Yankee Group: Merchants to mobile payments--what's the value prop?


Industry Voices

Jordan McKee

Jordan McKee

With all the hype surrounding mobile payments, it's easy to be fooled into thinking credit cards and cash are a thing of the past. Stepping foot into any major retailer, however, proves otherwise. The stark reality is that mobile payment initiatives continue to spin their wheels, largely due to the poor value proposition being sold to merchants. 

When it comes to mobile payments, most merchants are still playing hard to get, and it's understandable why. Constantly, they are inundated with solutions that are no more than a credit card in a different form factor. Worse still, most mobile payment initiatives are touting speed and convenience as their key differentiators. Quite understandably, this will not cut it. Merchants are looking for a comprehensive solution that goes beyond payments--one that truly revolutionizes the shopping experience, helping to drive both sales and satisfaction. Unfortunately, the majority of today's initiatives fail to deliver. Most provide merely a small piece to this puzzle in lieu of the complete solution that is so desperately needed.

Given the significant investment required on the merchant end, the story around mobile payments must become more compelling and actionable. To truly prove their worth and spark adoption, players must provide the following:

  • A point of differentiation. Traditional payment mechanisms work fine and are difficult to trump in terms of their speed and ubiquity. This means mobile money players must focus their pitch less around payments and more around the total offering. Solutions that are more than just a proxy for a credit card will be best positioned for adoption. This can be accomplished by leveraging successful differentiation tactics, ranging from incorporating marketing and loyalty to analytics to helping eliminate interchange fees.
  • A lasting solution. Mobile payment platforms married exclusively to QR codes or NFC are destined for failure. Merchants realize that at this point in time it makes little sense to adopt inflexible, single-technology solutions. QR codes may drive near term results but will inevitably fade away. NFC, on the other hand, isn't yet ready for prime time, although its opportunity is nearing. Since the winning technology hasn't emerged, solutions should be both technology-agnostic and flexible. Hybrid solutions that support the widest audience possible will reign supreme for the foreseeable future.
  • A return on mobile. U.S. merchants got burned by point-of-sale (PoS) upgrades for contactless cards in the mid-2000s and now seem to be disenchanted by the idea of mobile payments, viewing them purely as a superfluous cost. The skepticism on behalf of merchants can largely be attributed to the scores of mobile wallets that fail to effectively communicate how their initiative produces results. Players must be able to show--and ideally quantify--how their solution will drive sales and satisfaction. Case studies and Excel-based models aren't a bad place to start. 

To gain relevance, mobile payment vendors must work to transition their offerings from "nice-to-have" to "need-to-have" in the minds of merchants. In order to achieve this, it's necessary for solutions to be become multi-faceted, providing more than just another means of executing a transaction. Communicating a story that illustrates how mobile trumps traditional payments--be it through value-adds or cost savings--will be paramount to achieving this task.