Having led innovation at Amex, MasterCard and Citi, I know where the bodies are buried. I also know that payment wars aren’t just about fees anymore. That’s so 1990’s. Years ago, when Walmart threatened to enter payments and banking, incumbents nearly soiled their Hanes. After a little sword-fighting, providers slashed their margins so thin, big merchants had no incentive to do their own thing. This time it’s different. Payments companies are not the real threat.
Today’s war is about data and its power to shift loyalties. In the arms race to probe customers’ deepest, darkest desires, card companies and merchants find themselves bringing spitballs to a gunfight. So, I’m not surprised to see Walmart, Target and others are starting their own 99% movement. Big retailers are launching their own mobile payments system. This is the first of many moves you can expect by merchants to liberate themselves of increasingly omnipotent middlemen. Below are three reasons retailers’ strategy makes sense
1) Control of data and ownership of the customer
The proliferation of payment options might lead you to think consumers care that much about their means of payment. They don’t. Merchants care a lot. They’re seeing lots of 3rd parties (over whom they have no control) siphoning their customers’ behavioral data. They will use it to build profiles that will could be used to sell competing products or serve up Amazon-like offers to “window shop” and then order online.
2) Loyalty Integration & Non-competing offers
By linking store loyalty cards with their own, controlled mobile app, retailers can bribe customers in ways third parties can’t. This will guarantee their app gets used. You won’t get those precious discounts otherwise. You’ll also not be served up competing offers since you’ll be unlikely (or unable) to use separate apps for loyalty and payments.
3) Control of the customer experience
This will allow merchants to embed intra-store shopping experiences within the app to drive desired behaviors, communicate offers, and identify top shoppers for premium services. Hell, they could even stash time-based deals that control traffic flow or make you look for Waldo. With control, the options are limitless.
What’s next?
These are all smart moves, if executed well. Similar attempts have been smooth as sandpaper. Hard to expect speed and a singular vision from a consortium of behemoths.
The battle for control of the customer has just begun. Stay tuned. It’s going to get bumpy. My prediction? These are growing pains as everyone needs to show they’ve got big guns in mobile and data. Once that happens, a wave of acquisitions and deal-making will wash over everyone.
There will be huge, unmet opportunities opening up to get small merchants on better technological than the giants. More on that soon.
Finally, as I predicted in my book Econovation Walmart will be entering other businesses. Health Insurance is one. Wait and see. They will revolutionize retail healthcare for the People of Walmart.
Steve,
I believe, for retailers to get into mobile payments, they have to first prove their technical capabilities by providing the Consumers with a great shopping experience (Companies like Walmart have an awesome Supply Chain Management, but it is not so obvious to the average Joe). I have covered this topic in my blog post:- http://thecaseforpayments.wordpress.com/2012/03/12/what-would-my-mother-want/#more-93
Let me know your thoughts on this.
Thanks!
Arpan.
Hi Arpan, thanks for your comment. Yes, I agree that a seamless shopping experience is absolutely essential. Though, I think a retailer controlling the end to end experience is likelier to achieve that than a retailer plus third parties (like payments companies). That automatically adds the complexity of multiple constituents to manage. Technology won’t be an issue. Huge retailers are pitched by every major consultant, startup and tech firm. They’ll have lots of options, so don’t lose any sleep over this:) Whether they make the right choices remains to be seen. Keep in mind, it’s complex and expensive to deploy retail technology across multiple locations, retrain sales staff, and condition consumers to do things differently. That’s why they often move slowly. Whatever they do needs to be worth the trouble.
PS – I was amused by your blog post as you channeled the desires of your mom. While not scientific, I get your sentiment. Realistically, most people outside of payments or retail don’t spend a moment of their lives thinking about payments methods or technologies. They don’t care. They want things to be simple and feel secure (though the reality now is much different).