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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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August 31, 2015


A Swing and a Miss

"Keep your eyes on the ball." I'm guessing my son heard those words at least 20 times a game this past baseball season. If you can't follow the ball, then your chances of a successful plate appearance are pretty slim.

Departing from the usual risk-related prose and taking a signal from the blog's name Take On Payments, I want to offer my thoughts on mobile payments. This topic floods my payments news feeds and is the subject du jour at nearly every payments-related event. Mobile payments can mean many things to many people, but one of the hottest areas is mobile at the point of sale (POS), also known as proximity payments—that is, what Apple Pay, Starbucks, and Samsung Pay among others all offer.

And this is where I think the payments industry is taking its eyes off the ball. Why do consumers want to use mobile phones to replace cash or cards at the POS? A key barrier cited by consumers who have not adopted mobile proximity payments is their satisfaction with current payment methods. So what is the best way to get consumers to use their mobile devices to replace cash or cards at the POS?

The mobile phone has significantly changed the way people interact. It's almost comical to me that the device has retained the word phone. While there will always be people who want to hear a voice or interact directly with another person, the mobile device is turning us into a society that prefers messaging over speaking and interacting through the device rather than face to face. (My nieces text each other while sitting in the same room!) Furthermore, we have come to expect information to be readily available to us whenever and wherever we desire it. People don't like waiting, and the mobile device has intensified this impatience. To understand consumer behavior in light of this mobile revolution, we don't have to look any further than the reduction of bank branches and staffing coupled with the rise of mobile banking solutions.

Yet the proximity payment solutions don't address consumer behavior with their mobile devices. I understand merchants valuing the ability of proximity payments to provide loyalty programs and targeted offers, but do these extra services really address consumers' core needs and wants? It seems to have worked for Starbucks in a closed-loop environment but has yet to be replicated in an open-loop environment. (Closed loop means that the payment is usable only at a provider's place of business, as for the Starbucks app. Open loop means the payment, like Apple Pay, is usable anywhere that has the infrastructure to read the app.)

By keeping the focus on the consumer, it seems to me that the mobile payments industry can work on reducing the physical interaction of payments and current wait times associated with the payment process. Uber, Chipotle, and the Starbucks mobile app are evolving to address these consumer needs. These apps essentially remove the payment from the POS (some would say that they make the payment invisible) and allow for minimal personal interaction and waiting times.

Hence, I predict the growth of mobile payments will come not from the POS but rather through mobile in-app payments. That's where I'd be setting my sights on the mobile payments diamond. Perhaps this will create a healthy discussion (hopefully not a bench-clearing brawl), but I think mobile at the POS is a swing and a miss. What do you think?

Photo of Douglas A. King By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed


August 31, 2015 in innovation , mobile payments | Permalink

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