Retailers inert to mobile payment call

Little understanding of mobile technologies, and their costs and benefits, means the smartphone is still overshadowed by cash and cards in offline retail stores, analysts note.
Written by Jamie Yap, Contributor

Due to a lack of understanding around mobile payment technologies such as near-field communications (NFC), the smartphone has not yet made significant inroads into brick-and-mortar retailers' communication and sales strategies, analysts have observed.

These industry watchers told ZDNet Asia that merchant adoption of mobile technologies is largely scattered and limited, in spite of ballooning smartphone ownership and hype around mobile wallets and advertising.

Adoption has been "mostly poor" in recent years, with trials and commercial rollouts from time to time, said Jean-Noel Georges, Frost & Sullivan's global program director for ICT focusing on smart cards practice, in an e-mail.

Likewise, Ben Cavender, associate principal with China Market Research Group (CMR) said uptake rates among retailers are "still very much in the nascent stage". Many retailers are interested in some form of mobile commerce, but have no prior experience and "lack an understanding of how to implement the technology" and the cost involved, he noted in an e-mail.

Analysts also pointed to the legacy of existing mechanisms such as cash and cards, which hinder newer technologies from gaining a foothold in the retail transaction space.

Howard Wilcox, senior mobile commerce analyst at Juniper Research said in an e-mail the percentage of retail sales made by mobile payments (m-payments) is still very small in comparison to cash, credit and debit cards.

Ovum's senior analyst of cards and payments, Gille Ubaghs, added that card technology is "not that new or sexy", but is very easy to use and "poses few problems or inconvenience to consumers".

"Mobile payments in and of themselves are not enough to entice consumers away from a tried and tested technology," he pointed out in an e-mail.

Hurdles remain for NFC
According to a Frost & Sullivan report, NFC could see a rise in uptake this year, as the technology moves from the realm of innovators to early adopters. The market research firm also predicted that NFC payment value globally will amount to 111.2 billion euros (US$155.2 billion) in 2015.

The "presence of a large vendor like Apple moving into the NFC space could undoubtedly change the current NFC landscape, enabling mainstream NFC adoption", Tarik Husain, global director of mobile commerce at Sybase 365, said in an e-mail.

Last August, the tech giant was rumored to be testing NFC chips on an iPhone prototype. Citing a source with links to Apple engineers, Bloomberg in January reported that the company is planning services that allow customers to pay for purchases using its NFC-enabled smartphone and slate devices.

Nonetheless, Husain acknowledged that there are still barriers to NFC adoption among merchants. He said the biggest hurdle is not the cost of replacing infrastructure to support NFC, but educating both retailers and consumers about the technology and why they should use it. Consumer habits have to be changed, for one, and large retailers such as WalMart could take years to establish and execute processes for training and implementation, he pointed out.

Another reality check, added Husain, is that in Singapore, for example, the average retailer "has too many devices on the counter" and adding another terminal can "create problems".

David Chan, MasterCard's head of customer delivery for South and Southeast Asia, noted that cost may also hold back merchants. Those already equipped with POS (point-of-sale) terminals may find it costly to upgrade to systems that can support m-payment.

Chan added that MasterCard is working toward greater NFC penetration as increasing number of consumers are being equipped with contactless payment options such as MasterCard's NFC mobile PayPass system.

Rival payment provider Visa also announced at this year's Mobile World Congress in Barcelona a commercial rollout of its NFC-enabled Paywave mobile payment system in the United States. The service is expected to be available during the second quarter of 2011.

LBS still largely untapped
According to Ryan Lim, business director of social media marketing firm Blugrapes, location-based social media benefits merchants by providing them the means to track their foot traffic and the ability to offer localized and relevant promotions to walk-in customers.

The concept of close proximity helps encourage in-store sampling and improve impulse buying because it cuts through the "already very crowded and noisy" advertising mediums, Lim explained in an e-mail. Merchants have an increased ability to reach out to consumers on the move via a very personal and interactive device such as the mobile phone, he added.

Lisa Chai, senior marketing and communications manager at Wing Tai Clothing, said in an e-mail location-based services (LBS) such as Foursquare can enhance the shopping experience and generate a high level of engagement and interaction with shoppers. This leads to more targeted marketing efforts and in turn translates to sales, she pointed out in an e-mail.

The Singapore-based company, which manages a number of fashion labels, launched a Foursquare campaign last May for Topshop and Topman customers. These customers were rewarded for checking in at participating outlets using the Foursquare app on their mobile phones.

Blugrapes' Lim explained that there has yet to be critical mass in LBS adoption because both merchants and consumers lack an understanding of what LBS can offer and how they can benefit from the technology.

"Without sufficient case studies that companies can learn from, marketers have neither references nor ideas on how to generate compelling LBS campaigns, plus venturing into the unknown can be too uncertain or experimental for most traditional marketers," he pointed out.

Barcode not quite universal
And while barcode technology has existed for many years, some merchants are finding it an effective option for m-payment.

Since January this year, Starbucks cardholders in the United States have the option of paying for their coffee with their smartphones, thanks to the company's new mobile app. Customers who carry select Blackberry devices from Research In Motion or Apple's iPhone or iPod Touch can download the Starbucks Card Mobile app to their phone and fund it via PayPal or a credit card. The app generates a 2D barcode on the mobile phone which the costumer flashes at a barcode scanner during payment.

Even though Starbucks's mobile payment is nationwide in the U.S., Ubaghs from Ovum noted that it is a very specific program based on the coffee chain's own in-store payment card and cannot be used for other purposes. He argued that it is unlikely smartphone users would want to use different apps for barcodes tied to different merchants.

In addition, while most smartphones can display barcodes, there is still the issue of the merchants procuring optimal barcode scanners, Ubaghs said. Traditional barcode scanners, he explained, emit light and therefore are unable to read off light-emitting mobile screens.

Another Ovum analyst, Martha Bennett, emphasized that what matters to merchants is not the bells and whistles of any particular technology, but the role it plays in managing the customer relationship. The benefits of m-commerce could be a better relationship with the customer, which translates to increased sales, prevention of lost sales, or both, she added.

Bennett, who is Ovum's practice leader of emerging markets, also highlighted that the absence of a widespread, interoperable and commonly accepted infrastructure would mean the technology will not be adopted regardless of how good it may be.

To her, the root cause of the nascent state of m-commerce in the retail sector is that the m-payment market today is "totally fragmented, with lots of pilot projects, and some larger [retail] chains starting their own deployments".

Bennett concluded: "Consumers don't and won't accept different payment methods for each and every merchant they deal with."

Editorial standards