Mobile Wallet Has Few Takers - Even At Starbucks

Ketharaman, nice data thanks.

Just out of interest do you have data on the 'adjacent benefits' that Starbucks get? As you well know, frequently in payments, much of the business benefit is from services which payments enable - credit, loyalty. Brett King commented 'Starbucks, which processes more than 2m transactions every week in the US, took in deposits of $3 Billion on their in-store App-based debit or gift card this year[1]. That puts them ahead of the6,985 smaller institutions in the US who on average did around $185m in deposits in 2011, and the 440 midsize institutions who averaged $2.6Bn in deposits. Imagine that! A coffee company that is better at taking deposits than 95% of the FDIC insured banks in the US, and they don’t even have a banking license.'

I wonder whether the 3.75% of the transactions made by mobile are a greater contributor to overall profit than they may first appear?

@NeilB:

TY for your comment. There's no doubt that Starbucks must be getting some benefit out of accepting mobile payments - otherwise, I don't see why it would be taking so many initiatives related to mobile wallets. However, the point of this blog post is different - it's to assess the popularity or otherwise of mobile payments as a method of payment.

But, now that it has come up, the quote about deposit on Starbucks Card vs. Community Bank is as relevant to the topic on hand as my other favorite quote about how the # of mobile phones exceeds the # of toothbrushes: (1) The US$ 3B figure refers to the money loaded to the Starbucks Card, which comes in both plastic card and mobile app forms, so it doesn't say anything about mobile wallet's popularity (2) Spend and transaction volumes are the only two metrics that're valid while estimating share of mobile wallet. Amount loaded is not (3) "Deposit" means "accepting money with the promise of returning it with applicable interest". Money uploaded to Starbucks Card doesn't come back as money. Therefore, it doesn't qualify as a deposit in the first place and certainly can't be compared with bank-raised deposits.

Ketharaman,

There is so much wrong with your line of logic and assumptions here I don't really know where to start.

Firstly, the $500m figure you've quoted is simply flatout, misleadingly and spectacularly wrong.

PayPal alone is expected to do $20 Billion in mobile payments this year alone, Braintree (their recent acquisition) is expected to do $4 Billion in mobile payments this year - taking the total in one combined company up to $24Bn.

82 Billion Apps will be downloaded in 2013, the vast majority bought through a mobile payment on a smartphone. For Apple alone this caters for more than $33 Billion dollars in revenue received in payments through the mobile phone.

While Starbucks is a fantastic example of a closed loop system doing 30% of urban payments in-store and 25% nationally, another recent success you might have heard of called Square recieves over $15Bn in payments annually through mobile phones - you might argue these are 'card swipes' but they are mobile receipt of payments conducted on a mobile phone. These are payments that could not be done without a mobile, and have migrated from cash in most instances. 

Just right there we've got over a hundred billion of payments in the US through mobile devices before we start taking into account NFC transactions, P2P payments, QR code enabled payments, etc, or looking further afield outside the US.

You are living in a bubble if you think mobile has few takers, and this sort of commentary is not only ignorant, but grossly misleading. Get your facts straight please...

Brett King
BANK 3.0 

@BrettK: 

TY for your comment. The very first paragraph of my blog post provides a hyperlink to the GigaOm article from where I got the US$ 500M figure. Even the opening paragraph of this article is illuminating enough:

"Smartphone owners in the U.S. bought $500 million worth of goods and services using mobile wallet apps in 2012, according to a new report by Berg Insight. That’s just a drop in the ocean compared to the trillions of dollars in credit and debit card transactions every year."

Now, if you claim that industry analysts like GigaOm and Berg Insight are ignorant and misleading, that's another topic.

According to Starbucks' Chief Digital Officer, quoted in the Wall Street Journal, on 26th July 2013 "now more than 10% of its transactions in the U.S. are made with a phone".

@DaveB:

TY for your comment. Agreed. You might've noticed that I've hyperlinked my post to the said WSJ article: "Even going by transaction volume, Starbucks' recent announcement that 10% of instore payment transactions happened by mobile means that 9 out 10 transactions at Starbucks took place with cash and plastic cards". In fact, the chart given at the end of my post is actually scaled to this higher share of 10% rather than the lower share of 3.75% by spend value.

