I’m as excited as anyone about the prospects of mobile NFC payments, and it was good to see Google line up much-needed cooperation from MasterCard, Sprint, Citi, and some retailers with its new Google Wallet initiative. We just wrote a Gartner First Take http://www.gartner.com/resId=1709015 that explores the benefits of Google Wallet as well as the hurdles to adoption.
In my opinion, the main hurdle is convincing retailers to accept these new payment types. In watching payment systems evolve over the past decade and more, I’ve come to strongly believe that it’s the sellers (or retailers) that drive new payment system adoption. And I just don’t see a strong enough value proposition for the retailers out of the gate to drive success here. Sure, in the long run, there is likely to be value with customer acquisition and retention generated via the Google Offers (advertising, coupons, loyalty, etc.) program. But it’s the short run that immediately matters because if we don’t get past the short run hurdles, there won’t be any significant adoption.
And in the short run – the expense and costs for this new program will probably outweigh the benefits for most retailers that consider it, unless of course Google and other Google Wallet participants PAY merchants to join (which is a common approach struggling new payment systems have taken in the past).
In my opinion, the big unknowns are:
a) why are merchants requiring signatures on these contactless transactions, which defeats the (albeit questionable) promise of speed and convenience at the check out lane?
b) what in fact are the interchange fees that the retailers will have to pay? Retailers pay more for signature based payment card transactions than they do for PIN ones, and even with low value debit payments that don’t require signatures, my understanding from talking with retailers is that contactless debit payments typically cost merchants more than debit card-swipes.
In fact, retailers have been known to shut off contactless payments over interchange disputes. For example Storefront Backtalk (www.storefrontbacktalk.com) reported early last year on BestBuy’s dispute with Visa over its contactless debit card payment interchange policies and fees, which led the mega-retailer to stop accepting Visa’s contactless transactions. See http://storefrontbacktalk.com/payment-systems/home-depot-best-buy-in-contactless-showdown/. The news group, a rich and well-respected source for retail industry information, also disclosed issues other large retailers had with the contactless fee structure.
Indeed, interchange fees paid for credit and debit card payment processing is a sizable chunk of many retailers’ balance sheets (the second largest line item at Target for example, right after labor costs, as noted in http://www.marketoracle.co.uk/Article28419.html ). It’s a constant source of friction between retailers and the banks, and is being hotly debated as part of the Durbin amendment which threatens to dramatically reduce bank debit card interchange fees.
So while mobile payments are not just about payments – they are trying to be about the entire customer shopping experience – fees play a critical role in merchant willingness to promote new payment types. Most retailers will already have to upgrade their POS equipment to accept the contactless payments. And now they have to be willing to forego lower interchange fees on PIN debit.
I’m just not sure this is going to fly, despite the mobility.
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