The branded payment world has become crowded with the likes of Apple, Android, Samsung, Walmart and Chase now vying for a share of the mobile payments market. With others likely to enter the fray, retailers need to understand this rapidly evolving space.
What once was a field inundated with wallet announcements has been replaced with high profile announcements of branded payment solutions by large consumer brands covering the spectrum from device makers to banks to retailers. The question is, why now? The answer can summed up by the emergence of new technologies that are disrupting the mobile payments space, making it possible for brands to “own” the entire customer lifecycle, including the transactional piece.
There are three key reasons why the industry is seeing this shift to branded payment solutions. They include:
● The Emergence of Cloud-based Technologies
Part of the answer relates to technology, and the concept of digital identity. Previously, a person’s identity was attached to a plastic card, and ownership of that identity lay only with banks. In the next phase, third parties such as wireless carriers and device makers tried to take control of the digital identity by embedding it into secure hardware modules that they controlled. The development of cloud-based technologies changed both of these scenarios - enabling a person’s identity to become completely virtual. Now a digital ID can be stored securely in the cloud, where not only a bank or handset maker, but also a retailer, can control that identity. The emergence of cloud-based technologies has democratized the way payments get transacted from a consumer device, opening the door for new entrants and modes of mobile commerce.
● The Desire for Experiential Shopping
Uber and Starbucks set the bar, and now everyone wants to emulate the way these brands have made payments a seamless part of the overall mobile and app user experience. With the Starbucks app, users can order ahead, redeem coffee rewards and leave a digital tip, focusing on the personalized experience, not the payment per se. And with Uber, users can order a ride, track their driver, pay and tip - without ever dipping into their physical wallet (what wallet?). These - as well as emerging apps that cover the spectrum from food delivery, to dry cleaning to short-term lodging - have the commonality of hiding the actual payment piece behind the consumer experience.
Branded payment solutions at retail are looking to emulate the best mobile experiences, across all consumer engagement channels, be they physical or digital: consumers browse items, pick up things they like, and checkout with promotions and loyalty rewards automatically applied, without relying on in-store personnel or carrying physical redemption products. It’s all seamless - and all hidden behind the targeted user experience being offered to the customer.
● The Battle for Brand Recognition
There is currently a “land-grab” of consumer mindshare and brand recognition. With the democratization of payment transactions, each of the branded payment contenders are vying to be top-of-mind when a consumer engages in a transaction, so that they can leverage their brand to maximize revenues and retention. For retailers, it’s a chance to “take back” their brands from banks, credit cards , wireless carriers and device manufacturers, so that they can provide a uniform experience when it comes to both real-world and digital transactions.
How Are These Changes Disrupting the Market?
Clearly, mobile payment disruption is underway. Merchants who want to accept plastic have long been beholden to credit card companies and banks charging between 1% and 3% transaction fees. But physical payment cards are no longer the only game in town, and secure digital cloud-based IDs have leveled the playing field for retailers, banks, credit card companies and device makers.
The traditional four-party payment system (user, merchant, issuing bank, acquiring bank) is morphing into a two-party system, with a direct transactional relationship between the user and the retailer, without dependence on third parties. As a result, the card companies can’t rely on charging merchants fee percentages just for the privilege of transacting through them.
To sustain their “middleman” presence, banks must lower their fee structure or - to keep their 1%-3% charge - show that they are adding value by helping merchants drive more sales, retention and/or loyalty. Nowhere has this trend been more evident than in the highly-publicized split of Costco and AMEX. AMEX lost the deal to Citi, who agreed to a lower fee structure. And when Chase Pay launched last fall, the company announced they would not charge a fee to merchants transacting through their platform.
Merchants, who are “on the hook” for payment fees and want maximum control of both fee structure and consumer interface, now have options. They can look to private label cards and closed-loop products within mobile apps that are merchant-specific and do not rely on disintermediating platforms from third parties. Meanwhile, banks won’t be able to “double-dip” - earning interest and transaction fees - unless they prove to merchants that they can add that much value.
The more merchants focus on maximizing the user experience, and keeping the payment and transaction piece in the background, the stickier their tie to consumers will be.