Since the advent of e-commerce, there has been unprecedented innovation as it relates to “alternative payments,” including online payments and stored value cards. More recently, the focus has been on mobile payment methods that now include Near Field Communications (NFC), Quick Response Codes (QR Codes), Simple Messaging System (SMS), and carrier billing.
Everyone recognizes that the process of paying someone else is changing, whether for business or consumer purchases. But which technologies will win out is still up for grabs.
The concept of digital wallets or e-wallets dates back to the days of Cybercash, but new technologies, more robust carrier infrastructures, and security advances make digital wallets or “e-wallets” more viable than they were in 1994. Eighteen years later, Google Wallet, Apple Passbook, Isis, Merchant Customer Exchange (MCX), and others are working hard to turn the futuristic vision into an everyday reality.
“Digital wallets reduce the level of friction,” said Lawrence I. Lerner, self-described “change agent.” “Eventually, you’ll be able to set rules about how you’d like to pay for things, and there may be a single ID you use in a brokering service.”
E-wallets eliminate the need to carry identity, payment, loyalty, and stored value cards in a physical wallet. Instead, consumers can use smartphones to pay for goods and services while enjoying all the benefits of physical cards and more.
“Digital wallets and smart cards are about discounts and loyalty because everyone cares about saving money and getting more value,” said Bertrand Sosa, co-founder of Rev Worldwide, which worked with Air New Zealand to create a pre-paid program that includes NFC transactions, airline miles, boarding passes, and rewards. “Ultimately, it’s about convenience.”
While e-wallets are gaining greater mindshare now, several obstacles to their success remain, including security, infrastructure, and fragmentation.
“NFC, 2D barcodes, and cloud-based PINs are creating a lot of confusion for consumers,” said Ron Fridman, CTO and SVP of operations of Digital Life Technologies. “And every time a merchant has to make a change to its POS [point of sale], it requires investments in back-office equipment and employee training.”
Rising Beyond Individual Wallets and Payment Systems
Juniper Networks Research estimates that the mobile payments market will reach $670 billion by 2015. Nevertheless, consumers hesitate to adopt payment methods or abandon payment methods that cannot be used where they normally shop. On the flip side, merchants are reluctant to invest in technologies that customers are not demanding.
To lower the barriers to mobile payment adoption, products and services are emerging that transcend the limitations of specific payment methods and systems. One such solution provider is Digital Life Technologies. Its GoNow e-Wallet Card works with all POS terminals (NFC and swipe), all e-wallets, and all smartphones. The card, which includes a reprogrammable magnetic stripe, a battery, a timer, and secure storage, is tied to the user’s phone. Users upload information from physical cards using a magstripe reader. The information is passed through the phone and stored on the GoNow card, which keeps sensitive information safe from smartphone hacks. If a GoNow Card is lost or stolen it is unusable because it’s tied to a specific phone. Users can also set rules for the card such as activating for an hour or authorizing purchases up on a specific dollar amount, for example.
“While it’s great to have an e-wallet on a phone, it’s better to have a card and phone that can [be used to make] make payments anywhere you go today without any changes to POS terminals, back-office equipment, consumer behavior, or associate training,” said Digital Life Technologies’ Fridman.
Dashlane is also trying to streamline online shopping via iOS devices, Android devices, and desktops by allowing users to store ID cards, credit cards, PayPal and bank account information, user IDs, and passwords in the cloud. When a shopper enters a site, she can purchase items without having to type in billing, shipping, or payment information (which is a hassle online and even more of a hassle on a smartphone). An iPhone app is currently available; an Android app is coming soon.
“I’m not sure there is going to be a clear winner in the payment space. We’re betting that there are a lot of people that won’t want to choose or won’t need to choose because there will be a universal way to accept payment,” said Daniela Perdomo, director of User Growth at Dashlane. “We consider our solution a digital wallet done right.”
The App Route
Apps are one of the first things that come to mind when it comes to mobile commerce. Stephen Price, general partner at E-Complish said his customers often want to build a branded app until they realize no one is going to download app just to make payments. Instead, they end up building mobile websites that look and behave like apps.
Third-party apps are another alternative, particularly for small businesses without an existing online presence or the ability to accept mobile payments. For example, OrderMapper has a portfolio of apps that allow consumers to buy goods and services using PayPal or a credit card whether or not the merchant or service provider accepts those forms of payment. The company’s Order Pizza and Order Flowers apps allow users to make purchases at any pizzeria or flower shop in the U.S. There is also an Order Beer app for the Dallas area and an Order Massage App will be unveiled in Brazil. The company also builds branded apps and has a platform designed to integrate with emerging technologies and models including social commerce.
“Pizzerias often lack online ordering or mobile commerce capabilities,” said Jim Bricker, CEO of OrderMapper. “We allow them to keep pace with the latest innovations without having to adopt those technologies or understand how they work.”
