Posted 1/14/2013 12:00 am
Updated 2 years ago
When a customer orders items off the menu at Morningside Bagels in North Little Rock, he doesn’t have to pay by swiping his credit or debit card or slapping down cash or a check.
When a customer who has activated the Square Wallet app on his smartphone walks into the store, Morningside knows it. Morningside’s screen shows a picture of the customer and asks if he wants to charge his purchase, owner Roxane Tackett said. If the customer agrees, with a tap of the screen, the transaction is complete and an email receipt is instantly sent to the customer.
Tech-savvy customers are starting to grab their smartphones instead of their wallet to make a payment in a retail store, and the rest of us may have little choice but to get with the program. Thirty percent of U.S. online consumers would be interested in using mobile devices for in-store payments instead of credit cards or debit cards, according to an Aug. 2 report from Forrester Research Inc. of Cambridge, Mass.
In 2012, 32 million Americans used some sort of mobile payments, said Jason Oxman, CEO of the Electronic Transactions Association. The number is expected to jump to 90 million by 2016.
“We’re in the very early stages in the industry,” he said. “Mobile payments today are a fraction of 1 percent of overall payments.”
Still, retailers are gearing up to meet the wave of customers who want to use their smartphones to make payments.
In August, Wal-Mart Stores Inc. of Bentonville, Dillard’s Inc. of Little Rock and about 20 others businesses announced they were investing in Merchant Customer Exchange of Dallas. MCX, as it’s known, is developing a standardized mobile wallet that will allow users to make payments and also receive messages, coupons and loyalty rewards from the merchant.
The details of the app are still being worked out, and no timetable has been announced for when it will be launched, said MCX’s spokesman Jeremy Mullman. (Click here for more.)
The creation of MCX could shift market power away from Visa and Master Card, said Rick Oglesby, senior analyst covering payments-acceptance technology for the Aite Group of Boston. Credit card companies generally charge merchants 2 percent of the transaction total plus a per-transaction fee of about 15 to 25 cents.
“By creating this new mobile payment consortium, which is made up of a lot of very, very large merchants, they can potentially shift the balance of power and say we’re not processing payments based on the rules that other people set,” Oglesby said. “Other people are going to process payments based on the rules that we set.”
Until and unless that balance of power changes, the move to mobile is supported by banks and credit card companies. Oxman, of the Electronic Transaction Association, said mobile payments would be good for all parties involved in the processing chain except for manufacturers of plastic credit and debit cards.
“The consumer is using their phone to initiate the payment transaction,” Oxman said. “From that point of initiation forward into the payments network, everything else is exactly the same.”
The retailers wanting to develop their own mobile wallet might want to imitate the wild success of Starbucks Corp.’s app, which handles about 2 million transactions a week, said company spokeswoman Linda Mills.
Starbucks’ app keeps the information about a customer’s loyalty points earned for free coffee or food.
It also sends messages about coffee sales and free songs to download.
Starbucks is saving money on transaction fees because its mobile app is tied to a prepaid Starbucks card instead of a credit card or debit card.
“That limits the number of transaction fees that we have to pay,” Mills said. She wouldn’t say what the fees were or how much was being saved.
Tackett, of Morningstar Bagels, said her overall credit card fees climbed to 4.1 percent per transaction before she started using the Square to process her payments in November 2011.
Now she pays 2.75 percent per transaction of the cost of the items sold. (Merchants also have an option of paying a flat $275 a month fee. Click here for more.)
Bankers Welcome Mobile
Bankers across the country are welcoming the customer interest that mobile payments are generating.
“In general, the more channels there are for people to make payments, the better that is for banks,” said Stephen Kenneally, vice president of the American Bankers Association of Washington, D.C.
It’s “basically the same sort of transaction that’s being done now with a credit or debit card; just the phone is the device and not a plastic card.”
David Wolman, the author of “The End of Money,” said the Square “provides us with a glimpse of what the future will be in terms of speed.”
He said the days of cash were numbered because of the hidden costs associated with it, including employee thefts and the time spent traveling to the bank to deposit it.
Plus, “there’s a cool and convenience factor of mobile payments and mobile money,” Wolman said.
Still, people shouldn’t start preparing the obituary for cash, Kenneally said.
“We’ve been predicting the end of paper checks for 40 years,” he said. “It’s a lot easier to introduce a new payment channel than to get rid of one.”