Mobile Payments — How Can Retailers Juggle All Of The Options? - Transcript
An Integrated Solutions For Retailers podcast with editor Bob Johns
Bob: Hello everyone, and welcome to an Integrated Solutions For Retailers podcast with VeriFone. I'm Bob Johns, editor with the magazine and website, and I'll be your host for today. Joining me is Erik Vlugt, Vice President of Product Marketing at VeriFone. Well, let's dive right in.
We read a lot these days about mobile payments, mobile wallets, and alternative payment vendors. You've got Google, Isis, Paypal, Groupon, Level Up, and a host of smaller startups that are trying to capture a large share of the consumer's purchases, but none of them seem to have gained much market acceptance. Do you have any insights on what the challenges are?
Erik: Yes, thank you, Bob. That's a great question. You're right, there are a lot of new, exciting technologies out there in the areas of mobile payments, mobile wallets, some of these alternative payment schemes out there. Yes, there are challenges associated with the rollout of any new technologies.
Certainly there's a lot of existing infrastructure out there amongst retailers. They have to figure out how to integrate some of this new functionality into their systems. That's a technical challenge. There's a value proposition challenge.
Each retailer and each particular vertical and channel needs to figure out where the value is for them of any one of those mobile payments or mobile wallet schemes, and there of course needs to be consumer education as well.
The consumers ultimately need to adopt and want to use these new technologies, so creating a value prop for consumers, which definitely exists in the area of loyalty and discounts and offers and coupons and folding that into mobile payments creates a great value proposition, but there's some education that needs to happen there.
Once that's all in place, we can start – and we will and have started seeing the rollout of both sides of this. A great example is what Isis is doing with NFC. They've successfully completed in Salt Lake City and Austin, and just announced their national rollout. They have, with merchants and with partners like VeriFone, enabled many merchants to start accepting that mobile wallet technology.
They are working with the mobile phone operators, the mobile network operators to start rolling out mobile phones with that technology built in, and between the two of those and creating that value for consumers and educating the market, we'll start seeing some great, new, exciting technologies for retailers, for companies like VeriFone, and for consumers, of course.
Bob: I see, but now you have consumers that are armed with more information and better technology than a lot of the merchants, yet some of these merchants are not jumping on these new technologies, because they have a hard time seeing what the impacts of their business is going to be, how it's going to affect their bottom line and how it's going to affect their customer relationships. How will these new technologies drive new revenues? Will these new payments save costs or reduce interchanges or anything along that line?
Erik: I think merchants today are experimenting with these new technologies and new ways of interacting with consumers. Some of it is related to driving new revenues, certainly by attracting consumers, changing the shopping experience, offering a different type of loyalty experience, bringing in new consumers through special offers that they might be able to order, might be able to address new opportunities for merchants, and opportunities for incremental revenue.
As far as actually creating opportunities to reduce interchange, that remains to be seen. Right now, it is more about incremental value than it is about cost reductions. All of the wallets that are out there today, or most of the wallets that are out there today either operate with the same interchange costs, because they basically simulate existing card-present credit card transactions, much like NFC is doing.
In some cases, it's even a little higher, because they use a card-not-present scheme. I really think, as merchants consider these types of technologies, they need to look for opportunities to increase value to their customers, to their consumers, and it's initially less about reducing overall costs. It's really about incremental business and creating a better experience for consumers.
Bob: Perfect. Now, on the consumer's side, we're also seeing that not as many of them are jumping on the payment types with any type of reasonable speed. What is the benefit to the consumer versus the retailer?
Erik: The consumer gets a lot of benefit from tying together payments with loyalty discount offers and coupons. They haven't seen that kind of integrated benefit before. Certainly today, there's obviously payment, there's loyalty cards, there are coupons that people either cut from the newspaper or they're doing it digitally, but to date, most of that has always been de-coupled by bringing those things together into a single mobile wallet, into a single type of experience where somebody can actually tap their mobile phone, and with that one tap, pay for the transaction, transmit the loyalty number, apply a coupon that they may have picked up earlier.
They really create a very smooth, low-friction type of experience for the consumer that will give them the ability to manage that data a lot more easily than they can today.
The vision is that eventually gone are the days of having to carry twelve loyalty cards and a whole stack of coupons with you, and doing it all within that one singular mobile wallet and making it easy for the consumer.
I think definitely the consumer benefits are defined, and wherever there are consumer benefits, there are obviously benefits to the merchant as well, as those benefits translate into increased loyalty and hopefully increased spend for the merchant.
Bob: Now, on the retailer's side, you have Starbucks. They've had some success with their mobile payment solution so far. How has that worked out for them?
Erik: Yes, very well-documented case study there, out in the public domain. Certainly, Starbucks has been happy to talk about that. They've had great success. They have a lot of people – I think they have something in the order of seven million mobile wallets, or Starbucks app users out there, and two or so million of those use that every week. Those are significant numbers.
