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Table of Contents

Lead Story

Mobile gaining ground in stores

Ann Train

News

Industry Update

CVS Pay joins mobile payment roster

Walgreens rewards Android, Apple users

Oracle fails to predict, prevent POS breach

NFC a bargaining chip for Apple, Australian banks

Features

PayPal and Square: Q2 2016 earnings

A reprint from First Annapolis Consulting, M&A Advisory Services.

Payments maintains strong presence on Inc. 5000

Mobile debit shift

Views

Virtual cards deserve a place among healthcare payment choices

Jeffrey W. Brown
VPay

No cash? No checks? Nonsense.

Patti Murphy
ProScribes Inc.

Education

Street SmartsSM:
To own or not to own the POS system sales process

John Tucker
1st Capital Loans LLC

Selecting the right ISO partner

Aaron Nasseh
Finical Inc.

Become an agent of change in payments

Jeff Fortney
Clearent LLC

Payfac: Fad or new norm?

Adam Atlas
Attorney at Law

Is it time to hunt for greener pastures?

Steven Feldshuh
Merchants' Choice Payment Solutions East

Company Profile

Forte Payment System

New Products

Comprehensive POS, business management

Groovv POS
Total Merchant Services Inc.

Compact mag stripe, smart card, contactless reader

UniPay III
International Technologies and Systems Corp.

Inspiration

Qualify prospects, save time

Departments

Letter from the editors

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

September 12, 2016  •  Issue 16:09:01

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Mobile gaining ground in stores

By Ann Train

While mobile implementations in retail environments have yet to compel consumers to abandon plastic or cash in significant numbers, near-term developments in mobile technology are poised to transform a large number of merchants and consumers into mobile-first enthusiasts.

"I think we're really on the cusp of innovation," stated Tony Rose, Director of Product Management: Mobile, at Vantiv Inc. "The two- to five-year horizon gets really exciting." With the U.S. EMV (Europay, Mastercard and Visa) implementation largely underway, stakeholders can now focus on near field communication (NFC) certification and other mobile initiatives.

Not every decision by well-intentioned parties will pan out. Using EMV as an example, the decision to use signature over PIN could prove shortsighted. "When you start looking at the same thing on the mobile payment side, decisions made by a merchant consortium to put out their own mobile wallet makes perfect sense until you then realize it's a lot harder than it looks," said James Wester, Research Director at IDC Financial Insights in reference to the Merchant Customer Exchange's now defunct CurrentC app.

Stratification of awareness within NFC-enabled stores has not helped merchants either. Many had envisioned Starbucks or Uber-like engagement. "You just press a button and you can pay," said Dan Charron, Executive Vice President, Global Business Solutions Unit at First Data Corp. "I call it Uber a burrito or Uber for your gas, where you can turn on the gas pump." However, most merchants have been unable to turn this vision into reality.

In the new ecosystem, processors and acquirers play a central role as grand collaborators between mobile wallet providers, banks and retailers. It's an enormous undertaking, and unifying competing elements to leverage the unique attributes of each presents inescapable challenges.

"Within that triumvirate of people, the retailers, banks and major technology companies, everybody has got a way to pay," Charron said. "Our job as a company is to enable that for our customers. Then you go all the way down to smaller businesses and the ability for people, via their phones, to order ahead for delivery or pickup. We're across that entire spectrum of mobile acceptance, mobile pay, mobile POS and mobile loyalty."

Laying the groundwork

Some liken the current state of mobile payments to what transpired in personal computing, when much like today, users expanded from personal to more commercial applications. Similar evolutionary processes that laid the framework for our Internet-connected world are expected to bring mobile retail to the forefront.

Nearly a decade after the launch of the iPhone and two years after Apple Pay, commerce has begun to coalesce around mobile devices in general. "When a new payment type comes out, and we're seeing a proliferation of these things now, there has definitely been a sea change where the basic mechanics and technology are in place," Rose said, noting that Apple Inc.'s decision to use NFC helped solidify the payment technology in stores.

"You now have a variety of players pushing out parallel road maps," Rose said. "It's gone from in-store to in-app, and then to desktop web or mobile web. You have PayPal with a huge existing user base. You have Google Hands Free, which is their Google Play store-setting type profile. We have a number of front-end interfaces where merchants can process through us."

But mobile engagement from store to store remains patchy. "You don't want to remember five different ways of how to pay or how to interact or how to deal with a store," said Joe Kleinwaechter, Vice President of Innovation and Design at Worldpay. "That creates tension, and anything that causes tension when you're buying something is a distraction from possibly making a sale. We have a technology called Vault, which through our gateway, tokenizes your data so you never have to re-identify yourself again."

