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How will mobile payments play by Walmart, Target affect Google Wallet, Isis?

Walmart, Target and other retailers are collaborating on their own mobile payments system that would compete with Google Wallet and Isis.

The potentially significant amount of money that could exchange hands via mobile in the near future is attracting a host of different parties to the mobile payments space. While a lot of details about what retailers will offer are not available yet, it is clear that the entry could potentially slow adoption for Google Wallet and Isis by creating confusion for consumers.

“There are a number of technologies that look very promising to solve the different problems that merchants face,” said Steve Mott, principal at BetterBuyDesign, Stamford, CT, which is consulting wtih retailers on the project.

“One technology, one size fits all doesn’t really work in a scalable way,” he said.

“There are several different pieces of technology that are already available that are under scrutiny and there is a great sense of urgency to start deploying as soon as they are ready.”

Target and Walmart declined to comment for this story.

All-inclusive solution
Walmart, Target and the other retailers are working on a project that involves mobile payments and offers, according to BetterBuy Design.

The merchants want to be inclusive and are talking to banks, technology companies and other possible stakeholders.

The goal is to get input from a variety of sources in order to be able to create a solution that works anywhere a consumer would want it, is secure and creates a more efficient payment solution.

“We have opportunity to get something that is more secure, more private, more convenient for the consumer and creates an opportunity to do all this great merchandising where buyers and sellers can interact in a very efficient way,” Mr. Mott said.

“It should be not based on the historic model of high fees for merchants but let everything arrive at a fair cost and everyone competes based on the value of their merchandising proposition.”

Not mutually exclusive
While it sounds like Walmart and Target are looking at developing a new universal solution similar to Google Wallet or Isis, this does not mean the various solutions would be mutually exclusive.

“I would doubt that the big retailers are thinking that it is one or the other,” said Mark Beccue, senior analyst for mobile services at ABI Research, New York. “They will play the field and get in wherever they can.”

Another competitor could be both good and bad news for mobile payments.

While the latest developments could slow down adoption for Google Wallet and Isis it will also mean there is another group promoting mobile payments and educating consumers about it.

Security issues
One of the reasons for retailers to develop their own mobile payments solution is to address what they see as potential security and privacy risks in the existing services.

For example, Google recently had to contend with revelations of security flaws in the Google Wallet mobile payment app that potentially let hackers access consumer accounts.

Making consumers feel secure is one of the major hurdles that any mobile payments solution has to overcome in order to drive consumer adoption.

Consumers already believe in the security of credit and debit cards so convincing them to adopt another method of payment will rely on being to convince them that it is just as secure. 

“There is no silver bullet fix to changing consumer behavior, dealing with legacy technology at the point of sale and making the consumer feel secure,” said Jeff Kilman, CEO of Pocketstop, Dallas, TX.

“There has to be a transition for the psychology of change to take affect for the consumer,” he said. “We think there are good bridges and we believe the physical phone is the linchpin to giving the consumer a sense of control while allowing them to efficiently communicate digitally.

Customer relationship marketing agency Pocketstop has worked with Alon Brands, one of the retailers reported to be working with Target and Walmart on the mobile payments initiative, on a variety of mobile marketing campaigns. The agency is also currently looking at a variety of ways to solve mobile payments issues.

Mr. Kilman pointed to using technology such as Microsoft Kinect as one possible way to allow mobile devices to securely identify a user and confirm a purchase.

Transaction fees
Retailers are also looking for a way around the fees they have to pay credit card networks when consumers make purchases with a card.

“It’s no secret that retailers aren’t happy with the rates they pay card networks and issuers,” said Drew Sievers, CEO of mFoundry, Larkspur, CA. “They may see this as their best chance to regain control of the payment ecosystem.”

“Mobile is one of those new technologies that can quickly up-end an existing business model,” he said. “That’s why everyone – banks, networks, merchants, VC’s, entrepreneurs – are putting so much time and money against it.

“It may be that once in a lifetime opportunity to create a new payment system, or it may just wind up being the poorest allocation of capital and intellectual resources we’ve seen since Internet-driven pet food delivery.”

Additionally, retailers believe that because of their direct interactions with consumers, they are better positioned than a technology company such as Google or mobile carriers to develop a mobile payments solution for customers.

Ubiquity matter,
Until now, retailers have played a relatively small role in the mobile payments announcements.

There is no hurry for merchants to adopt mobile payments because currently there are not a lot of consumers walking around with the NFC-enabled phones required for tap-and-pay solutions or demanding that they be able to pay via mobile. Broader availability of NFC is not expected for a couple of years.

Some of the first movers on the retail side include Starbucks and Subway.

The challenge for retailers has been deciding which type of solution to move forward with since there are so many, including mobile bar codes, NFC, carrier billing and cloud-based solutions.

“Merchants face the same problem as anyone else in mobile payments: getting users to adopt,” mFondry’s Mr. Sievers said. 

“While they may have some leg up on getting POS acceptance, you will still have millions of small merchant points of sale that probably won’t support this payment approach,” he said.

“If it isn’t ubiquitous, consumers may not bite. As with anything mobile payments related, however, there had better be a strong value proposition for users or else it may never get off the ground.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York