Starbucks wants to be a big player in the payments business. Actually it’s already big, with 16 percent of its transactions taking place with mobile devices, and Chief Executive Howard Schultz says “the real growth is yet to come.”
Microsoft wants to be a big player in the payments business. Its new Microsoft Band, ostensibly a health-and-wellness monitor worn on the wrist, also can be tied into the financial account information stored on your mobile device/smartphone/whatever we’re calling it these days. One of its early partners in this venture into pay-by-wrist? Starbucks.
Amazon wants to be a big player in the payments business. It offers merchants a system through which customers, online or using mobile devices, can pay with information stored in their Amazon account.
Apple wants to be a big player in the payments business. It has already introduced Apple Pay, through which merchants and consumers can complete transactions. The Apple Watch, to be available to the public early next year, will include a payments feature, linked to the wearer’s credit and debit accounts.
Google wants to be a big player in the payments business. Google Wallet is its offering to let customers link information on their mobile device to merchants.
Facebook wants to be a big player in …. OK, you get the idea. Not that there isn’t more where those examples come from. The preceding anecdotes don’t begin to encompass all that the six named companies are up to do in the payments space, never mind what hundreds of other companies, established and startup, large and tiny, are up to.
In case you missed the memo, cloud computing as the hot, growing sector of the technology world is yesterday’s news, it’s so five minutes ago. What everyone wants a piece of, and is trying to figure out how to get one, is the payments business.
That it’s the payments business that is getting all the attention is a bit curious. It certainly doesn’t have the pizzazz of ventures such as space travel, which some tech moguls such as Jeff Bezos also are pursuing. (However, the two recent space calamities may have some would-be pioneering space tourists saying, “Maybe I’ll just go on a cruise instead.”)
The payments business has all the earmarks of a high-headache, low-margin business, with huge hardware, software, infrastructure and security challenges, dependent upon changing behaviors of not just consumers but merchants, with way too many people trying to play in the space, each with their own approaches, rules and protocols (raising issues of compatibility and standards), and one that banks and credit card companies would, you’d think, have an entrenched position in.
Discouraged anyone yet?
Evidently not, to judge from the daily stream of announcements of new products, systems, partnerships, experiments and ventures in the payments business.
There must be something to it, or else there wouldn’t be so many people interested in it. So let’s gin up some ideas on what those might be.
One is the size of the market. In a recent presentation to investment analysts on the quarterly earnings conference call, Schultz said payment for purchases by use of all mobile devices in the U.S. in 2013 was $1.3 billion. Bricks-and-mortar commerce was $4.2 trillion.
“What you’re going to see in the years ahead will be a rapid acceleration in mobile device purchases and a continued significant migration away from bricks-and-mortar commerce,” Schultz said, according to a transcript of the call. “There’s obviously a huge prize there, and that’s why you are seeing so much activity around the payment space from all kinds of companies.
“That’s why every tech and financial service company in the world is today chasing the mobile payment opportunity.”
Fine, so people pay with a press of a button on a wristband or some other mobile device instead of swiping a plastic check or, and this is really archaic, handing over a fistful of cash. What’s in it for Starbucks or any of those other companies in getting involved with handling so many millions of transactions (7 million a week from a mobile device for Starbucks alone) beyond getting paid for whatever product or service they’re selling?
Three things. One is that even a tiny fractional slice of each transaction that a company isn’t paying to an outside provider or is collecting from other companies to provide payments processing amounts to real money in the aggregate. It wouldn’t take a big piece of $4.2 trillion for companies to believe it’s worth their time and effort to grab it.
The second is customer loyalty. Retailers such as Starbucks can tie payments systems to their own rewards programs, to keep customers coming back much the way grocery loyalty cards or airline frequent-flier programs do.
The third is information. Customer information – about you, what you buy, when you buy it, how much of it you buy, who you’re buying it from – is a hugely valuable commodity these days, and the easiest way to compile and control that information is to control the payment system. That data can be used to sell you more stuff, or sold to someone else with the same intention.
These are early days in this new era for the payments industry. Some of the enthusiasm will dissipate as some ventures fail and some players drop out.
But a retailing world in which paperless and plastic-free transactions are prevalent and standard is not far off. Given enough time to get comfortable with new approaches, consumers have proven quite adaptable to new payment methods. The credit card was once considered a radical product; now it’s not just accepted but is largely the standard payment method. But change is coming, and if the projections prove out, the credit card could become as frequently used, and about as welcome, as the personal check.