@Ketharaman,

The problem isn't the GigaOm report, which is based on the Onavo Insights report, it is your assumption that a mobile in-app purchase of a good or service = mobile wallet. It doesn't. 

Let's take the likes of Uber which is excluded from the Onavo report for some mysterious reason - Uber generated $125m in revenue last year ONLY via the app. One mobile 'wallet' that is generating more than 20% of the total estimated spend you say is attributable to mobile? That doesn't even start to explain the $2Bn in payments via Starbucks App annually, etc.

The data doesn't add up, but the more serious issue in the logic is that you've determined a specific purchase of a good or a service in a store is the measure of a mobile wallet. This means any online purchase of an app or service like Uber is not a mobile wallet, but something else. Which skews your data incredibly. 

The issue here is that your proposition is based on such a thin slice of data that it is not reasonable or representative in any true fashion, therefore the entire article is not credible.

Mobile wallets are processing Billions of dollars globally already, but if you want to argue mobiles aren't making an impact, the only way to do so is to skew and marginalize the data to such an extent as to justify the status quo. That is not a balanced view of the world.

While I may be accused of being a little bullish on mobile/digital from time to time, my assertions are always based on a total world view of the data and emerging customer behavior. 

If 30% of customers in Starbucks are paying with Mobile, that is already higher than the use of cheques, for example. So would you call cheques mainstream? If so, how can you argue mobile payments are not mainstream? If you're going to use goods and service purchases to justify the mainstream measure, then volume of mobile payments versus volume of cheques would show neck and neck comparisons. You can't have your cake and eat it too. 

Mobile Wallets are mainstream - get over it and move on please...

I'm sorry, please go back to the drawing board on this one.

BK

@BrettK:

There're so many mistakes in your comment that I don't know where to start. Anyway:

1. "...it is your assumption that ...a mobile in-app purchase of a good or service = mobile wallet". I have made no such assumption.
2. "If 30% of customers in Starbucks are paying with Mobile...". Says who? According to Starbucks' own executive quoted in the WSJ article, the figure is only 10%. 
3. "That doesn't even start to explain the $2Bn in payments via Starbucks App annually, etc.". This figure simply doesn't match any figures I've come across for the Starbucks App. Not from Starbucks itself. Or from the GigaOm article, according to which the real figure is closer to US$ 500M. Assuming there's some sanctity to the US$ 2B figure, maybe 1.5B of that refers to the plastic Starbucks Card, which can't be attributed to its mobile wallet.
4. The data is not mine. I've taken what's available in the public domain. If impartial industry analysts (It's Berg Insight BTW, not "Onavo Insight") exclude Uber and others from mobile wallet spend, if a Starbucks executive wants to credit only 10% - not 30% - of in-store transactions to mobile wallet, they must be doing so for a good reason. I'll have to find a different forum if I want to contest them. 

Drop in the ocean, dismal offtake, etc. - these are some of the expressions I've seen used by the media to describe the current performance of mobile wallets. I'll happily go back to the drawing board if I see any mainstream publication reporting that mobile wallet has reached the mainstream and / or accounts for 30% of payment volume in the USA or any Top 20 country in 2012 or even 2013. 

I like a good argument. But this isn't one. I think 1 in 10 transactions on mobile after only a couple of years shows that mobile is on an upward curve. You think that it isn't. Let's check back in a year, and if fewer than 1 in 10 transactions at Starbucks is via mobile, I'll buy you a Lobster dinner. If more than 1 in 10 transactions at Starbucks is via mobile, it will be on you.

By the way, their CEO says "The mobile Starbucks app "is giving us a greater speed of service, higher attachment, higher ticket and higher reload" so he sounds enthusiastic.

