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What payment options do retailers have for mobile sites, apps?

Mobile payments let retailers close the loop on their marketing initiatives and drive revenue via the mobile Web and applications. But what options are out there?

As the world awaits the coming revolution that will result when near field communication technology is preinstalled in every handset and RFID readers are installed at every point of sale, retailers should consider launching mobile commerce-enabled sites. Established players such as and eBay’s PayPal have reaped the rewards of getting the mobile payments experience right, and start-up vendors are currently jockeying for position.

“I feel this is broken into two categories, that of major retail with a mobile storefront, and retail for the small and medium business that does the transaction face-to-face but processes said transaction via the mobile device,” said Scott Michaels, vice president at Atimi Software, Vancouver, BC.

This year, the expectation is that all decent ecommerce providers that power a mobile storefront for the sale of goods that are not app-related—being clear that in-application purchases from systems such as iTunes are in a separate category as they cannot be used for physical shipment of goods—will have a storefront that is specifically targeted for mobile.

“Right now there is a real lack of serious ecommerce solutions that cater to the smartphone market, ones that implement a touch-interface such as what we see with the Facebook touch site and all those announcements from SXSW,” Mr. Michaels said.

“You will also see those providers that have clients that are making native applications on the various platforms providing an SDK—not a mobile site for said check-out,” he said. “This allows the creator of the application to be much more creative about how, and when the ‘buy’ actions are exercised within the app.

“This will mean providing both a decent advanced mobile page check-out process, likely a hybrid of Web and native controls to make the experience as fast as possible to combat the biggest downside of mobile commerce—that of me completing my purchase before I get interrupted by this chirping device—oh wait, right, it’s my phone not a dedicated shopping or Internet device—a fact that the current efforts into mobile ecommerce unbelievably seem to really overlook.”

Mobile payments players
On the more nimble retail front, Verrus, Square and a host of others are creating the mobile payment systems that provide that “pay me anywhere” feature for the small business, the hobbyist and person-to-person payments.

“These systems are the ones that are undergoing the most change, and in this year clear winners will emerge,” Mr. Michaels said. “Will it be Square?

“I honestly can’t tell you, but I can say that that category of payment system will be here to stay, and it’s one that really did not exist in any substantive form till this year,” he said.

Zong is a mobile payments service used by social networking Web sites such as Facebook, MySpace and Hi5. It is also featured in online gaming sites and virtual worlds such as Gaia Online, IMVU, Mochi Media and Outspark.

Competitors include Billing Revolution, mPayy, Bango and Boku.

The company said that Square is an interesting option for mom-and-pop shopkeepers who currently do not accept credit cards.

“The main problem that Square solves for these retailers is the hassle and costs associated with opening and maintaining a merchant bank account,” said Hill Ferguson, vice president of product management and marketing at Zong, Palo Alto, CA. “Of course, iPhones are required to serve as POS terminal, so there is some upfront costs for the merchant if you don’t have an iPhone already.”

Zong also said that Bling Nation is potentially appealing for both consumers and merchants.

“Consumers just need to put a small sticker on their mobile phone and pass it over a reader at the merchant’s POS, making payments more convenient,” Mr. Ferguson said. “The merchants need to do some integration work, but the economics improve dramatically as Bling Nation connects directly to the consumer’s bank’s processor, bypassing expensive card networks.

“It’s the classic network chicken-and-egg problem here, but the value proposition is strong on both sides,” he said. “I’d recommend Square for small retailers who are currently cash-only.

“I’d recommend Bling Nation to merchants where local banks and credit unions are currently offering—or planning to offer—the pieces of ‘bling’ for account holders to stick on their cell phones.”

Square solves some interesting problems associated with “cash-only” businesses—think parking lot ticket sales—while Bling Nation arms merchants in the constant battle between card issuing banks and merchants over card association transaction fees.

“Square isn’t creating a network, so it’s challenges are a little more straightforward, while Bling Nation must build out a network of merchants and banks in order to make the consumer proposition compelling,” he said.

“I still think we’re a few years away from widespread adoption of any technology facilitating mobile payments for retailers.”

PayPal, an eBay company, is the mobile payments platform for its parent company’s mobile site and applications, as well as Research In Motion’s BlackBerry App World. It has also launched its Send Money application for Apple’s iPhone and Google’s Android.

“It seems to me that PayPal is likely one of the best options for mobile sites—it helps to reduce the number of keystrokes and most Web buyers already have established PayPal accounts,” said Sucharita Mulpuru, vice president and principal analyst of ebusiness and retail at Forrester Research, Cambridge, MA.

“Ultimately I think we’ll evolve to a mobile wallet or some sort of stored data tool—that’s what I think Felica in Japan is, but that’s still many years away,” he said. “People are still concerned about security and retailers haven’t yet adopted ways to access those payments in a broad form yet.

“The security aspect is one of the biggest issues now…even among diehard Web-buyers—psychologically we’re with mobile payments where we were with ecommerce back in 1996.”

Obopay is a mobile payments service with a number of tools that let people add Obopay either to a Web site or a mobile experience.

A button, link or custom widget allows merchants to accept a payment through a Obopay check-out portal, letting them log in if they are an Obopay customer or pay by entering their debit or credit card number.

