to discuss interchange rates.