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Mobile payments leap forward but fall short on benefits for merchants

Last week saw a number of significant mobile payments announcements as multiple platforms laid the groundwork for more seamless purchasing experiences but still fell short of mobile payments’ full potential.

Visa, MasterCard, Samsung Pay and PayPal all tried to position themselves to take advantage of the expected surge in mobile shopping during the holiday season. However, last week’s news also shows that mobile payments still have some distance to travel before they are truly beneficial for merchants.

“The adoption of mobile payments hasn’t quite yet reached a point where they will benefit merchants in a major way,” said Gordon Baird, CEO of nD bancgroup. “By this time next year, however, it is possible that merchants will have moved closer to being able to integrate some form of direct mobile payments so that the POS experience for the consumer will be enriched, allowing the consumer to receive incentives in real time.

“In order for this to materialize, though, there needs to be tighter integration of a consumer bank account or equivalent mobile transaction account with near real-time interaction with the POS combined with data from the merchant,” he said.

Being prepared
For merchants, last week’s flurry of developments underscores the need to have a mobile payments strategy in place for the upcoming holiday season.

Visa’s announcement of an integration with Stripe could have the biggest immediate impact for merchants as they look to create more seamless in-app experience (see story).

“Visa investing in Stripe is an important validation of their strategy to the online/app space in conjunction with mobile proximity payments,” said Thad Peterson, senior analyst at Aite Group. “When linked with VDEP, their digital provisioning platform, they’ve created a seamless, secure path from the issuer to the merchant.

“As merchants look to integrate in-app experiences into a more holistic approach to the customer experience, this could be a pretty big deal,” he said.

Almost important for merchants was the news that Apple Pay is continuing to gain steam, as revealed in a report from Auriemma Consulting Group showing that 42 percent of iPhone 6 and 6 Plus owners have used Apple Pay.

The data suggests mobile users may be ready for mobile payments.

CurrentC’s debut
The developments also increase the pressure on CurrentC, the mobile payments app from a number of large retailers that said last week it will launch a trial in August at a limited number of retail locations, including Dunkin’ Donuts and Baskin-Robbins.

“The relatively high rate of trial shown in the Auriemma research at least implies that as distribution of NFC terminals increases, consumers will more predisposed to use mobile,” Mr. Peterson said. “The data could also be another challenge for the launch of CurrentC next month.

“The more customers who are aware of and comfortable with the Apple Pay user experience, the fewer will be likely to either carry another alternative or switch to a new payment platform,” he said. “The only possible exception would be if the user experience and value proposition for CurrentC is superior to Apple Pay and the other NFC wallets.”

Other news last week included PayPal’s demonstration that it is still in the game following its spinoff from eBay with a new Subway partnership (see story).

Additionally, MasterPass expanded significantly across the travel industry, through a new partnership with Citibank India and into the quick-service space with Burger King and Firehouse Subs (see story).

MasterCard also extended its partnership with Samsung to deliver Samsung Pay in Europe (see story).

“Despite all the discussion in this week’s news stories about progress or the breakthrough of mobile payments, there really isn’t much that is changing from a merchant’s perspective,” Mr. Baird said. “Apple Pay is still using the old-fashioned credit or debit card to complete the payment.

“These shifts don’t change the 30-year-old economic model,” he said. “The more dramatic change will occur when mobile payments happen with a fully integrated experience and break free from the legacy system and expensive, old technology.

“We need a new paradigm that uses the available technology beyond the 16-digit card. The 16-digit card number is the root of all hacking and fraud, and the space for innovation comes when mobile payments move past this and adopt encrypted private credentials.”

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