“Merchants wanting to enable mobile payments tend to be small sellers that have not been accepting debit or credit cards, and they come to us looking for their first way to accept credit card payments,” said David Schwartz, head of product and corporate marketing for Obopay, Redwood City, CA.

“Small businesses, people outside of traditional retail environments, nonprofits and charities—mobile payments are starting to take off in that regard,” he said.

Obopay operates via two different models, the first being its direct-to-consumer service, which provides merchants with the option to get paid via the consumer’s debit or credit card bank account or through stored value, adding funds to the Obopay account through direct deposit or cash loading.

Obopay’s second model is partnering with financial services such as MasterCard for the Money Send Service and Fidelity National Information Systems, which is offering Obopay’s product through bank channels, letting consumers connect their back account directly to the payments service.

“Where we’ve seen the most traction on the payments side is early-adopter retailers, smaller retailers, people looking for payment acceptance,” Mr. Schwartz said. “It’s not Walmart at this point—it’s more the mom-and-pop stores.

“We’re seeing a lot of interest and traction from that end of the retail spectrum, whereas the bigger retailers going to be slower to adopt,” he said.

“As you get more build-up and integration required for larger retailers, there will be trials this year, but we won’t see it take off until next year or the year after.”

Global Bay
Global Bay is another vendor that provides a mobile technology platform for retailers.

The company recommends that retailers should leverage their existing payment infrastructure that is currently being used for their ecommerce site to enable mobile payments.

“There is no reason why either the retailer or the payment processor can’t extend this payment-processing functionality as a standard Web service for use as a native mobile application,” said Sandeep Bhanote, CEO of Global Bay, South Plainfield, NJ.

Mr. Bhanote said that retailers can use one of the many established payment processors out there today, including Chase PaymentTech and Authorize.Net, among others.

The company believes that the future of mobile payments is bright.

“We believe that mobile POS represents the future of in-store mobile payments and that all retailers will offer this kind of functionality in the near future to decrease long lines and offer a better customer experience,” Mr. Bhantoe said.

“Don’t be surprised if retailers also venture outside of the ‘four walls’ to sell its products beyond the store environment,” he said. “In addition, we will continue to see the evolution of mobile commerce and the use of innovative technologies to offer new kinds of services to consumers.”

Mocapay is a Denver-based end-to-end mobile payments and experience platform for issuers.

The platform addresses merchants’ need for a new channel that will broaden their loyalty and gift programs by mobilizing sales and marketing to reach customers anytime, encourage purchases and build a stronger brand affinity.

The company was issued patent US 7,657,489 B2 on Feb. 2 for this service.

Mocapay offers its mobile platform to merchant issuers of closed-loop loyalty, gift and private-label credit, as well as financial institutions that issue open-loop prepaid, debit and credit.

The company provides issuers three methods to use its patented mobile payments: out-of-the-box, software-as-a-service platform, or white-label, issuer-branded wallet and SaaS platform, or technology licensing giving issuers various services to match their business needs.

Mocapay’s platform simplifies deployment and support by offering a single service for multichannel and multi-location mobile payment acceptance.

The company offers issuers, depending upon tender type, three-modes of mobile connectivity: SMS/text, Internet/browser enabled phones (WAP) and handset applications (iPhone, Android and BlackBerry).

The service can also be deployed by merchants for their own merchant-branded mobile loyalty and gift programs and used to accept funds from financial institution’s that issue mobile open-loop tender.

Mocapay works with all the major U.S. carriers and has integrated its product with most of the major POS vendors.

Obstacles remain
While offering mobile payments will soon be indispensible for all retailers, some barriers to mass-market adoption remain.

The options a retailer has tend to be somewhat limited today as there is no broadly deployed in-store payment system standard.

“NFC will win in the long term as a ‘touch to act’ technology, of which ‘touch to pay’ is but one application, but there are very few NFC handsets in the market today and there’s a lot of complexity for the retailer as it involves changes to point of sale,” said Nick Jones, vice president and analyst at Gartner, London.

“Also, the numbers depend on the region, but you have to remember that only about 75 percent of mobile users do anything much other than voice or SMS with their handsets,” he said. “So most of them wouldn’t use mobile payment in any case.

“In mature markets such as the U.S. or Western European Union there is actually little latent demand for mobile payment because most consumers have no shortage of ways to pay, and mobile doesn’t add much.”

There is much more consumer interest in using mobiles for tasks such as discount vouchers, finding stores and checking stock levels before they go to the store, according to Gartner.

Because of this, Mr. Jones believes that most retailers in mature markets would be better advised to focus on the mobile channel for marketing or the tasks he mentioned, rather than payment.

“For mobile sites, you can enter credit cards onto a mobile in the way you do on a PC but many people don’t like doing this in public,” Mr. Jones said.

“Interestingly, one of the most ubiquitous ways for smartphone users to pay for things is though their app stores, which have mature payment systems, although they’re more aimed at intangibles such as apps, games, music or eBooks,” he said.

“So bottom line, I’d advise most retailers to avoid mobile payment for the next couple of years and focus on all the other interesting things you can do with a mobile phone.”