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Target eyes own mobile wallet as payments habits begin to change

Target is reportedly working on its own mobile wallet, borrowing a page from Walmart as the need to address consumers’ growing demand for smartphone services takes on greater urgency.

The news coming so closely on the heels of Walmart Pay’s launch suggests both retailers feel MCX, the retail consortium that is piloting its own mobile payment solution, is taking too long to get to market. The entry of one major mass merchant and the possible entry of another also means ongoing confusion in the space, although whether these retailers can put a dent in Apple Pay and Android Pay is still a question.

“I don’t think we can know what the impact will be on the mobile wallets as yet, but I seriously doubt if it puts either in jeopardy,” said Thad Peterson, senior analyst at Aite Group, Atlanta.

“Ubiquity is important, and while a customer might use a mobile payment app to replace their red card and obtain the discount in target, there are no other stores where they can use that app,” he said.

Unanswered questions
Following a slow few years, mobile payments have picked up some steam in 2015.

There was a substantial jump in the number of people using a phone to make an in-store payment in 2015, growing more than three times from 5 percent to 18 percent, according to a recent report from Deloitte (see story).

However, despite these gains, the space is still evolving, with a number of unanswered questions remaining as to who will be the dominant players and what will be the dominant technology. Mass adoption is also unlikely until payments more clearly solve a consumer problem.

Apple Pay and Android Pay are considered the most likely winners in mobile payments as they work across a multitude of retailers.

“I don’t see Walmart, Target, or CurrentC’s wallets becoming important long-term payment solutions,” said Drew Sievers, managing partner at Operative Capital. “It’s like a step backward to the old department store cards.

“Eventually, people want to consolidate all those cards, and Walmart and Target won’t be the aggregation players,” he said. “They’ll just get played.

“Walmart and Target have delusional dreams about displacing Visa and MasterCard. What they will need to offer in promotions will be much more than any money saved on reduced interchange.”

QR codes
Target is already a leader in mobile retail, with strong offerings across apps, the Web and social.

Target’s reported payments solution, similar to Walmart Pay, is likely to work for its customers in its stores. Both chains have a large, loyal customer base of frequent shoppers that skews heavily towards moms, who are heavy users of mobile, so they could see quick uptake for mobile payments.

“I don’t know what the driver is [for retailers launching their own wallets] but I suspect that it has to do with the delays that MCX has encountered,” Mr. Peterson said.

“I think it’s telling that both Target and Walmart are using a QR platform which is what MCX intends to use,” he said. “Perhaps they are trying to leverage their investment in the technology.”

Starbucks pioneered the vertical mobile payments solutions and boasts 20 percent of revenue coming from mobile payments.

Taken together, mobile payments from Walmart, Target and Starbucks have the potential to account for a significant volume in mobile payments over the next couple of years as the space continues to shake out.

Chaos ahead
Target, again similar to Walmart Pay, is also reportedly considering using QR codes for its payment solution. This will make a Target mobile wallet easily accessible across a wide array of devices, unlike Apple Pay or Android Pay, which work only on their respective platforms.

Walmart Pay works with the retailer’s existing mobile app, which users call up to scan a QR code at checkout (see story).

Walmart has also left open the door to integrating Apple Pay into its own solution down the road.

MCX is also using QR codes for its pilot of CurrentC, which is taking place in Columbus, OH.

At the same time, PayPal continues to be a preferred method of payment for many consumers (see story).

Samsung and Chase have also recently launched mobile payment strategies.

With so many different mobile wallet solutions in the market, consumers may have a hard time deciding on one to use.

“It’s going to be a chaotic year as different approaches are introduced but no matter what it’s a big rising tide that is raising awareness of mobile payments and ultimately that will spur trial and usage,” Mr. Peterson said.

“I think we can expect to see increased usage and adoption, but at the same time there will be a lot of confusion and dissonance among consumers and merchants,” he said.

“By the end of the year I think we’ll see a bit more clearly the way that the space is going to evolve.”

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