Analysis: Retailers disrupt mobile payment space

Unconfirmed media reports indicate Target is in the early stages of developing its own mobile payment solution. If true, Target would join other major retailers like Walmart and Starbucks in making mobile payment a proprietary proposition.

While Starbucks has been offering its own mobile payment application for some time, the recent entry of Walmart and likely entry of Target into the mobile payment provider space signals a disruption in the still young mobile payment space.

By offering their own mobile payment solutions, retailers increase the share of mobile payments they keep. They also have a new avenue for targeted promotions, upsells and cross-sells, and other incentives for larger and more frequent purchases.

This incurs costs of developing and supporting mobile payment infrastructure that is avoided by partnering with one or more of the numerous third-party providers (which retailers who offer their own solutions can and still do), but retailers like Walmart and Target can afford it. In addition, retailers with their own mobile payment offerings can reap “soft” benefits such as increased app usage and loyalty membership, enhanced brand image, and a whole new set of customer data to analyze.

Assuming Target launches its own mobile payment solution and other retailers start following suit, how will the mobile payment space be disrupted? Here are a few thoughts.

1. Fewer third parties.Third-party mobile payment applications tied to popular devices, such as Apple Pay, Android Pay and Samsung Pay, have enough of a built-in user base and ease of use to survive competition from competing retailer services. But mobile payment services offered by banks and credit card issuers, and almost certainly the multiple retailer-backed CurrentC application, may find the market too crowded to breathe.

2. Big boys only.If Walmart Pay and Target’s application succeed at a level similar to what Starbucks has achieved, expect a slew of other chains to follow suit. However, there are finite number of apps consumers are willing to download and use, so only large Tier I retailers will achieve the critical mass needed to support their own mobile payment offering. This also helps ensure that at least a few third-party options will have the chance to thrive.

3. Mobile payment will reach its potential.Mobile payment is still not widely used, although most experts agree it will grow significantly starting as soon as 2016. If a bunch of the most popular retailers with millions of established app users all offer mobile payment, it should be a catalyst for mainstream usage, maybe even ahead of the expected schedule.