“In 2012, we will see large market launches of the digital wallet, as innovative grocers begin to use the mobile device and customized apps to differentiate their brand.”
— Thomas D. Murphy, principal, North Highland
Last fall, many food retailers — without necessarily realizing it — began allowing shoppers to pay in stores with their mobile phones.
Those were retailers such as ShopRite, Meijer, Spartan, Supervalu, Food Lion and Whole Foods that have equipped their checkouts with NFC (near field communication)-enabled payment terminals in order to accept chip-bearing “contactless” credit cards; instead of swiping the cards, shoppers only need to place them on or near a terminal. The same NFC technology embedded in a smartphone allows shoppers to pay the same way with their phone.
That became a reality last September when Google launched its Google Wallet, an NFC-powered payment app, in partnership with Citi, MasterCard, First Data and Sprint. The system, limited so far to a single Android phone, debuted at 25 retailers — including Jamba Juice, Toys “R” Us, The Gap, Macy’s and American Eagle Outfitters — across five markets (New York, San Francisco, Los Angeles, Chicago and Washington, D.C.).
Google Wallet allows shoppers at these stores to not just make a PIN-protected payment, but to also redeem offers and get loyalty points by tapping a Samsung Nexus S 4G phone on an NFC-enabled terminal. Consumers fund purchases via a Citi MasterCard or a prepaid MasterCard encrypted and stored on a chip. The terminals require a software upgrade to handle the promotional part of the program.
But even outside of the five launch markets, Google Wallet can be used to pay for purchases — but not redeem offers or collect points — at thousands of other locations with NFC-equipped terminals, including the above-named grocers as well as drug chains like CVS and Walgreens, convenience and gas outlets like Sheetz and Sunoco and all McDonald’s restaurants. All told, 150,000 retail locations can process Google Wallet payments.
Any merchant that has a contactless reader “is almost surely taking mobile payments” based on Google Wallet, “though they may not know it,” said Paul Cwalina, senior vice president, First Data, Atlanta. First Data is Google Wallet’s Trusted Service Manager (TSM), a neutral middleman enabling credit card information to be encrypted and delivered to the chip on the mobile phone.
This month, Google Wallet plans to announce its first full-fledged grocery partner, which will accept both payments and promotions on Google Wallet, said Spencer Spinnell, director of emerging platforms for Google, San Francisco. The retailer will be one of the following chains affiliated with Google-owned Zave Networks: A&P, Cooke’s, Harris Teeter, Price Chopper and Bi-Lo, he said.
These retailers all offer online coupons provided through Zave Networks; shoppers can click on these offers, download them to their loyalty card and redeem them easily at the POS. The grocer that will participate in Google Wallet will also enable shoppers to use Google Wallet to redeem their offers as well as pay for groceries at the POS. One or two other Zave-affiliated retailers may also join Google Wallet in the first quarter, said Spinnell.
Meanwhile, other payment-industry players such as PayPal and Visa are also exploring launches of mobile wallets. Perhaps the biggest example is Isis, an NFC-based mobile commerce platform being developed by three major mobile carriers, AT&T Mobility, T-Mobile USA and Verizon Wireless. All four major credit card companies — Visa, MasterCard, American Express and Discover — are aligned with Isis. In the first half of 2012, Isis will roll out its mobile payment program in Salt Lake City and Austin, Texas.
Plans for 2012
Mobile commerce has already generated billions in revenues as an extension of ecommerce, but remains in its infancy when it comes to making payments in stores. On the other hand, the advent of Google Wallet, along with other forays into mobile payment, has sparked interest among many food retailers in this payment process, even as they explore other mobile apps for list making, coupon dissemination and product location.
According to the Food Marketing Institute, 13.3% of surveyed food retailers plan to implement mobile commerce and payment at their stores in 2012, while another 40% are strongly considering it.
“In 2012, we will see large market launches of the digital wallet, as innovative grocers begin to use the mobile device and customized apps to differentiate their brand,” wrote Thomas D. Murphy, principal, Atlanta-based North Highland, and a former IT executive with Kroger, in an article published in SN last month.
Much of this will depend on the release and adoption of NFC-equipped smartphones as well as the continued installation of NFC-equipped payment terminals. “We see both on the consumer and merchant side NFC technology embedded and being a standard feature going forward,” said Mario Shiliashki, senior vice president and group head, US Emerging Payments, for MasterCard. “All the major phone manufacturers are working on models with NFC embedded. In the next few years it will be a standard feature like Bluetooth and WiFi.”
Some NFC-payment trials have already foundered. For example, Bling Nation, a tag-based mobile payment method used by Brookshire Grocery in one store, suspended its service last June. “We believe mass market adoption of NFC payments is at least four years away,” said Sandy Shen, research director, Gartner, Stamford, Conn., last year. On the other hand, NFC payment has caught on abroad, notably in Japan, where it was initially employed in public transportation before being adopted in retail.
In this country, mass transit may also spark usage of mobile payment. In Salt Lake City, where Isis will launch this year, buses and trains are being equipped for NFC payment. NFC may also see early adoption in fast-turn retail environments like convenience stores and quick-service restaurants.
Not all mobile payment scenarios are linked to NFC technology. Several vendors working with food retailers, such as Modiv Media, Retalix and AisleBuyer, have developed mobile payment systems that initially use alternative technologies. A number of food retailers, notably Stop & Shop, have been laying the foundation for mobile payment by testing mobile apps that allow shoppers to scan and bag as they shop.
Perhaps the most prominent example of non-NFC mobile payment was the app rolled out last year by Seattle-based Starbucks Coffee to its 7,000 U.S. outlets, as well as about 2,000 Starbucks kiosks within Safeway and Target stores. The Starbucks app, for both iPhone and Android devices, allows Starbucks patrons to load value onto their loyalty card, track their progress in the rewards program, and pay by scanning the barcode on the iPhone at the register (as opposed to scanning the bar code on a plastic card, which is another option).
Last year, there were about 26 million mobile Starbucks transactions and $110.5 million reloaded onto Starbucks cards directly through the mobile app. The Starbucks app “is getting us comfortable with the idea of using phones for secure transactions,” said John Caron, senior vice president of marketing for Modiv Media, Quincy, Mass.