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Walmart, Target mobile wallet brings more confusion, unclear value to payments

The merchants have formed a new company, Merchant Customer Exchange, or MCX, that will focus on developing a versatile mobile commerce experience combining paying at the register via a mobile phone with customizable offers. So far, they have not revealed if the new mobile wallet will use near-field communications technology or some other method to enable payments.

“We view mobile commerce as an opportunity to improve the shopping and purchasing experience for both customers and for merchants, making it faster, more convenient and less expensive,” said Jeremy Mullman, a spokesman for MCX, Dallas. “Some of what’s out there seems determined to simply take the status quo and apply it to a mobile device – that would be a missed opportunity. 

“Similar to how the United States payment system lags behind Europe’s with technology – EMV, chip and PIN – we believe a new approach is needed in the U.S.,” he said.

“At this point, we’re not divulging the technical specs. What I can tell you is that the solution will be versatile enough to function in the widest possible range of retail environments.”

Mobile payments at scale
The retailers decided to join forces to create their own mobile payments solution because they feel what is currently available fails to address all the areas necessary for mobile payments. They are improving the payment experience for consumers, improving the experience for merchants and the potential to achieve ubiquitous levels of acceptance.

While the retailers say they are dissatisfied with the mobile payments solutions that are already available, another key reason for why they would go to the trouble of creating their own solution is so they can better control the processing of transactions, which often come with fees that quickly add up for retailers.

“I’m not sure that it makes sense for a small group of merchants to create a new payment scheme,” said Drew Sievers, CEO of mFoundry, Larkspur, CA. “I understand that they would like a cheaper method of payment in order to improve their margins, but no matter how you slice it, the lack of universal acceptance will make it an unappealing solution for most customers.”

The retailers participating in the program include 7-Eleven, Alon Brands, Best Buy, CVS/pharmacy, Lowe’s, Publix Super Markets, Sears, Shell Oil Products US, Sunoco, Target  and Walmart.

The retailers are banking on their combined significant reach as giving MCX’s mobile wallet a significant leg up in terms of driving consumer adoption. Combined, the initial partners say they serve nearly every smartphone-enabled American and account for approximately $1 trillion in annual sales.

A consumer-driven approach
The retailers also believe that because they have more direct experience with consumers than financial institutions, wireless carriers or technology companies that they will be better able to develop a solution that best meets the needs of consumers and other retailers. The mobile payments solution will be available to all merchants, including retail store, restaurants, gas stations and ecommerce retailers.

“A lot of initiatives to date have looked good for banks but not for consumers and retailers,” said Nick Holland, senior analyst at Yankee Group, Boston. “A merchant consortium satisfies other merchants because they have the best idea of what they want and, by proxy, what other merchants want.

The mobile application is already in development and initial efforts are focused on offering a solution that can integrate a wide range of consumer offers, promotions and retail programs. The app will be available through most smartphones, according to MCX.

One of the big questions is how MCX will aggregate and share data about what consumers are purchasing and how they are engaging with the mobile payments solution.

“Some of the solutions might be better offered by a third party that can aggregate and share data,” Mr. Holland said.

Competition grows
MCX is just the latest in a list of mobile payment entrants that is growing longer at an accelerated pace so far this year.

While many expect mobile payments to play a significant role in retail sales going forward, at the moment they are still a small portion of overall sales.

There have been a couple of individual successes. For example, Starbucks said this spring that it had processed 42 million transactions through its mobile payments application.

Starbucks also recently partnered with mobile payments company Square, which could significantly broaden the reach of its solution.

However, for the most part, mobile payments solutions focused on providing consumers with a way to pay for in-store purchases using their mobile phones at the cash register have been experiencing a slow build.

For Google’s NFC-enabled mobile wallet and others, it would have been a coup to bring onboard any of the major retailers involved in MCX that could have helped driven consumer adoption and attracted other retailers.

However, now that these retailers are working on their own mobile wallet, Google and others will be competing with the merchants to gain consumer adoption.

 “Clearly there are a lot of entries involved, and the question is does it make sense for the merchants to steer this or the banks or someone else – who should be driving the train here,” said Mr. Holland.  

“A merchant consortium is problematic in that these are the people others are looking to bring in.” he said. “Google Wallet would love to have Walmart in the bag.”

Consumer confusion
Part of the problem is that none of the solutions so far provide consumers with a compelling enough reason to replace their old-fashioned wallets with a mobile wallet. This is because they are not available at enough retail locations and because the solutions are not any more convenient than swiping a credit card or debit card.

The entry of the retailers promises to further complicate the space with yet another solution, which could ultimately end up confusing consumers and slowing adoption.

“The significance of the news isn’t that merchants are trying to create a new payment approach,” mFoundry’s Mr. Sievers said. “Rather, the news is that there is yet another mobile payment scheme for end-users to try and understand.

“With Google, ISIS, MCX, PayPal, and many others trying to play in this space, only one thing is certain: consumer confusion,” he said.

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