Searching for winners as the digital Costanza wallet grows


My colleague Kevin Fitchard reported this week on yet another tussle that illustrates one major reason why the much-hyped market of the so-called mobile wallet has yet to gain any real traction in North America. Best Buy and 7-Eleven have begun killing support for NFC (near field communications) in their point-of-sale systems, creating yet another obstacle for the carrier-backed Isis initiative as well as Google Wallet. The move likely has something to do with the higher transaction fees bank charge for NFC and smart card payments, but as Fitchard wrote it also can likely be traced to the fact that both national chains are part of the Merchant Customer Exchange, a group of retailers looking to launch a competing mobile payments system based on barcodes.

The carriers behind Isis have long declined to support Google Wallet in favor of their own offering, so this kind of behavior isn’t exactly new among the many players looking for a piece of the mobile payments pie. But I wrote more than two years ago that multiple competing solutions have shackled the market because they have confused consumers and left retailers wondering which systems to invest in.  That’s as true today as it was then, and the introduction of new payments systems based on Bluetooth Low Energy may only exacerbate matters, at least in the short term.

Taking lessons from Starbucks

While the would-be major players continue to try to build ecosystems based on aggregated mobile wallets, Starbucks hopes to build on its impressive momentum this week with the release of an updated app with a few attractive new features. In addition to a streamlined user interface, the app enables users to tip directly from the phone as well as shaking their handset to call up the barcode from their Starbucks code, simplifying the payments process.

Unsurprisingly, an ever-increasing number of businesses are looking to duplicate Starbucks’ success in mobile payments. To name just a few: Dunkin Donuts recently integrated a loyalty program into the payments app it launched almost two years ago, Burger King is rolling out a system to its 7,000-plus U.S. locations in the next few months, and Subway is integrating payments into its mobile app. But there are two newcomers to the space that I’ll be keeping a very close eye on:

Chipotle said last month it is investing $10 million to add support for payments to its mobile app and to make other technological upgrades. The ubiquitous burrito vendor hopes to expedite the transaction process and minimize the “back-and-forth” between customers and employees required by credit card and cash purchases. Faster transactions may mean increased sales as well as a better experience for the customer. If Chipotle can find other ways to add value to its app, its payments system could grow an audience quickly.

OpenTable recently took support for mobile payments out of a pilot program and deployed it in a dozen San Francisco restaurants, as Eater SF reported. The app is integrated into the restaurants’ point-of-sale systems, enabling real-time updating and making for a simplified payment process. OpenTable claims a huge customer base of a wide variety of restaurants, and an integrated payments system could be a great way for restaurants to increase customer stickiness by saving those customers time. One big challenge here will be in educating restaurants’ staffers about the offering, but OpenTable — which obviously hopes to become a kind of mini-aggregated wallet for restaurant transactions — has a chance to emerge as a winner.

I doubt consumers will be willing to maintain more than eight or ten mobile payments apps, firing up a different one every time they want to make a purchase at a specific store from a kind of digital Costanza wallet. So we won’t see dozens of payments systems thrive. Instead, a small handful of aggregated mobile wallet apps will begin to gain critical mass (and I think Apple’s Passbook is likely to emerge as one). In the meantime, though, some smaller players will learn from Starbucks and find some real success here. Chipotle and OpenTable are two to watch.

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