Wester noted that because provisioning is involved, whereby the card must be uploaded to the mobile wallet, the process may be too cumbersome for those attached to existing payment methods. "We all understand that it needs to be an incrementally better process, product and method than is currently available, because the current payment mechanism still works," he said.

Another problem with provisioning mobile devices relates to recurring payments. "Let's say I put my card on file and I want to make a recurring payment for a health club using Apple Pay," said Nick Nayfack, Director of Product: Mobile and Emerging Payments at Vantiv. "All of a sudden my card expires, or I get a new card or for whatever reason have to changes devices. That can break the subscription, unless the payments company offers an account updater to deal with expired cards or cards unlocked from a device."

Two-way street

To effectuate new habits and thrive in a two-sided market, mobile payments must appeal to both merchants and consumers. "Consumers need more of a reason to use their mobile wallets," Rose said, noting that Apple Inc. and Google addressed this to some extent with the release of the Apple Pay VAS Protocol and Google Smart Tap. Both are designed to simplify integration of non-payment features into the payment experience.

Rose believes further dovetailing of in-store tap-and-pay with loyalty and gift functions will advance mobile initiatives. He noted that Vantiv has aligned with members of the Silicon Valley tech community to advance innovation. Nayfack added that as part of a distribution network, the role of Vantiv and other processors is to improve the consumer experience by distributing technology to the merchant base in the best ways possible.

As with any new technology, the ends must justify the means. "To be incrementally better, it should link to loyalty and be part of an ongoing relationship between the merchant and consumer," Wester said. "It should also allow the merchant to use that time when I'm paying to offer me benefits and discounts."

He pointed out that Nordstrom Inc. now employs mobile functionality to augment its high-touch customer relationships. "Mobile empowers the sales associate to handle that transaction wherever they want," Wester said. "With all the options, opportunities and tools that are now embedded on that tiny device, that relationship fits in with the way that Nordstrom wants to deal with their customers and supports what the company is all about."

The mobile device, the mobile experience and the brand must interrelate and integrate with ease, and each retail brand is different. "It's not going to be that easy for a lot of companies," Wester said. "That's why we really do need to think of the phone as being more than just a replacement for that plastic card. It's now a replacement for so much else that you have to rethink the entire process that leads up to that."

Kleinwaechter agreed that the best thing we can do as an industry from a user standpoint is to provide a great retail experience. "We're really focused on trying to help merchants find a better way to do business, instead of just the payment side of the application," he said. "It's much more holistic, and that payment comes from the minute they walk into the store. It also follows an omnichannel model, so whether they're using a handheld device, a POS system or a web browser at home, it all has the same back end to it."

Wester cautioned against pushing payments too far into the background in mobile applications, which has been the tendency, because the payment process is intrinsic to bridging other facets of the sale. "Maybe that's not the best way for us to be thinking about it," he said. "How do we build our entire relationship in-store around a process now that harnesses the power of what a phone can actually do, so that upselling and benefits and all of those other things can be delivered at the same time as the transaction is taking place?"

Another retailer that recognized the value of this interconnectivity was Walgreens Co. The drugstore chain recently integrated its rewards program with Apple Pay and Android Pay so that customers can transmit loyalty and payment information at checkout with two taps of a smartphone.

"When you think about the in-store use cases, where you can, with a tap, pay for a gift card and have it magically transmitted into your wallet, that's a pretty compelling reason to use mobile," Rose said. "The next time you visit that merchant, when you tap, that gift card is automatically selected, and the loyalty points are automatically assigned." Merchants can also push offers and redemptions into wallets when customers reach certain thresholds.

"The secret sauce is going to be that the business logic is powered by the POS, and the mobile wallet is a simple container for these items," Rose said. "[The] transmission to and from the POS over NFC with one tap is a very compelling user experience."

When considering how to create a compelling consumer experience, it's important to remember that not all apps are created equally, nor should they be. "I believe that either you provide a world-class experience in your handset or don't provide one at all," Kleinwaechter said, noting that Android and iOS have raised the bar on mobile apps.

He also advised those who do not have in-house user experience teams to hire them when investing in app development. "It's worth the money to do the research, because people using the apps don't use them for the same reasons at a big-box retailer as they would a mom-and-pop store," he said.

