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Retailers weigh value of mobile payment

News, 25 November 2016

NEW YORK: Digital wallet options are growing but retailers need to weigh up whether investment in new POS systems is justified given that mobile payments still account for only a tiny amount of all sales.

Earlier this year Piper Jaffray, the investment bank and asset management firm, found that 44% of point-of-sale merchants were already using or would consider using NFC payment terminals, which let consumers complete transactions via connected devices like smartphones and smart watches, with most being interested in Apple Pay.

But Mallory Duncan, SVP and general counsel at the National Retail Federation, pointed out to Knowledge@Wharton that "Apple Pay is a fraction of a fraction of a fraction of the credit card use today."

Indeed, recent figures from the American Bankers Association showed new credit card issuances rising 11% year on year to 84.9m accounts in the second quarter and a new post-recession high of 342m total open credit card accounts.

"No form of payment has ever gone away since the invention of currency, and cards are the payment standard right now," observed Thad Peterson, an analyst with the Aite Group.

"They work and people understand them. Mobile will take its place in the payments ecosystem, but it will be a while and it's likely that cards and mobile will co-exist for some time to come."

Returning to Apple Pay, Duncan declared that "It is not even a rounding error off of the merchants' bottom line. So, it will not affect their holiday season this year if they don't offer it."

But that picture will change as people become increasingly accustomed to the option of paying with a smartphone and begin to leave their credit cards at home – and that shift will start to happen within the next two years, according to Steve Kenneally, vice president of payments and cybersecurity policy for the American Bankers Association.

The credit card business is unlikely to acquiesce quietly, however, and will have to contemplate how to change themselves.

"In the long run, consumers want convenience and speed, and retailers want lower transaction costs, convenience, speed and fraud detection," noted Stephen Hoch, a Wharton professor emeritus of marketing.

"How it all plays out, I don't really know. But I can guarantee you that Visa/MC/AMEX have a lot to lose and so will not make it easy on the new payment systems breaking into the oligopoly."

Data sourced from Knowledge@Wharton; additional content by Warc staff