Fixing Mobile Payments

Word first began trickling out about something called Google Wallet last May. The official launch of Google Wallet was last August. But for Google Wallet and other NFC POS solutions, little traction appears to be secured to date.

This is the central argument of a wonderful post by Kris Hiiemaa, the CEO of POS software provider Erply. Hiiemaa largely blames the retailers:

One key reason retailers aren’t rushing to deploy mobile payment systems is that they see the cost of the solution as too high for the benefit. Even solutions that do not require new hardware pose significant costs to the merchant through fees and overhead. In fact, the purchase of a new terminal, an NFC reader, or other piece of hardware will likely be the least of a retailer’s expenses.

Because today’s retail systems are so inflexible, the integration of any third-party systems will result in a huge IT expense for implementation. The customization required so that all components of the point of sale system (including inventory management and payment processing) interact with a new mobile payment platform without disrupting the operation of the existing systems is cumbersome and expensive due to complex software integration. …

Retailers can’t absorb these costs.

Hiiemaa says that retailers need to provide added value to the consumer in the form of integrated additional services, such as coupons and loyalty rewards, in order to make the costs of change at the POS worthwhile — even as “each [requires] its own associated customization costs.”

But there is another point to consider, and it relates to the particular POS services being offered. Here’s how Hiiemaa describes it:

The retailer’s cost to add even one type of mobile payment technology (such as Google Wallet) is currently very high, and since the market is so fragmented, adopting just one of the mobile payment platforms will only address a tiny portion of the market. To pay with Google Wallet, for example, customers have to have a specific phone model and one of the two credit cards that are currently supported.

I would put it another way. I can walk into Office Depot or Duane Reade and use my American Express card, but if I wanted to NFC the payment at Office Depot, I would have to use PayPal, while at Duane Reade I’d have to be a Google Wallet user. That certainly doesn’t foster the widespread adoption many consumers pine for.

So the problem of mobile payments at the POS is twofold: customer adoption and retailer costs. We had a debate here at Bank Innovation earlier today about which is more crucial to widespread adoption, and we could not agree that one was most important than the other. And that’s because one is not more important than the other. However, until one of these challenges is overcome, mobile POS payments will remain a fringe practice among those folks in the Google Wallet YouTube videos.