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Swiping trumps tap-and-pay in building mobile commerce trust

Despite the expected growth in contactless payments, swiping a credit card through a mobile point-of-sale system will remain the dominant way merchants process mobile transactions in 2014.

Swiping a credit card through mobile POS hardware or tapping a mobile device against a contactless terminal have long been the two main ways that marketers are tackling in-store mobile payments. Although tap-and-pay technology ultimately promises a quicker experience, security issues, consumer habits and the lack of near-field communication support will keep tap-and-pay payments on the backburner this year.

“I don’t think the consumer has a strong bias against tap-and-pay — I guess they would actually assume it to be easier [than swiping,] but not significantly so,” said Brian Stein, managing director at Pervasive Path, Cleveland, OH.

“The problem is not that they don’t want to use it, it’s that they don’t know how,” he said. “They don’t have the technology.

“Assuming that the technology around tap-and-pay works seamlessly, I think it would be marginally easier to use tap-and-pay.”

Stuck on mobile payments
Both swiping and tap-and-pay are fairly easy motions to make and therefore do not dictate how consumers choose to pay.

However, the main hold-up with tap-and-pay so far is the technology’s reliance on NFC.

The number of NFC-enabled mobile devices on the market is still a small percentage of overall devices, which directly correlates to the lack of marketing initiatives that leverage the technology.

Take Google Wallet, for example.

Google originally made a big bet on tap-and-pay and NFC with the introduction of Google Wallet in 2011 that let consumers pay by linking a credit card to a mobile app.

Google Wallet also gleaned some initial interest from brands including Macy’s, Walgreens and The Gap.

However, when NFC did not grow as quickly as some expected, Google responded by rolling out a physical card component to the program in November.

The branded debit card is funded the exact same way as the NFC payment and indicates that Google may be having a hard time selling tap-and-pay to both merchants and consumers.

Additionally, perceived security problems are likely partly to blame for the hold-up with tap-and-pay payments.

Regardless of how much mobile payments scale or the security behind the technology, physically swiping a credit card brings up stronger trust feelings than consumers tapping their mobile device against a contactless terminal.

Additionally, because consumers are familiar with swiping a credit card, tap-and-pay solutions will need to provide a tangible benefit in order to encourage a change in behavior.

The promise of tap-and-pay is to significantly simplify payments since consumers do not need to dig around and find a credit card.

The actual action of tap-and-pay is an easy idea for consumers to catch on with, and it is possible that if a different technology besides NFC backed tap-and-pay, the technology could scale.

When done correctly, speed is one of the biggest benefit of tap-to-pay.

“This is most impactful for merchants whose business is characterized by low dollar value and high volume transactions,” said Jordan McKee, analyst at Yankee Group, Boston.

“For instance, a QSR that gets a lunch-time rush could benefit from taking contactless payments via mobile POS to decrease their queue and turn out orders more efficiently,” he said.

From the merchant side, NFC payments potentially open up the ability to build a deeper relationship with consumers using data.

Ready for take-off??
Mobile wallets have had a difficult time scaling.

There is no doubt that marketers will continue to test out different mobile wallet initiatives in 2014, but there will not be a universal winner, according to Rick Oglesby, senior analyst at Aite Group, Boston.

These include closed-loop mobile payment services similar to the one that Starbucks offers that only work at one retailer or merchant.

Apple’s Passbook is a prime example of this. As the manufacturer looks to figure out its role in mobile payments, it seems that Apple is taking a closed-loop approach by incorporating itself into branded apps that retailers can then use for promotional efforts.

“I expect that trend to continue into 2014 where individual merchants put together solutions that only work within their businesses,” Mr. Oglesby said.

“There’s a lot of value in doing that promotion, but right now I don’t think merchants have found these multi-merchants solutions to have a lot of value yet,” he said.

Differences in size?
Although mobile POS has begun to scale for big retailers including Office Depot and Coach over the past year, small merchants are still the businesses most affected and interested in the technology for cutting costs and improving the in-store experience.

Swiping is likely to continue to be favored by smaller merchants because they can integrate the technology behind it into existent point-of-sale systems without much of a hassle.

As mobile POS becomes more mainstream for the majority of small businesses nowadays, the market is already becoming commoditized.

There will continue to be growth in both swipe-based and tap-and-pay technology in 2014, but there will not be a winner between the two.

“Mobile POS has been the bigger deal in the past — in 2012, 2013 it was definitely the bigger deal [than tap-and-pay], and I believe it will continue to be so moving forward into 2014 whereas a wallet is going to take more time to develop,” Mr. Oglesby said.

“One of the main reasons for that is just that consumer behavior takes quite a bit of time to evolve, and there’s been a variety of different mobile wallets that have tried to change consumer behavior with no resounding success yet,” he said.

Final Take
Lauren Johnson is associate reporter on Mobile Commerce Daily, New York