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    CSNews Exclusive: Industry Poised For Mobile Payment Strategies

    Near-field communication key to future transactions via cell phones.

    NEW YORK -- With four in 10 Americans saying they "cannot live without" them, cell phones are quickly becoming key components of retailing. The thinking is that convenience store customers will soon prefer the convenience of paying via an electronic wallet in their handsets, rather than cash or plastic.

    With smartphone ownership expected to grow, mobile industry players foresee a day in the near future when retailers -- equipped with near-field-communication (NFC) terminals like those used now to accept contactless card payments -- will serve customers who keep their cash, debit, credit and loyalty cards in their phone applications.

    "In the long term, I think NFC will be rolled out into the retail/convenience channel," said C. Red Gillen, senior analyst for Celent, a financial services consulting firm focused on the application of information technology. "However, this will not be overnight. Rather, it will be an organic process as merchants replace older card terminals with new card terminals that have an added NFC functionality."

    The c-store channel already is dabbling in contactless payment, perhaps the first step toward mobile payment. As CSNews reported last June, Sheetz rolled out First Data's GO-Tag solution, which is packaged with a prepaid card and a small sticky-backed plastic RFID tag that can be affixed to a handset. Customers may purchase the $50 or $100 GO-Tag reloadable Visa payWave card/tag combination, activate them and use either to pay for transactions wherever Visa payWave is accepted. Customers also may transfer funds to the card/tag via a phone call.

    Separately, the c-store operator partnered with Wright Express to test fleet mobile payments, which allowed 10 drivers to make transactions at Sheetz stores with specially enabled cell phones containing electronic wallets using NFC technology.

    "The U.S. market is testing different technologies and strategies to try to find the solutions that will resonate with consumers and the available technology," said Randy Vanderhoof, executive director of the Smart Card Alliance.
    Based on early projections, many mobile industry players believed there would be more NFC-enabled devices in the market by now. Retailers are now looking at ways to deliver mobile services with the technology available today, which includes a few wallet applications and the GO-Tag stickers, Vanderhoof noted.

    Some are assessing potential demand for mobile payment through current consumer use of contactless payment, which has been uneven, at best. In 2008, 9 percent of the U.S. population had a contactless credit or debit card, according to a Smart Card Alliance survey. More than 90 percent of contactless users thought it was both fast and easy.

    But contactless users are very positive about the prospect of mobile payments. Current contactless users are twice as likely as non-users to use a mobile wallet, the organization found. More than four in 10 contactless users said they were likely to use a mobile device as a mobile wallet, compared to 19 percent of the non-users.
    Consumers are even ready to switch carriers to get what they want, with 47 percent of contactless users saying that they would switch mobile carriers to gain mobile payments.

    "Usage of contactless payment is geographically skewed," Vanderhoof noted. "It is largely focused in the East Coast, with the Midwest and West lagging. While some national chains do offer contactless payment in all of their stores, they are finding parts of the country have fewer contactless cards issued and relatively little payment activity. But where there are a large number of contactless cards issued, merchants are seeing strong activity that is getting stronger. "

    Still, the relative sluggishness of contactless payment has some retailers questioning the future of mobile payment. Some are not even tracking contactless usage. "The long and short of it is that we don't know if customers are using the [contactless payment option] or not," according to the spokesperson of one Midwest chain. "The transaction looks the same to our point-of-sale (POS) and only the network can they tell the difference. We got the RFID readers for free from MasterCard, so there was no need to track usage for payback purposes."

    The largest stumbling block to mobile payment acceptance has nothing to do with contactless infrastructure or the readiness of consumers or retailers. "The major impediment is a failure by mobile network operators (MNOs) and banks to agree on how the additional costs associated with NFC, such as the chips, will be paid," Gillen said. "My sense is with time, MNOs will pay for the chip and banks will pay for any fees associated with downloading a 'soft' card onto mobile phones. My sense is that it will take at least five years before we see any critical mass adoption of mobile payment."

    Studies show, however, that consumers who experience mobile payment, such as that used in transit applications, "are hooked on it," said Barry McCarthy, general manager, mobile commerce and point of sale solutions for First Data. "Once the wallet is embedded in the phone, consumers will be able to toggle through a list of cards in the handset. There is no limit to what can be stored there. The technology makes life easier, saves time and has fewer hassles than other forms of payment.

    "The challenges now are the scarcity of places for consumers to use the technology and getting the NFC-enabled handsets to consumers," he said.
    But as NFC-based cards and mobile applications replace cash, c-stores will benefit from fewer lost or stolen funds and lower cash handling costs, he noted.

    Tech-savvy Scott Hartman, president of York, Pa.-based Rutter's Farm Stores, believes NFC is on its way. "Customers are still getting used to the concept, but I think younger customers are the perfect audience for the technology since they hate to carry cash and never leave their cell phones behind."

    But he added, readers at the pumps are expensive and not necessarily available for all pump types. In-store, NRC readers cost approximately $150 per checkout.

    "With c-stores potentially spending big dollars on PCI compliance, the added expense of making pumps RFID-compatible might get delayed a few years," Hartman said.

    Payment on a Handset
    Still, some retailers are proceeding with mobile payment strategies. ShortStop, a four-store chain based in Boulder, Colo., expanded its proprietary gift card program more than a year ago to include a mobile option, without the use of NFC. Partnering with Mocapay, ShortStop offers mobile phone users the ability to place ShortStop reloadable gift card accounts on their handsets, which can also be used to access card balances and tap into account information.

    Jeff Dageenakis, co-owner of ShortStop, told CSNews Online customers may set up a mobile gift card online or at the store, adding funds to the account via cash or credit at the store, through credit card online or via an iPhone application. They also may add funds to a friend's account online. Mobile gift card holders may reload the account online or set a minimum balance, which is be maintained automatically through a credit card draw down.

    With each transaction, customers access the ShortStop gift card application on their phones and receive a one-time payment code. The store associate keys that code into a standalone Verifone terminal to complete the transaction.

    To launch the program, the retailer offered customers a free ultimate car wash with each mobile gift card activation of $25 or more.
    "Some people really like the mobile option," Dageenakis said. "They are very loyal. Others are a little leery to try it. Some don't have texting capability on their phones, which you need to receive the code."

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