You have calculated mobile as 4% of revenue, but Mobile Commerce Daily says 10% of revenue comes from mobile, so maybe your figures are from last year?

http://www.mobilecommercedaily.com/starbucks-generates-10pc-of-u-s-revenue-from-mobile

By the way, I think Starbucks should ban cash completely.

http://www.chyp.com/media/blog-entry/a-decash-to-go-please

One more point - you do need up to date figures because the growth is so fast. Mobile might have been $500m in the US last year, but it's $640m this year (eMarketer) which is a >25% YoY growth

http://www.moblized.com/blog/5-mobile-payment-trends

@Ketharaman

Your position is:

1. Mobile wallets have not hit mainstream
2. They cater for fewer than 1% of transactions
3. Tiny fraction of the payments market that's worth trillions of dollars every year, and
4. More specifically that there is a sum total of $500Mn of payments in the US last year, most of which was Starbucks

So, let me break it down for you.

Starbucks

Starbucks revenue this year is estimated to be $14.6Bn in revenue, 10% of which comes through mobile transactions according to the Chief Digital Officer Adam Brotman - seehttp://www.mobilecommercedaily.com/starbucks-sees-almost-100pc-growth-yoy-in-dollars-loaded-on-mobile-cards

Seamless  

Will generate $100Mn in revenue this year, 30% of which is through Mobile - http://www.reuters.com/article/2013/02/13/us-seamless-revenue-idUSBRE91C17M20130213

Fandango

Fandango's mobile purchases increased by 170% in 2012 to 30% of all their purchases, leading to a total of $72Mn in mobile sales - http://www.internetretailer.com/2013/01/02/fandangos-mobile-ticket-sales-soar-171-2012

Uber

Uber is expected to generate $125Mn in revenue purely through their Mobile App in 2013 - http://allthingsd.com/20130822/uber-filing-in-delaware-shows-tpg-investment-at-3-5-billion-valuation-google-ventures-also-in/

Amazon

Amazon does $5Bn in mobile sales via apps according to Citi Analysis - http://www.pymnts.com/briefing-room/mobile/playmakers/2013/Report-8-Percent-Of-Amazon-Sales-Are-Mobile

App Store

Apps Store revenue via mobile totals $26Bn, 17% of which is in-App purchases/sales - http://techcrunch.com/2013/09/19/gartner-102b-app-store-downloads-globally-in-2013-26b-in-sales-17-from-in-app-purchases/

EBay, PayPal, Braintree

EBay did $13Bn via Mobile last year, PayPal does $20Bn of it's $44Bn in payments via mobile (that's close to 50%) and Braintree will do $13Bn this year in dedicated mobile payments ($46Bn right there)

$80Bn and counting

If you add up those few retailers, understanding that there are more than 400 retailers who now offer mobile commerce sales in the United States alone, you already have close to $100Bn in total mobile purchases/revenue, and Starbucks alone exceeds the $500Mn estimate.

However, the more interesting trend is that of those that offer mobile purchases, you regularly see 30-50% of the payments already coming via mobile. While not every retailer offers mobile as an option, and thus we don't see 30% across the board, the fact is all you need to do is offer mobile and you'll see adoption of somewhere between 10% and 50% on today's figures.

By 2015 on the estimates provided, here are a list of companies for whom mobile will make up more than a third of their revenue:

1. Amazon
2. Zappos
3. Starbucks
4. Fandango
5. Seamless
6. Uber
7. AirBnB
8. Kickstarter
9. iTunes (App store only, not Apple entirely)
10. Sephora
11. Urban Outfitters
12. BestBuy, etc

It doesn't take much to do this research and come up with these numbers. The facts are clear, mobile is defintiely mainstream for those retailers and service providers who offer mobile purchases. For those who don't - it probably isn't mainstream yet...

Your base assertion is that Mobile is not yet mainstream. These numbers blow that assertion out of the water, unless you are telling me that $100Bn in revenue = $500Mn in revenue, mostly from Starbucks...

BK 

I like a good lobster dinner. But, this isn't the occasion for one. Had I predicted the future, I should've taken futuristic projections into account. But I've written only about the past and present, therefore 2012 figures available in the public domain are valid. 

