By Ken Musante
Eureka Payments LLC
Recently, David Marcus, President of PayPal Inc., encouraged his team in Silicon Valley, where PayPal is headquartered, to install the company's app on their smartphones and remember their PayPal passwords. He was frustrated by their relative inactivity compared with the other PayPal employee centers.
The memo read, in part, "It's been brought to my attention that when testing paying with mobile at Cafe 17 last week, some of you refused to install the PayPal app (!!?!?!!), and others didn't even remember their PayPal password. That's unacceptable to me, and the rest of my team, everyone at PayPal should use our products where available. That's the only way we can make them better, and better."
In a Feb. 11, 2014, VentureBeat article by Jordan Novet, the author took Marcus to task for chastising his employees for lacking passion and not enthusiastically supporting the company's directive. Although after reviewing the entire original memo by Marcus, I believe he was being more encouraging than the VentureBeat article suggested, it nonetheless pointed out the enormous gap all innovative payment solutions must overcome to change consumer behavior.
After all, even if the VentureBeat article overly dramatized the inertia of certain PayPal employees, it did bring up a valid point: If PayPal employees are slow to adopt their employer's new method of paying, how aggressive do you expect the rest of the population to be at changing their behavior?
One would think if any innovator could change behavior, it would be PayPal. The company boasts 143 million active users who collectively make 9 million payments every day. And PayPal allows for payments to occur in a variety of areas, including the POS and online. But as widely used as PayPal is, it does not control both the merchant and customer experience. As such, it will be difficult for PayPal to change behavior.
In fact, it would be difficult for any innovative company to change behavior unless it could control both the merchant and the customer interface. As stated in a March 4 Yahoo Finance article by Lisa Scherzer, in spite of the widespread hype, mobile payments have been slow to take off.
"There is, apparently, strong consumer interest in mobile payments," Scherzer wrote. "But despite an array of players – including Google Wallet (GOOG), PayPal, Isis, LevelUp, Square and Loop – widespread adoption has not occurred. According to a study published last week by Yankee Group, just 16 percent of mobile device owners have used their phone to make an in-store payment in the past three months, while two-thirds of consumers are interested in doing so."
(The entire article can be found at http://finance.yahoo.com/news/mobile-payments-once-again-on-the-cusp-of-taking-off-154820454.html.)
Getting consumers to adopt another way of paying will be costly. Unless someone provides incentives, loyalty points or a shorter line – all with enormous advertising – consumers are not going to change their behavior. Why should they? Even if the charge is ultimately deducted from consumers' rewards cards, there is just not enough of an incentive to change behavior.
In the Yahoo Finance article, Scherzer goes on to say, "Mobile payment systems could take a page from the playbook of the very successful Starbucks (SBUX) app. The app, which generated $1 billion in transactions in 2013, not only lets customers pay for their daily coffee quickly and easily but also lets them refill their loyalty accounts with a few taps, offers instant discounts on menu items and links directly to Starbucks' reward program."
The Starbucks app provides consumers convenience in the form of quicker service and value in the form of loyalty points. Incentives like these will motivate consumers to change behavior, and because Starbucks also owns the merchant side of the transaction, it can integrate the offering.
Unfortunately, it's difficult to provide that type of incentive and integration to a general-purpose wallet. For example, if a general-purpose wallet app wanted to appeal to a diverse cross section of consumers, it would need to include loyalty programs for competing companies, which would water down the attraction from the merchant perspective.
The result could be a program looking much like the programs offered by high-value rewards cards currently in existence. Consequently, if only limited-purpose wallets are available, consumers will need to continue to carry their cards. Moreover, although consumers remain indifferent toward their banks, they trust their banks more than they trust most wallet solution providers.
One would think that Apple could muscle its way into the wallet application business by leveraging its iTunes application and allowing consumers to use that to shop elsewhere, but other retailers might be reluctant to offer iTunes as a form of payment. Consequently, Apple could have a difficult time getting merchants on board. Although merchants are continually offered new services, they want and need a solution that accepts all clients, not a small segment of clients.
Square Inc., on the other hand, does not change consumer behavior and makes boarding a new account easy. I believe Square will continue to win market share as it builds out the functionality of its POS. But regardless of its success against acquirers, it is not changing consumer behavior because it does not have to. Consumers can continue to operate as they always have and interface with Square, which provides Square an enormous advantage.
There are vastly fewer merchants to train than consumers, and merchants are paying far more for payment acceptance than consumers are being paid to use their cards, so it will be easier to move the smaller population of merchants by convincing them to change.
Smart POS systems will gather the valued information, spin it, utilize it for marketing and incentives, sell it back to merchants and provide for conveniences – all while not interrupting consumer behavior. Marcus' cajoling will fail with individuals who don't work for him. He needs to focus on building a better merchant experience, and though Square remains a competitor to all of us in the ISO community, we need to learn from Square's activities, as I think that company is a far greater threat than any true mobile app.
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