Smartphones look to replace plastic as payment

What follows is an excerpt from one of RetailWire’s recent online discussions featuring commentary from its “BrainTrust” panel of retail industry experts.

Okay, so the gas-powered car killed the horse and buggy as a mode of transportation (excluding the Amish). Video apparently killed the radio star. So what’s next to go? According to a Bloomberg report, plastic credit and debit cards may be doomed by smartphones.

As it turns out, a number of wireless carriers, including AT&T, T-Mobile and Verizon, along with Discover Financial Services and Barclays, have formed a partnership and are testing a system in four U.S. cities that allows consumers to pay for purchases with a wave of their smartphones.

The service being tested is said to be similar to those already in place in Europe and Asia. Discover would process payments and Barclays would help with the management of accounts.

If successful, the test could be the beginning of real competition for MasterCard and Visa.

“What is a cell phone, except a mechanism for consumers to address their lives in whatever way they choose,” Gary Townsend, CEO of the Hill-Townsend Capital hedge fund, told Bloomberg. “There’s certainly no reason if an AT&T account can effectively be carried on a phone that a JPMorgan or a Wells Fargo card can’t be there, too. In fact, the antitrust issues would demand that that be allowed.”

Retailers, many of which have been engaged in a rancorous dispute with the major credit card companies over interchange fees, are generally supportive of any alternatives that make the payment market more competitive.

“The emergence of a secure and reliable competing network that serves the demand from consumers for mobility payment options and reduces retailers’ costs would be welcomed news,” Brian Dodge, a spokesperson for the Retail Industry Leaders Association, told Bloomberg.

RetailWire BrainTrust comments:

We are more than 50 percent of the way there, in my opinion. PayPal mobile can be accepted in some locations. I’ve paid for coffee using a mobile Starbucks card. While credit card companies and phone companies duke it out over who’s going to try to take the biggest slice of the transaction, merchant service providers and retailers are moving on, using prepaid cards and gift cards as a way to break the logjam.

And new mobile payment providers seem to pop up every day. I’m not sure that any of them will last once the big guys finally work it out and jump in, but right now it’s the wild, wild west out there — and that’s definitely good for the industry. – Nikki Baird, Managing Partner, Retail Systems Research

Mobile apps may supplement (and provide competition for) the credit card industry in the short term, but there are several roadblocks preventing “plastic” from becoming obsolete anytime soon. First, users of smartphones need to ensure the security of the devices; second, the costs of the phones (and data plans) are a big handicap to many potential users. The whole idea of “sponsored” smartphones (where you subscribe to particular apps such as credit card companies in exchange for subsidized data plans) needs further development. – Richard Seesel, Principal, Retailing In Focus LLC

The idea is completely logical and the driver here — more competition for the card companies — makes alternative payment methods in the interest of retailers. It will also put carriers right in the middle of the monetization of mobile. However, the consumer value proposition appears rather weak — as opposed to paying with a credit card, I can pay with my phone. That alone I think is insufficient; there needs to be some kind of rewards, loyalty, or marketing integration with the system that provides incentives for customers to use mobile devices rather than cards. The credit card companies are master marketers with lots of consumer data, so don’t count them out of this equation quite yet. – Gib Bassett, Director of Sales and Marketing, Interactive Mediums

So the advantage of using the cell phone becomes merely a convenience issue for the consumer. Is it easier to carry around all your ID information in your cell phone and get rid of your wallet altogether? We already carry pictures and music in our phones. If we could add all our ID cards and use them for payment, I can envision the day when the wallet becomes completely obsolete. Combine this with an unlock feature for automobiles, door locks, etc. and the cell phone can also eliminate keys. Finally, you need a tethering feature so that if you walk out of range from your phone it will begin ringing and shutdown before someone else can use it. – Bill Bittner, President, BWH Consulting

Something’s got to give here. The current state feels like a classic situation in which an emerging technology crashes into a marketplace inefficacy — and guess who usually wins? (Raise your hand if you are still paying big bucks to a land line phone or cable company!). This feels more like a “when” than a “whether.”

The smartest retailers will consider this transformation holistically. The fact that the device that will soon be at the center of the payment step of the transaction is also a potential pipeline for almost unlimited real time communication with a valued shopper will not be lost on them. What other shopper marketing, messaging, offers, information, etc, can be put into that pipeline? What shopper insights can be gained? How can phones (with GPS) enable higher order category management? At the end of the day, the simple act of paying might be one of the more mundane aspects of this brave new world. – Alison Chaltas, Principal, Interscope


One Response to “Smartphones look to replace plastic as payment”

  1. rightoninventory Says:

    Great post and summary of the key points. I agree that is only a matter of when and would add that businesses will soon be able to order their inventory directly from their smartphone. Making it easy and more convenient for small retail businesses to manage their inventory. Add the power of business intelligence and they will literally be smarter using their smartphone. In other words, smartphone will have an importance role at the front and back end of their operations.

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