With one quarter still left for 2013 to end, I don't know how eMarketer has already worked out actual figures. But, I'll let that pass for the moment and go ahead with its figure of US$ 640M that I see in the comments. As before, let me attribute all of it to Starbucks mobile app. But, now, I must divide that by 2013 revenues, which I see in the comments to be US$ 14.6B. That works out to 4.38%, slightly better than the 3.75% figure for 2012, but still nowhere near the 30% or even the 10% figure claimed in the comments. As I wrote in my post, the 10% figure mentioned in the WSJ article and few other places should be refererring to the share by transaction volume, not spend - how can GigaOm / Berg Insight / eMarketer all of them get it wrong? Anyway, I've contacted Adam Brotman, the Starbucks executive quoted in these articles with a request for clarification. I'll update my comment if I hear from him.

Last year GigaOm / Berg Insight excluded various other types of spends from mobile wallet. This year eMarketer seems to have done the same, given that it's still reporting only US$ 640M - not US $$$ B - revenues from mobile wallet. I'm sure they've a good reason for doing so. 

Talking of mobile wallet spend expected to grow by 25%, here's a report that predicts that demand for cash will grow by 65%. So much for projections.

The 30% and 10% respectively in respect to Starbucks were reported in their last quarterly earnings call.

10% of $14.6Bn of Starbucks Revenue is not $500m nor is it $600m, and to argue that Starbucks is the only company in the US doing mobile payments is ludicrous. The maths doesn't work.

The problem is one of definition. A mobile payment is not a mobile payment unless it is a card proxy very specifically in a store at a POS, but that would suppose that other payments made my mobiles are not payments, but something else - perhaps m-commerce transactions that initiated via a mobile, but not a in-store payment. That definition only makes sense if you are comparing retail, in-store payments versus purchase behavior and transactions. But even if that is your definition, the $500m and $640m estimates are still wrong by the simplest fact check of Starbucks' own reported figures to the market for transactions made at the POS in-store, replacing other traditional forms of payment. 

The biggest leading measure of whether mobile is making traction against other forms of payment is behavior, the second is total volume and mix of transactions. The metrics of how many physical cards or how much cash gets used in a retail store versus a mobile wallet acting as a proxy for a card, is not a broad enough assessment of the impact of mobile on the way people pay, and that is why this argument is flawed.

I've still not heard back from Adam Brotman of Starbucks but, after re-reading the earnings call transcript, the 30% figure refers to Starbucks Card on plastic + mobile app; mobile app by itself contributed to 10% of spend value. As I've written in my post, this means 90% happens by cash and plastic. That's an overwhelming majority share for non-mobile MOPs. Mobile wallet is still a marginal MOP. If that's the situation at Starbucks, the adoption rate of mobile wallets is bound to even lower at other merchants.

In debunking the business case for a merchant mobile wallet in this post, Ron Shevlin says, "Current interest in mobile wallets among consumers is low". So, GigaOm, Berg Insight and I are not the only ones who feel this way about mobile wallets.

You may be right about reading the tea leaves based on emerging behavior. However, leading indicators are irrelevant in the context of this post which only talks about the past and present scenarios.

nice blog with lots of to and fro :). i think there is a huge confusion on what is a mobile wallet and a payment made via mobile. I personally dont know where the line is but an app that sells products does not constitute mobile wallet is what i would say..

Statements like this dont really indicate a mobile wallet.

"Customers are also ordering more frequently through tablets and smart phones, he added. Mobile devices account for more than 40 percent of order volume and over 30 percent of mobile order volume comes through Seamless's iPad application, he noted."

That being said tablets are replacing pc fast and so a increase is mobile as a channel of payment shd be expected.

@AtulG:

TY for your comment. The confusion about what constitutes "mobile payments" is widespread! Let me simply copy-paste below my comment on another post on this subject: 

=========

If all 'payments involving a mobile phone' should constitute 'mobile payments', fair enough. By the same token, can the popular use be extended to call all payments made from a desktop "desktop payments" and ditto for "laptop payments"? Suddenly struck me that the 'e' in ePayments must stand for 'electric' since none of them will work without electricity.

