Comment: Mobile payments - The next big retail opportunity
The mobile phone has revolutionised the way consumers engage and interact; its ubiquitous, smart, and highly disruptive nature has empowered the consumer to make purchasing decisions whenever and wherever they are. By Sachin Bagla
Demand and expectation to be able to pay for purchases via the mobile phone has also grown, so retailers – along with other industries – have had to listen and transform the way they do business. This means having the capability to offer mobile payment options to ensure customer satisfaction.
The mobile channel makes micro-payments convenient for retailers and their customers. Mobile payments can be leveraged for bank transfers, paying for goods and services through native applications or the mobile web, or scanning coupons to get loyalty points or discounts. With the increasing penetration of smartphones and the advent of new technologies, mobile payments are set to boom. Paypal reported $4 billion in mobile payments in 2011 and the number is expected to grow to $ 7billion this year.
Mobile payments can be made in a variety of ways, with Near Field Communication (NFC) being the strong contender to lead in the mobile payments market moving forwards. Essentially a contactless payment method achieved through radio communication, NFC is in its infancy and although it is yet to prove its scalability, it’s been critically acclaimed for its simplicity, standardisation and ease of adoption.
NFC-enabled phones are becoming increasingly common with Samsung and Google already leading the charge. The London Olympics is expected to be the showcase event for Visa, one of the main sponsors, as it teams up with Samsung to allow visitors to make purchases using NFC-enabled handsets. Facebook has announced a tie-up with Bango on mobile payments in an effort to monetise its mobile user base3. Plus, it is widely rumoured that Apple will include an NFC chip in the next iPhone, which will be a shot in the arm for NFC adoption. The adoption of mobile payment facilities by retailers, such as McDonalds, Pret a Manger, EAT, and Superdrug, is already in force and Paypal has just launched their mobile wallet service called ‘Paypal Here’.
Barriers to mobile payment adoption
So, with mobile payments here to stay, what challenges will retailers have to address to successfully adopt the technology and what are the benefits of doing so?
One of the first challenges retailers must review is the investment in and upgrading of their Point of Sale (POS) infrastructure to enable the acceptance of mobile payments. As the trend shows, the early adopters of mobile payments are retailers with a relatively small basket of items, such as quick service restaurants. For retailers with a larger basket of items, the move to mobile payments will be slower and part of a larger strategic initiative that will involve a general upgrade to the POS infrastructure.
Also, as retailers adopt mobility payment facilities they must be able to ensure the security of their consumers’ transactions. A survey in the UK showed that the biggest concern among shoppers surrounding mobile payment adoption is to do with security5. Since phones can be stolen and misused, robust security systems in applications and mobile phones must be able to protect the customer. Research and development is currently being made into fingerprint-scanning technology as a fool-proof measure, but for now, consumers must make do with setting a pin to authorise a payment.
Retailers have to be able to drive customer adoption, which can be achieved by working with payment service providers to address concerns around security and by influencing customer behaviour through measures such as mobile coupon campaigns, efficient use of mobile scan-able QR codes, and by providing a mobile optimised website.
The potential of mobile payments
Once retailers have jumped these hurdles regarding mobile payments, they will realise a number of benefits and the shoppers will appreciate the sheer convenience and functionality offered.
Retailers will significantly benefit from reduced revenue loss due to the shrinkage at the POS. In the UK, retailers lose around 1.3 per cent of their turnover in shrinkage and more than one third of that is a result of employee theft4. A significant part of the loss can be eliminated by reducing the amount of cash handled at the POS by deploying mobile payment technologies. For example, in the UK, over 50 per cent of transactions are still handled in cash (as per 2009 estimates – 59 per cent) 4, and the USA and Japan suffer even bigger shrinkage losses than the UK. By shifting a part of cash payments over to mobile payments, retailers will be able to reduce this loss.
Mobile payments are also an excellent queue-busting solution and this will help to improve the customer experience. This is especially true for retailers relying on morning, lunch and evening rush hour traffic. For example, time-strapped rush hour shoppers will benefit from shorter queues and a quicker turnaround due to the simplicity of the mobile payment ‘tap method’, and this then leads to an increase in sales. Retailers can also analyse and monitor individual customer transactions based on the data that is generated through mobile payments, and in turn, adjust their offers to better suit their target audience.
Finally, mobile payments can help to improve labour productivity as the number of orders serviced per till can be significantly increased. The result is that fewer tills can service the same number of customers, thereby freeing up precious labour for customer service or to reduce costs.
Mobile payments have the potential to offer both retailers and consumers a win-win proposition. The mobile phone links ecommerce to the physical world, offering customers convenience and a better experience, while the retailers can enhance sales, improve their margins, and lower operational costs. It is not impossible to imagine that in the next five years, digital consumers will no longer need to carry their physical wallets as most payments will be able to be made through their mobile phone.
Sachin Bagla, Senior Manager – Europe - Retail, Consumer Packaged Goods & Logistics, Infosys
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