Reinventing the Phone Bill
SMS and carrier billing have two things in common: They appear on your wireless bill and the transaction amounts are small compared to credit card transactions. That makes sense since most consumers have experienced – and accept – wide variances on their credit card bills depending on their purchasing behavior; but they expect less elasticity in their phone bills.
SMS payments have become a popular fundraising option for political campaigns and celebrity fundraising in the U.S. and it the dominant payment method in developing countries according to Gartner. Carrier billing is well-suited to games, digital publications, and streaming radio. Using PayVia Mobile Payments, publishers and other digital content providers can easily add a carrier billing option to their existing merchant checkout solutions. That way, customers don’t have to worry about using e-wallets or filling out the online forms that are commonly part of the checkout process.
“The checkout process on a connected device can be rather cumbersome,” said Fraser Thompson, PayVia’s executive vice president of operations. “Now, with a few button presses you can easily make a purchase without the need for any special technology.”
Evolution or Revolution?
While e-wallets are being touted as revolutionary, their actual value is incremental.
“If you substitute a wallet with a phone you’re really not fixing anything,” said E-Complish’s Price. “If you go into a Starbucks, you can pay with your phone but the lines are still there. What would be more convenient is to take the tap out of Near Field Communications and just keep the near.”
GoPago is addressing the checkout line issue by allowing consumers to browse, order, and pay for goods and services using credit card information stored in the cloud. The customer can then walk into a coffee bar and walk out with a latte without having to stand in line, for example.
“By moving the ordering and payment processes to the consumer, the merchants can work through the queue faster,” said Leo Rocco, CEO of GoPago. “Merchants want the payment process optimized more than it is today. They feel they’re being misled by credit card companies because they’re quoted 1.6% credit card transaction fees but when you add in gateway fees, monthly fees, fixed fees, they’re paying 3.5% to 4%. They also feel they’re being hammered by the point of sale companies to pay maintenance fees that ensure their PCI compliance is intact when they don’t know what PCI compliance is.”
GoPago has developed its own POS system that it is providing to retailers free as a result of partnerships with Chase and Verizon. The GoPago system replaces traditional POS terminals with an integrated tablet, credit card reader, printer, and cashbox that are all bundled together. Transaction fees are lower than merchants are currently paying, Rocco said.
Another way to eliminate lines is to take the POS to the customer like Apple stores do. AJB Software has helped major retailers with that process, as well as working on other interesting innovations including a project with oil and gas companies to allow drivers to activate gas pumps and car washes without getting out of their cars.
“We’re also working on projects that change the way customers order products. Instead of waiting for a server to take an order, customers will order them on their smartphones and pay for them with their e-wallets,” said Eric Wong, director, Special Projects at AJB Software. “Besides e-wallets, there are a lot of incremental things that are going to change the business process on the merchant side and the experience on the customer side.”
Will Individual Payment Methods Matter?
Payment providers are competing for wallet share with loyalty programs, rewards programs, and value-added services. A persistent problem with credit cards is that the merchant must have a merchant account and the consumer must have a personal account. Quite often, merchants do not accept American Express because the transaction fees are higher than MasterCard or Visa, which means that customers must use MasterCard or Visa if they want to pay for their purchases with a credit card. PayPal partially solved the problem by allowing consumers to pay merchants using their bank accounts, debit cards, or credit cards regardless of whether the merchant accepts debit cards or credit cards but again, both the buyer and the seller must have PayPal accounts.
The question is: Will payment methods themselves become less relevant with time? Some think so, although a subset are quick to point out that the major players – including credit card companies – will simply evolve with the times. What they envision is an upcoming battle of payment networks or clearinghouses because merchants care more about getting paid than how they get paid.
“As long as merchants have a guarantor they can trust, they’re not going to care,” said Change Agent Lerner. “The consumer doesn’t care, so the payment companies are going to have to evolve very quickly.”
The Ultimate Frictionless Payment
The future of payments is the elimination of POS terminals and checkout lines that require an associate to scan and bag purchases item by item. The most frictionless solution is not a smartphone but a collection of sensor networks that automatically identify the buyer, scan the items to be purchased, and process payments without human intervention. No lines, no taps, no swipes, no associates, no cash registers. Just wireless sensors and networks that automatically process transactions, manage inventory, etc.
While the concept of implants tends to offend Baby Boomers, the smartphone may well be just an interim step toward even more streamlined forms of payment.
“Our grandkids won’t be carrying a wallet even if it’s digital. We may be using biometrics,” said E-Complish’s Price.
“Biometric factoring is not that far away. You’ve heard of fingerprinting and retina scans. The distance between pupils is unique even between twins. You’ll be able to walk into a store that knows how much you have available if [you’ve made that information available] and they’ll know what you usually spend so they will be in a position to offer you a personalized deal. Your pre-set rules and the store’s pre-set rules will negotiate, and the store will offer you a set of options.”
Social commerce is also coming. Expect to get discounts and other rewards based on your influence on friends’ purchases.