I always expected different companies to choose different definitions of 'mobile payments' depending upon their vested interests. But, today I came across the same company quoting vastly varying figures for mobile payment spend. In this blog post, SwitchPay says, "U.S. Mobile Payments Expected to Top $1 Billion in 2013" whereas in an infographic on another blog post, the same company proclaims, "MOBILE PAYMENTS USAGE HITS $163.1 BILLION (in 2012)." 

This is getting even more interesting than I expected! 

==========

There is actually a simple way to resolve this. There are only two categories worth measuring:

1. Mobile Wallet payments that replace a card, and
2. Mobile-derived payments that originate from a mobile instead of any other channel

The later is absolutely necessary because the vast majority of behavioral shift in payments occuring globally right now is around the use of mobile to originate a payment, while not replacing a card swipe or chip transaction in a store, this is even more disruptive on a medium-term basis because it involves a fundamental consumer behavior shift.

Let me illustrate this way.

What is the primary method of buying a book today? Let me give you a clue, it isn't walking into a bookstore.

What is the primary method of buying music today? Again, I could give you a clue, but it isn't walking into a music store.

In measuring the disruptive nature of technology like the Kindle and iPad for books, or the iPod and iPhone for music, we could tactically measure the shift in consumer behavior that would lead to the disruption of the music and books distribution business. The same is true in payments today.

Today we are seeing a marked and significant shift to the mobile as the originating device for payments. While @Ketharaman has argued these are not yet 'mainstream', mobile derived payments is demonstrating a behavioral shift that we've never seen before. We didn't see this magnitude of behavioral change when cheques (checks) were commercially introduced. We didn't see this magnitude of behavioral shift when credit cards or debit cards were introduced, and we didn't see it for online or e-commerce payments. These shifts took much longer.

People have shifted to using their phone to initiate mobile payments far quicker than any new payment technology we've seen in the past 100 years, and while mobile is not the dominant method of payment for consumers today, that is what behavior is showing us will happen in the next 5 years. To argue that it isn't that way today, so it won't be in 5 years, isn't logical or rational IMHO.

The impact can be measured through some simple metrics:

1. What percentage of e-commerce transactions now originate through mobile or mobile apps? Amazon, Zappos, BestBuy and others all measure mobile-derived revenue in 5-10% of total revenue these days.
2. What percentage of software/game purchases are made via a mobile device compared with other methods? Apps and in-app mobile purchases have moved the dial here tremendously. 
3. What percentage of in-store transactions have moved to closed-loop app purchases or dedicated branded apps? Starbucks is a great example. 

and so forth...

On this measure, we've had enormous shifts in behavior in the last 5 years. Is this likely to slow or speed up?

BK

According to this latest article titled Mobile payments: Endless hype despite precious little uptake, mobile transactions this year accounts for 2% of "all credit and debit card volume..., so mobile’s slice of the overall transaction pie is much smaller." So, mobile payments hasn't become mainstream even in 2013. According to GigaOm, it won't gain any real traction in the USA "any time soon".

This just out: "Don't Expect To Pay With Your Smartphone At The Mall This Holiday Season: ...Consumers seem unconvinced that mobile payments are worth the hassle... The bottom line: The much-talked-about mobile payments revolution in nowhere in sight."

According to this latest FED article about mobile payments in USA,

1. The statement "This is the year for mobile payments" has been doing the rounds for a decade.
2. Consumers are "are highly satisfied with their current payment method".
3. "Moving consumers from their current habits will require the achievement of a strategic inflection point—something that many payments industry stakeholders have tried to achieve over the years but have failed to do so."

According to this chart in the FORTUNE magazine, mobile based financial transactions account for a mere 0.01% of US GDP.

As we near the end of Q1-2014, it still doesn't look like mobile payments has entered the mainstream in USA.

Just to update this post with a significant development since I wrote it, Square Wallet, one of the two listed methods of making mobile payments at Starbucks, is now dead. 

According to this FAST COMPANY article, SQUARE makes a loss on mobile payments at Starbucks and will continue to do until its contract expires next year even though it has deadpooled its Wallet product. Ironically, in the interest of its own financial well-being, SQUARE must be hoping that the share of mobile payments goes down at SBUX!