Optism™

Note: This blog post was originally posted on Mobile Payments Today.

Especially in banked markets, where payment card penetration is often above the hundred percent, we have all learned to recognize that mobile payments needs to be more then “mobilizing” payments by changing the form factor from plastic card to a digital format on a handset. The market needs more to drive consumer and merchant adoption.

Most suppliers of mobile payment solutions do apply a strategy to go beyond payments by offering value ad to both the consumer and merchants in the form of offers, deals, and coupons which save money for the consumer while generating traffic and boosting sales for the merchant. Mobile payments are no longer just about payments, but rather are shifting to a full commerce experience. Google Wallet, Square, Groupon, ISIS, Weve, Paypass Wallet –  name a payment initiative and “payment and offers” or “consumer engagement and merchant sales activation” will be in their pitch.

Will consumers soon face an avalanche of offers and coupons each time they step out of the door or pass a brick-and-mortar store? Will we face “offer fatigue?”

And if the industry is moving altogether toward an advertising driven innovation of payments, where will be the differentiation points?

Two-side business model

First of all, it is not easy to market a value proposition to both merchants and consumers simultaneously, simply because lots of players are good at only reaching one of these market segments.

Card issuers have a link with the consumer, but not with merchants. Acquirers have a strong retail footprint, but have no direct connection with the consumer base. Typically MNOs have strong consumer assets, but not all of them (especially Tier 2 players) have strong enterprise units to sell solutions to retail or long-tail merchants.

Here a partner strategy is required, such as the French telcos creating a joint venture with IT provider ATOS so they can jointly market the mobile payment app Buyster to consumers (telcos) and merchants (ATOS).

Even Google, despite its advertising ecosystem and consumer reach, has continuously attempted to adapt its Google Wallet partner strategy to foster merchant acceptance for offer redemptions. The latest rumors point to a Discover companion card for acceptance and easy redemption of coupon and payment transactions on non-NFC terminals.

Organizations with a two-sided business model and customer base have an inherent advantage to foster adoption of mcommerce. Take American Express, which is issuing cards and controlling its acceptance network directly and is quite successful in marketing their Serve solution. MCX, the retail venture created by more than a dozen top retailers in the U.S., can scale given the consumer access from their members and the obvious acceptance of their mcommerce app at all participating chains.

Consumer data to guarantee relevance

Consumers look to their mobile phone as a highly intimate device. As a consumer, we don’t like to receive intrusive notifications if there isn’t a key value. And we don’t want to expose personal context without consent and control. But if brands or retailers want to engage consumers with highly valuable and relevant offers an in-depth understanding of the consumers’ interests and context is required.

Who knows best how to recruit consumer opt-ins? And who possesses the best data to provide highest relevance?

Mobile operators have access to big data pools. They know the key socio-demographics from post-pay subscribers and own significant traffic patterns including where we are and to whom we are connected (as well as which apps we use, sites we browse, people we call). But they lack our purchase behaviour, and without consent, telco data can only be used in an anonymous way (e.g. retailers can work with operators to get anonymized analytics on the demographics of the consumers passing a certain location to make commercial decisions).

Opt-in rates for permission based marketing services vary. Carrier O2 in the U.K. is seen as a success story with more than 50 percent of their consumer base opted-in for permission based targeted marketing.

Card issuers sit on transactional data pools and start to build opt-in pools so they can deliver card linked offers to stimulate card use and retention.

Retailers know real purchase behavior at the item level, but lack information from the “outside.”

Google has our search and browsing behaviour but lacks context information from the real world.

So, all of the above players have a sound amount of data to derive profiles, but all miss a key component. Therefore, they are positioning themselves in the mobile payment and wallet space: mobile payments can be an enabler for them to fill-in a missing piece of information about a consumer.

Mobile operators hope to get visibility on transactions to enrich their consumer data. Google is funding part of the payment transactions initiated via the Google Wallet to tap into the payment value chain and track brick and mortar purchase behaviour. And card issuers get real-time context including location.

