3 suggestions for the industry to “save” the Pays

13. July 2018.

I had to ask Ralph Dangelmaier to repeat himself, more so because I couldn’t believe what he had said. I actually heard him loud and clear.

“Some people say Apple Pay is going to fail. I don’t understand that at all,” said Dangelmaier, CEO of global e-commerce payments company BlueSnap. “I don’t know how you can ever say, having your credit card on your phone, that you can check out with, is ever going to fail.”

I recently met Dangelmaier in Manhattan for a chat, to shoot the breeze about the industry and get a better idea of BlueSnap’s place in it. The conversation eventually turned to NFC-enabled mobile payments, which seems to be a whipping boy of sorts lately.

The funny thing about Dangelmaier’s statement is that he made it a couple of weeks before what I’ll refer to as the now infamous eMarketer survey about consumers preferring Starbucks’ mobile app to the Pays.

There’s some stuff to unpack about what Dangelmaier said, as well as the eMarketer survey. But before I go on, one thing is clear about the Pays: they need more utility to be useful to consumers.

We both know that, but I’ll get into that more in a bit. But first, Dangelmaier.

For the record, he doesn’t, for a minute, believe what people are saying about the Pays’ demise. For all their shortcomings and lack of high consumer adoption, Apple Pay, Google Pay and Samsung Pay do provide some great value — particularly when it comes to in-app payments on the Apple Pay and Google Pay side of things.

Dangelmaier believes the “device wallets” will thrive, which brings us to eMarketer’s survey results.

It wasn’t that the survey itself was controversial. But more of how some mainstream media outlets interpreted the results was the issue I had with it.

What the eMarketer survey showed was that some 23.4 million consumers (over the age of 14) this year alone will use the Starbucks mobile app to make a purchase. Apple Pay placed second at 22 million, followed by Google Pay (11.1 million) and Samsung Pay (8.4 million).

Some media outlets saw those numbers and declared Starbucks the mobile payments winner, as if there was a contest with a trophy to begin with.

What the majority of those outlets failed to address are the small and easily missable nuances involved with those numbers.

I don’t believe you can directly compare Starbucks’ mobile app to the Pays because, well, the former isn’t really a payments app to start. From the beginning, Starbucks positioned the app as a better way for coffee and espresso lovers to track and redeem rewards and offers. The app just so happens to have a payment feature.

The other aspect of eMarketer’s survey that gets lost in the numbers is this: Starbucks is selling an addictive drug (caffeine) to consumers. And some of those users need to get their fix twice a day. That helps to bump up transaction numbers compared to the Pays.

And I’m not naive enough to think that the Pays don’t need some help. Some mainstream outlets did point out the shortcomings. I just don’t think a Starbucks-like loyalty program will be how the Pays overcome their ills because, again, the coffee giant has a unique following with its customers.

What can work for the Pays is the entire payments ecosystem coming together to help boost both consumer adoption and merchant acceptance.

But how?

Transit, transit, transit

Transit is the ideal environment for NFC-enabled mobile payments. This is something I’ve heard from industry analysts and executives for years. But when you look at the U.S., where are the great examples?

As more cities roll out contactless open-fare collection systems, the Pays should be at the forefront of these efforts. But they’re not, and that’s a gigantic missed opportunity for consumer adoption.

I lived in Chicago for parts of seven years and not once did I ever see the Pays advertise themselves as a payment option for the Chicago Transit Authority when it transitioned to an open-fare system.

Indeed, the CTA made consumers aware that consumers could use NFC-enabled mobile wallets to pay fares. But those reminders never came from the providers, or the banks that made their cards eligible for those wallets.

With New York City about to embark on an enormous project to switch to open-fare collection, this would be the perfect opportunity for the Pays, issuers and networks to come together to promote NFC-enabled mobile payments.

These industry players could follow the Octopus model in Hong Kong and collaborate with merchants near NYC bus and subway stops to accept the Pays, and offer discounts in doing so. In fact, the same model should be applied in Chicago, Philadelphia, the nation’s capital, or anywhere else that has or will have open-fare collection.

Eliminate interchange fees for NFC-enabled mobile payments

Yes, I know, there’s no chance this will ever happen.

But as it stands now, the card networks don’t give merchants any real incentive to accept any NFC-enabled mobile wallet. That, in turn, hurts consumer adoption and consistent use.

If NFC-enabled mobile wallets are more safe than a card payment thanks to fingerprint/facial authentication, EMV standards, the secure element, tokenization, etc., then why charge merchants for such transactions?

At the very least, incentivize merchants to accept NFC-enabled mobile wallets at a discounted interchange rate. Retailers, in turn, could push consumers to pay with such methods with deals and rewards while benefiting from interchange savings.

A little creativity might be needed for this plan to work, but I think it’s worth considering. Oh, and Apple would have to stop taking a piece of the pie from Apple Pay transactions to lessen the sting of the networks dropping or discounting their fees.

The Swiss Army knife approach

I know what you’re thinking: Will, you’re about to advocate for the Pays to become more like their more successful counterparts (Alipay and WeChat Pay) in China.

And yes, that would be correct.

One argument I keep hearing against this idea is the Pays would essentially have to become financial institutions to make this a reality and the likes of Apple, Google and Samsung don’t want to be regulated like banks.

But the Pays could still accomplish some of what Alipay and WeChat already have done without acting like a bank.

Alipay and WeChat have become hubs for their respective users. WeChat has the luxury of being a social network first, but its competitor Alipay has done amazing things without that benefit.

In Alipay’s case, its app has what are described as “sub applications” within the mobile wallet. There are 60 of them, which include anything from an online travel agent called Fliggy, to the ability to pay for utilities and to book and pay for an Uber ride, just to name a few.

Why U.S. mobile wallet providers are unable to replicate this is beyond me, even as executives marvel at what Alipay and WeChat have accomplished. This transition would not be something that happens overnight. But those providers have yet to start on that path, at least publicly.

What happens next?

It would be foolish to say the Pays haven’t improved since they made their respective debuts. They certainly have.

I’ve been particularly fond of how Samsung Pay has launched both a credit card-style rewards program, as well as cash back rewards. But rewards aren’t enough for the Pays to attract and keep users.

One particular development from Apple that caught my attention last week was how the company tested a mobile ordering feature at the BottleRock music festival near San Francisco.

While the actual mobile order for an alcoholic beverage happened within the music festival’s app, attendees could use Apple Pay to complete the in-app purchase. Features like this are a start, but this particular use case still lies outside the actual Wallet app. Why not have some kind of limited integration between the musical festival and Apple’s Wallet app?

I’m still of the mind we should wait until the year 2020 to make grand observations and statements about NFC-enabled mobile payments in the U.S. But we’re quickly closing in on that time and I don’t see enough happening at the moment.

We will be happy to hear your thoughts

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