The Long Leap to Clear Mobile Payment Hurdles

Coffee shop chain Starbucks this week brought the power of mobile payments via cellphone to new users — provided those customers happen to have the right kind of device. The company announced that customers at its retail outlets in the United States will be able to pay for purchases using its mobile payment app on select smartphones.

This covers all nearly 6,800 of the company’s stores and the more than 1,000 Starbucks outlets in Target department stores.

The free Starbucks Card Mobile App runs on iPhones, iPod touches, and select BlackBerry smartphones, Starbucks said.

Customers pay for purchases by holding their mobile devices in front of a countertop scanner which will scan the app’s on-screen bar code.

Starbucks has tested out this technology in Seattle, Northern California, New York and its retail outlets in Target department stores, it said.

While the app may make it a little more convenient for Starbucks regulars to pay for their daily cuppa joe, it’s still limited to a single retailer. Meanwhile, other technologies are making it possible for customers to pay at a wide variety of locations simply by flashing a cellphone.

How the Starbucks App Works

Starbucks’ app is a virtual version of customers’ Starbucks Cards, the company’s Chuck Davidson told TechNewsWorld.

It lets users perform mobile payments, check their balance, reload their balance using any major credit card, find a Starbucks store near them and check their myStarbucks Rewards loyalty stars.

Registered customers can link their credit card information to their Starbucks.com account through the app, Davidson said. However, credit card information is not stored on the handset, he added.

If you lose your phone, call Starbucks and it will freeze the balance and mail out a new Starbucks Card, Davidson said. For added security, customers can choose to password-protect their smartphone, he stated.

Users can also add funds to their Starbucks Mobile App from their PayPal accounts, Nadav Naaman, Head of PayPal Mobile Applications, told TechNewsWorld.

Perhaps PayPal offers more mobility than credit cards.

“We are device, platform and funding-source agnostic,” Naaman pointed out. “Anyone anywhere with a PayPal account can use the mobile payment system.”

Approaches to Mobile Payment

Starbucks is using a combination of a mobile app and a 2D scanner, but many companies are betting on Near Field Communications, or NFC.

Google CEO Eric Schmidt has announced that Android 2.3, or Gingerbread, will support NFC to read RFID tags, communicate with other phones and payment systems, and for use in other applications.

There’s already an Android NFC package on the Android Developers’ blog.

Further, the first NFC apps have begun appearing in Google’s Android market. One’s Taglet, which lets users register any NFC devices with its eponymous service. Users can add information such as URLs, phone numbers and email addresses to each NFC device. When the users then hold their Android smartphones over the registered devices, Taglet will start and will display the registered information.

Another is Enable Table NFC, an app that lets restaurants issue discount vouchers to customers when they settle their bill.

Apple reportedly plans to incorporate NFC technology into the forthcoming iPhone 5.

However, “Starbucks is unwilling to wait for the NFC infrastructure in the U.S. to reach critical mass before offering our customers the fastest way to pay,” Davidson said. “Starbucks will continue to explore NFC, but until a meaningful number of our customers have NFC-enabled mobiles, we remain focused on our current platform.”

This may be a chicken-and-egg situation.

“Long-term, the solution will be a combination of NFC-capable smartphones with retail point of sale systems, but the challenge is availability,” Diarmuid Mallon, senior product marketing manager at Sybase 365, told TechNewsWorld. “The next iPhone might have NFC, but when will the retailer have the POS system with NFC features?”

Problems With Starbucks’s Current Solution

Starbucks reportedly decided on using a combination of an app and a scanner because of the limited availability of NFC solutions.

The merchant-specific approach, which Starbucks has taken, is the fastest way to implement mobile payments because it’s a completely closed service that’s easy to develop and deploy, Sybase 365’s Mallon pointed out.

In the long run, however, that will fragment the market and work against the adoption of nationwide mobile payment systems.

“Just as you wouldn’t carry a separate credit card for every store you use, very few consumers would be willing to have a separate payment application per store,” Mallon opined.

The Killing Effect of Competition

Countries like Japan and Korea are well ahead of the United States in implementing nationwide mobile payment technologies, and that’s partly due to different competitive conditions present in their markets.

For example, in Japan and Korea, the mobile operators are also the banks, PayPal’s Naaman pointed out. In some cases, they are also the handset manufacturers, they’re connected to the large retailers, and they’re backed up by the government so they can influence regulations, he added.

That intertwining of businesses is augmented by the near-monopolies major wireless carriers in Japan and South Korea have. “NTT DoCoMo owns more than 80 percent of the Japanese market, so they can dictate requirements to phone manufacturers and dictate a single standard,” Conrad Sheehan, CEO and founder of mPayy, told TechNewsWorld. “In South Korea, which has three carriers, SK Telecom owns 50.5 percent of the market.”

Further, NTT DoCoMo issues its own DCMX Premium and Gold cards to provide its customers credit lines, while SK Telecom has the Moneta service, Sheehan said. This lets them make “a large amount of money” through interchange fees, he added.

Also, consumers in these countries are early adopters in the mobile space, Naaman pointed out. “These countries reached over 100 percent mobile penetration many years ago,” he elaborated.

That’s because landline access to the Web is much more expensive in those countries than it is in the United States.

Putting Together a Solution for America

The biggest impediment to implementing a nationwide mobile payment system in the United States has been the division of the spoils from m-payment systems, mPayy’s Sheehan said.

Carriers have been clashing with Visa and MasterCard over who’ll get the money from m-payment systems, Sheehan pointed out. The result has been higher fees, which make merchants, who pay those fees, reluctant to accept m-payments.

“Credit and debit cards with RFID chips in them are in the wallets of millions, but merchants don’t want to pay the higher fees,” Sheehan pointed out. Using NFC technology won’t be an improvement “because you’re just moving that chip into the smartphone,” he stated.

A third party that would acquire merchant accounts and issue consumer accounts in a way that provides convenience to consumers without increasing merchant fees is needed, Sheehan opined.

“Americans would love to leave their wallets at home, but that doesn’t mean they’ll buy more or buy faster,” Sheehan said. “So the merchant isn’t willing to pay more for m-payment systems, and shouldn’t be forced to.”

1 Comment

  • Great article Richard. Unfortunately, I don’t see the retail and mobile industries converging on a single m-payment solution any time soon. I think its great that Starbucks is embracing mobile – if they and other retailers focus on ensuring a great user experience, they will see adoption. I actually blogged about my own experience in using Starbucks Mobile Card for the first time at http://mobile-perspectives.blogspot.com – it wasn’t quite as great as it could have been!

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