The Awkward Teenage Years of Mobile Payments
CVS got on a lot of Apple Pay fans' bad sides last week as they announced CVS Pay, yet another mobile payments option. I'm solidly on Team Apple Pay as well, and it frustrates me that CVS is pushing a proprietary payments solution that is clearly less convenient for users and more helpful to CVS. But I'm not upset today, this is what I'm coming to expect these days.
Here's the deal, in the past 50 years there have been a couple universal payment methods that simply work everywhere. Cash, credit, and check have been mainstays of the payments industry for decades, and there has been little innovation. Sure, debit cards have replaced checks for most people, but that's about it. And while this is a bit boring, it also means that you can go just about anywhere with one of those 3 payment options in your pocket and be confident you can pay for anything anywhere.
Now that smartphones are just about as universal as credit cards these days1, we see the inevitable as payments are starting to move out of the wallet and onto the phone. We're doing just about everything on our phones in 2016, so why not start paying for things in person too?
Starbucks has to be seen as a leader in this space, as they have been an early leader in convincing people that paying for your coffee is easier with your phone than with plastic. Take notice of people in line the next time you're at a Starbucks and you'll be amazed. Even 2 years ago, Starbucks had 11% of their transactions running through their app. By last October that number was up to 21%. I can't find numbers for late 2016, but I think it's safe to assume the number is in the 20-25% range. That's serious conversion, and it's a number that any other one of these mobile payments options would love to replicate.
2014 and 2015 saw the introductions of Apple Pay and Android Pay respectively, and payments nerds like me2 saw these as the saviors of the mobile payments space. These were the natural evolutions of the universal payment methods we were used to. They each use NFC (an open standard) and neither are implementation exclusive, so there's nothing stopping you as a retailer from supporting both, as well as whatever else you want. Since these payment methods are built into the iOS and Android operating systems, they are very easy to trigger. As opposed to retailer-specific methods that require you to launch an app first, Apple/Android Pay "just work" if you will.
But Apple Pay and Android Pay have not lit the world on fire like we'd hoped. They're doing well, and you'll hear Apple and Google brag about the raw numbers of transactions run through them, but they're far from mainstream payment methods in August 2016. Why is this?
I think the biggest reason is a lack of support from major retailers. Taking that a step further, I place a significant portion of the blame on CurrentC, the now-defunct mobile payments system that was created as an alternative to the easy payment options from Apple and Google. Among others, CurrentC was supported by some small local businesses like:
- Best Buy
- Dick's Sporting Goods
- Dunkin Donuts
Part of the agreement these businesses made was that they would not use other payment options like Apple Pay, instead focusing all their mobile payments efforts into CurrentC. Now CurrentC has been shelved and these retailers are flapping in the breeze, as they need to reassess the mobile payments space from scratch.
What we've seen come after the demise of CurrentC is a few proprietary payment options, each exclusive to a single retailer. This week's introduction of CVS is the latest in the bunch, but Walmart, the biggest of the big box retailers, got in the game last month with Walmart Pay. And while these 2 are the early movers, I would not be at all surprised to see another large retailer introduce their own payment app by the end of the year.
But why are retailers putting so much wood behind inferior payment options like CurrentC or proprietary solutions that they have to develop into their own apps? Why not stick to what they're good at and leave the payments to the excellent solutions already on people's phones? As many have said before, it's all about control. Credit cards and checks have made tracking customer behavior very easy over the years. For those who don't know, when you swipe your credit card through a card reader at an store, that card reader pulls what's called "track data" from the magnetic strip of the card. That data includes your credit card number as well as your first and last name. There's no address or email information pulled from the card, but this is enough information to make a profile for a person and spit out what they think are relevant coupons with your receipt to bring you in again.
On the other hand, if you have a loyalty card or store-issued credit card, that gives that retailer a lot more power to market directly to you. The form you filled out to get that loyalty card surely asked you for your name, address, email, and even more information. Now every time you shop at that store, they are able to track you just as well as if you used your credit card, but they have a means to contact you via email or snail mail with additional promotions. They have the ability to track your purchases no matter if you pay with a Visa online, an Amex in the store, and even cash sometimes. As long as you're entering your loyalty card number, then they are able to assign this all to a single profile that they can use for whatever they want.
I don't mean to imply anything nefarious about this practice, and most retailers will simply use this data to print out relevant coupons and email you special offers (which are easy enough to ignore or unsubscribe). While that's not a big deal from any single person's perspective, it's extremely powerful in aggregate, and is a truly vital part of how businesses (especially large businesses) manage to market effectively to an audience of millions. This is one of the greatest innovations in retail in the last 50 years, so you could see why they might be a little worried about giving this up.
Now you might say that Apple Pay and Android Pay support loyalty cards, and that you can sill do some tracking with people who pay this way (although you don't get a customer name in the "track data" from Apple/Android Pay), and all of that is true. I don't believe there is a huge hurdle to retailers adapting their tracking programs3 to Apple or Google's payment systems. Walgreens is a great example of a business who has adopted Apple Pay aggressively and has integrated their rewards program into the Apple Pay system. They can still keep track of their customers well, but they let their customers take advantage of all the speed, convenience, and security improvements found in Apple Pay.
What I think these retailers are thinking is that they have a window where they can try and get people using their phone-based payments in front of people before any other payments option becomes so dominant that they have to start using it. Apple Pay and Android Pay are wildly convenient and secure ways for customers to pay for things, but they represent more of the same (and even less in some cases) when it comes to data mining4. Customer behavior is shifting with the introduction of phone payments and EMV chip cards (new to the US, at least), and now may be the only time for these businesses to shift their customers' habits when maying payments. Once someone discovers that Apple Pay is a universal payment option that works not only at Walmart, but also Walgreens, Whole Foods, Panara, The Gap, Jewel, Best Buy, and everywhere else they shop, it's going to be harder for Walmart to get them to make payments with a separate app that only works at one store.
I firmly believe people will want to pay for things with their phones, but we are currently stuck in the awkward teenage years of mobile payments and things need to get weird before they get better. I don't think people want pages of apps on their phone that are just used for making payments at every store they go to, and I don't think that every retailer can get adoption levels like Starbucks has seen with a custom app. Apple Pay and Android Pay are better from a technical perspective than any retailer-specific option out there today, but it's going to take a little time for retailers to get this bug out of their system before all agreeing on a universal standard.