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Accelerating Mobile Wallet Adoption By Fixing What's Broken

In Mobile Wallets Should Fix What's Broken - And It Ain't Payments, we saw why consumers were more likely to try out mobile wallets for store loyalty cards than debit or credit cards.

In this post, we’ll go beyond initial adoption and see where these two mobile wallet use cases - “mobile loyalty” and “mobile payment” respectively - stand with respect to sustained usage.

On that count, early adopters will be forced back to plastic if not enough merchants accepted mobile wallets or they found mobile wallets cumbersome, or both. Therefore, merchant acceptance and user experience are two critical success factors for the ongoing use of mobile wallets.

Let’s see how mobile loyalty compares with mobile payment on these CSFs.

Merchant Acceptance

By the very nature of a loyalty program, no one will complain if their loyalty cards are "used" by someone else, so loyalty card transactions don't need a signature or PIN. Since many retailers don't insist on swiping or dipping plastic loyalty cards, consumers can earn rewards by simply reading the loyalty # off of their loyalty app. Therefore, consumers can continue to use mobile loyalty apps even if a merchant can't or won't install special equipment required to read loyalty card details off of smartphone screens.

On the other hand, in-store plastic debit and credit card transactions require PIN / signature and swipe / dip. Merchants have invested in the requisite infrastructure for handling plastic payment cards decades ago. For them to now consider accepting mobile payments, they need to invest in additional equipment to scan payment cards off of smartphones (via NFC, QR code, Bluetooth or whatever technology). That's a big hurdle for widespread adoption of mobile payments. As if that were not enough, merchants also have to contend with higher transaction processing fees for accepting mobile payments since such transactions are treated as Card Not Present transactions, which attract higher interchange rates. Therefore, merchants face a double whammy while accepting mobile wallets for payments.

User Experience

In-store use of both mobile loyalty and mobile payments entail the user to fire up the app and select the appropriate card from among the many cards saved on the app. The time taken for these steps depends upon highly variable factors like the smartphone model and the number of cards saved on the mobile wallet. As a result, the jury is out on whether mobile wallets slow down the in-store checkout process or not.

That said, the very nature of loyalty programs makes it easier to mitigate potential checkout delays since there's only one loyalty card that's 'appropriate' for a given store e.g. Subcard at Subway or PAYBACK at Big Bazaar. A location based mobile wallet app like Apple Passbook can save time by automatically selecting the correct loyalty card at a given store location. The same is not so straightforward in the case of a payment card where any (open loop) card would work at any store, thereby undermining the notion of  'appropriate card'.

The above comparison makes it clear that mobile wallets fare better on both merchant acceptance and user experience when they're positioned at store loyalty cards rather than debit or credit cards. This signals a brighter outlook for sustained usage and mainstream adoption of mobile loyalty as against mobile payment.

Earn Rewards Even If Merchant Lacks Special Equipment

Comments: (9)

A Finextra member
A Finextra member 16 September, 2013, 23:22Be the first to give this comment the thumbs up 0 likes GPS is not suited for granular location positioning, especially in such places as shopping malls or High Street. That's where Bluetooth and Apple's iBeacon shine. That allows to indeed automatically present the appropriate loyalty card (and coupons). As for CNP, emulated mag stripe plus PIN would still be in the same category as "petrochemical derivative"+ PIN in the USA (as far as I am aware). For the best UX, both payment and loyalty shall be presented at the same time via single mobile "interaction".
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 September, 2013, 07:55Be the first to give this comment the thumbs up 0 likes


TY for your comment. In general, I agree with you that it's quite difficult to get smartphone GPS work while indoors. However, anecdotally, my experience with iPhone has been different: (i) Several years ago, I've personally seen the GPS of an old iPhone 3G model work fine indoors. Therefore, I tend to believe that Passbook - which was launched on GPS in the more recent iPhone 4 / iOS 5 era - would work "as advertised" (ii) US-based friends and relatives report widespread use of Apple Passbook in American malls and airports in the last 12 months.