And that is the real game: mobile wallets don’t need to be the money maker as long as they can help in collecting the missing piece of consumer data. Monetization will follow in multiple ways, such as within the wallet, in form of relevant offers, and also across existing products. (For example, Google can provide superior ad products from search to coupon clipping and redemption tracking.)

It’s all about the data!

Anthony Belpaire is managing alliances for the Alcatel-Lucent mCommerce Business Unit. Alcatel-Lucent mCommerce supplies digital media, mobile advertising and payment solutions to telecom operators to enhance the monetization of their subscriber assets. Mobile commerce solutions typically glue an eco-system together of payment issuers, advertisers, merchant acquirers, telcos.

Note: This blog post was originally published on Mobile Payments Today.

Some might call it the nerdy behavior of a passionate m-commerce professional, but each time I check out at the grocery store I am intrigued by these small, strangely designed payment terminal devices on the counter. They're a mix of metal, plastic and unhandy wires, key paths with flashy color combinations, and a display that seems to date from the eighties. In various countries, such as Turkey, you even see several of these devices on a single counter – resulting in even more unhandy wiring.

On the one hand, shop owners spend so much money to create an attractive shopping experience, just to ruin it all by the forcing their customers to put a card in the sleeve of an appalling payment machine. It's a machine, by the way, that shop owners have to buy or rent, a machine that comes at a cost.

So each time before I swipe my card, I not only wonder why they can’t seem to make these devices more appealing, but also why they are still there in the first place!

My smartphone is a mixture of plastic and metal coating as well, but it has a fancy touch screen and touch path, powerful silicon inside, and a range of wireless communication options. Is it too much to ask to leverage these nice, 21st century features, and change the way we make payments for brick-and-mortar shopping?

Innovation is happening, but have you ever been at a check-out without a payment terminal? Not too often, right? Especially if you’re living in Europe. Indeed, even most of the ongoing payments innovations are still leveraging the “payment terminal” model.

Take the “contactless” innovation wave: contactless cards (or any virtualized versions on NFC-enabled mobile handsets) are simply trying to create more convenience (no PIN for micropayments) and speed (wave vs. swipe). But these cards don’t disrupt the payment flow. We still have the payment terminal, this time upgrading the sleeve with an antenna.

And the rise of mobile wallets, with Google Wallet as a leading example, are only reconfirming the status of the payment terminal. The current NFC version of Google Wallet, for instance, extends benefits of contactless payments, using your virtualized card on the handset, with advertising services. While valuable for merchants seeking to attract customers with personalized discounts/vouchers, and providing more value to consumers, it is still leveraging payment terminals.

For sure, there is the successful adoption of Square or iZettle (often by merchants who didn’t have a payment terminal yet) turning a mobile smartphone into a payment terminal by plugging a card reader dongle into the headset slot. It's very innovative and already shifting payment terminal features to phones by means of dedicated hardware extensions. But still it's enforcing the concept of a payment terminal (be it completely portable this time).

So why can’t we get rid of the terminal concept completely, through a simple “check-out button” on a smartphone, for instance?

Let’s call it the “cloudification” of the payment terminal. The cash register, rather than contacting the payment terminal,  could call a virtual terminal in the cloud, which then pushes a kind of check-out button to people’s smartphones to debit their cards and accommodate the payment. Consumers just have to register their card details once, which are then securely stored in the cloud (so not on the phone) and payment at brick-and-mortar shops become as simple as the check-out at Amazon or iTunes.

Feasible? Yes. It is happening already. Cash registers have become increasingly “open” and cloudified, connecting them to a physical payment terminal or a virtualized one should be equally easy.

Just look at the recent announcements of PayPal with high street brands such as Oasis, Coast, Warehouse or Karen Millen in the U.K . And the latest services from Square, its Pay with Square product, allow shoppers to leave their leather wallet with plastic cards at home.