No train, no gain

A number of mobile-enabled merchants do deliver consistent mobile checkout experiences. Whole Foods Market, for example, has received high marks from mobile shoppers at stores nationwide. "You go in and see logos on the PIN pads, so you can tell what's accepted, and if you have a problem, the staff knows exactly what you need to do," said Nayfack, who routinely tests merchants' mobile awareness, especially Vantiv clients.

Nayfack added that staff members at Whole Foods have helped him through the process. "I've had that experience not only in San Francisco, but in other places like Nevada, Colorado and New York," he said. "It's consistent across stores, across regions that they know how to assist customers and that the technology can be accepted."

Nayfack believes other merchants are making progress in implementing mobile acceptance. "NFC is slowly gaining traction," he said. "It's gone from, what is this and how does it work, to, how do I train my staff and get a consistent experience across my stores? We're still waiting to bring a common experience to the market not only for merchants, but also consumers."

He said the biggest challenge for the industry is to bring together players like Apple, Google, PayPal, Samsung and others to develop a set of best practices that merchants across all retail segments can replicate. It may require an industry forum to ensure that mobile best practices remain current and can be adopted uniformly.

To help navigate the technical aspects of mobile POS integrations today, Nayfack offered the following series of questions as a guideline for transitioning merchants:

Vantiv and other payment providers are implementing training programs to assist ISOs and merchants with mobile deployments.

Current pulse read

Although optimistic about the future, most mobile payment innovators are pragmatic about the state of mobile implementation today. "If you're doing anything that transmits over NFC, you have to get Verifone or Ingenico involved in loading these new [app] libraries that Apple and Google are providing," Rose said. "And then the POS developer needs to code to those new libraries, so there is still a lot of work to be done with this technology" to ensure merchant systems are fully integrated. Rose also believes the payments industry is uniquely positioned to guide mobile integrations for merchants and to create unified libraries that will support them. As each stage unfolds, well-trained sales teams will be needed to deliver the tools and education necessary to make progress on the mobile front as stress free as possible for merchants.

"I would focus this year on just making sure tap-and-pay acceptance is well understood by your merchants," Rose said, noting that some merchants still question whether mobile wallets will become relevant any time soon. "There is something of a consensus, because there have been so many false starts with mobile payments, that maybe this [current round of developments] is another one of those types of episodes, but I would caution that it's not."

With Apple and Google firmly entrenched in mobile wallet delivery, the dominance of the major card brands and banks in the evolving mobile payments ecosystem is not guaranteed. "If you look at tap-and-pay, you look at what they're doing with mobile web and desktop acceptance, I have a hard time seeing how even a Visa or the largest bank can really displace an Apple or a Google in terms of which wallet is going to be on my phone in five years," Rose said. At this point, the entire cast of mobile characters may not yet be known. "Recently, there has been a lot of discussion about open wallets versus proprietary wallets versus OS level wallets," Wester said. "We're approaching a decade invested in mobile payments, and I believe there are still some characters that are going to be introduced who may actually be able to deliver everything we want in mobile."

Right now most mobile users would be content to have devices help with line busting, provide shopping lists on screen, receive in-store discount opportunities through push notifications, and manage store loyalty rewards and merchandise redemptions on the spot. Mobile technology providers are working to deliver on these promises and more.

But neither the mobile path forward nor its timeline has been clarified. "We know what we want to achieve in mobile, but the delta between the idea of what we're trying to build and the reality of building products that actually achieve that idea is what we're trying to figure out right now," Wester said. "We're redefining the way people expect to shop and pay and browse, all the things that go into shopping."

According to IDC, consumers already use browsers to window shop online, and person-to-person payments have hit the ground running. After a decade of smartphone usage, many are ready to write the next chapter. "What's good is that there is a lot of consumer habituation for mobile online, and we really have to reconcile and bridge that with in-store and come up with more efficient ways to introduce mobile in store," Nayfack said.

The quick service restaurant industry did much to pioneer order-ahead apps, but mobile technology is advancing beyond that. "Imagine now an in-store experience, combined with one-click mobile-web checkout, that would allow a user to browse a website on their phone, select or scan items to purchase, meet an attendant to package up the goods, and then pay," Rose said. He added that this technology is being launched this year, and it's up to POS developers and merchants to understand new capabilities and take advantage of them.

Considering the expert perspectives shared in this article, three to five years or longer doesn't seem like much time. Despite revolutionary innovations in manufacturing and payments, the in-store shopping experience itself has changed little over the last two centuries. The mobile channel could be the change agent that transforms the in-store experience and boosts foot traffic, which, given the encroachment of ecommerce, has become a precious commodity in recent years.

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