I just noticed that the page reached by clicking my Apple Passbook hyperlink has changed drastically since I last saw it a few days ago, probably after the recent launch of iOS 7. The new page makes only a passing mention of Passbook. When I Googled for "Apple Passbook", I reached this article, according to which "Passbook adds iBeacon support (in iOS 7)". This could very well take Passbook's location sensitivity to the next level, as you've suggested. Incidentally, the same story also says, "consumers have made it clear that the future of mobile wallets does not lie in the payments, but rather in the non-payment aspects of your wallet." Looks like I'm not alone!

I agree that a single interaction for both loyalty and payment will enhance UX. However, that presupposes a mobile loyalty-cum-payment program, which seems to involve a very big leap in business model. Many years after Starbucks Card was launched and has reportedly became a hit, I don't know any joint programs like that, neither on plastic nor mobile, not even from the "usual suspects" like PAYBACK or NECTAR.

A Finextra member
A Finextra member 17 September, 2013, 09:20Be the first to give this comment the thumbs up 0 likes

Ketharaman, great thoughts!

As for non-payments, I agree 101%. Google "ISIS SmartTap"...

As for Starbucks' card success, it's all about simplicity. Consumers adopt things they can easily understand and relate to. Compare "your 10th coffee is on the the house" to "you can exchange Nectar points for exciting blah-blah-blah".

Matt Scott
Matt Scott - Fiserv Inc - London 17 September, 2013, 11:17Be the first to give this comment the thumbs up 0 likes

@ap - I think the "free coffee" is for every 15 "visits" (which I think it a combination of Starbucks Card use, time and location - ie you can't just do 15 individual purchases within a short timespan in a single Starbucks location).

Also - the Starbucks experience would be better if they allowed redemption through the Application instead of sending Cardboard Vouchers through the post(!).

With regards to iBeacons - I think Apple will need to open out the technology to push it beyond iOS and into the marketplace at large - an exciting concept but it needs mass adoption for it to work.  Another point that seems to have been overlooked about the iPhone 5S is the fact the A7 clearly has an embedded Secure Element as part of the SoC(!).

A Finextra member
A Finextra member 17 September, 2013, 11:37Be the first to give this comment the thumbs up 0 likes

I guess that goes to show that I am not a regular Starbucks customer.

As for eSE - great point (Samsung has one, i.e. eSE, too), but will Apple offer access to it. Well, they are not planning (yet) to offer open access even to the fingerprint sensor... Also, it is EMV-compliant SE?.. I doubt it...

Matt Scott
Matt Scott - Fiserv Inc - London 17 September, 2013, 12:07Be the first to give this comment the thumbs up 0 likes

Well we are purely speculating aren't we - I would imagine that they are smart enough to have thought through some eventualities - for example - if they cannot convince the market to adopt iBeacons then the device should have the capability to implement NFC Payments with Biometrics (as per the recent patent).

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 September, 2013, 11:32Be the first to give this comment the thumbs up 0 likes

@AlexanderP: TY for your comment. My remark about NECTAR was about mobile app, regardless of whether its loyalty program is in itself popular or not when compared to Starbucks'.

@MattS: Postcard for redeeming rewards is indeed counterintuitive. Are you sure there's no version issue? According to this FAQ, over a year ago, Starbucks seems to have killed the postcard and started giving 1 free drink after 12 drinks.

As an aside, even assuming it's 1 free drink for every 15 drinks, the cost of this reward works out to 6.67% discount. Compared to that, Starbucks incurs less than 2% MDF / MSC for accepting network cards. Therefore, avoiding interchange fees of open-loop cards can't be Starbucks' goal of introducing its loyalty program, as someone seemed to suggest on Finextra recently.

A Finextra member
A Finextra member 22 September, 2013, 11:49Be the first to give this comment the thumbs up 0 likes Great point re rates "elasticity". We have great solution for retail, but it's based on CNP. Yet, additional benefits (and instant ubiquity potential) easily outweigh the typical 0.6% difference between CP and CNP for most retailers.
Matt Scott
Matt Scott - Fiserv Inc - London 23 September, 2013, 06:59Be the first to give this comment the thumbs up 0 likes I can only comment on my user experience. iPhone 4S with iOS 7 and the Starbucks App still relies on postcard vouchers for free drinks. My friend has an iPhone 5 and he also still has postcards. The client app is not the limiting factor - I would suggest it would be a server-side/back-office shortfall.