Three reasons why mobile payments won’t take off unless every retailer ‘does a Starbucks’

mobilecommerce

Lots needs to be done

US shoppers bought just USD500m worth of goods and services using mobile wallet apps last year, a drop in the ocean compared to the trillions spent using cash, credit and debit cards. It’s a similar story in Europe, where just USD100m was spent across the entire continent. The figures pour cold water over hopes of a boom in mobile payments as offerings from the likes of Google, Square, Dwolla and LevelUp fail to get much usage. Berg Insight, which conducted the research, is predicting some pretty big growth over the next five years, with revenues growing 275% annually to hit USD78bn in 2017. But for that to happen some big changes need to take place among retailers. Here are three reasons why Starbucks is proving successful at mobile payments and why they rest of the market won’t take off until every merchant follows its lead.

1. Proof Of Concept

Berg Insight claims that the “vast majority” of mobile payments in the US were made using Starbucks’ “phenomenally successful” smartphone app. This proves that there is a market for mobile payments if retailers can come up with a system that works for their customers. For Starbucks, this involved building on its reloadable store cards, which are already hugely successful and account for more than one in five transactions in the chain’s coffee shops.

The firm started out with a small trial to test that the service worked and that consumers would use it. Then in 2011 it pushed it across the US. It now processes more than 3m mobile transactions every week.

2. Investment In Infrastructure

Starbucks has fitted out all its coffee shops with registers that can accept mobile payments. This top down integration means you are guaranteed to walk into any of the firm’s coffee shops and be able to make a payment. That’s a big bonus at a time when most consumers are unsure which retailers accept mobile payments and by which method. 

It also offers an app for iOS and Android, meaning it is available on the vast majority of smartphones its customers own. And, perhaps most importantly, Starbucks has invested in mobile access, making Wi-Fi free and launching a digital network that is optimised for smartphones and tablets and offers access to local content such as news and weather, as well as premium content such as free iTunes downloads and Wall Street Journalaccess.

3. Easy Micropayments

Part of the success of Starbucks’ service is the ease of use. Customers can manage their accounts from their phone, adding money manually via credit card or by tying a card to their account and setting up automatic reloads if their balance gets low. This makes the service seem like an extension of paying by card, rather than a new-fangled technology like NFC or QR codes. It’s also secure. Users can put a passcode on the app and they get balance protection should their phone get stolen.

Starbucks is also inherently at an advantage here because visiting one of their shops to buy a coffee is part of customers’ daily routine, be it on the way into work or on the way back from the gym. This means they don’t usually have to convince people to make the purchase, unlike say clothes retailers or department stores. Plus the amounts are small, usually USD2 or USD3, meaning users aren’t worried about racking up huge bills. The fact that it is prepaid helps here too.

In the long run it’s unlikely that Starbucks will dominate the mobile payments market. But that’s not Starbucks’ aim here. It simply wants to make sure that customers can pay for its coffee by the easiest means, be that cash, credit card or mobile app. And with the likes of Google Wallet and Isis failing to give consumers or retailers what they want it decided to go it alone. The big players like PayPal and Square might win out in the end, but Starbucks is a trailblazer making it seem normal to use a smartphone to buy goods. If more retailers did the same, the mobile payments might be able to expand from coffee to other goods and eventually take on the credit card companies.

 

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