Additionally, cloud-based services can easily be combined and glued together to build new consumer experiences, hence cloud-based payments could be perfectly extended with other cloud-based marketing services such as targeted offers or coupons. Consumers can benefit from a single check-out for both paying and redeeming a coupon, while the merchants get sales activation services on top of just a new way of paying.

The remaining barrier might be the discrimination of e- and m-commerce transactions from card payments.  As long as merchants have to pay payment scheme providers more for a check-out button on your smartphone compared to paying with your card directly, the business model might be challenging.

Of course, this fee structure dates from the time where “card not present” types of transactions like remote mail-ordering or online commerce were subject to higher fraud risks. But cloud-based payments don’t require card details of (unprotected)  handsets, and today’s smartphones capture relevant context to spot fraud patterns at location. So wouldn’t it be great if the payment schemes could take a fresh look at declining risk levels, and thus the rates for m-commerce transactions.

Anthony Belpaire is managing alliances for the Alcatel-Lucent mCommerce Business Unit. Alcatel-Lucent mCommerce supplies digital media, mobile advertising and payment solutions to telecom operators to enhance the monetization of their subscriber assets. Mobile commerce solutions typically glue an eco-system together of payment issuers, advertisers, merchant acquirers, telcos.

Mobile service providers have a strong impact on device distribution.  Remember you bought your latest smartphone at the Verizon or O2 store around the corner? Especially in markets where sales bundles – subscription plans combined with subsidized handsets – are a well-adopted commercial practice, service providers have a strong impact on which devices get distributed.

Of course, wallet providers such as Google or PayPal – who often have no large  ‘off line’ sales network – seek to leverage this retail asset, either by having their wallets pre-deployed on mobile phones, or by service providers’ retail agents recommending the service to buyers of handsets and subscription plans.

The question is: what is the incentive for a mobile service provider to partner with companies such as Google? 

It is all about leveraging the strength of both parties. The wallet provider brings in an ecosystem of advertisers injecting offers and coupons, while the mobile operator distributes the wallet to its domestic consumers. In exchange, the mobile service provider can ask for a fee per Google Wallet activation, or even better, propose a revenue share model.

But could this be a sustainable win-win?

A key priority for mobile service providers is customer churn reduction, or in other words, 'keeping the money.'

And here is the conflict: the stickiness of mobile wallets, used for highly personal services such as payments or saving loyalty points, might be much higher than the appeal of traditional voice or data plans that a mobile service provider can offer. This is especially true as we have not yet reached the stage of ‘wallet portability’ (i.e easily porting your stuff from a Google Wallet to an O2 Wallet, for instance)..

And that is a major concern to mobile service providers, who have already been subject to a shift in loyalty from operator brands towards device brands. Apple is a leading example in this regard; instead of consumers buying a mobile data plan and selecting a device, they go buy an iPhone and take the plan that goes with it. So promoting a Google Wallet inherently strengthens the loyalty to the Google brand and the related Android devices, and not per se to the mobile service provider.

Another concern for the mobile operator is that it might be completely phasing out its own understanding of consumers and retail customers. After all, Google Wallet is great at capturing info on what the consumer is effectively using his wallet for (which promotions were flipped, which virtual cards where requested to be provisioned in the wallet, etc).

Not to mention the fact that it is hard to believe that Google Wallet can exclusively bind itself to one carrier in a domestic market. There goes the differentiation aspect…

And last, but not least, operators will always have a consumer base with a variety of devices. So, if Google Wallet would be limited to Android (today, it only works with a limited number of Android devices), what about mobile customers who purchase non-Android devices? Can a mobile service provider afford not to commercialize value added services across its multi-device consumer base?

While partnering with Google Wallet could indeed accelerate mobile service providers’ advertising and payment ecosystem in the short term, they will have to manage the risk of becoming ‘dumb’ retail and distribution pipes.

It is crucial for mobile service providers to understand their customers. And mobile wallets are a perfect instrument to collect, but also leverage, customer profile knowledge. Instead of giving this valuable information away to Google, a better approach seems to be carriers launching their own wallets – strengthening their own brand and working across multiple devices.