They, of course, do have a fairly unique scenario. They have a fairly affluent customer base. Customers are purchasing low-dollar value items, so I'm not sure that we can necessarily easily apply all the learnings from Starbucks to every other merchant out there. I think there's some specifics by vertical that need to be considered, but Starbucks is a great case study and a great example of how things can go very well.
It is also important to remember that Starbucks did not start with mobile payments. The first thing they implemented was related to loyalty and not to payments. They started with loyalty and later layered in payments, which again goes to show that the killer app for this type of mobile wallet use isn't necessarily just payment in and of itself.
That's not enough, not enough consumer value there. But when you start tying it with loyalty and other discounts and offers, you can actually be very successful and do really well and get great consumer adoption.
Bob: Great. Now, switching topics here a little bit, with EMV or a chip and pen mandate that's on the horizon, what changes your effects, if any, when the new EMV mandates cost?
Erik: EMV is a big deal in the industry right now. There are millions upon millions points of acceptance out there in the payment industry, that need to be either upgraded or replaced. That's going to affect virtually every merchant in any channel in the US. The first liability shift date is October of 2015.
That's when merchants will start seeing increased liability. If they don't, shift to EMV-capable acceptance equipment. We're going to see between now and then, which is a little over two years away – we're going to see a lot of changes to POS infrastructure, a lot of changes to the equipment and solutions that VeriFone put out there in the market.
That's going to cause a fair amount of churn and a fair amount of upgrades that we're going to see, and with that, many merchants may choose to upgrade to new infrastructure that's accepting of mobile wallets, NFC and similar technologies as well.
Between the drive towards mobile wallet usage, mobile payment usage and the EMV liability shift, I think we will see a lot of changes that are going to occur here in the next couple of years, in the US.
Bob: Great. Now, on a higher level, what do you think are some of the largest problems that retailers are facing?
Erik: Well, some of their concerns are obviously related to these emerging technologies: EMV, NFC, and other mobile payment technologies. The challenge for them, as always, is, “How do you blend those new emergent technologies into the existing environment,” which, in some cases, is older, if it's legacy platforms, legacy systems?
Once you do figure that out, how do you blend in these new technologies in a way so that you can still maintain security? We spend a lot of our time helping our customers manage through some of these upcoming changes, make sure that any new technology integrates perfectly into existing infrastructure.
We apply the latest and greatest security technologies available, such as end to end encryption and tokenization, to make sure that any payment data that travels through new systems that are necessary for these new emerging technologies, like NFC and EMV, as well as the payment data flowing through legacy systems is always protected and doesn't unnecessarily expose the merchant to any new liability or any new or additional fraud risk.
But on the whole, retailers have to balance existing operations, these business critical applications that they have, again, staying up to date on technology and living up to consumer expectations. We, at VeriFone, help them to do that.
Bob: As they try to keep up with that and try to manage those expectations, what steps do you suggest they take to combat all of these issues?
Erik: We definitely promote getting educated on new technologies. We play a very consultative role with a lot of these retailers and merchants, to educate them on everything that's coming and all the pitfalls and implementation concerns that there may be. The second step is to then embrace the technology.
The worst thing they can probably do is ignore some of these new trends out there, and let their competition get ahead of them in these areas. Worry, of course, about security, as I alluded to earlier.
Make sure that you put in place whatever security is available, including some of this encryption at the point of interaction, all the way up to the processor, and make sure that you reduce your PCI scope as much as possible and encrypt every single transaction that flows through your systems, even as you roll out new technologies.
Lastly, make sure that whatever you deploy out there is manageable, because with this increased complexity that these new, exciting technologies bring to merchants also comes the need to manage that technology.
As complexity increases, we should expect to see more frequent updates to software, more frequent updates to firmware in the areas of EMV and the areas of NFC, in the areas of additional functionality for all other mobile wallet schemes.
Make sure that there's an estate management system in place, which obviously Verifone offers for all components of its systems, to make sure that a system like that is in place, to make sure that you can push out updates as compliance needs changes and certification requirements change, and even functionality requirements change on behalf of the merchants and their consumers.
Ultimately, if consumers want to or take up on any one particular mobile wallet, as a merchant you need to be able to enable your systems for that. That's only going to happen if you make sure that you can rapidly upgrade your equipment through an estate management system, like VeriFone's HQ.
Bob: Perfect. That's all the time we have for today. I hope everyone was able to get some great, actionable information, and I'd like to thank Erik for taking the time to meet with us today, and showing how payments are affecting retailers and consumers.
Erik: Thank you, Bob.
Bob: This concludes our podcast. I hope everyone was able to get some good, actionable data today, and I look forward to the next time we can get together. Remember, take a look at the latest edition of Integrated Solutions For Retailers magazine, in print and online, and our website, www.RetailSolutionsOnline.com. Also, check us out on Twitter @RetailMag and @BobOnRetail.
For more information on VeriFone, go to their website, VeriFone.com, or follow them on Twitter @VeriFone, and check them out on LinkedIn. This has been Bob Johns with Integrated Solutions For Retailers Magazine and Erik Vlugt with VeriFone. Thanks for listening and have a great day.